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                                                                    EXHIBIT 10.4

                                             TDH Document No. 7526032317*2001 02





                                      2000
                              CONTRACT FOR SERVICES
                                     Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                       And
                                       HMO


                                                                       Americaid
                                                           2000 Renewal Contract
                                                             Dallas Service Area
                                                                 August 28, 2000

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                               TABLE OF CONTENTS

APPENDICES ..................................................................  V

ARTICLE I      PARTIES AND AUTHORITY TO CONTRACT ............................  1

ARTICLE II     DEFINITIONS ..................................................  2

ARTICLE III    PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS .......... 13

3.1  ORGANIZATION AND ADMINISTRATION .......................................  13
3.2  NON-PROVIDER SUBCONTRACTS .............................................  14
3.3  MEDICAL DIRECTOR ......................................................  16
3.4  PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS .....................  17
3.5  RECORDS REQUIREMENTS AND RECORDS RETENTION ............................  18
3.6  HMO REVIEW OF TDH MATERIALS ...........................................  19
3.7  HMO TELEPHONE ACCESS REQUIREMENTS .....................................  19

ARTICLE IV     FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS ........  20

4.1  FISCAL SOLVENCY .......................................................  20
4.2  MINIMUM NET WORTH .....................................................  21
4.3  PERFORMANCE BOND ......................................................  21
4.4  INSURANCE .............................................................  21
4.5  FRANCHISE TAX .........................................................  22
4.6  AUDIT .................................................................  22
4.7  PENDING OR THREATENED LITIGATION ......................................  22
4.8  MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO OPERATIONS ..  23
4.9  THIRD PARTY RECOVERY ..................................................  23
4.10 CLAIMS PROCESSING REQUIREMENTS ........................................  25
4.11 INDEMNIFICATION .......................................................  26

ARTICLE V      STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS ............  26

5.1  COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS ........................  27
5.2  PROGRAM INTEGRITY .....................................................  27
5.3  FRAUD AND ABUSE COMPLIANCE PLAN .......................................  27
5.4  SAFEGUARDING INFORMATION ..............................................  30
5.5  NON-DISCRIMINATION ....................................................  30
5.6  HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs) ..........................  31
5.7  BUY TEXAS .............................................................  31
5.8  CHILD SUPPORT .........................................................  31
5.9  REQUESTS FOR PUBLIC INFORMATION .......................................  32
5.10 NOTICE AND APPEAL .....................................................  33

ARTICLE VI     SCOPE OF SERVICES ...........................................  33

6.1  SCOPE OF SERVICES .....................................................  33
6.2  PRE-EXISTING CONDITIONS ...............................................  35
6.3  SPAN OF ELIGIBILITY ...................................................  35
6.4  CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS .......................  36
6.5  EMERGENCY SERVICES ....................................................  37
6.6  BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS ....................  38
6.7  FAMILY PLANNING - SPECIFIC REQUIREMENTS ...............................  40
6.8  TEXAS HEALTH STEPS (EPSDT) ............................................  41
6.9  PERINATAL SERVICES ....................................................  44
6.10 EARLY CHILDHOOD INTERVENTION ..........................................  46
6.11 SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND CHILDREN
     (WIC) - SPECIFIC REQUIREMENTS .......................................... 47
6.12 TUBERCULOSIS (TB) ...................................................... 47
6.13 PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS .............. 48

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6.14  HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS ...................50
6.15  SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN IMMUNODEFICIENCY VIRUS
      (HIV) ................................................................51
6.16  BLIND AND DISABLED MEMBERS ...........................................53

ARTICLE VII   PROVIDER NETWORK REQUIREMENTS ................................54

7.1   PROVIDER ACCESSIBILITY ...............................................54
7.2   PROVIDER CONTRACTS ...................................................55
7.3   PHYSICIAN INCENTIVE PLANS ............................................59
7.4   PROVIDER MANUAL AND PROVIDER TRAINING ................................60
7.5   MEMBER PANEL REPORTS .................................................61
7.6   PROVIDER COMPLAINT AND APPEAL PROCEDURES .............................61
7.7   PROVIDER QUALIFICATIONS - GENERAL ....................................62
7.8   PRIMARY CARE PROVIDERS ...............................................63
7.9   OB/GYN PROVIDERS .....................................................66
7.10  SPECIALTY CARE PROVIDERS .............................................67
7.11  SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES ......................68
7.12  SIGNIFICANT TRADITIONAL PROVIDERS (STPs) .............................68
7.13  RURAL HEALTH PROVIDERS ...............................................69
7.14  FEDERALLY QUALIFIED HEALTH CENTERS (FOHC) AND RURAL HEALTH
      CLINICS (RHC) ........................................................70
7.15  COORDINATION WITH PUBLIC HEALTH ......................................71
7.16  COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND
      REGULATORY SERVICES ..................................................74
7.17  DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs) .......75

ARTICLE VIII   MEMBER SERVICES REQUIREMENTS ................................77

8.1   MEMBER EDUCATION .....................................................77
8.2   MEMBER HANDBOOK ......................................................77
8.3   ADVANCE DIRECTIVES ...................................................77
8.4   MEMBER ID CARDS ......................................................79
8.5   MEMBER COMPLAINT PROCESS .............................................80
8.6   MEMBER NOTICE, APPEALS AND FAIR HEARINGS .............................82
8.7   MEMBER ADVOCATES .....................................................83
8.8   MEMBER CULTURAL AND LINGUISTIC SERVICES ..............................84
8.9   CERTIFICATION DATE ...................................................86

ARTICLE IX     MARKETING AND PROHIBITED PRACTICES ..........................86

9.1   MARKETING MATERIAL MEDIA AND DISTRIBUTION ............................86
9.2   MARKETING ORIENTATION AND TRAINING ...................................86
9.3   PROHIBITED MARKETING PRACTICES .......................................86
9.4   NETWORK PROVIDER DIRECTORY ...........................................87

ARTICLE X  MIS SYSTEM REQUIREMENTS .........................................88

10.1  MODEL MIS REQUIREMENTS ...............................................88
10.2  SYSTEM-WIDE FUNCTIONS ................................................90
10.3  ENROLLMENT/ELIGIBILITY SUBSYSTEM .....................................91
10.4  PROVIDER SUBSYSTEM ...................................................92
10.5  ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM ................................93
10.6  FINANCIAL SUBSYSTEM ..................................................94
10.7  UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM ............................95
10.8  REPORT SUBSYSTEM .....................................................96
10.9  DATA INTERFACE SUBSYSTEM .............................................96
10.10 TPR SUBSYSTEM ........................................................98

ARTICLE XI     QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM ...........98

11.1 QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM ..............................98
11.2 WRITTEN QIP PLAN ......................................................98
11.3 QIP SUBCONTRACTING ....................................................98
11.4 ACCREDITATION .........................................................98


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11.5      BEHAVIORAL HEALTH INTEGRATION INTO QIP..........................   99
11.6      QIP REPORTING REQUIREMENTS......................................   99

ARTICLE XII    REPORTING REQUIREMENTS.....................................   99

12.1      FINANCIAL REPORTS...............................................   99
12.2      STATISTICAL REPORTS.............................................  102
12.3      ARBITRATION/LITIGATION CLAIMS REPORT............................  102
12.4      SUMMARY REPORT OF PROVIDER COMPLAINTS...........................  103
12.5      PROVIDER NETWORK REPORTS........................................  103
12.6      MEMBER COMPLAINTS...............................................  103
12.7      FRAUDULENT PRACTICES............................................  103
12.8      UTILIZATION MANAGEMENT REPORTS -- BEHAVIORAL HEALTH.............  104
12.9      UTILIZATION MANAGEMENT REPORTS -- PHYSICAL HEALTH...............  104
12.10     QUALITY IMPROVEMENT REPORTS.....................................  104
12.11     HUB REPORTS.....................................................  105
12.12     THSTEPS REPORTS.................................................  106

ARTICLE XIII   PAYMENT PROVISIONS.........................................  106

13.1      CAPITATION AMOUNTS..............................................  106
13.2      EXPERIENCE REBATE TO STATE......................................  108
13.3      PERFORMANCE OBJECTIVES..........................................  110
13.4      PAYMENT OF PERFORMANCE OBJECTIVE BONUSES........................  111
13.5      ADJUSTMENTS TO PREMIUM..........................................  112
13.6      NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS...................  113

ARTICLE XIV    ELIGIBILITY, ENROLLMENT AND DISENROLLMENT..................  114

14.1      ELIGIBILITY DETERMINATION.......................................  114
14.2      ENROLLMENT......................................................  115
14.3      NEWBORN ENROLLMENT..............................................  116
14.4      DISENROLLMENT...................................................  117
14.5      AUTOMATIC RE-ENROLLMENT.........................................  118
14.6      ENROLLMENT REPORTS..............................................  118

ARTICLE XV     GENERAL PROVISIONS.........................................  118

15.1      INDEPENDENT CONTRACTOR..........................................  118
15.2      AMENDMENT.......................................................  118
15.3      LAW, JURISDICTION AND VENUE.....................................  119
15.4      NON-WAIVER......................................................  119
15.5      SEVERABILITY....................................................  119
15.6      ASSIGNMENT......................................................  119
15.7      MAJOR CHANGE IN CONTRACTING.....................................  120
15.8      NON-EXCLUSIVE...................................................  120
15.9      DISPUTE RESOLUTION..............................................  120
15.10     DOCUMENTS CONSTITUTING CONTRACT.................................  120
15.11     FORCE MAJEURE...................................................  121
15.12     NOTICE..........................................................  121
15.13     SURVIVAL........................................................  121

ARTICLE XVI    DEFAULT....................................................  121

16.1      DEFAULT BY TDH..................................................  121
16.2      REMEDIES AVAILABLE TO HMO FOR TDH's DEFAULT.....................  121
16.3      DEFAULT BY HMO..................................................  121

ARTICLE XVII   NOTICE OF DEFAULT AND CURE OF DEFAULT......................  129

ARTICLE XVIII  REMEDIES AND SANCTIONS.....................................  130

18.1      TERMINATION.....................................................  130
18.2      DUTIES OF CONTRACTING PARTIES UPON TERMINATION..................  132

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18.3  SUSPENSION OF NEW ENROLLMENT.........................................133
18.4  LIQUIDATED MONEY DAMAGES.............................................133
18.5  APPOINTMENT OF TEMPORARY MANAGEMENT..................................135
18.6  TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE.....136
18.7  RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO...........136
18.8  CIVIL MONETARY PENALTIES.............................................136
18.9  FORFEITURE OF ALL OR PART OF THE TDI PERFORMANCE BOND................137
18.10 REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED...........................137

ARTICLE XIX     TERM.......................................................137

                                                    Dallas Service Area Contract

                                       iv

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                                   APPENDICES

APPENDIX A

          Standards For Quality Improvement Programs

APPENDIX B

          HUB Progress Assessment Reports

APPENDIX C

          Value-added Services

APPENDIX D

          Required Critical Elements

APPENDIX E

          Transplant Facilities

APPENDIX F

          Trauma Facilities

APPENDIX G

          Hemophilia Treatment Centers And Programs

APPENDIX H

          Utilization Management Report - Behavioral Health

APPENDIX I

          Managed Care Financial-Statistical Report

APPENDIX J

          Utilization Management Report - Physical Health

APPENDIX K

          Preventive Health Performance Objectives

APPENDIX L

          Cost Principles For Administrative Expenses

APPENDIX M

          Arbitration/Litigation Report


                                                  TDH Document No. _____________

                                       v           Dallas Service Area Contract
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                                      2000
                             CONTRACT FOR SERVICES
                                     Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                       And
                                       HMO

This contract is entered into between the Texas Department of Health (TDH) and
Americaid Texas, Inc. dba Americaid Community Care (HMO). The purpose of this
contract is to set forth the terms and conditions for HMO's participation as a
managed care organization in the TDH STAR Program (STAR or STAR Program). Under
the terms of this contract HMO will provide comprehensive health care services
to qualified and eligible Medicaid recipients through a managed care delivery
system. This is a risk-based contract. HMO was selected to provide services
under this contract under the Professional Services Procurement Act, Government
Code, Title 10, Section 2254.001 et. seq. HMO's selection for this contract was
based upon HMO's Application submitted in response to TDH's 1998 Request for
Application (RFA). Representations and responses contained in HMO's Application
are incorporated into and are enforceable provisions of this contract.

Terms used throughout this Contract have the following meaning, unless the
context clearly indicates otherwise.

ARTICLE I    PARTIES AND AUTHORITY TO CONTRACT

1.1       The Texas Legislature has designated the Texas Health and Human
          Services Commission (THHSC) as the single State agency to administer
          the Medicaid program in the State of Texas. THHSC has delegated the
          authority to operate the Medicaid managed care delivery system for
          acute care services to TDH. TDH has authority to contract with HMO to
          carry out the duties and functions of the Medicaid managed care
          program under Health and Safety Code, Title 2, Section 12.011 and
          Section 12.021 and Texas Government Code Section 533.001 et. seq.

1.2       HMO is a corporation with authority to conduct business in the State
          of Texas and has a certificate of authority from the Texas Department
          of Insurance (TDI) to operate as a Health Maintenance Organization
          (HMO) under Chapter 20A of the Insurance Code. HMO is in compliance
          with all TDI rules and laws that apply to HMOs. HMO has been
          authorized to enter into this contract by its Board of Directors or
          other governing body. HMO is an authorized vendor with TDH and has
          received a Vendor Identification number from the Texas Comptroller of
          Public Accounts.

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1.3      This contract is subject to the approval and ongoing monitoring of the
         Federal Health Care Financing Administration (HCFA).

1.4      Renewal Review TDH is required by Human Resources Code Section
         32.043(a) and Government Code 533.007 to conduct renewal review of
         HMO's performance and compliance with this contract as a condition for
         retention and renewal.

1.4.1    Renewal Review may include a review of HMO's past performance and
         compliance with the requirements of this contract and on-site
         inspection of any or all of HMO's systems or processes.

1.4.2    TDH will provide HMO with at least 30 days written notice prior to
         conducting an HMO renewal review. A report of the results of the
         renewal review findings will be provided to HMO within 10 weeks from
         the completion of the renewal review. The renewal review report will
         include any deficiencies which must be corrected and the time line
         within which the deficiencies must be corrected.

1.4.3    TDH reserves the right to conduct on-site inspections of any or all of
         HMO's systems and processes as often as necessary to ensure compliance
         with contract requirements. TDH may conduct at least one complete
         on-site inspection of all systems and processes every three years. TDH
         will provide six weeks advance notice to HMO of the three year on-site
         inspection, unless TDH enters into an MOU with the Texas Department of
         Insurance to accept the TDI report in lieu of a TDH on-site inspection.
         TDH will notify HMO prior to conducting an on-site visit related to a
         regularly scheduled review specifically described in this contract.
         Even in the case of a regularly scheduled visit, TDH reserves the right
         to conduct an on-site review without advance notice if TDH believes
         there may be potentially serious or life threatening deficiencies.

1.5      AUTHOR OF HMO TO ACT ON BEHALF OF TDH. HMO is given express, limited
         authority to exercise the State's right of recovery as provided in
         Article 4.9 and to enforce provisions of this contract which require
         providers or subcontractors to produce records; reports, encounter
         data; public health data, and other documents to comply with this
         contract and which TDH has authority to require under State or federal
         laws.

ARTICLE II   DEFINITIONS


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Abuse means provider practices that are inconsistent with sound fiscal,
business, or medical practices and result in an unnecessary cost to the Medicaid
programs, reimbursement for services that are not medically necessary or that
fail to meet professionally recognized standards for health care. It also
includes recipient practices that result in unnecessary cost to the Medicaid
program.

Action means a denial, termination, suspension, or reduction of covered services
or the failure of HMO to act upon request for covered services within a
reasonable time or a denial of a request for prior authorization for covered
services affecting a Member. This term does not include reaching the end of
prior authorized services.

Adjudicate means to deny or pay a clean claim.

Adverse determination means a determination by a utilization review agent that
the health care services furnished, or proposed to be furnished to a patient,
are not medically necessary or not appropriate.

Affiliate means any individual or entity owning or holding more than a five
percent (5%) interest in HMO; in which HMO owns or holds more than a five
percent (5%) interest; any parent entity; or subsidiary entity of HMO,
regardless of the organizational structure of the entity.

Allowable expenses means all expenses related to the Contract for Services
between TDH and HMO that are incurred during the term of the contract that are
not reimbursable or recovered from another source.

Allowable revenue means all Medicaid managed care revenue received by HMO for
the contract period, including retroactive adjustments made by TDH.

Appeal of adverse determination means the format process by which a utilization
review agent offers a mechanism to address adverse determination as defined in
Article 21.58A, Texas Insurance Code.

Auxiliary aids and services includes qualified interpreters or other effective
methods of making aurally delivered materials understood by persons with hearing
impairments; and, taped texts, large print, Braille, or other effective methods
to ensure visually delivered materials are available to individuals with visual
impairments. Auxiliary aids and services also includes effective methods to
ensure that materials (delivered both aurally and visually) are available to
those with cognitive or other disabilities affecting communication.

Behavioral health services means covered services for the treatment of mental or
emotional disorders and treatment of chemical dependency disorders.

Benchmark means a target or standard based on historical data or an
objective/goal.

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Call coverage means arrangements made by a facility or an attending physician
with an appropriate level of health care provider who agrees to be available on
an as-needed basis to provide medically appropriate services for routine/high
risk/or emergency medical conditions or emergency Behavioral Health conditions
that present without being scheduled at the facility or when the attending
physician is unavailable.

Capitation means a method of payment in which HMO or a health care provider
receives a fixed amount of money each month for each enrolled Member, regardless
of the services used by the enrolled Member.

CHIP means Children's Health Insurance Program established by Title XXI of the
Social Security Act to assist state efforts to initiate and expand child health
assistance to uninsured, low-income children.

Chronic or complex condition means a physical, behavioral, or developmental
condition which may have no known cure and/or is progressive and/or can be
debilitating or fatal if left untreated or under-treated.

Clean claim means a TDH approved or identified claim format that contains all
data fields required by HMO and TDH for final adjudication of the claim. The
required data fields must be complete and accurate. Clean claim also includes
HMO-published requirements for adjudication, such as medical records, as
appropriate. (See definition of Unclean Claim.) The TDH required data fields are
identified in TDH's "HMO Encounter Data Claims Submission Manual."

CLIA means the federal legislation commonly known as the Clinical Laboratories
Improvement Act of 1988 as found at Section 353 of the federal Public Health
Services Act, and regulations adopted to implement the Act.

Community Resource Coordination Groups (CRCGs) means a state wide system of
local interagency groups, including both public and private providers, which
coordinate services for "multi-need" children and youth. CRCGs develop
individual service plans for children and adolescents whose needs can be met
only through interagency cooperation. CRCGs address complex needs in a model
that promotes local decision-making and ensures that children receive the
integrated combination of social, medical and other services needed to address
their individual problems.

Complainant means a Member or a treating provider or other individual designated
to act on behalf of the Member who files the complaint.

Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to HMO, with any aspect of HMO's operation, including but not limited
to dissatisfaction with plan administration's procedures related to review or
appeal of an adverse determination, as that term is defined by the Texas
Insurance Code Article 20A.12, with the exception of the Independent Review
Organization requirements; the denial, reduction, or termination of a service
for reasons not related to medical


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necessity; the way a service is provided; or disenrollment decisions expressed
by a complainant. The term does not include misinformation that is resolved
promptly by supplying the appropriate information or clearing up the
misunderstanding to the satisfaction of the Member. The term also does not
include a provider's or enrollee's oral/written dissatisfaction or disagreement
with an adverse determination or a request for a fair hearing to TDH.

Comprehensive Care Program: See definition for Texas Health Steps.

Continuity of care means care provided to a Member by the same primary care
provider or specialty provider to the greatest degree possible, so that the
delivery of care to the Member remains stable, and services are consistent and
unduplicated.

Contract means this contract between TDH and HMO and documents included by
reference and any of its written amendments, corrections or modifications.

Contract administrator means an entity contracting with TDH to carry out
specific administrative functions under the State's Medicaid managed care
program.

Contract anniversary date means September 1 of each year after the first year of
this contract, regardless of the date of execution or effective date of the
contract.

Contract period means the period of time starting with effective date of the
contract and ending on the termination date of the contract.

Court-ordered commitment means a commitment of a STAR Member to a psychiatric
facility for treatment that is ordered by a court of law pursuant to the Texas
Health and Safety Code, Title VII Subtitle C.

Covered services means health care services HMO must arrange to provide to
Members, including all services required by this contract and state and federal
law, and all value-added services described by HMO in its response to the
Request For Application (RFA) for this contract.

Cultural competency means the ability of individuals and systems to provide
services effectively to people of various cultures, races, ethnic backgrounds,
and religions in a manner that recognizes, values, affirms, and respects the
worth of the individuals and protects and preserves their dignity.

Day means calendar day unless specified otherwise.

Denied claim means a clean claim or a portion of a clean claim for which a
determination is made that the claim cannot be paid.

Disability means a physical or mental impairment that substantially limits one
or more of the major life activities of an individual.


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Disability-related access means that facilities are readily accessible to and
usable by individuals with disabilities, and that auxiliary aids and services
are provided to ensure effective communication, in compliance with Title III of
the Americans with Disabilities Act.

DSM-IV means the Diagnostic and Statistical Manual of Mental Disorders, Fourth
Edition, which is the American Psychiatric Association's official classification
of behavioral health disorders.

ECI means Early Childhood Intervention which is a federally mandated program for
infants and children under the age of three with or at risk for development
delays and/or disabilities. The federal ECI regulations are found at 34 C.F.R.
303.1 et. seq. The State ECI rules are found at 25 TAC Section 621.21 et. seq.

Effective date means the date on which TDH signs the contract following
signature of the contract by HMO.

Emergency behavioral health condition means any condition, without regard to the
nature or cause of the condition, which in the opinion of a prudent layperson
possessing an average knowledge of health and medicine requires immediate
intervention and/or medical attention without which Members would present an
immediate danger to themselves or others or which renders Members incapable of
controlling, knowing or understanding the consequences of their actions.

Emergency services means covered inpatient and outpatient services that are
furnished by a provider that is qualified to furnish such services under this
contract and are needed to evaluate or stabilize an emergency medical condition
and/or an emergency behavioral health condition.

Emergency Medical Condition means a medical condition manifesting itself by
acute symptoms of sufficient severity (including severe pain), such that a
prudent layperson, who possesses an average knowledge of health and medicine
could reasonably expect the absence of immediate medical care could result in:

          (a) placing the patient's health in serious jeopardy;

          (b) serious impairment to bodily functions;

          (c) serious dysfunction of any bodily organ or part; or

          (d) serious disfigurement; or

          (e) in the case of a pregnant woman, serious jeopardy to the health of
              the fetus.

Encounter means a covered service or group of services delivered by a provider
to a Member during a visit between the Member and provider. This also includes
value-added services.

Encounter data means data elements from fee-for-service claims or capitated
services proxy claims that are submitted to TDH by HMO in accordance with TDH's
"HMO Encounter Data Claims Submission Manual".


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<PAGE>   13
Enrollment Broker means an entity contracting with TDH to carry out specific
functions related to Member services (i.e. enrollment/disenrollment,
complaints, etc.) under TDH's Medicaid managed care program.

Enrollment report/enrollment file means the daily or monthly list of Medicaid
recipients who are enrolled with an HMO as Members on the day or for the month
the report is issued.

EPSDT means the federally mandated Early and Periodic Screening, Diagnosis and
Treatment program contained at 42 USC 1396d(r). (See definition for Texas Health
Steps.) The name has been changed to Texas Health Steps (THSteps) in the State
of Texas.

Experience Rebate means excess of allowable HMO STAR revenues over allowable
HMO STAR expenses.

Fair hearing means the process adopted and implemented by the Texas Department
of Health 25 TAC Chapter 1, in compliance with federal regulations and state
rules relating to Medicaid Fair Hearings Part 431, found at 42 C.F.R Subpart E,
and 1 TAC, Chapter 357.

FQHC means a Federally Qualified Health Center that has been certified by HCFA
to meet the requirements of Section 1861(aa)(3) of the Social Security Act as a
federally qualified health center and is enrolled as a provider in the Texas
Medicaid Program.

Fraud means an intentional deception or misrepresentation made by a person with
the knowledge that the deception could result in some unauthorized benefit to
himself or some other person. It includes any act that constitutes fraud under
applicable federal or state law.

HCFA means the federal Health Care Financing Administration.

Health care services means medically necessary physical medicine and
health-related services which an enrolled population might reasonably require in
order to be maintained in good health, including, as a minimum, emergency
services and inpatient and outpatient services.

Implementation Date means the first date that Medicaid managed care services are
delivered to Members in a service area.

Inpatient stay means at least a 24-hour stay in a facility licensed to provide
hospital care.

JCAHO means Joint Commission on Accreditation of Health Care Organizations.

Linguistic access means translation and interpreter services, for written and
spoken language to ensure effective communication. Linguistic access includes
sign language interpretation and the provision of other auxiliary aids and
services to persons with disabilities.


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<PAGE>   14
Local Health Department means a local health department established pursuant to
Health and Safety Code, Title 2, Local Public Health Reorganization Act Section
121.031.

Major life activities means functions such as caring for oneself, performing
manual tasks, walking, seeing, hearing, speaking, breathing, learning, and
working.

Major population group is defined by federal guidelines as a group comprising
10% or more of HMO's Medicaid service population.

Medical home means a primary or specialty care provider who has accepted the
responsibility for providing accessible, continuous, comprehensive and
coordinated care to Members participating in TDH's Medicaid managed care
program.

Medically necessary behavioral health services means those behavioral health
services which:

         (a)  are reasonable and necessary for the diagnosis or treatment of a
              mental health or chemical dependency disorder or to improve or to
              maintain or to prevent deterioration of functioning resulting from
              such a disorder;

         (b)  are in accordance with professionally accepted clinical guidelines
              and standards of practice in behavioral health care;

         (c)  are furnished in the most appropriate and least restrictive
              setting in which services can be safely provided;

         (d)  are the most appropriate level or supply of service which can
              safely be provided; and

         (e)  could not be omitted without adversely affecting the Member's
              mental and/or physical health or the quality of care rendered.

Medically necessary health care services means health care services, other than
behavioral health services which are:

         (a)  reasonable and necessary to prevent illnesses or medical
              conditions, or provide early screening, interventions, and/or
              treatments for conditions that cause suffering or pain, cause
              physical deformity or limitations in function, threaten to cause
              or worsen a handicap, cause illness or infirmity of a Member, or
              endanger life;

         (b)  provided at appropriate facilities and at the appropriate levels
              of care for the treatment of a Member's health conditions;

         (c)  consistent with health care practice guidelines and standards that
              are endorsed by professionally recognized health care
              organizations or governmental agencies;


                                       8            Dallas Service Area Contract
<PAGE>   15
         (d)  consistent with the diagnoses of the conditions; and

         (e)  no more intrusive or restrictive than necessary to provide a
              proper balance of safety, effectiveness, and efficiency.

Member means a person who: is entitled to benefits under Title XIX of the Social
Security Act and the Texas Medical Assistance Program (Medicaid), is in a
Medicaid eligibility category included in the STAR Program, and is enrolled in
the STAR Program.

Member month means one Member enrolled with an HMO during any given month. The
total Member months for each month of a year comprise the annual Member months.

MIS means management information system.

Non-provider subcontract means a contract between HMO and a third party which
performs a function, excluding delivery of health care services, that HMO is
required to perform under its contract with TDH.

NorthSTAR means a behavioral health carve-out program operating only in the
Dallas Service Area and administered by the Texas Commission on Alcohol and Drug
Abuse and the Texas Department of Mental Health and Mental Retardation.

Pended claim means a claim for payment which requires additional information
before the claim can be adjudicated as a clean claim.

Performance premium means an amount which may be paid to a managed care
organization as a bonus for accomplishing a portion or all of the performance
objectives contained in this contract.

Premium means the amount paid by TDH to a managed care organization on a monthly
basis and is determined by multiplying the Member months times the capitation
amount for each enrolled Member.

Primary care physician or primary care provider (PCP) means a physician or
provider who has agreed with HMO to provide a medical home to Members and who is
responsible for providing initial and primary care to patients, maintaining the
continuity of patient care, and initiating referral for care (also see Medical
home).

Provider means an individual or entity and its employees and subcontractors that
directly provide health care services to HMO's Members under TDH's Medicaid
managed care program.

Provider contract means an agreement entered into by a direct provider of health
services and HMO or an intermediary entity.


                                       9            Dallas Service Area Contract
<PAGE>   16
Proxy Claim Form means a form submitted by providers to document services
delivered to Medicaid Members under capitation arrangement. It is not a claim
for payment.

Public information means information that is collected, assembled, or maintained
under a law or ordinance or in connection with the transaction of official
business by a governmental body or for a governmental body and the governmental
body owns the information or has a right of access.

Real Time Captioning (also known as CART, Communication Access Real-Time
Translation) means a process by which a trained individual uses a shorthand
machine, a computer, and real-time translation software to type simultaneously
translated spoken language into text on a computer screen. Real Time Captioning
is provided for individuals who are deaf, have hearing impairments, or have
unintelligible speech; it is usually used to interpret spoken English into text
English, but may be used to translate other spoken language into text.

Renewal review means a review process conducted by TDH or its agent(s) to assess
HMO's capacity and capability to perform the duties and responsibilities
required under the Contract. This process is required by Texas Government Code
Section 533.007.

RFA means Request For Application issued by TDH on June 17,1998, and all RFA
addenda, corrections or modifications.

Risk means the potential for loss as a result of expenses and costs of HMO
exceeding payments made by TDH under this contract.

Rural Health Clinic (RHC) means an entity that meets all of the requirements for
designation as a rural health clinic under Section 1861(aa)(1) of the Social
Security Act and approved for participation in the Texas Medicaid Program.

Service area means the counties included in a site selected for the STAR
Program, within which a participating HMO must provide services.

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY `95 and all other providers in
a county that, when listed by provider type in descending order by the number of
recipient encounters, provided the top 80 percent of recipient encounters for
each provider type in FY `95.

Special hospital means an establishment that:

         (a)  offers services, facilities, and beds for use for more than 24
              hours for two or more unrelated individuals who are regularly
              admitted, treated, and discharged and who require services more
              intensive than room, board, personal services, and general nursing
              care;


                                       10           Dallas Service Area Contract
<PAGE>   17
         (b)  has clinical laboratory facilities, diagnostic x-ray facilities,
              treatment facilities, or other definitive medical treatment;

         (c)  has a medical staff in regular attendance; and

         (d)  maintains records of the clinical work performed for each patient.

STAR Program is the name of the State of Texas Medicaid managed care program.
"STAR" stands for the State of Texas Access Reform.

State fiscal year means the 12-month period beginning on September 1 and ending
on August 31 of the next year.

Subcontract means any written agreement between HMO and other party to fulfill
the requirements of this contract. All subcontracts are required to be in
writing.

Subcontractor means any individual or entity which has entered into a
subcontract with HMO.

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

TCADA means Texas Commission on Alcohol and Drug Abuse. State agency responsible
for licensing chemical dependency treatment facilities. TCADA also contracts
with providers to deliver chemical dependency treatment services.

TDD means telecommunication device for the deaf. It is interchangeable with the
term Teletype machine or TTY.

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

TDMHMR means the Texas Department of Mental Health and Mental Retardation, which
is the State agency responsible for developing mental health policy for public
and private sector providers.

Temporary Assistance to Needy Families (TANF) means the federally funded program
that provides assistance to single-parent families with children who meet the
categorical requirements for aid. This program was formerly known as Aid to
Families with Dependent Children (AFDC) program.


                                       11           Dallas Service Area Contract
<PAGE>   18
Texas Health Steps (THSteps) is the name adopted by the State of Texas for the
federally mandated Early and Periodic Screening, Diagnosis and Treatment (EPSDT)
program. It includes the State's Comprehensive Care Program extension to EPSDT,
which adds benefits to the federal EPSDT requirements contained in 42 United
States Code Section 1396d(r), and defined and codified at 42 C.F.R. Section
440.40 and Sections 441.56-62. TDH's rules are contained in 25 TAC, Chapter 33
(relating to Early and Periodic Screening, Diagnosis and Treatment).

Texas Medicaid Provider Procedures Manual means the policy and procedures manual
published by or on behalf of TDH which contains policies and procedures required
of all health care providers who participate in the Texas Medicaid program. The
manual is published annually and is updated bi-monthly by the Medicaid Bulletin.

THHSC means the Texas Health and Human Services Commission.

Third Party Liability (TPL) means the legal responsibility of another individual
or entity to pay for all or part of the services provided to Members under this
contract. (See 25 TAC, Subchapter 28, relating to Third Party Resources.)

Third Party Recovery (TPR) means the recovery of payments made on behalf of a
Member by TDH or HMO from an individual or entity with the legal responsibility
to pay for the services.

TP40 (Type Program 40) means Pregnant women receiving Medical Assistance Only
(MOA)-Pregnant women whose families' income is below 185% of the Federal Poverty
Level (FPL)

TP45 (Type Program 45) means Newborn (MAO) - Children under age one born to
Medicaid-eligible mothers.

TXMHMR means Texas Mental Health and Mental Retardation system which includes
the state agency, TDMHMR, and the Local Mental Health and Mental Retardation
Authorities.

Unclean claim means a claim that does not contain accurate and complete data in
all claim fields that are required by HMO and TDH and other HMO-published
requirements for adjudication, such as medical records, as appropriate. (See
definition of Clean Claim.)

Urgent behavioral health situations means conditions which require attention and
assessment within 24 hours but which do not place the Member in immediate danger
to themselves or others and the Member is able to cooperate with treatment.

Urgent condition means a health condition which is not an emergency but is
severe or painful enough to cause a prudent layperson possessing the average
knowledge of medicine to believe that his or her condition requires medical
treatment evaluation or treatment within 24 hours by the Member's PCP or PCP
designee to prevent serious deterioration of the Member's condition or health.


                                       12           Dallas Service Area Contract
<PAGE>   19
Value-added services means a service that the state has approved to be included
in this contract for which HMO does not receive capitation.

ARTICLE III  PLAN ADMINISTRATIVE AND HUB RESOURCE REQUIREMENTS

3.1      ORGANIZATION AND ADMINISTRATION

3.1.1    HMO must maintain the organizational and administrative capacity and
         capabilities to carry out all duties and responsibilities under this
         contract.

3.1.2    HMO must maintain assigned staff with the capacity and capability to
         provide all services to all Members under this contract.

3.1.3    HMO must maintain an administrative office in the service area (local
         office). The local office must comply with the American with
         Disabilities Act requirements for public buildings. Member Advocates
         for the service area must be located in this office. (See Article 8.8.)

3.1.4    HMO must provide training and development programs to all assigned
         staff to ensure they know and understand the service requirements under
         this contract including the reporting requirements, the policies and
         procedures, cultural and linguistic requirements and the scope of
         services to be provided.

3.1.5    HMO must notify TDH no later than 30 days after the effective date of
         this contract of any changes in its organizational chart as previously
         submitted to TDH.

3.1.5.1  HMO must notify TDH within fifteen (15) working days of any change in
         key managers or behavioral health subcontractors. This information must
         be updated whenever there is a significant change in organizational
         structure or personnel.

3.1.5.2  HMO shall submit a description and organizational chart, unless
         previously submitted, which illustrates how physical health services
         administration will be coordinated with behavioral health
         administration in NorthStar plans, including individuals assigned to be
         liaisons to NorthSTAR plans.

3.1.6    Participation in Regional Advisory Committee. HMO must participate on a
         Regional Advisory Committee established in the service area in
         compliance with the Texas Government Code, Sections
         533.021-533.029. The Regional Advisory Committee in each managed care
         service area must include representatives from at least the following
         entities: hospitals; managed care organizations; primary care
         providers; state agencies; consumer advocates; Medicaid recipients;
         rural providers; long-term care providers; specialty care providers,
         including pediatric providers; and political


                                       13           Dallas Service Area Contract
<PAGE>   20
         subdivisions with a constitutional or statutory obligation to provide
         health care to indigent patients. HHSC and TDH have authority to
         determine the composition of each Regional Advisory Committee.

3.1.6.1  The Regional Advisory Committee is required to meet at least quarterly
         for the first year after appointment of the committee and at least
         annually in subsequent years. The actual frequency may vary depending
         on the needs and requirements of the committee.

3.2      NON-PROVIDER SUBCONTRACTS

3.2.1    HMO must enter into written contracts with all Subcontractors and
         maintain copies of the subcontracts in HMO's administrative office. HMO
         must submit two copies of all non-provider subcontracts to TDH for
         approval no later than 60 days after the effective date of this
         contract, unless the subcontract has already been submitted to and
         approved by TDH. Subcontracts entered into after the effective date of
         this contract must be submitted no later than 30 days prior to the date
         of execution of the subcontract. HMO must make non-provider
         subcontracts available to TDH upon request, at the time and location
         requested by TDH.

3.2.1.1  TDH has 15 working days to review the subcontract and recommend any
         suggestions or required changes. If TDH has not responded to HMO by the
         fifteenth day, HMO may execute the subcontract. TDH reserves the right
         to request HMO to modify any subcontract that has been deemed approved.
         .

3.2.1.2  HMO must notify TDH no later than 90 days prior to terminating any
         subcontract affecting a major performance function of this contract.
         All major Subcontractor terminations or substitutions require TDH
         approval (see Article 15.7). TDH may require HMO to provide a
         transition plan describing how the subcontracted function will continue
         to be provided. All subcontracts are subject to the terms and
         conditions of this contract and must contain the provisions of Article
         V, Statutory and Regulatory Compliance, and the provisions contained in
         3.2.4

3.2.2    Subcontracts, which are requested by any agency with authority to
         investigate and prosecute fraud and abuse, must be produced at the time
         and in the manner requested by the requesting Agency. Subcontracts
         requested in response to a public information request must be produced
         with 3 working days from TDH's notification to HMO of the request. All
         requested records must be provided free of charge.

3.2.3    The form and substance of all Subcontracts including subsequent
         amendments are subject to approval by TDH. TDH retains the authority to
         reject or require changes to any provisions of the subcontract that do
         not comply with the requirements or


                                       14           Dallas Service Area Contract
<PAGE>   21
         duties and responsibilities of this contract or create significant
         barriers for TDH in carrying out its duty to monitor compliance with
         the contract. HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
         RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER
         THE DUTY, RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER

3.2.4    HMO and all intermediary entities must include the following standard
         language in each subcontract and ensure that this language is included
         in all subcontracts down to the actual provider of the services. The
         following standard language is not the only language that will be
         considered acceptable by TDH.

3.2.4.1  Contractor understands that services provided under this contract are
         funded by state and federal funds under the Texas Medical Assistance
         Program (Medicaid). Contractor is subject to all state and federal
         laws, rules and regulations that apply to persons or entities receiving
         state and federal funds. Contractor understands that any violation by
         Contractor of a state or federal law relating to the delivery of
         services under this contract, or any violation of the TDH/HMO contract
         could result in liability for contract money damages, and/or civil and
         criminal penalties and sanctions under state and federal law.

3.2.4.2  Contractor understands and agrees that HMO has the sole responsibility
         for payment of services rendered by the Contractor under this contract.
         In the event of HMO insolvency or cessation of operations, Contractor's
         sole recourse is against HMO through the bankruptcy or receivership
         estate of HMO.

3.2.4.3  Contractor understands and agrees that TDH is not liable or responsible
         for payment for any services provided under this contract.

3.2.4.4  Contractor agrees that any modification, addition, or deletion of the
         provisions of this agreement will become effective no earlier than 30
         days after HMO notifies TDH of the change. If TDH does not provide
         written approval within 30 days from receipt of notification from HMO,
         changes may be considered provisionally approved.

3.2.4.5  This contract is subject to state and federal fraud and abuse statutes.
         The Contractor will be required to cooperate in the investigation and
         prosecution of any suspected fraud or abuse, and must provide any and
         all requested originals and copies of records and information, free of
         charge on request, to any state or federal agency with authority to
         investigate fraud and abuse in the Medicaid program.

3.2.5    The Texas Medicaid Fraud Control Unit must be allowed to conduct
         private interviews of HMO personnel, Subcontractors and their
         personnel, witnesses, and patients. Requests for information are to be
         complied within the form and the language requested. HMO employees and
         contractors and Subcontractors and their


                                       15          Dallas Service Area Contract
<PAGE>   22
         employees and contractors must cooperate fully in making themselves
         available in person for interviews, consultation, grand jury
         proceedings, pretrial conference, hearings, trial and in any other
         process, including investigations. Compliance with this Article is at
         HMO's and subcontractors' own expense.

3.3      MEDICAL DIRECTOR

3.3.1    HMO must have at least one a full-time Medical Director licensed under
         the Texas State Board of Medical Examiners (M.D. or D.O.). The Medical
         Director may oversee other product line of the HMO but must fulfill all
         duties and responsibilities as Medical Director for the Medicaid
         Program. HMO must have a written job description describing the Medical
         Director's authority, duties and responsibilities as follows:

3.3.1.1  Ensure that medical decisions, including prior authorization protocols,
         are rendered by qualified medical personnel and are based on TDH's
         definition of medical necessity, and is in compliance with the
         Utilization Review Act and 21.58a of the Texas Insurance Code.

3.3.1.2  Oversight responsibility of network providers to ensure that all care
         provided complies with the generally accepted health standards of the
         community.

3.3.1.3  Oversight of HMO's quality improvement process, including establishing
         and actively participating in HMO's quality improvement committee,
         monitoring Member health status, HMO utilization review policies and
         standards and patient outcome measures.

3.3.1.4  Identify problems and develop and implement corrective actions to
         quality improvement process.

3.3.1.5  Develop, implement and maintain responsibility for HMO's medical
         policy.

3.3.1.6  Oversight responsibility for medically related complaints.

3.3.1.7  Participate and provide witnesses and testimony on behalf of HMO in the
         TDH fair hearing process.

3.3.2    The Medical Director must exercise independent medical judgement in all
         medical decisions. HMO must ensure that medical decisions are not
         adversely influenced by fiscal management decisions. TDH may conduct
         reviews of medical decisions by HMO Medical Director at any time.


                                       16          Dallas Service Area Contract
<PAGE>   23
3.4      PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS

3.4.1    HMO must receive written approval from TDH for all written materials,
         produced or authorized by HMO, containing information about the STAR
         Program prior to distribution to Members, prospective Members,
         providers within HMO's network, or potential providers who HMO intends
         to recruit as network providers. This includes Member education
         materials.

3.4.2    Member materials must meet cultural and linguistic requirements as
         stated in Article VIII. Unless otherwise required, Member materials
         must be written at a 4th - 6th grade reading comprehension level; and
         be translated into the language of any major population group, except
         when TDH requires HMO to use statutory language (i.e., advance
         directives, medical necessity, etc.).

3.4.3    All materials regarding the STAR Program including Member education
         materials, must be submitted to TDH for approval prior to distribution.
         TDH has 15 working days to review the materials and recommend any
         suggestions or required changes. If TDH has not responded to HMO by the
         fifteenth day, HMO print and distribute STAR Program materials. TDH
         reserves the right to request HMO to modify plan materials that are
         deemed approved and have been printed or distributed. TDH-requested
         modifications of previously approved, printed or distributed materials
         can be made at the next printing unless substantial non-compliance
         exists. An exception to the 15 working day timeframe may be requested
         in writing by HMO for written provider materials that require a quick
         turn-around time (e.g., letters). Materials requiring a quick
         turn-around time will be reviewed by TDH within 5 working days.

3.4.4    HMO must forward TDH-approved English versions of their Member
         Handbook, Member Provider Directory, newsletters, individual Member
         letters, and any written information that applies to Medicaid-specific
         services to DHS for DHS to translate into Spanish. DHS must provide the
         written and approved translation into Spanish to HMO no later than 15
         working days after receipt of the English version by DHS. HMO must
         incorporate the approved translation into Member materials. If DHS has
         not responded to HMO by the fifteenth day, HMO may print and distribute
         the Member materials, with the translation provided by HMO's outside
         translation source, rather than DHS's translation. TDH reserves the
         right to require revisions to materials if inaccuracies are discovered
         or if changes are required by changes in policy or law. Any changes
         required by policy or law can be made at the next printing unless
         substantial non-compliance exists. HMO has the option of using the DHS
         translation unit or their own translators for health education
         materials that do not contain Medicaid-specific information and for
         other marketing materials such as billboards, radio spots, and
         television and newspaper advertisements.

                                       17          Dallas Service Area Contract
<PAGE>   24
3.4.5    HMO must reproduce all written instructional; educational, and
         procedural documents required under this contract and distribute them
         to its providers and Members. HMO must reproduce and distribute
         instructions and forms to all network providers who have reporting and
         audit requirements under this contract.

3.4.6    HMO must provide TDH with at least three paper copies and one
         electronic copy of HMO's Member Handbook, Provider Manual and Member
         Provider Directory. If an electronic format is not available, five
         paper copies are required.

3.4.7    Changes to the Required Critical Elements for the Member Handbook,
         Provider Manual, and Provider Directory may be included as inserts into
         handbooks, manuals and directories until the next printing of these
         documents.

3.5      RECORDS REQUIREMENTS AND RECORDS RETENTION

3.5.1    HMO must keep all records required to be created and retained under
         this contract. Records related to Members served in this service area
         must be made available in HMO's local office when requested by TDH. All
         records must be retained for a period of five (5) years unless
         otherwise specified in this contract. Original records must be kept in
         the form they were created in the regular course of business for a
         minimum of two (2) years following the end of the contract period.
         Microfilm, digital or electronic records may be substituted for the
         original records after the first two (2) years, if the retention system
         is reliable and is supported by a retrieval system which allows
         reasonable access to the records. All copies of original records must
         be made using guidelines and procedures approved by TDH, if the
         original documents will no longer be available or accessible.

3.5.2    Availability and Accessibility. All records, documents and data
         required to be created under this contract are subject to audit,
         inspection and production. If an audit, inspection or production is
         requested by TDH, TDH's designee or TDH acting on behalf of any agency
         with regulatory or statutory authority over Medicaid Managed Care, the
         requested records must be made available at the time and at the place
         the records are requested. Copies of requested records must be produced
         or provided free of charge to the requesting agency. Records requested
         after the second year following the end of contract term, which have
         been stored or archived must be accessible and made available within 10
         calendar days from the date of a request by TDH or the requesting
         agency or at a time and place specified by the requesting entity.

3.5.3    Accounting Records. HMO must create and keep accurate and complete
         accounting records in compliance with to Generally Accepted Accounting
         Principles (GAAP). Records must be created and kept for all claims
         payments, refunds and adjustment payments to providers, premium or
         capitation payments, interest income and


                                       18          Dallas Service Area Contract
<PAGE>   25
         payments for administrative services or functions. Separate records
         must be maintained for medical and administrative fees, charges and
         payments.

3.5.4    General Business Records. HMO must create and keep complete and
         accurate general business records to reflect the performance of duties
         and responsibilities and compliance with the provisions of this
         contract.

3.5.5    Medical records. HMO must require, through contractual provisions,
         providers to create and keep medical records in compliance with the
         medical records standards contained in the Standards for Quality
         Improvement Programs in Appendix A. All medical records must be kept
         for at least five (5) years, except for records of rural health
         clinics, which must be kept for a period of six (6) years from the date
         of service.

3.5.6    Matters in Litigation. HMO must keep records related to matters in
         litigation for five (5) years following the termination or resolution
         of the litigation.

3.5.7    On-line Retention of Claims History. HMO must keep automated claims
         payment histories for a minimum of 18 months, from date of
         adjudication, in an on-line inquiry system. HMO must also keep
         sufficient history on-line to ensure all claim/encounter service
         information is submitted to and accepted by TDH for processing.

3.6      HMO REVIEW OF TDH MATERIALS


         TDH will submit all studies or audits that relate or refer to HMO for
         review and comment to HMO 10 working days prior to releasing the report
         to the public or to Members.

3.7      HMO TELEPHONE ACCESS REQUIREMENTS

3.7.1    For all HMO telephone access, HMO must ensure adequately-staffed
         telephone lines. Telephone personnel must receive customer service
         telephone training. HMO must ensure that telephone staffing is adequate
         to fulfill the standards of promptness and quality listed below:

         1.       80% of all telephone calls must be answered within an average
                  of 30 seconds;

         2.       The lost (abandonment) rate must not exceed 10%;


         3.       HMO cannot impose maximum call duration limits but must allow
                  calls to be of sufficient length to ensure adequate
                  information is provided to the Member or Provider.

         4.       Telephone services must meet cultural competency requirements
                  (see Article 8.9) and provide "linguistic access" to all
                  members as defined in Article 11.


                                       19          Dallas Service Area Contract
<PAGE>   26
                  * This would include the provision of interpretive services
                    required for effective communication for Members and
                    providers:

3.7.2    Member Helpline: The HMO must furnish a toll free phone line which
         members may call 24 hours a day, 7 days a week. An answering service or
         other similar mechanism, which allows callers to obtain information
         from a live person, may be used for after-hours and weekend coverage.

3.7.2.1  HMO must provide coverage for the following services at least during
         HMO's regular business hours (a minimum of 9 hours a days between 8
         a.m. and 6 p.m.) Monday through Friday:

         1.       Member ID information

         2.       PCP Change

         3.       Benefit understanding

         4.       PCP verification

         5.       Access issues (including referrals to specialists)

         6.       Unavailability of PCP

         7.       Member eligibility

         8.       Complaints

         9.       Service area issues (including when member is temporarily
                  out-of-service area)

         10.      Other services covered by member services.

3.7.2.2  HMO must provide TDH with policies and procedures indicating how the
         HMO will meet the needs of members who are unable to contact HMO during
         regular business hours.

3.7.3    HMO must ensure that PCPs are available 24 hours a day, 7 days a week
         (see Article 7.8). This includes PCP telephone coverage (see 28 TAC
         11.2001(a)lA).

ARTICLE IV FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

4.1      FISCAL SOLVENCY

4.1.1    HMO must be and remain in full compliance with all state and federal
         solvency requirements for HMOs, including but not limited to all
         reserve requirements, net worth standards, debt-to-equity ratios, or
         other debt limitations.

4.1.2    If HMO becomes aware of any impending changes to its financial or
         business structure which could adversely impact its compliance with
         these requirements or its ability to pay its debts as they come due,
         provide services under this contract, or if HMO becomes aware of a
         take-over or assignment which would require approval of TDI or TDH, HMO
         must notify TDH immediately in writing.


                                       20          Dallas Service Area Contract
<PAGE>   27
4.1.3    HMO must not have been placed under state conservatorship or
         receivership or filed for protection under federal bankruptcy laws.
         None of HMO's property, plant or equipment must have been subject to
         foreclosure or repossession within the preceding 10-year period. HMO
         must not have any debt declared in default and accelerated to maturity
         within the preceding 10-year period. HMO represents that these
         statements are true as of the contract effective date. HMO must inform
         TDH within 24 hours of a change in any of the preceding
         representations.

4.2      MINIMUM NET WORTH

4.2.1    HMO has minimum net worth to the greater of (a) $1,500,000; (b) an
         amount equal to the sum of twenty five dollars ($25) times the number
         of all enrollees including Medicaid Members; or (c) an amount that
         complies with standards adopted by TDI. Minimum net worth means the
         excess total admitted assets over total liabilities, excluding
         liability for subordinated debt issued in compliance with Article 1.39
         of the Insurance Code.

4.2.2    The minimum equity must be maintained during the entire contract
         period.

4.3      PERFORMANCE BOND

         HMO has furnished TDH a performance bond in the form prescribed by TDH
         and approved by TDI, naming TDH as Obligee, securing HMO's faithful
         performance of the terms and conditions of this contract. The
         performance bond has been issued in the amount of $100,000. If the
         contract is renewed or extended under Article XVIII, a separate bond
         will be required for each additional term of the contract. The bond has
         been issued by a surety licensed by TDI, and specifies cash payment as
         the sole remedy. Performance Bond requirements under this Article must
         comply with Texas Insurance Code Section 11.1805, relating to
         Performance and Fidelity Bonds. The bond must be delivered to TDH at
         the same time the signed HMO contract is delivered to TDH.

4.4      INSURANCE

4.4.1    HMO must maintain or cause to be maintained general liability insurance
         in the amounts of at least $1,000,000 per occurrence and $5,000,000 in
         the aggregate.

4.4.2    HMO must maintain or require professional liability insurance on each
         of the providers in its network in the amount of $100,000 per
         occurrence and $300,000 in the aggregate, or the limits required by the
         hospital at which the network provider has admitting privileges.

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4.4.3     HMO must maintain an umbrella professional liability insurance policy
          for the greater of $3,000,000 or an amount (rounded to the next
          $100,000) which represents the number of STAR Members enrolled in HMO
          in the first month of the contract year multiplied by $150, not to
          exceed $10,000,000.

4.4.4     Any exceptions to the requirements of this Article must be approved in
          writing by TDH prior to the effective date of this contract. HMOs and
          providers who qualify as either state or federal units of government
          are exempt from the insurance requirements of this Article and are not
          required to obtain exemptions from these provisions prior to the
          effective date of this contract. State and federal units of government
          are required to comply with and are subject to the provisions of the
          Texas or Federal Tort Claims Act.

4.5       FRANCHISE TAX

          HMO certifies that its payment of franchise taxes is current or that
          it is not subject to the State of Texas franchise tax.

4.6       AUDIT

4.6.1     TDH, TDI or their designee have the right from time to time to examine
          and audit books and records of HMO or of its Subcontractors relating
          to: (1) HMO's capacity to bear the risk of potential financial losses;
          (2) services performed or determination of amounts payable under this
          contract; (3) detection of fraud and abuse; and (4) other purposes TDH
          deems to be necessary to perform its regulatory function and/or to
          enforce the provisions of this contract.

4.6.2     TDH is required to conduct an audit of HMO at least once every three
          years. HMO is responsible for paying the costs of an audit conducted
          under this Article. The costs of the audit by HMO are allowable costs
          under this contract.

4.7       PENDING OR THREATENED LITIGATION


          HMO must require disclosure from Subcontractors and network providers
          of all pending or potential litigation or administrative actions
          against the Subcontractor or network provider and must disclose this
          information to TDH, in writing, prior to the execution of prior
          contracts and this renewal. HMO must make reasonable investigation and
          inquiry that there is not pending or potential litigation or
          administrative action against the providers or subcontractors in HMO's
          provider network. HMO must notify TDH of any litigation which is
          initiated or threatened after the effective date of this contract
          within seven days of receiving service or becoming aware of the
          threatened litigation.

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4.8       MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO OPERATIONS

4.8.1     HMO was awarded this contract based upon the responses and
          representations contained in HMO's application submitted in response
          to TDH's RFA. All responses and representations upon which scoring was
          based were considered material to the decision of whether to award the
          contract to HMO. RFA responses are incorporated into this contract by
          reference. The provisions of this contract control over any RFA
          response if there is a conflict between the RFA and this contract, or
          if changes in law or policy have changed the requirements of HMO
          contracting with TDH to provide Medicaid Managed Care.

4.8.2     This contract was awarded in part based upon HMO's representation of
          its current equity and financial ability to bear the risks under this
          contract. TDH will consider any misrepresentations of HMO's equity,
          HMO's ability to bear financial risks of this contract or inflating
          the equity of HMO, solely for the purpose of being awarded this
          contract, a material misrepresentation and fraud under this contract.

4.8.3     Discovery of any material misrepresentation or fraud on the part of
          HMO in HMO's application or in HMO's day-to-day activities and
          operations may cause this contract to terminate and may result in
          legal action being taken against HMO under this contract, and state
          and federal civil and criminal laws.

4.9       THIRD PARTY RECOVERY

4.9.1     Third Party Recovery. All Members are required to assign their rights
          to any benefits to the State and agree to cooperate with the State in
          identifying third parties who may be liable for all or part of the
          costs for providing services to the Member, as a condition for
          participation in the Medicaid program. HMO is authorized to act as the
          State's agent in enforcing the State's rights to third party recovery
          under this contract.

4.9.2     Identification. HMO must develop and implement systems and procedures
          to identify potential third parties who may be liable for payment of
          all or part of the costs for providing medical services to Members
          under this contract. Potential third parties must include any of the
          sources identified in 42 C.F.R. 433.138, relating to identifying third
          parties, except workers' compensation, uninsured and underinsured
          motorist insurance, first and third party liability insurance and
          tortfeasors. HMO must coordinate with TDH to obtain information from
          other state and federal agencies and HMO must cooperate with TDH in
          obtaining information from commercial third party resources. HMO must
          require all providers to comply with the provisions of 25 TAC Section
          28, relating to Third Party Recovery in the Medicaid program.

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4.9.3     Exchange of identified resources. HMO must forward identified
          resources of uninsured and underinsured motorist insurance, first and
          third party liability insurance and tortfeasors ("excepted resources")
          to TDH for TDH to pursue collection and recovery from these resources.
          TDH will forward information on all third party resources identified
          by TDH to HMO. HMO must coordinate with TDH to obtain information from
          other state and federal agencies, including HCFA for Medicare and the
          Child Support Enforcement Division of the Office of the Attorney
          General for medical support. HMO must cooperate with TDH in obtaining
          and exchanging information from commercial third party resources.

4.9.4     Recovery. HMO must actively pursue and collect from third party
          resources which have been identified, except when the cost of pursuing
          recovery reasonably exceeds the amount which may be recovered by HMO.
          HMO is not required to, but may pursue recovery and collection from
          the excepted resources listed in 4.9.3. HMO must report the identity
          of these resources to TDH, even if HMO will pursue collection and
          recovery from the excepted resources.

4.9.4.1   HMO must provide third party resource information to network providers
          to whom individual Members have been assigned or who provide services
          to Members. HMO must require providers to seek recovery from potential
          third party resources prior to seeking payment from HMO. If network
          providers are paid capitation, HMO must either seek recovery from
          third party resources or account to TDH for all amounts received by
          network providers from third party resources.

4.9.4.2   HMO must prohibit network providers from interfering with or placing
          liens upon the State's right or HMO's right, acting as the State's
          agent, to recovery from third party resources. HMO must prohibit
          network providers from seeking recovery in excess of the Medicaid
          payable amount or otherwise violating state and federal laws.

4.9.5     Retention. HMO may retain as income all amounts recovered from third
          party sources as long as recoveries are obtained in compliance with
          the contract and state and federal laws.

4.9.6     Accountability. HMO must report all third party recovery efforts and
          amounts recovered as required in 12.1.10. If HMO fails to pursue and
          recover from third parties no later 180 days after the date of
          service, TDH may pursue third party recoveries and retain all amounts
          recovered without accounting to HMO for the amounts recovered. Amounts
          recovered by TDH will be added to expected third party recoveries to
          reduce future capitation rates, except recoveries from those excepted
          third party resources listed in 4.9.3.

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4.10      CLAIMS PROCESSING REQUIREMENTS

4.10.1    HMO and claims processing subcontractors must comply with TDH's Texas
          Managed Care Claims Manual (Claims Manual), which contains TDH's
          claims processing requirements. HMO must comply with any changes to
          the Claims Manual with appropriate notice of changes from TDH.

4.10.2    HMO must forward claims submitted to HMO in error to either the
          correct HMO if the correct HMO can be determined from the claim or is
          otherwise known to HMO or the State's claims administrator; or to the
          provider who submitted the claim in error, along with an explanation
          of why the claim is being returned.

4.10.3    HMO must not pay any claim submitted by a provider who has been
          excluded or suspended from the Medicare or Medicaid programs for fraud
          and abuse when HMO has knowledge of the exclusion or suspension.

4.10.4    All provider clean claims must be adjudicated (finalized as paid or
          denied adjudicated) within 30 days from the date the claim is received
          by HMO as required by the Claims Manual. HMO must pay providers
          interest on a clean claim which is not adjudicated within 30 days from
          the date the claim is received by HMO or becomes clean at a rate of
          1.5% per month (18% annual) for each month the clean claim remains
          unadjudicated (see Section 2.8 of the Texas Medicaid Managed Care
          Claims Manual to calculate the interest payment to providers). HMO
          will be held to a minimum performance level of 90% of all clean claims
          paid or denied within 30 days of receipt and 99% of all clean claims
          paid or denied within 90 days of receipt. Failure to meet these
          performance levels is a default under Article XVI Default and Remedies
          of this contract and could lead to damages or sanctions under Article
          XVII. Performance levels are subject to change if required to comply
          with federal and state laws or regulations.

4.10.4.1  All claims and appeals submitted to HMO and claims processing
          subcontractors must be paid-adjudicated (clean claims),
          denied-adjudicated (clean claims), or denied for additional
          information (unclean claims) to providers within 30 days from the date
          the claim is received by HMO. Providers must be sent a written notice
          for each claim that is denied for additional information (unclean
          claims) identifying the claim, all reasons why the claim is being
          denied, the date the claim was received by HMO, all information
          required from the provider in order for HMO to adjudicate the claim,
          and the date by which the requested information must be received from
          the provider.

4.10.4.2  Claims that are suspended (pended internally) must be subsequently
          paid adjudicated, denied-adjudicated, or denied for additional
          information (pended

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<PAGE>   32
          externally) within 30 days from date of receipt. No claim can be
          suspended for a period exceeding 30 days from date of receipt of the
          claim.

4.10.4.3  HMO must identify each data field of each claim form that is required
          from the provider in order for HMO to adjudicate the claim. HMO must
          inform all network providers about the required fields at least 30
          days prior to the effective date of this contract or as a provision
          within HMO/provider contract. Out of network providers must be
          informed of all required fields if the claim is denied for additional
          information. The required fields must include those required by HMO
          and TDH.

4.10.5    HMO must comply with the standards adopted by the U.S. Department of
          Health and Human Services under the Health Insurance Portability and
          Accountability Act of 1996 regarding the submission and receipt of
          claims information through electronic data interchange (EDI) that
          allows for automated processing and adjudication of claims within two
          or three years, as applicable, from the date the rules promulgated
          under HIPAA are adopted.

4.10.6    For claims requirements regarding retroactive PCP changes for
          mandatory Members, see Article 7.8.12.2.

4.11      INDEMNIFICATION

4.11.1    HMO/TDH: HMO must agree to indemnify TDH and its agents for any and
          all claims, costs, damages and expenses, including court costs and
          reasonable attorney's fees, which are related to or arise out of:

4.11.1.1  Any failure, inability, or refusal of HMO or any of its network
          providers or other Subcontractors to provide contract services;

4.11.1.2  Claims arising from HMO's, HMO's network provider's or other
          Subcontractor's negligent or intentional conduct in providing services
          under this contract.

4.11.1.3  Failure, inability or refusal of HMO to pay any of its network
          providers or Subcontractors for services.

4.11.2    HMO/Provider: HMO is prohibited from requiring any providers to
          indemnify HMO for HMO's own acts or omissions which result in damages
          or sanctions being assessed against HMO either under this contract or
          under state or federal law.

ARTICLE V    STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

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<PAGE>   33
5.1       COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS

5.1.1     HMO must know, understand and comply with all state and federal laws
          and regulations relating to the Texas Medicaid Program which have not
          been waived by HCFA. HMO must comply with all rules relating to the
          Medicaid managed care program adopted by TDH, TDI, THHSC, TDMHMR and
          any other state agency delegated authority to operate or administer
          Medicaid or Medicaid managed care programs.

5.1.2     HMO must require, through contract provisions, that all network
          providers or Subcontractors comply with all state and federal laws and
          regulations relating to the Texas Medicaid Program and all rules
          relating to the Medicaid managed care program adopted by TDH, TDI,
          THHSC, TDMHMR and any other state agency delegated authority to
          operate Medicaid or Medicaid Managed Care programs.

5.1.3     HMO must comply with the provisions of the Clean Air Act and the
          Federal Water Pollution Control Act, as amended, found at 42 C.F.R.
          7401, et. seq. and 33 USC 1251, et. seq., respectively.

5.2       PROGRAM INTEGRITY

5.2.1     HMO has not been excluded, debarred, or suspended from participation
          in any program under Title XVIII or Title XIX under any of the
          provisions of Section 1128(a) or (b) of the Social Security Act (42
          USC Section 1320 a-7), or Executive Order 12549. HMO must notify TDH
          within 3 days of the time it receives notice that any action is being
          taken against HMO or any person defined under the provisions of
          section 1128(a) or (b) or any Subcontractor, which could result in
          exclusion, debarment, or suspension of HMO or a Subcontractor from the
          Medicaid program, or any program listed in Executive Order 12549.

5.2.2     HMO must comply with the provisions of, and file the certification of
          compliance required by the Byrd Anti-Lobbying Amendment, found at 31
          USC 1352, relating to use of federal funds for lobbying for or
          obtaining federal contracts.

5.3       FRAUD AND ABUSE COMPLIANCE PLAN

5.3.1     This contract is subject to all state and federal laws and regulations
          relating to fraud and abuse in health care and the Medicaid program.
          HMO must cooperate and assist TDH and THHSC and any other state or
          federal agency charged with the duty of identifying, investigating,
          sanctioning or prosecuting suspected fraud and abuse. HMO must provide
          originals and/or copies of all records and information requested and
          allow access to premises and provide records to TDH or its authorized
          agent(s), THHSC, HCFA, the U.S. Department of Health and Human
          Services, FBI, TDI, and

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<PAGE>   34
          the Texas Attorney General's Medicaid Fraud Control Unit. All copies
          of records must be provided free of charge.

5.3.2     Compliance Plan. HMO must submit to TDH for approval a written fraud
          and abuse compliance plan which is based on the Model Compliance Plan
          issued by the U.S. Department of Health and Human Services, the Office
          of Inspector General (OIG), no later than 30 days after the effective
          date of this contract. HMO must designate an officer or director in
          its organization who has the responsibility and authority for carrying
          out the provisions of its compliance plan. HMO must submit any updates
          or modifications in its compliance plan to TDH for approval at least
          30 days prior to the modifications going into effect. HMO's fraud and
          abuse compliance plan must:

5.3.2.1   ensure that all officers, directors, managers and employees know and
          understand the provisions of HMO's fraud and abuse compliance plan.

5.3.2.2   contain procedures designed to prevent and detect potential or
          suspected abuse and fraud in the administration and delivery of
          services under this contract.

5.3.2.3   contain provisions for the confidential reporting of plan violations
          to the designated person in HMO.

5.3.2.4   contain provisions for the investigation and follow-up of any
          compliance plan reports.

5.3.2.5   ensure that the identity of individuals reporting violations of the
          plan is protected.

5.3.2.6   contain specific and detailed internal procedures for officers,
          directors, managers and employees for detecting, reporting, and
          investigating fraud and abuse compliance plan violations.

5.3.2.7   require any confirmed or suspected fraud and abuse under state or
          federal law be reported to TDH, the Medicaid Program Integrity section
          of the Office of Investigations and Enforcement of the Texas Health
          and Human Services Commission, and/or the Medicaid Fraud Control Unit
          of the Texas Attorney General.

5.3.2.8   ensure that no individual who reports plan violations or suspected
          fraud and abuse is retaliated against.

5.3.3     Training. HMO must designate executive and essential personnel to
          attend mandatory training in fraud and abuse detection, prevention and
          reporting. The training will be conducted by the Office of
          Investigation and Enforcement, Health and Human Services Commission,
          and will be provided free of charge. HMO must

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<PAGE>   35
          schedule and complete training no later than 90 days after the
          effective date of any updates or modification of the written Model
          Compliance Plan.

5.3.3.1   If HMO's executive and essential personnel change or if HMO employs
          additional executive and essential personnel, the new or additional
          personnel must attend OIE training within 90 days of employment by
          HMO.

5.3.4     HMO's failure to report potential or suspected fraud or abuse may
          result in sanctions, contract cancellation, or exclusion from
          participation in the Medicaid program.

5.3.5     HMO must allow the Texas Medicaid Fraud Control Unit and THHSC's
          Office of Investigations and Enforcement, to conduct private
          interviews of HMO's employees, subcontractors and their employees,
          witnesses, and patients. Requests for information must be complied
          with in the form and the language requested. HMO's employees and its
          Subcontractors and their employees must cooperate fully and be
          available in person for interviews, consultation, grand jury
          proceedings, pre-trial conference, hearings, trial and in any other
          process.

5.3.6     Subcontractors. HMO must submit the documentation described in
          Articles 5.3.6.1 through 5.3.6.3, in compliance with Texas Government
          Code Section 533.012, regarding any subcontractor providing health
          care services under this contract except for those providers who have
          re-enrolled as a provider in the Medicaid program as required by
          Section 2.07, Chapter 1153, Acts of the 75th Legislature, Regular
          Session, 1997, or who modified a contract in compliance with that
          section. HMO must submit information in a format as specified by TDH.
          Documentation must be submitted no later than 120 days after the
          effective date of this contract. Subcontracts entered into after the
          effective date of this contract must be submitted no later than 90
          days after the effective date of the subcontracts. The documentation
          required under this provision is not subject to disclosure under
          Chapter 552, Government Code. The information which must be submitted
          must include:

5.3.6.1   a description of any financial or other business relationship between
          HMO and its subcontractor;

5.3.6.2   a copy of each type of contract between HMO and its subcontractor;

5.3.6.3   a description of the fraud control program used by any subcontractor.

5.4       SAFEGUARDING INFORMATION

5.4.1     All Member information, records and data collected or provided to HMO
          by TDH or another State agency is protected from disclosure by state
          and federal law and regulations. HMO may only receive and disclose
          information which is directly

                                       29           Dallas Service Area Contract
<PAGE>   36
          related to establishing eligibility, providing services and conducting
          or assisting in the investigation and prosecution of civil and
          criminal proceedings under state or federal law. HMO must include a
          confidentiality provision in all subcontracts with individuals.

5.4.2     HMO is responsible for informing Members and providers regarding the
          provisions of 42 C.F.R. 431, Subpart F, relating to Safeguarding
          Information on Applicants and Recipients, and HMO must ensure that
          confidential information is protected from disclosure except for
          authorized purposes.

5.4.3     HMO must assist network PCPs in developing and implementing a policies
          for protecting the confidentiality of AIDS and HIV-related medical
          information and an anti-discrimination policy for employees and
          Members with communicable diseases. See also Health and Safety Code,
          Chapter 85, Subchapter E relating to Duties of State Agencies and
          State Contractors.

5.4.4     HMO must require, through contractual provisions, that subcontractors
          have mechanisms in place to ensure Member's (including minor's)
          confidentiality for family planning services.

5.5       NON-DISCRIMINATION

          HMO agrees to comply with and to include in all Subcontracts a
          provision that the Subcontractor will comply with each of the
          following requirements:

5.5.1     Title VI of the Civil Rights Act of 1964, Section 504 of the
          Rehabilitation Act of 1973, the Americans with Disabilities Act of
          1990, and all requirements imposed by the regulations implementing
          these acts and all amendments to the laws and regulations. The
          regulations provide in part that no person in the United States shall
          on the grounds of race, color, national origin, sex, age, disability,
          political beliefs or religion be excluded from participation in, or
          denied, any aid, care, service or other benefits, or be subjected to
          any discrimination under any program or activity receiving federal
          funds.

5.5.2     Texas Health and Safety Code Section 85.113 (relating to workplace and
          confidentiality guidelines regarding AIDS and HIV).

5.5.3     The provisions of Executive Order 11246, as amended by 11375, relating
          to Equal Employment Opportunity.

5.5.4     HMO shall not discriminate with respect to participation,
          reimbursement, or indemnification as to any provider who is acting
          within the scope of the provider's license or certification under
          applicable State law, solely on the basis of such license

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<PAGE>   37
          or certification. This requirement shall not be construed to prohibit
          HMO from including providers only to the extent necessary to meet the
          needs of the HMO's Members or from establishing any measure designed
          to maintain quality and control costs consistent with HMO's
          responsibilities.

5.6       HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)

5.6.1     TDH is committed to providing procurement and contracting
          opportunities to historically underutilized businesses (HUBs), under
          the provisions of Texas Government Code, Title 10, Subtitle D, Chapter
          2161 and 1 TAC Section 111.11 (b) and 111.13(c)(7). TDH requires its
          Contractors and Subcontractors to make a good faith effort to assist
          HUBs in receiving a portion of the total contract value of this
          contract.

5.6.2     The HUB good faith effort goal for this contract is 18.1% of total
          premiums paid. HMO agrees to make a good faith effort to meet or
          exceed this goal. HMO acknowledges it made certain good faith effort
          representations and commitments to TDH during the HUB good faith
          effort determination process. HMO agrees to use its best efforts to
          abide by these representations and commitments during the contract
          period.

5.6.3     HMO is required to submit HUB quarterly reports to TDH as required in
          Article 12.11.

5.6.4     TDH will assist HMO in meeting the contracting and reporting
          requirements of this Article.

5.7       BUY TEXAS

          HMO agrees to "Buy Texas" products and materials when they are
          available at a comparable price and in a comparable period of time, as
          required by Section 48 of Article IX of the General Appropriations Act
          of 1995.

5.8       CHILD SUPPORT

5.8.1     The Texas Family Code Section 231.006 requires TDH to withhold
          contract payments from any for-profit entity or individual who is at
          least 30 days delinquent in child support obligations. It is HMO's
          responsibility to determine and verify that no owner, partner, or
          shareholder who has at least at 25% ownership interest is delinquent
          in child support obligations. HMO must attach a list of the names and
          Social Security numbers of all shareholders, partners or owners who
          have at least a 25% ownership interest in HMO.

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5.8.2     Under Section 231.006 of the Family Code, the contractor certifies
          that the contractor is not ineligible to receive the specified grant,
          loan, or payment and acknowledges that this contract may be terminated
          and payment may be withheld if this certification is inaccurate. A
          child support obligor who is more than 30 days delinquent in paying
          child support or a business entity in which the obligor is a sole
          proprietor, partner, shareholder, or owner with an ownership interest
          of at least 25% is not eligible to receive the specified grant, loan
          or payment.

5.8.3     If TDH is informed and verifies that a child support obligor who is
          more than 30 days delinquent is a partner, shareholder, or owner with
          at least a 25% ownership interest, it will withhold any payments due
          under this contract until it has received satisfactory evidence that
          the obligation has been satisfied or that the obligor has entered into
          a written repayment request.

5.9       REQUESTS FOR PUBLIC INFORMATION


5.9.1     This contract and Subcontractor contracts are subject to public
          disclosure under the Public Information Act (Texas Government Code,
          Chapter 552). TDH may receive Public Information requests related to
          this contract, information submitted as part of the compliance of the
          contract and HMO's application upon which this contract was awarded.
          TDH agrees that it will promptly deliver a copy of any request for
          public information to HMO.

5.9.2     If HMO believes that the requested information qualifies as a trade
          secret or as commercial or financial information, HMO must notify TDH
          -- within three (3) working days after TDH gives notice that a request
          has been made for public information -- and request TDH to submit the
          request for public information to the Attorney General for an Open
          Records Opinion. The HMO will be responsible for presenting all
          exceptions to public disclosure to the Attorney General if an opinion
          is requested.

5.9.3     TDH may, in its sole discretion, request a decision from the office of
          the Attorney General (AG opinion) regarding whether the information
          requested is excepted from required public disclosure. TDH may rely on
          HMO's written representations in preparing any AG opinion request, in
          accordance with Texas Government Code Section 552.305. TDH is not
          liable for failing to request an AG opinion or for releasing
          information which is not deemed confidential by law, if HMO fails to
          provide TDH with specific reasons why the requested information is
          exempt from the required public disclosure. TDH or the Office of the
          Attorney General will notify all interested parties if an AG opinion
          is requested.

5.10      NOTICE AND APPEAL

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          HMO must comply with the notice requirements contained in 25 TAC
          Section 36.21, and the maintaining benefits and services contained in
          25 TAC Section 36.22, whenever HMO intends to take an action affecting
          the Member benefits and services under this contract. See also the
          Member appeal requirements contained in Article 8.7 of this contract.

ARTICLE VI SCOPE OF SERVICES

6.1       SCOPE OF SERVICES

          HMO is paid capitation for all services included in the State of Texas
          Title XIX State Plan and the 1915(b) waiver application for the SDA
          currently filed and approved by HCFA, except those services which are
          specifically excluded and listed in Article 6.1.8 (non-capitated
          services).

6.1.1     HMO must pay for or reimburse for all covered services provided to
          mandatory-enrolled Members for whom HMO is paid capitation.

6.1.2     TDH must pay for or reimburse for all covered services provided to SSI
          voluntary Members who enrolled with HMO on a voluntary basis. It is at
          HMO's discretion whether to provide value-added services to SSI
          voluntary Members.

6.1.3     HMO must provide covered services described in the 1999 Texas Medicaid
          Provider Procedures Manual (Provider Procedures Manual), subsequent
          editions of the Provider Procedures Manual also in effect during the
          contract period, and all Texas Medicaid Bulletins which update the
          1999 Provider Procedures Manual and subsequent editions of the
          Provider Procedures Manual published during the contract period.

6.1.4     Covered services are subject to change due to changes in federal law,
          changes in Texas Medicaid policy, and/or responses to changes in
          Medicine, Clinical protocols, or technology.

6.1.5     The STAR Program has obtained a waiver to the State Plan to include
          three enhanced benefits to all voluntary and mandatory STAR Members.
          Two of these enhanced benefits removed restrictions which previously
          applied to Medicaid eligible individuals 21 years and older: the
          three-prescription per month limit; and, the 30 day spell of illness
          limit. One of these expanded the covered benefits to add an annual
          adult well check.

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6.1.6     Value-added Services. Value-added services that are approved by TDH
          during the contracting process are included in the Scope of Services
          under this contract. Value-added services are listed in Appendix C.

6.1.6.1   The approval request must include:

6.1.6.1.1 A detailed description of the service to be offered;

6.1.6.1.2 Identification of the category or group of Members eligible to receive
          the service if it is a type of service that is not appropriate for all
          Members. (HMO has the discretion to determine if voluntary Members are
          eligible for the value-added services);

6.1.6.1.3 Any limits or restrictions which apply to the service; and

6.1.6.1.4 A description of how a Member may obtain or access the service.

6.1.6.2   Value-added services can only be added or removed by written amendment
          of this contract. HMO cannot include a value-added service in any
          material distributed to Members or prospective Members until this
          contract has been amended to include that value-added service or HMO
          has received written approval from TDH pending finalization of the
          contract amendment.

6.1.6.2.1 If a value-added service is deleted by amendment, HMO must notify each
          Member that the service is no longer available through HMO, and HMO
          must revise all materials distributed to prospective Members to
          reflect the change in covered services.

6.1.6.3   Value-added services must be offered to all mandatory HMO Members, as
          indicated in Article 6.1.6.1.2, unless the contract is amended or the
          contract terminates.

6.1.7     HMO may offer additional benefits that are outside the scope of
          services of this contract to individual Members on a case-by-case
          basis, based on medical necessity, cost-effectiveness, and
          satisfaction and improved health/behavioral health status of the
          Member/Member family.

6.1.8     Non-Capitated Services. The following Texas Medicaid program services
          have been excluded from the services included in the calculation of
          HMO capitation rate:

          THSteps Dental (including Orthodontia)
          Early Childhood Intervention Case Management/Service Coordination
          MHMR Targeted Case Management
          Mental Health Rehabilitation

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          Pregnant Women and Infants Case Management

          THSteps Medical Case Management

          Texas School Health and Related Services

          Texas Commission for the Blind Case Management

          Tuberculosis Services Provided by TDH-approved providers (Directly
          Observed Therapy and Contact Investigation)

          Vendor Drugs (out-of-office drugs)

          Medical Transportation

          TDHS Hospice Services

          Refer to relevant chapters in the Provider Procedures Manual and the
          Texas Medicaid Bulletins for more information.

          Although HMO is not responsible for paying or reimbursing for these
          non-capitated services, HMO remains responsible for providing
          appropriate referrals for Members to obtain or access these services.

6.1.8.1   HMO is responsible for informing providers that all non-capitated
          services must be submitted to TDH for payment or reimbursement.

6.2       PRE-EXISTING CONDITIONS

          HMO is responsible for providing all covered services to each eligible
          Member beginning on the effective date of the contract or the Member's
          date of enrollment under the contract regardless of pre-existing
          conditions, prior diagnosis and/or receipt of any prior health care
          services.

6.3       SPAN OF ELIGIBILITY

          The following outlines HMO's responsibilities for payment of Hospital
          and free-standing psychiatric facility (facility) admissions:

6.3.1     Inpatient Admission Prior to Enrollment in HMO. HMO is responsible
          for payment of physician and non-hospital facility charges for the
          period for which HMO is paid a capitation payment for a Member. HMO is
          not responsible for hospital/facility charges for Members admitted
          prior to the date of enrollment in HMO.

6.3.2     Inpatient Admission After Enrollment in HMO. HMO is responsible for
          all charges for Covered Services until the Member is discharged from
          the hospital/facility or until the Member loses Medicaid eligibility.

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6.3.2.1   If a Member regains Medicaid eligibility and the Member was enrolled
          in HMO at the time the Member was admitted to the hospital, HMO is
          responsible for charges as follows:

6.3.2.1.1 Member Re-enrolls into HMO After Regaining Medicaid Eligibility. HMO
          is responsible for all charges for the period for which HMO receives a
          capitation payment for the Member or until the Member is discharged or
          loses Medicaid eligibility.

6.3.2.1.2 Member Re-enrolls in Another Health Plan After Regaining Medicaid
          Eligibility. HMO is responsible for hospital/facility charges until
          the Member is discharged or loses Medicaid eligibility.

6.3.3     Plan Change. A Member cannot change from one health plan to another
          health plan during an inpatient hospital stay.

6.3.4     Hospital Transfer/Facility. Discharge from one acute care
          hospital/facility and readmission to another acute care
          hospital/facility within 24 hours for continued treatment is not a
          discharge under this contract.

6.3.5     HMO insolvency or receivership. HMO is responsible for payment of all
          services provided to a person who was a Member on the date of
          insolvency or receivership to the same extent they would otherwise be
          responsible under this Article 6.3.

6.4       CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS

6.4.1     HMO must ensure that the care of newly enrolled Members is not
          disrupted or interrupted. HMO must take special care to provide
          continuity in the care of newly enrolled Members whose health or
          behavioral health condition has been treated by specialty care
          providers or whose health could be placed in jeopardy if care is
          disrupted or interrupted.

6.4.2     Pregnant Members with 12 weeks or less remaining before the expected
          delivery date must be allowed to remain under the care of the Member's
          current OB/GYN through the Member's postpartum checkup even if the
          provider is out-of-network. If the Member wants to change her OB/GYN
          to one who is in the plan, she must be allowed to do so if the
          provider to whom she wishes to transfer agrees to accept her in the
          last trimester.

6.4.3     HMO must pay a Member's existing out-of-network providers for covered
          services until the Member's records, clinical information and care can
          be transferred to a network provider. Payment must be made within the
          time period required for network providers. HMO may pay any
          out-of-network provider a reasonable and

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          customary amount determined by the HMO. This Article does not extend
          the obligation of HMO to reimburse existing out-of-network providers
          of ongoing care for more than 90 days after Member enrolls in HMO or
          for more than nine months in the case of Member who at the time of
          enrollment in HMO, have been diagnosed with and receiving treatment
          for a terminal illness. The obligation of HMO to reimburse the
          Member's existing out-of-network provider for services provided to a
          pregnant Member with 12 weeks or less remaining before the expected
          delivery date extends through delivery of the child, immediate
          postpartum care, and the follow-up checkup within the first six weeks
          of delivery.

6.4.4     HMO must provide or pay out-of-network providers who provide covered
          services to Members who move out of the service area through the end
          of the period for which capitation has been paid.

6.4.5     HMO must provide assistance to providers requiring PCP verification 24
          hours a day 7 days a week.

6.4.5.1   HMO must provide TDH with policies and procedures indicating how the
          HMO will provide PCP verification as indicated in Article 6.4.5. HMOs
          providing PCP verification via telephone must meet the requirements in
          3.7.1

6.5       EMERGENCY SERVICES

6.5.1     HMO must pay for the professional, facility, and ancillary services
          that are medically necessary to perform the medical screening
          examination and stabilization of HMO Member presenting as an
          emergency medical condition or an emergency behavioral health
          condition to the hospital emergency department, 24 hours a day, 7 days
          a week, rendered by either HMO's in-network or out-of-network
          providers. HMO may elect to pay any emergency services provider an
          amount negotiated between the emergency provider and HMO, or a
          reasonable and customary amount determined by the HMO.

6.5.2     HMO must ensure that its network primary care providers (PCPs) have
          after-hours telephone availability 24 hours a day, 7 days a week
          throughout the service area.

6.5.3     HMO cannot require prior authorization as a condition for payment for
          an emergency medical condition, an emergency behavioral health
          condition, or for a labor and delivery.

6.5.4     Medical Screening Examination. A medical screening examination may
          range from a relatively simple history, physical examination,
          diagnosis, and treatment, to a complex examination, diagnosis, and
          treatment that requires substantial use of hospital emergency
          department and physician services. HMO must pay for the

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          emergency medical screening examination required to determine whether
          an emergency condition exists, as required by 42 USC 1395dd. HMOs
          must reimburse for both the physician's services and the hospital's
          emergency services, including the emergency room and its ancillary
          services.

6.5.5     Stabilization Services. HMO must pay for emergency services performed
          to stabilize the Member as documented by the Emergency physician in
          the Member's medical record. HMOs must reimburse for physician's
          services and hospital's emergency services including the emergency
          room and its ancillary services. With respect to an emergency medical
          condition, to stabilize is to provide such medical care as to assure
          within reasonable medical probability that no deterioration of the
          condition is likely to result from or occur during discharge,
          transfer, or admission of the Member from the emergency room.

6.5.6     Post-stabilization Services. Post-stabilization services are services
          subsequent to an emergency that a treating physician views as
          medically necessary after an emergency medical condition has been
          stabilized. They are not "emergency services" and are subject to HMO's
          prior authorization process. HMO must be available to authorize or
          deny post-stabilization services within one hour after being contacted
          by the treating physician.

6.5.7     HMO must provide access to the TDH-designated Level I and Level II
          trauma centers within the State or hospitals meeting the equivalent
          level of trauma care. HMO may make out-of-network reimbursement
          arrangements with the TDH-designated Level I and Level II trauma
          centers to satisfy this access requirement.

6.6       BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS

6.6.1     HMO must provide or arrange to have provided to Members all behavioral
          health care services included as covered services. HMO is responsible
          for Behavioral health services provided by PCPs and other physicians
          within the scope of their license. This includes screening for
          behavioral health problems and arranging for or providing diagnosis,
          treatment and medication management to STAR Members. PCPs are expected
          to screen children for behavioral health problems as part of the
          THSteps medical checkups, to screen adults during adult well checks,
          and to provide treatment or referral to the NorthSTAR Program, as
          medically appropriate.

          Also included under HMO Capitation Payment:

6.6.1.1   Ambulatory laboratory and X-ray services related to behavioral health,
          diagnosis and treatment.

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6.6.1.2   Inpatient laboratory and X-ray services when the inpatient stay is
          covered by the STAR Program.

6.6.1.3   Emergency room facility charges unless provided in a facility
          designated especially for and primarily engaged in the treatment of
          behavioral health emergencies.

6.6.1.4   Emergency medical transportation for behavioral health emergencies.

6.6.1.5   Laboratory tests which are designated by TDH as commonly used in
          behavioral health diagnoses/treatment may be authorized by the BHO and
          do not require prior authorization from HMO.

6.6.1.6   These services are described in detail in the Texas Medicaid Provider
          Procedures Manual (and the Texas Medicaid Bulletins. Clinical
          information regarding covered services are published by the Texas
          Medicaid program in the Texas Medicaid Service Delivery Guide.

6.6.2     HMO must maintain a Member education process to help Members know
          where and how to obtain behavioral health services.

6.6.3     HMO must require its PCPs to have medical history, screening and
          evaluation procedures for behavioral health problems and disorders and
          either treat or refer the Member for evaluation and treatment of known
          or suspected behavioral health problems and disorders. PCPs may
          provide any clinically appropriate behavioral health services within
          the scope of their practice.

6.6.4     HMO must establish policies and procedures that require PCP and
          behavioral health providers to coordinate HMO and behavioral health
          organization (BHO) covered services.

6.6.5     HMO must have policies and procedures which allow confidential
          information to be shared by the PCP and the behavioral health care
          providers.

6.6.6     HMO must execute a Memorandum of Agreement (MOA) with
          NorthStar-contracted BHOs in the service area. The MOA must contain
          provisions for coordination of care and must address the following:

6.6.6.1   How HMO and BHO will provide education to Members regarding the
          services that each will provide and how the Member can access the
          services;

6.6.6.2   How HMO and BHO will provide education and information to providers
          regarding which entity is responsible for claims processing and
          payment;

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6.6.6.3   How emergency services will be paid and coordinated;

6.6.6.4   Guidelines and procedures to monitor accessibility, availability,
          referral and coordination to medically necessary and appropriate
          physical and behavioral health care for Members with both physical and
          behavioral health problems; and how claims will be processed and paid;

6.6.6.5   Members utilization of prescribed medicines from both HMO and BHO to
          monitor psychopharmacological medications and prevent adverse drug
          reactions;

6.6.6.6   Identify persons in HMO and BHO to coordinate services and provide
          assistance to their respective providers;

6.6.6.7   How each entity will provide guidelines and education to providers
          regarding the exchange of confidential medical record information,
          with Member permission, between the PCPs and the behavioral health
          providers, including mechanisms to protect confidentiality of medical
          records;

6.6.6.8   Collaboration on any joint Quality Improvement studies, reviews or
          other State required projects.

6.6.7     HMO must establish and implement policies and procedures to facilitate
          its network PCPs to refer Members for BHO services.

6.6.8     When assessing Members for behavioral health services, HMO must use
          the DSM-IV multi-axial classification and report axes I, II, III, IV,
          and V to TDH. TDH may require use of other assessment instrument/
          outcome measures in addition to the DSM-IV. Providers must document
          DSM-IV and assessment/outcome information in the Member's medical
          record.

6.7       FAMILY PLANNING - SPECIFIC REQUIREMENTS

6.7.1     Counseling and Education. HMO must require, through contract
          provisions, that Members requesting contraceptive services or family
          planning services are also provided counseling and education about
          family planning and family planning services available to Members. HMO
          must develop outreach programs to increase community support for
          family planning and encourage Members to use available family planning
          services. HMO is encouraged to include a representative cross section
          of Members and family planning providers who practice in the community
          in developing, planning and implementing family planning outreach
          programs.

6.7.2     Freedom of Choice: HMO must ensure that the Member have the right to
          choose any Medicaid participating family planning provider, whether
          the provider chosen

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          by the Member is in or outside HMO provider network. HMO must provide
          Member access to information about the providers of family planning
          services available in the network and the Member's right to choose any
          Medicaid family planning provider. HMO must provide access to
          confidential family planning services.

6.7.3     Provider Standards and Payment. HMO must require all Subcontractors
          who are family planning agencies to deliver family planning services
          according to the TDH Family Planning Service Delivery Standards. HMO
          must provide, at minimum, the full scope of services available under
          the Texas Medicaid program for family planning services. HMO will
          reimburse family planning agencies and out-of-network family planning
          providers the Medicaid fee-for service amounts for family planning
          services including medically necessary medications, contraceptives,
          and supplies.

6.7.4     HMO must provide medically approved methods of contraception to
          Members. Contraceptive methods must be accompanied by verbal and
          written instructions on their correct use. HMO must establish
          mechanisms to ensure all medically approved methods of contraception
          are made available to the Member, either directly or by referral to a
          Subcontractor. The following initial Member education content may vary
          according to the educator's assessment of the Member's current
          knowledge:

6.7.4.1   general benefits of family planning services and contraception;

6.7.4.2   information on male and female basic reproductive anatomy and
          physiology;

6.7.4.3   information regarding particular benefits and potential side effects
          and complications of all available contraceptive methods;

6.7.4.4   information concerning all of the health care provider's available
          services, the purpose and sequence of health care provider procedures,
          and the routine schedule of return visits;


6.7.4.5   information regarding medical emergencies and where to obtain
          emergency care on a 24-hour basis;

6.7.4.6   breast self-examination rationales and instructions unless provided
          during physical exam (for females); and

6.7.4.7   information on HIV/STD infection and prevention and safer sex
          discussion.

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6.7.5     HMO must require, through contractual provisions, that subcontractors
          have mechanisms in place to ensure Member's (including minor's)
          confidentiality for family planning services.

6.7.6     HMO must develop, implement, monitor, and maintain standards, policies
          and procedures for providing information regarding family planning to
          providers and Members, specifically regarding State and federal laws
          governing Member confidentiality (including minors). Providers and
          family planning agencies cannot require parental consent for minors to
          receive family planning services.

6.7.7     HMO must report encounter data on family planning services in
          accordance with Article 12.2.

6.8       TEXAS HEALTH STEPS (EPSDT)

6.8.1     THSteps Services. HMO must develop effective methods to ensure that
          children under the age of 21 receive THSteps services when due and
          according to the recommendations established by the American Academy
          of Pediatrics and the THSteps periodicity schedule for children. HMO
          must arrange for THSteps services to be provided to all eligible
          Members except when a Member knowingly and voluntarily declines or
          refuses services after the Member has been provided information upon
          which to make an informed decision.

6.8.2     Member Education and Information. HMO must ensure that Members are
          provided information and educational materials about the services
          available through the THSteps program, and how and when they can
          obtain the services. The information should tell the Member how they
          can obtain dental benefits, transportation services through the TDH
          Medical Transportation program, and advocacy assistance from HMO.

6.8.3     Provider education and training. HMO must provide appropriate training
          to all network providers and provider staff in the providers' area of
          practice regarding the scope of benefits available and the THSteps
          program. Training must include THSteps benefits, the periodicity
          schedule for THSteps checkups and immunizations, and Comprehensive
          Care Program (CCP) services available under the THSteps program to
          Members under age 21 years. Providers must also be educated and
          trained regarding the requirements imposed upon the department and
          contracting HMOs under the Consent Decree entered in Frew v. McKinney,
          et. al., Civil Action No. 3:93CV65, in the United States District
          Court for the Eastern District of Texas, Paris Division. Providers
          should be educated and trained to treat each THSteps visit as an
          opportunity for a comprehensive assessment of the Member.

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6.8.4     Member Outreach. HMO must provide an outreach unit that works with
          Members to ensure they receive prompt services and are effectively
          informed about available THStep services. Each month HMO must retrieve
          from the Enrollment Broker BBS a list of Members who are due and
          overdue THSteps services. Using these lists and their own internally
          generated lists, HMOs will contact Members and encourage Members who
          are periodically due or overdue a THSteps service to obtain the
          service as soon as possible. HMO outreach staff must coordinate with
          TDH THSteps outreach staff to ensure that Members have access to the
          Medical Transportation Program, and that any coordination with other
          agencies is maintained.

6.8.5     Initial Checkups upon enrollment. HMO must have mechanisms in place to
          ensure that all newly enrolled Members receive a THSteps checkup
          within 90 days from enrollment, if one is due according to the
          American Academy of Pediatrics periodicity schedule, or if there is
          uncertainty regarding whether one is due. HMO should make THSteps
          checkups a priority to all newly enrolled Members.

6.8.6     Accelerated Services to Migrant Populations. HMO must cooperate and
          coordinate with the department, outreach programs and THSteps
          regional program staff and agents to ensure prompt delivery of
          services to children of migrant farm workers and other migrant
          populations who may transition into and out of HMOs program more
          rapidly and/or unpredictably than the general population.

6.8.7     Newborn checkups. HMO must have mechanisms in place to ensure that all
          newborn Members have an initial newborn checkup before discharge from
          the hospital and again within two weeks from the time of birth. HMO
          must require providers to send all THSteps newborn screens to the TDH
          Bureau of Laboratories or a TDH certified laboratory. Providers must
          include detailed identifying information for all screened newborn
          Members and the Member's mother to allow TDH to link the screens
          performed at the hospital with screens performed at the two week
          follow-up.

6.8.7.1   Laboratory Tests: All laboratory specimens collected as a required
          component of a THSteps checkup (see Medicaid Provider Procedures
          Manual for age-specific requirements) must be submitted to the TDH
          Laboratory for analysis. HMO must educate providers about THSteps
          program requirements for submitting laboratory tests to the TDH Bureau
          of Laboratories.

6.8.8     Coordination and Cooperation. HMO must make an effort to coordinate
          and cooperate with existing community and school-based health and
          education programs that offer services to school-aged children in a
          location that is both familiar and convenient to the Members. HMO must
          make a good faith effort to comply with Head Start's requirement that
          members participating in Head Start

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          receive their THSteps checkup no later than 45 days after enrolling
          into either program.

6.8.9     Immunizations. HMO must educate providers on the Immunization Standard
          Requirements set forth in Chapter 161, Health and Safety Code; the
          standards in the ACIP Immunization Schedule; and AAP Periodicity
          Schedule.

6.8.9.1   ImmTrac Compliance. HMO must educate providers about and require
          providers to comply with the requirements of Chapter 161, Health and
          Safety Code, relating to the Texas Immunization Registry (ImmTrac), to
          include parental consent on the Vaccine Information Statement.

6.8.10    Claim forms. HMO must require all THSteps providers to submit claims
          for services paid (either on a capitated or fee-for service basis) on
          the HCFA 1500 claim form and use the unique procedure coding required
          by TDH.

6.8.11    Compliance with THSteps performance Benchmark. TDH will establish
          performance benchmarks against which HMO's full compliance with the
          THSteps periodicity schedule will be measured. The performance
          benchmarks will establish minimum compliance measures which will
          increase over time. HMO must meet all performance benchmarks required
          for THSteps services.

6.8.12    Validation of Encounter Data. Encounter data will be validated by
          chart review of a random sample of THSteps eligible enrollees against
          monthly encounter data reported by HMO. Chart reviews will be
          conducted by TDH to validate that all screens are performed when due
          and as reported, and that reported data is accurate and timely.
          Substantial deviation between reported and charted encounter data
          could result in HMO and/or network providers being investigated for
          potential fraud and abuse without notice to HMO or the provider.

6.9       PERINATAL SERVICES

6.9.1     HMO's perinatal health care services must ensure appropriate care is
          provided to women and infants who are Members of HMO, from the
          preconception period through the infant's first year of life. HMO's
          perinatal health care system must comply with the requirements of
          Health & Safety Code, Chapter 32 Maternal and Infant Health
          Improvement Act and 25 TAC Section 37.233 et seq.

6.9.2     HMO must have a perinatal health care system in place that, at a
          minimum, provides the following services:

6.9.2.1   pregnancy planning and perinatal health promotion and education for
          reproductive age women;

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6.9.2.2   perinatal risk assessment of nonpregnant women, pregnant and
          postpartum women, and infants up to one year of age;

6.9.2.3   access to appropriate levels of care based on risk assessment,
          including emergency care;

6.9.2.4   transfer and care of pregnant women, newborns, and infants to tertiary
          care facilities when necessary;

6.9.2.5   availability and accessibility of obstetricians/gynecologists;
          anesthesiologists, and neonatologists capable of dealing with
          complicated perinatal problems;

6.9.2.6   availability and accessibility of appropriate outpatient and inpatient
          facilities capable of dealing with complicated perinatal problems; and

6.9.2.7   compiles, analyzes and reports process and outcome data of Members to
          TDH.

6.9.3     HMO must have a process to expedite scheduling a prenatal appointment
          for an obstetrical exam for a TP40 Member no later than two weeks
          after receiving the daily enrollment file verifying enrollment of the
          Member into the HMO.

6.9.4     HMO must have procedures in place to contact and assist a
          pregnant/delivering Member in selecting a PCP for her baby either
          before the birth or as soon as the baby is born.

6.9.5     HMO must provide inpatient care and professional services related to
          labor and delivery for its pregnant/delivering Members and neonatal
          care for its newborn Members (see Article 14.3.1) at the time of
          delivery and for up to 48 hours following an uncomplicated vaginal
          delivery and 96 hours following an uncomplicated Caesarian delivery.

6.9.5.1   HMO must reimburse in-network providers, out-of-network providers, and
          speciality physicians who are providing call coverage, routine, and/or
          speciality consultation services for the period of time covered in
          Article 6.9.5.

6.9.5.1.1 HMO must adjudicate provider claims for services provided to a newborn
          Member in accordance with TDH's claims processing requirements using
          the proxy ID number or State-issued Medicaid ID number (see Article
          4.10). HMO cannot deny claims based on provider non-use of
          State-issued Medicaid ID number for a newborn Member. HMO must accept
          provider claims for newborn services based on mother's name and/or
          Medicaid ID number with accommodations for multiple births, as
          specified by the HMO.

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6.9.5.2   HMO cannot require prior authorization or PCP assignment to adjudicate
          newborn claims for the period of time covered by 6.9.5

6.9.6     HMO may require prior authorization requests for hospital or
          professional services provided beyond the time limits in Article
          6.9.5. HMO must respond to these prior authorization requests within
          the requirements of 28 TAC Section 19.1710 - 19.1712 and Article
          21.58a of the Texas Insurance Code.

6.9.6.1   HMO must notify providers involved in the care of pregnant/delivering
          women and newborns (including out-of-network providers and hospitals)
          regarding the HMO's prior authorization requirements.

6.9.6.2   HMO cannot require a prior authorization for services provided to a
          pregnant/delivering Member or newborn Member for a medical condition
          which requires emergency services, regardless of when the emergency
          condition arises (see Article 6.5.6).

6.10      EARLY CHILDHOOD INTERVENTION

6.10.1    ECI Services. HMO must provide all federally mandated services
          contained at 34 C.F.R. 303.1 et. seq., and 25 TAC Section 621.21 et.
          seq., relating to identification, referral and delivery of health care
          services contained in the Member's Individual Family Service Plan
          (IFSP). An IFSP is the written plan which identifies a Member's
          disability or chronic or complex conditions(s) or developmental delay,
          and describes the course of action developed to meet those needs, and
          identifies the person or persons responsible for each action in the
          plan. The plan is a mutual agreement of the Member's Primary Care
          Physician (PCP), Case Manager, and the Member/family, and is part of
          the Member's medical record.

6.10.2    ECI Providers. HMO must contract with qualified providers to provide
          ECI services to Members under age 3 with developmental delays. HMO may
          contract with local ECI programs or non-ECI providers who meet
          qualifications for participation by the Texas Interagency Council on
          Early Childhood Intervention to provide ECI services.

6.10.3    Identification and Referral. HMO must ensure that network providers
          are educated regarding the identification of Members under age 3 who
          have or are at risk for having disabilities and/or developmental
          delays. HMO must use written education material developed or approved
          by the Texas Interagency Council on Early Childhood Intervention. HMO
          must ensure that all providers refer identified Members to ECI service
          providers within two working days from the day the Member is
          identified. Eligibility for ECI services is determined by the local
          ECI program using the criteria contained in 25 TAC Section 621.21 et.
          seq.

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6.10.4    Coordination. HMO must coordinate and cooperate with local ECI
          programs which perform assessment in the development of the Individual
          Family Service Plan (IFSP), including ongoing case management and
          other non-capitated services required by the Member's IFSP.
          Cooperation includes conducting medical diagnostic procedures and
          providing medical records required to perform developmental
          assessments and develop the IFSP within the time lines established at
          34 C.F.R. 303.1 et. seq. ECI case management is not an HMO capitated
          service.

6.10.5    Intervention. HMO must require, through contract provisions, that all
          medically necessary health and behavioral health services contained in
          the Member's IFSP are provided to the Member in amount, duration and
          scope established by the IFSP. Medical necessity for health and
          behavioral health services is determined by the interdisciplinary team
          as approved by the Member's PCP. HMO cannot modify the plan of care or
          alter the amount, duration and scope of services required by the
          Member's IFSP. HMO cannot create unnecessary barriers for the Member
          to obtain IFSP services, including requiring prior authorization for
          the ECI assessment and insufficient authorization periods for prior
          authorized services.

6.11      SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND
          CHILDREN (WIC) - SPECIFIC REQUIREMENTS

6.11.1    HMO must coordinate with WIC to provide certain medical information,
          which is necessary to determine WIC eligibility, such as height,
          weight, hematocrit or hemoglobin (See Article 7.15.4.2).

6.11.2    HMO must direct all eligible Members to the WIC program (Medicaid
          recipients are automatically income-eligible for WIC).

6.11.3    HMO must coordinate with existing WIC providers to ensure Members have
          access to the special supplemental nutrition program for women,
          infants and children (WIC), or HMO must provide these services.

6.11.4    HMO may use the nutrition education provided by WIC to satisfy health
          education and promotion requirements described in this contract.

6.12      TUBERCULOSIS (TB)

6.12.1    Education, screening, diagnosis and treatment. HMO must provide
          Members and providers with education on the prevention, detection and
          effective treatment of tuberculosis (TB). HMO must establish
          mechanisms to ensure all procedures required to screen at-risk Members
          and to form the basis for a diagnosis and proper prophylaxis and
          management of TB are available to all Members, except services
          referenced in Article 6.1.8 as non-capitated services. HMO must
          develop policies

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          and procedures to ensure that Members who may be or are at risk for
          exposure to TB are screened for TB. An at-risk Member refers to a
          person who is susceptible to TB because of the association with
          certain risk factors, behaviors, drug resistance, or environmental
          conditions. HMO must consult with the local TB control program to
          ensure that all services and treatments provided by HMO are in
          compliance with the guidelines recommended by the American Thoracic
          Society (ATS), the Centers for Disease Control and Prevention (CDC)
          and TDH policies and standards.

6.12.2    Reporting and referral. HMO must implement policies and procedures
          requiring providers to report all confirmed or suspected cases of TB
          to the local TB control program within one working day of
          identification of a suspected case, using the forms and procedures for
          reporting TB adopted by TDH (25 TAC Section 97). HMO must require,
          that in-state labs report mycobacteriology culture results positive
          for M. Tuberculosis and M. Tuberculosis antibiotic susceptibility to
          TDH required for in-state labs by 25 TAC Section 97.5(a). Referral to
          state-operated hospitals specializing in the treatment of tuberculosis
          should only be made for TB-related treatment.

6.12.3    Medical records. HMO must provide access to Member medical records to
          TDH and the local TB control program for all confirmed and suspected
          TB cases upon request.

6.12.4    Coordination and cooperation with the local TB control program. HMO
          must coordinate with the local TB control program to ensure that all
          Members with confirmed or suspected TB have a contact investigation
          and receive Directly Observed Therapy (DOT). HMO must require, through
          contract provisions, that providers report any Member who is
          non-compliant, drug resistant, or who is or may be posing a public
          health threat to TDH or the local TB control program. HMO must
          cooperate with the local TB control program in enforcing the control
          measures and quarantine procedures contained in Chapter 81 of the
          Texas Health and Safety Code.

6.12.4.1  HMO must have a mechanism for coordinating a post-discharge plan for
          follow-up DOT with the local TB program.

6.12.4.2  HMO must coordinate with the TDH South Texas Hospital and Texas Center
          for Infectious Disease for voluntary and court-ordered admission,
          discharge plans, treatment objectives and projected length of stay for
          Members with multi-drug resistant TB.

6.12.4.3  HMO may contract with the local TB control programs to perform any of
          the capitated services required in this Article.

6.13      PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS

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6.13.1   HMO shall provide the following services to persons with disabilities
         or chronic or complex conditions. These services are in addition to the
         covered services described in detail in Article 6.1 Scope of Services.

6.13.2   HMO must develop and maintain a system and procedures for identifying
         Members who have disabilities or chronic or complex medical and
         behavioral health conditions. Once identified, HMO must have effective
         health delivery systems to provide the covered services to meet the
         special preventive, primary acute, and speciality health care needs
         appropriate for treatment of the individual's condition. The guidelines
         and standards established by the American Academy of Pediatrics, the
         American College of Obstetrics/Gynecologists, the U.S. Public Health
         Service, and other medical and professional health organizations and
         associations' practice guidelines whose standards are recognized by TDH
         must be used in determining the medically necessary services and plan
         of care for each individual.

6.13.3   HMO must require, through contract provisions, that the PCP for all
         persons with disabilities or chronic or complex conditions develops a
         plan of care to meet the needs of the Member. The plan of care must be
         based on health needs, specialist(s) recommendations, and periodic
         reassessment of the Member's developmental and functional status and
         service delivery needs. HMO must require providers to maintain record
         keeping systems to ensure that each Member who has been identified with
         a disability or chronic or complex condition has an initial plan of
         care in the primary care provider's medical records, Member agrees to
         that plan of care, and that the plan is updated as often as the
         Member's needs change, but at least annually.

6.13.4   HMO must provide primary care and specialty care provider network for
         persons with disabilities or chronic or complex conditions. Specialty
         and subspecialty providers serving all Members must be Board
         Certified/Board Eligible in their specialty. HMO may request exceptions
         from TDH for approval of traditional providers who are not
         board-certified or board-eligible but who otherwise meet HMO's
         credentialing requirements.

6.13.5   HMO must have in its network PCPs and specialty care providers that
         have documented experience in treating people with disabilities or
         chronic or complex conditions, including children. For services to
         children with disabilities or chronic or complex conditions, HMO must
         have in its network PCPs and specialty care providers that have
         demonstrated experience with children with disabilities or chronic or
         complex conditions in pediatric specialty centers such as children's
         hospitals, medical schools, teaching hospitals and tertiary center
         levels.

6.13.6   HMO must provide information, education and training programs to
         Members, families, PCPs, specialty physicians, and community agencies
         about the care and

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         treatment available in HMO's plan for Members with disabilities or
         chronic or complex conditions.

6.13.7   HMO must coordinate care and establish linkages, as appropriate for a
         particular Member, with existing community-based entities and services,
         including but not limited to Maternal and Child Health, Chronically Ill
         and Disabled Children's Services (CIDC), the Medically Dependent
         Children Program (MDCP), Community Resource Coordination Groups
         (CRCGs), Interagency Council on Early Childhood Intervention (ECI),
         Home and Community-based Services (HCS and HCS-O), Community Living
         Assistance and Support Services (CLASS), Community Based Alternatives
         (CBA), In Home Family Support, Primary Home Care, Day Activity and
         Health Services (DAHS), Deaf/Blind Multiple Disabled waiver program and
         Medical Transportation Program.

6.13.8   HMO must include TDH approved pediatric transplant centers, TDH
         designated trauma centers, and TDH designated hemophilia centers in
         its provider network. (See Appendices E, F, G for a listing of these
         facilities.)

6.13.9   HMO must ensure Members with disabilities or chronic or complex
         conditions have access to treatment by a multidisciplinary team when
         determined to be medically necessary for effective treatment, or to
         avoid separate and fragmented evaluations and service plans. The teams
         must include both physician and non-physician providers determined to
         be necessary by the Member's PCP for the comprehensive treatment of the
         Member. The team must:

6.13.9.1 Participate in hospital discharge planning;

6.13.9.2 Participate in pre-admission hospital planning for non-emergency
         hospitalizations;

6.13.9.3 Develop specialty care and support service recommendations to be
         incorporated into the primary care provider's plan of care;

6.13.9.4 Provide information to the Member and the Member's family concerning
         the specialty care recommendations; and

6.13.9.5 Develop and implement training programs for primary care providers,
         community agencies, ancillary care providers, and families concerning
         the care and treatment of a Member with a disability or chronic or
         complex conditions.

6.13.10  HMO must identify coordinators of medical care to assist providers who
         serve Members with disabilities and chronic or complex conditions and
         the Members and their families in locating and accessing appropriate
         providers inside and outside HMO's network.

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6.13.11  HMO must assist, through information and referral, eligible Members in
         accessing providers of non-capitated Medicaid services listed in
         Article 6.1.8, as applicable.

6.13.12  HMO must require, through contract provisions, that Members who require
         routine or regular laboratory and ancillary medical tests or procedures
         to monitor disabilities or chronic or complex conditions are provided
         the services by the provider in the provider's office or at a
         contracted lab located at or near the provider's office.

6.14     HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS

6.14.1   Health Education Plan. HMO must develop, implement a Health Education
         plan. The health education plan must tell Members how HMO system
         operates, how to obtain services, including emergency care and
         out-of-plan services. The plan must emphasize the value of screening
         and preventive care and must contain disease-specific information and
         educational materials.

6.14.2   Wellness Promotion Programs. HMO must conduct wellness promotion
         programs to improve the health status of its Members. HMO may
         cooperatively conduct Health Education classes for all enrolled STAR
         members with one or more HMOs also contracting with TDH in the service
         area to provide services to Medicaid recipients in all counties of the
         service area. Providers and HMO staff must integrate health education
         wellness and prevention training into the care of each Member. HMO must
         provide a range of health promotion and wellness information and
         activities for Members in formats that meet the needs of all Members.
         HMO must:

         (1) develop, maintain and distribute health education services
         standards, policies and procedures to providers;

         (2) monitor provider performance to ensure the standards for health
         education services are complied with;

         (3) inform providers in writing about any non-compliance with the plan
         standards, policies or procedures;

         (4) establish systems and procedures that ensure that provider's
         medical instruction and education on preventive services provided to
         the Member are documented in the Member's medical record; and

         (5) establish mechanisms for promoting preventive care services to
         Members who do not access care, e.g. newsletters, reminder cards, and
         mail-outs.

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6.14.3   Health Education Activities Report. HMO must submit, upon request, a
         Health Education Activities Schedule to TDH or its designee listing the
         time and location of classes, health fairs or other events conducted
         during the time period of the request.

6.15     SEXUALLY TRANSMITTED DISEASES (STDS) AND HUMAN IMMUNODEFICIENCY VIRUS
         (HIV)

         HMO must provide STD services that include STD/HIV prevention,
         screening, counseling, diagnosis, and treatment. HMO is responsible for
         implementing procedures to ensure that Members have prompt access to
         appropriate services for STDs, including HIV.

6.15.1   HMO must allow Members access to STD services and HIV diagnosis
         services without prior authorization or referral by PCP. HMO must
         comply with Texas Family Code Section 32.003, relating to consent to
         treatment by a child.

6.15.2   HMO must provide all covered services required to form the basis for a
         diagnosis and treatment plan for STD/HIV by the provider.

6.15.3   HMO must consult with TDH regional public health authority to ensure
         that Members receiving clinical care of STDs, including HIV, are
         managed according to a protocol which has been approved by TDH. (Also
         see Article 7.15.1, relating to cooperative agreements with public
         health authorities.)

6.15.4   HMO must make education available to providers and Members on the
         prevention, detection and effective treatment of STDs, including HIV.

6.15.5   HMO must require providers to report all confirmed cases of STDs,
         including HIV, to the local or regional health authority according to
         25 Texas Administrative Code, Sections 97.131-97.134, using the
         required forms and procedures for reporting STDs.

6.15.6   HMO must coordinate with the TDH regional health authority to ensure
         that Members with confirmed cases of syphilis, chancroid, gonorrhea,
         chlamydia and HIV receive risk reduction and partner
         elicitation/notification counseling. Coordination must be included in
         the subcontract required by Article 7.15.1. HMO may contract with local
         or regional health authorities to perform any of the covered services
         required in this subsection.

6.15.7   HMO's PCPs may enter into contracts or agreements with traditional HIV
         service providers in the service area to provide services such as case
         management, psychosocial support and other services. If the service
         provided is a covered

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         service under this contract, the contract or agreement must include
         payment provisions.

6.15.8   The subcontract with the respective TDH regional offices and city and
         county health departments, as described in Article 7.15.1, must
         include, but not be limited to, the following topics:

6.15.8.1 Access for Case Investigation. Procedures must be established to make
         Member records available to public health agencies with authority to
         conduct disease investigation, receive confidential Member information,
         and follow up.

6.15.8.2 Medical Records and Confidentiality. HMO must require, through
         contract provisions, that providers have procedures in place to protect
         the confidentiality of Members provided STD/HIV services. These
         procedures must include, but are not limited to, the manner in which
         medical records are to be safeguarded; how employees are to protect
         medical information; and under what conditions information can be
         shared. HMO must inform and require its providers, who provide STD/HIV
         services, to comply with all state laws relating to communicable
         disease reporting requirements. HMO must implement policies and
         procedures to monitor provider compliance with confidentiality
         requirements.

6.15.8.3 Partner referral and treatment. Members who are named as contacts to an
         STD, including HIV, should be evaluated and treated according to HMO's
         protocol. All protocols must be approved by TDH. HMO's providers must
         coordinate referral of non-Member partners to local and regional health
         department STD staff.

6.15.8.4 Informed consent and counseling. HMO must have policies and procedures
         in place regarding obtaining informed consent and counseling Members.
         The Subcontracts with providers who treat HIV patients must include
         provisions requiring the provider to refer Members with HIV infection
         to public health agencies for in-depth prevention counseling, ongoing
         partner elicitation and notification services and other prevention
         support services. The Subcontracts must also include provisions that
         require the provider to direct counsel or refer an HIV infected member
         about the need to inform and refer all sex and/or needle-sharing
         partners that might have been exposed to the infection for prevention
         counseling and antibody testing.

6.16     BLIND AND DISABLED MEMBERS

6.16.1   HMO must arrange for all covered health and health related services
         required under this contract for all voluntarily enrolled Blind and
         Disable Members. HMO has the discretion to determine if Blind and
         Disabled Members are to be provided value-added services.

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6.16.2   HMO must perform the same administrative services and functions as are
         performed for mandatory Members under this contract. These
         administrative services and functions include but are not limited to:

6.16.2.1 Prior authorization of services;

6.16.2.2 All customer services functions offered Members in Mandatory
         participation categories, including complaint process, enrollment
         services, and hotline services;

6.16.2.3 Linguistic services, including providing Member materials in
         alternative formats for the blind and disabled;

6.16.2.4 Health education;

6.16.2.5 Utilization management using TDH Claims Administrator encounter data to
         provide appropriate interventions for Members through administrative
         case management;

6.16.2.6 Quality assurance activities as needed and focused studies as required
         by TDH;

6.16.2.7 Coordination to link Blind and Disabled Members with applicable
         community resources and targeted case management programs (see
         Non-Capitated Services in Article 6.1.8).

6.16.3   HMO must require network providers to submit claims for health and
         health-related services to TDH's Claims Administrator for claims
         adjudication and payment.

6.16.4   HMO must provide services to Blind and Disabled Members within HMO's
         network unless necessary services are unavailable within network. HMO
         must also allow referrals to out-of network providers if necessary
         services are not available within HMO's network. Records must be
         forwarded to Member's PCP following a referral visit.

ARTICLE VII PROVIDER NETWORK REQUIREMENTS

7.1      PROVIDER ACCESSIBILITY

7.1.1    HMO must enter into written contracts with properly credentialed health
         care service providers. The names of all providers must be submitted to
         TDH as part of HMO subcontracting process. HMO must have its own
         credentialing process to review, approve and periodically recertify the
         credentials of all participating

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         providers in compliance with 28 TAC 11.1902, relating to credentialing
         of providers in HMOs.

7.1.2    HMO must require tax I.D. numbers from all providers. HMO is required
         to do backup withholding from all payments to providers who fail to
         give tax I.D. numbers, or who give incorrect numbers.

7.1.3    Timeframes for Access Requirements. HMO must have sufficient network
         providers and establish procedures to ensure Members have access to
         routine, urgent, and emergency services; telephone appointments; advice
         and Member service lines. These services must be accessible to Members
         within the following timeframes:

7.1.3.1  Urgent Care within 24 hours of request;

7.1.3.2  Routine care within 2 weeks of request;

7.1.3.3  Physical/Wellness Exams for adults must be provided within 8 to 10
         weeks of the request;

7.1.3.4  HMO must establish policies and procedures to ensure that THSteps
         Checkups be provided within 90 days of new enrollment, except newborns
         Members should be seen within 2 weeks of enrollment, and in all cases
         for all Members be consistent with the American Academy of Pediatrics
         and THSteps periodicity schedule which is based on the American Academy
         of Pediatrics schedule and delineated in the Texas Medicaid Provider
         Procedures Manual and the bi-monthly Medicaid Bulletin (see also
         Article 6.1, Scope of Services). If the Member does not request a
         checkup, HMO must establish a procedure for contacting the Member to
         schedule the checkup.

7.1.4    HMO is prohibited from requiring a provider or provider group to enter
         into an exclusive contracting arrangement with HMO as a condition for
         participation in its provider network.

7.2      PROVIDER CONTRACTS

7.2.1    All providers must have a written contract, either with an intermediary
         entity or an HMO, to participate in the Medicaid program (provider
         contract). HMO must make all contracts available to TDH upon request,
         at the time and location requested by TDH. All standard formats of
         provider contracts must be submitted to TDH for approval no later than
         60 days after the effective date of this contract, unless previously
         filed with TDH. HMO must submit 1 paper copy and 1 electronic copy in a
         form specified by TDH. Any change to the standard format must

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         be submitted to TDH for approval no later than 30 days prior to the
         implementation of the new standard format. All provider contracts are
         subject to the terms and conditions of this contract and must contain
         the provisions of Article V, Statutory and Regulatory Compliance, and
         the provisions contained in Article 3.2.4.

7.2.1.1  TDH has 15 working days to review the materials and recommend any
         suggestions or required changes. If TDH has not responded to HMO by the
         fifteenth day, HMO may execute the contract. TDH reserves the right to
         request HMO to modify any contract that has been deemed approved.

7.2.2    Primary Care Provider (PCP) contracts and specialty care contracts must
         contain provisions relating to the requirements of the provider types
         found in this contract. For example, PCP contracts must contain the
         requirements of Article 7.8 of this contract relating to Primary Care
         Providers.

7.2.3    Provider contracts that are requested by any agency with authority to
         investigate and prosecute fraud and abuse must be produced at the time
         and the place required by TDH or the requesting agency. Provider
         contracts requested in response to public information request must be
         produced within 48 hours of the request. Requested contracts and all
         related records must be provided free of charge to the requesting
         agency.

7.2.4    The form and substance of all provider contracts are subject to
         approval by TDH. TDH retains the authority to reject or require changes
         to any contract that do not comply with the requirements or duties and
         responsibilities of this contract. HMO REMAINS RESPONSIBLE FOR
         PERFORMING AND FOR ANY FAILURE TO PERFORM ALL DUTIES, RESPONSIBILITIES
         AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
         RESPONSIBILITY OR SERVICE IS CONTRACTED TO ANOTHER FOR ACTUAL
         PERFORMANCE.

7.2.5    TDH reserves the right and retains the authority to make reasonable
         inquiry and conduct investigations into patterns of provider and Member
         complaints against HMO or any intermediary entity with whom HMO
         contracts to deliver health services under this contract. TDH may
         impose appropriate sanctions and contract remedies to ensure HMO
         compliance with the provisions of this contract.

7.2.6    HMO must not restrict a provider's ability to provide opinions or
         counsel to a Member with respect to benefits, treatment options, and
         provider's change in network status.

7.2.7    To the extent feasible within HMO's existing claims processing systems,
         HMO should have a single or central address to which providers must
         submit claims. If a central processing center is not possible within
         HMO's existing claims processing

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         systems, HMO must provide each network provider a complete list of all
         entities to whom the providers must submit claims for processing and/or
         adjudication. The list must include the name of the entity, the address
         to which claims must be sent, explanation for determination of the
         correct claims payer based on services rendered, and a phone number the
         provider may call to make claims inquiries. HMO must notify providers
         in writing of any changes in the claims filing list at least 30 days
         prior to the effective date of change. If HMO is unable to provide 30
         days notice, providers must be given a 30-day extension on their claims
         filing deadline to ensure claims are routed to correct processing
         center.

7.2.8    HMO, all IPAs, and other intermediary entities must include contract
         language which substantially complies with the following standard
         contract provisions in each Medicaid provider contract. This language
         must be included in each contract with an actual provider of services,
         whether through a direct contract or through intermediary provider
         contracts:

7.2.8.1  [Provider] is being contracted to deliver Medicaid managed care under
         the TDH STAR program. HMO must provide copies of the TDH/HMO Contract
         to the provider upon request. [Provider] understands that services
         provided under this contract are funded by State and federal funds
         under the Medicaid program. Provider is subject to all state and
         federal laws, rules and regulations that apply to all persons or
         entities receiving state and federal funds. [Provider] understands that
         any violation by a provider of a State or federal law relating to the
         delivery of services by the provider under this HMO/Provider contract,
         or any violation of the TDH/HMO contract could result in liability for
         money damages, and or civil or criminal penalties and sanctions under
         state and/or federal law.

7.2.8.2  [Provider] understands and agrees that HMO has the sole responsibility
         for payment of covered services rendered by the provider under
         HMO/Provider contract. In the event of HMO insolvency or cessation of
         operations, [Provider's] sole recourse is against HMO through the
         bankruptcy, conservatorship, or receivership estate of HMO.

7.2.8.3  [Provider] understands and agrees TDH is not liable or responsible for
         payment for any Medicaid covered services provided to mandatory Members
         under HMO/Provider contract. Federal and State laws provide severe
         penalties for any provider who attempts to collect any payment from or
         bill a recipient for a covered service.

7.2.8.4  [Provider] agrees that any modification, addition, or deletion of the
         provisions of this contract will become effective no earlier than 30
         days after HMO notifies TDH of the change in writing. If TDH does not
         provide written approval within 30 days from receipt of notification
         from HMO, changes can be considered

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         provisionally approved, and will become effective. Modifications,
         additions or deletions which are required by TDH or by changes in state
         or federal law are effective immediately.

7.2.8.5  This contract is subject to all state and federal laws and regulations
         relating to fraud and abuse in health care and the Medicaid program.
         [Provider] must cooperate and assist TDH and any state or federal
         agency that is charged with the duty of identifying, investigating,
         sanctioning or prosecuting suspected fraud and abuse. [Provider] must
         provide originals and/or copies of any and all information, allow
         access to premises and provide records to TDH or its authorized
         agent(s), THHSC, HCFA, the U.S. Department of Health and Human
         Services, FBI, TDI, and the Texas Attorney General's Medicaid Fraud
         Control Unit, upon request, and free of charge. [Provider] must report
         any suspected fraud or abuse including any suspected fraud and abuse
         committed by HMO or a recipient to TDH for referral to THHSC.

7.2.8.6  [Provider] is required to submit proxy claims forms to HMO for services
         provided to all STAR Members that are capitated by HMO in accordance
         with the encounter data submissions requirements established by HMO and
         TDH.

7.2.8.7  HMO is prohibited from imposing restrictions upon the provider's free
         communication with Members about a Member's medical conditions,
         treatment options, HMO referral policies, and other HMO policies,
         including financial incentives or arrangements and all STAR managed
         care plans with whom Provider contracts.

7.2.8.8  The Texas Medicaid Fraud Control Unit must be allowed to conduct
         private interviews of [Provider] and its employees, contractors, and
         patients. Requests for information must be complied within the form and
         the language requested. [Provider] and its employees and contractors
         must cooperate fully in making themselves available in person for
         interviews, consultation, grand jury proceedings, pre-trial conference,
         hearings, trial and in any other process, including investigations.
         Compliance with this Article is at HMO's and provider's own expense.

7.2.8.9  HMO must include the method of payment and payment amounts in all
         provider contracts.

7.2.8.10 All provider clean claims must be adjudicated within 30 days. HMO must
         pay provider interest on all clean claims that are not paid within 30
         days at a rate of 1.5% per month (18% annual) for each month the claim
         remains unadjudicated.

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7.2.8.11 HMO must prohibit network providers from interfering with or placing
         liens upon the state's right or HMOs right, acting as the state's
         agent, to recovery from third party resources. HMO must prohibit
         network providers from seeking recovery in excess of the Medicaid
         payable amount or otherwise violating state and federal laws.

7.2.9    HMO must comply with the provisions of Chapter 20A Section 18A of HMO
         Act relating to Physician and Provider contracts, except Subpart (e),
         which relates to capitation payments.

7.2.10   HMO must include its complaint and appeals process which complies with
         Article 7.6 of this contract relating to Provider Complaint System in
         all subcontracts. HMO's complaint and appeals process must be the same
         for all contractors.

7.2.11   HMO must notify TDH no later than 90 days prior to terminating any
         subcontract affecting a major performance function of this contract. If
         HMO seeks to terminate a provider's contract for imminent harm to
         patient health, actions against a license or practice, or fraud,
         contract termination may be immediate. TDH will require assurances that
         any contract termination will not result in an interruption of an
         essential service or major contract function.

7.3      PHYSICIAN INCENTIVE PLANS

7.3.1    HMO may operate a physician incentive plan only if 1) no specific
         payment may be made directly or indirectly under a physician incentive
         plan to a physician or physician group as an inducement to reduce or
         limit medically necessary services furnished to a Member, and 2) the
         stop-loss protection, enrollee surveys and disclosure requirements of
         this Article are met.

7.3.2    HMO must disclose to TDH information required by federal regulations
         found at 42 C.F.R. Section 417.479. The information must be disclosed
         in sufficient detail to determine whether the incentive plan complies
         with the requirements at 42 C.F.R. Section 417.479. The disclosure must
         contain the following information:

7.3.2.1  Whether services not furnished by a physician or physician group
         (referral services) are covered by the incentive plan. If only services
         furnished by the physician or physician group are covered by the
         incentive plan, disclosure of other aspects of the incentive plan are
         not required to be disclosed.

7.3.2.2  The type of incentive arrangement (e.g. withhold, bonus, capitation).

7.3.2.3  The percent of the withhold or bonus, if the incentive plan involves a
         withhold bonus.

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7.3.2.4  whether the physician or physician group has evidence of a stop-loss
         protection, including the amount and type of stop-loss protection.

7.3.2.5  The panel size and the method used for pooling patients, if patients
         are pooled.

7.3.2.6  The results of Member and disenrollee surveys, if HMO is required under
         42 C.F.R. Section 417.479 to conduct Member and disenrollee surveys.

7.3.3    HMO must submit the information required in 7.3.2.1 - 7.3.2.5 to TDH by
         the effective date of this contract and each anniversary date of the
         contract.

7.3.4    HMO must submit the information required in 7.3.2.6 one year after the
         effective date of initial contract or effective date of renewal
         contract, and annually each subsequent year under the contract. HMO's
         who put physicians or physician groups at substantial financial risk,
         as defined in 42 C.F.R. Section 417.479, must conduct a survey of all
         Members who have voluntarily disenrolled in the previous year. A list
         of voluntary disenrollees may be obtained from the Enrollment Broker.

7.3.5    HMO must provide Members with information regarding Physician Incentive
         Plans upon request. The information must include the following:

7.3.5.1  whether HMO uses physician incentive plan that covers referral
         services;

7.3.5.2  the type of incentive arrangement (i.e., withhold, bonus, capitation);

7.3.5.3  whether stop-loss protection is provided; and,

7.3.5.4  results of enrollee and disenrollee surveys, if required under 42
         C.F.R. Section 417.479.

7.3.5.5  HMO must ensure that IPAs and ANHCs with whom HMO contracts comply with
         the above requirements. HMO is required to meet above requirements for
         all levels of subcontracting.

7.4      PROVIDER MANUAL AND PROVIDER TRAINING

7.4.1    HMO must prepare and issue a Provider Manual(s), including any
         necessary specialty manuals, to the providers in HMO network and to
         newly contracted providers in HMO network within five (5) working days
         from inclusion of the provider into the network. The Provider Manual
         must contain sections relating to special requirements of the STAR
         Program as required under this contract. See Appendix D, Required
         Critical Elements, for specific details regarding content requirements

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         Provider Manual and any revisions must be approved by TDH prior to
         publication and distribution to providers (see Article 3.4.1 regarding
         the process for plan materials review).

7.4.2    HMO must provide training to all network providers and their staff
         regarding the requirements of the TDH/HMO contract and special needs
         of STAR Members.

7.4.2.1  HMO training for all providers must be completed no later than 30 days
         after placing a newly contracted provider on active status. HMO must
         provide on-going training to new and existing providers as required by
         HMO or TDH to comply with this contract.

7.4.2.2  HMO must include in training for contracted PCPs how to screen for and
         identify behavioral health disorders, HMO's referral process to
         behavioral health services and clinical coordination requirements for
         behavioral health. HMO must include training on coordination and
         quality of care such as behavioral health screening techniques for PCPs
         and new models of behavioral health interventions.

7.4.3    HMO must provide primary care providers with screening tools and
         instruments approved by TDH.

7.4.4    HMO must maintain and make available upon request enrollment or
         attendance rosters dated and signed by each attendee or other written
         evidence of training of each network provider and their staff.

7.4.5    HMO must have its written policies and procedures for the screening,
         assessment and referral processes between behavioral health providers
         and physical medicine providers available for TDH review prior to the
         effective date of this contract.

7.5      MEMBER PANEL REPORTS

         HMO must furnish each PCP with a current list of enrolled Members
         enrolled or assigned to that Provider no later than 5 days after HMO
         receives the Enrollment File from the Enrollment Broker each month. If
         the 5th day falls on a weekend or state holiday, the file must be
         provided by the following working day.

7.6      PROVIDER COMPLAINT AND APPEAL PROCEDURES

7.6.1    HMO must develop, implement and maintain a provider complaint system.
         The complaint and appeals procedure must be in compliance with all
         applicable state and federal law or regulations. All Member complaints
         and/or appeals of an adverse determination request by the enrollee, or
         any person acting on behalf of the enrollee, or physician or provider
         acting on behalf of the enrollee must comply with the

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         provisions of this Article. Modifications and amendments to the
         complaint system must be submitted to TDH no later than 30 days prior
         to the implementation of the modification or amendment.

7.6.2    HMO must include the provider complaint and appeal procedure in all
         network provider contracts.

7.6.3    HMO's complaint and appeal process cannot contain provisions requiring
         a provider to submit a complaint or appeal to TDH for resolution in
         lieu of the HMO's process.

7.6.4    HMO must establish mechanisms to ensure that network providers have
         access to a person who can assist providers in resolving issues
         relating to claims payment, plan administration, education and
         training, and complaint procedures.

7.7      PROVIDER QUALIFICATIONS - GENERAL

         The providers in HMO network must meet the following qualifications:

FQHC            A Federally Qualified Health Center meets the standards
                established by federal rules and procedures. The FQHC must
                also be an eligible provider enrolled in the Medicaid.

Physician       An individual who is licensed to practice medicine as an MD or
                a DO in the State of Texas either as a primary care provider
                or in the area of specialization under which they will provide
                medical services under contract with HMO; who is a provider
                enrolled in the Medicaid; who has a valid Drug Enforcement
                Agency registration number, and a Texas Controlled Substance
                Certificate, if either is required in their practice.

Hospital        An institution licensed as a general or special hospital by
                the State of Texas under Chapter 241 of the Health and Safety
                Code which is enrolled as a provider in the Texas Medicaid
                Program. HMO will require that all facilities in the network
                used for acute inpatient specialty care for people under age
                21 with disabilities or chronic or complex conditions will
                have a designated pediatric unit; 24 hour laboratory and blood
                bank availability; pediatric radiological capability; meet
                JCAHO standards; and have discharge planning and social
                service units.

Non-Physician   An individual holding a license issued by the applicable
Practitioner    licensing agency of the State of Texas who is enrolled in the
Provider        Texas Medicaid Program.


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Clinical          An entity having a current certificate issued under the
Laboratory        Federal Clinical Laboratory Improvement Act (CLIA), and is
                  enrolled in the Texas Medicaid Program.

Rural Health      An institution which meets all of the criteria for designation
Clinic (RHC)      as a rural health clinic and is enrolled in the Texas Medicaid
                  Program.

Local Health      A local health department established pursuant to Health and
Department        Safety Code, Title 2, Local Public Health Reorganization Act
                  Section 121.031 ff.

Non-Hospital      A provider of health care services which is licensed and
Facility          credentialed to provide services and is enrolled in the Texas
Provider          Medicaid Program.

School Based      Clinics located at school campuses that provide on site
Health Clinic     primary and preventive care to children and adolescents.
(SBHC)

7.8      PRIMARY CARE PROVIDERS

7.8.1    HMO must have a system for monitoring Member enrollment into its plan
         to allow HMO to effectively plan for future needs and recruit network
         providers as necessary to ensure adequate access to primary care and
         specialty care. The Member enrollment monitoring system must include
         the length of time required for Members to access care within the
         network. The monitoring system must also include monitoring after-hours
         availability and accessibility of PCPs.

7.8.2    HMO must maintain a primary care provider network in sufficient numbers
         and geographic distribution to serve a minimum of forty-five percent
         (45%) of the mandatory STAR eligibles in each county of the service
         area. HMO is required to increase the capacity of the network as
         necessary to accommodate enrollment growth beyond the forty-fifth
         percentile (45%).

7.8.3    HMO must maintain a provider network that includes pediatricians and
         physicians with pediatric experience in sufficient numbers and
         geographic distribution to serve eligible children and adolescents in
         the service area and provide timely access to the full scope of
         benefits, especially THSteps checkups and immunizations.

7.8.4    HMO must comply with the access requirements as established by the
         Texas Department of Insurance for all HMOs doing business in Texas,
         except as otherwise required by this contract.

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7.8.5    HMO must have in its provider network physicians with board
         eligibility/certification in pediatrics available for referral for
         Members under the age of 21.

7.8.5.1  Individual PCPs may serve more than 2,000 Members. However, if TDH
         determines that a PCP's Member enrollment exceeds the PCP's
         availability to provide accessible, quality care, TDH may prohibit the
         PCP from receiving further enrollments. TDH may direct HMOs to assign
         or reassign Members to another PCP's panel.

7.8.6    HMO must have PCPs available throughout the service area to ensure that
         no Member must travel more than 30 miles to access the PCP, unless an
         exception to this distance requirement is made by TDH.

7.8.7    HMO's primary care provider network may include providers from any of
         the following practice areas: General Practitioners; Family
         Practitioners; Internists; Pediatricians; Obstetricians/Gynecologists
         (OB/GYN); Advanced Practice Nurses (APNs); Certified Nurse Midwives
         Women Health (CNMs); Physician Assistants (PAs) practicing under the
         supervision of a physician specializing in Family Practice, Internal
         Medicine, Pediatrics or Obstetrics/Gynecology who also qualifies as a
         PCP under this contract; or Federally Qualified Health Centers (FQHCs);
         Rural Health Clinics (RHCs) and similar community clinics; and
         specialists who are willing to provide medical homes to selected
         Members with special needs and conditions (see 7.8.8).

7.8.8    The PCP for a Member with disabilities or chronic or complex conditions
         may be a specialist who agrees to provide PCP services to the Member.
         The specialty provider must agree to perform all PCP duties required in
         the contract and PCP duties must be within the scope of the
         specialist's license. Any interested person may initiate the request
         for a specialist to serve as a PCP for a Member with disabilities or
         chronic or complex conditions.

7.8.9    PCPs must either have admitting privileges at a hospital, which is part
         of HMO network of providers, or make referral arrangements with an HMO
         provider who has admitting privileges to a network hospital.

7.8.10   HMO must require, through contract provisions, that PCPs are accessible
         to Members 24 hours a day, 7 days a week. The following are acceptable
         and unacceptable phone arrangements for contacting PCPs after normal
         business hours.

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                           Acceptable:

                           (1)      Office phone is answered after hours by an
                                    answering service which meets language
                                    requirements of the major population groups
                                    and which can contact the PCP or another
                                    designated medical practitioner. All calls
                                    answered by an answering service must be
                                    returned within 30 minutes.

                           (2)      Office phone is answered after normal
                                    business hours by a recording in the
                                    language of each of the major population
                                    groups served directing the patient to call
                                    another number to reach the PCP or another
                                    provider designated by the PCP. Someone must
                                    be available to answer the designated
                                    provider's phone. Another recording is not
                                    acceptable.

                           (3)      Office phone is transferred after office
                                    hours to another location where someone will
                                    answer the phone and be able to contact the
                                    PCP or another designated medical
                                    practitioner, who can return the call within
                                    30 minutes.

                           Unacceptable:

                           (1)      Office phone is only answered during office
                                    hours.

                           (2)      Office phone is answered after hours by a
                                    recording which tells patients to leave a
                                    message.

                           (3)      Office phone is answered after hours by a
                                    recording which directs patients to go to an
                                    Emergency Room for any services needed.

                           (4)      Returning after-hour calls outside of 30
                                    minutes.

                  7.8.11   HMO must require PCPs, through contract provisions or
                           provider manual; to provide primary care services and
                           continuity of care to Members who are enrolled with
                           or assigned to the PCP. Primary care services are all
                           services required by a Member for the prevention,
                           detection, treatment and cure of illness, trauma,
                           disease or disorder, which are covered and/or
                           required services under this contract. All services
                           must be provided in compliance with generally
                           accepted medical and behavioral health standards for
                           the community in which services are rendered. HMO
                           must require PCPs, through contract provisions or
                           provider manual, to provide children under the age of
                           21 services in accordance with the American Academy
                           of Pediatric recommendations and the THSteps
                           periodicity schedule and provide adults services in
                           accordance with the U.S. Preventive Services Task
                           Force's publication "Put Prevention Into Practice".

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         7.8.11.1          HMO must require PCPs, through contract provisions or
                           provider manual, to assess the medical needs of
                           Members for referral to specialty care providers and
                           provide referrals as needed. PCP must coordinate care
                           with specialty care providers after referral.

         7.8.11.2          HMO must require PCPs, through contract provisions or
                           provider manual, to make necessary arrangements with
                           home and community support services to integrate the
                           Member's needs. This integration may be delivered by
                           coordinating the care of Members with other programs,
                           public health agencies and community resources which
                           provide medical, nutritional, behavioral, educational
                           and outreach services available to Members.

         7.8.11.3          HMO must require, through contract provisions or
                           provider manual, that the Member's PCP or HMO
                           provider through whom PCP has made arrangements, be
                           the admitting or attending physician for inpatient
                           hospital care, except for emergency medical or
                           behavioral health conditions or when the admission is
                           made by a specialist or hospitalist to whom the
                           Member has been referred by the PCP. HMO must
                           require, through contract provisions, that PCP assess
                           the advisability and availability of outpatient
                           treatment alternatives to inpatient admissions. HMO
                           must require, through contract provisions, that PCP
                           provide or arrange for pre-admission planning for
                           non-emergency inpatient admissions, and discharge
                           planning for Members. PCP must call the emergency
                           room with relevant information about the Member. PCP
                           must provide or arrange for follow-up care after
                           emergency or inpatient care.

         7.8.11.4          HMO must require PCPs for children under the age of
                           21 to provide or arrange to have provided all
                           services required under Article 6.8 relating to Texas
                           Health Steps, Article 6.9 relating to Perinatal
                           Services, Article 6.10 relating to Early Childhood
                           Intervention, Article 6.11 relating to WIC, Article
                           6.13 relating to persons with disabilities or chronic
                           or complex conditions, and Article 6.14 relating to
                           Health Education and Wellness. PCP must cooperate and
                           coordinate with HMO to provide Member and the
                           Member's family with knowledge of and access to
                           available services.

         7.8.12            PCP Selection and Changes. All Medicaid recipients
                           who are eligible for participation in the STAR
                           program have the right to select their PCP and HMO.
                           Medicaid recipients who are mandatory STAR
                           participants who do not select a PCP and/or HMO
                           during the time period allowed will be assigned to a
                           PCP and/or HMO using the TDH default process. Members
                           may change PCPs at any time, but these changes are
                           limited to four (4) times per year. If a PCP or
                           OB/GYN who has been selected by or assigned to a
                           Member is no longer in HMO's provider network, HMO
                           must contact the Member and provide them an
                           opportunity to reselect. If the Member does not want
                           to change the PCP or OB/GYN to another provider in
                           HMO

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                           network, the Member must be directed to Enrollment
                           Broker for resolution or reselection. If a PCP or
                           OB/GYN who has been selected by or assigned to a
                           Member is no longer in an IPA's provider network but
                           continues to participate in HMO network, HMO or IPA
                           may not change the Member's PCP or OB/GYN.

         7.8.12.1          Voluntary SSI Members. PCP changes cannot be
                           performed retroactively for voluntary SSI Members. If
                           an SSI Member requests a PCP change on or before the
                           15th of the month, the change will be effective the
                           first day of the next month. If an SSI Member
                           requests a PCP change after the 15th of the month,
                           the change will be effective the first day of the
                           second month that follows. Exceptions to this policy
                           will be allowed for reasons of medical necessity or
                           other extenuating circumstances.

         7.8.12.2          Mandatory Members. Retroactive changes to a Member's
                           PCP should only be made if it is medically necessary
                           or there are other circumstances which necessitate a
                           retroactive change. HMO must pay claims for services
                           provided by the original PCP. If the original PCP is
                           paid on a capitated basis and services were provided
                           during the period for which capitation was paid, HMO
                           cannot recoup the capitation.

         7.9               OB/GYN PROVIDERS

                           HMO must allow a female Member to select an OB/GYN
                           within its provider network or within a limited
                           provider network in addition to a PCP, to provide
                           health care services within the scope of the
                           professional specialty practice of a properly
                           credentialed OB/GYN. See Article 21.53D of the Texas
                           Insurance Code and 28 TAC Sections 11.506, 11.1600
                           and 11.1608. A Member who selects an OB/GYN must be
                           allowed direct access to the health care services of
                           the OB/GYN without a referral by the woman's PCP or a
                           prior authorization or precertification from HMO.
                           Health care services must include, but not be limited
                           to:

         7.9.1             One well-woman examination per year;

         7.9.2             Care related to pregnancy;

         7.9.3             Care for all active gynecological conditions; and

         7.9.4             Diagnosis, treatment, and referral for any disease or
                           condition within the scope of the professional
                           practice of a properly credentialed obstetrician or
                           gynecologist.

         7.9.5             HMOs which allow its Members to directly access any
                           OB/GYN provider within its network must ensure that
                           the provisions of Articles 7.9.1 through 7.9.4
                           continue to be met.

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               7.9.6          OB/GYN providers must comply with, HMO's
                              procedures contained in HMO's provider manual or
                              provider contract for OB/GYN providers, including
                              but not limited to prior authorization procedures,
                              and provider accessibility guidelines (see Article
                              7.1.3 of this contract).

               7.10           SPECIALTY CARE PROVIDERS

               7.10.1         HMO must maintain specialty providers, including
                              pediatric specialty providers, within the network
                              in sufficient numbers and areas of practice to
                              meet the needs of all Members requiring specialty
                              care or services.

               7.10.2         HMO must require, through contract provisions,
                              that specialty providers send a record of
                              consultation and recommendations to a Member's PCP
                              for inclusion in Member's medical record and
                              report encounters to the PCP and/or HMO.

               7.10.3         HMO must ensure availability and accessibility to
                              appropriate specialists.

               7.10.4         HMO must ensure that no Member is required to
                              travel in excess of 75 miles to secure initial
                              contact with referral specialists; special
                              hospitals; diagnostic and therapeutic services;
                              and single service health care physicians,
                              dentists or providers. Exceptions to this
                              requirement may be allowed when an HMO has
                              established, through utilization data provided to
                              TDH, that a normal pattern for securing health
                              care services within an area exists or HMO is
                              providing care of a higher skill level or
                              specialty than the level which is available within
                              the service area such as, but not limited to,
                              treatment of cancer, burns, and cardiac diseases.

               7.11           SPECIALTY HOSPITALS AND SPECIALTY CARE FACILITIES

               7.11.1         HMO must include all medically necessary specialty
                              services through its network specialists,
                              subspecialists and specialty care facilities
                              (e.g., children's hospitals, and tertiary care
                              hospitals).

               7.11.2         HMO must include requirements for pre-admission
                              and discharge planning in its contracts with
                              network hospitals. Discharge plans for a Member
                              must be provided by HMO or the hospital to the
                              Member/family, the PCP and specialty care
                              physicians.

               7.11.3         HMO must have appropriate multidisciplinary teams
                              for people with disabilities or chronic or complex
                              medical conditions. These teams must include the
                              PCP and any individuals or providers involved in
                              the day-to-day or ongoing care of the Member.

               7.11.4         HMO must include in its provider network a
                              TDH-designated perinatal care facility, as
                              established by Section 32.042, Texas Health and
                              Safety Code, once the designated

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                              system is finalized and perinatal care facilities
                              have been approved for the service area. Also see
                              Article 6.9.1 of this contract.

               7.12           SIGNIFICANT TRADITIONAL PROVIDERS (STPS)

                              HMO must demonstrate a good faith effort to
                              include STPs in its provider network. ID40 must
                              seek participation in its provider network from:

               7.12.1         Each health care provider in the service area who
                              has traditionally provided care to Medicaid
                              recipients;

               7.12.2         Each hospital in the service area that has been
                              designated as a disproportionate share hospital
                              under Medicaid; and

               7.12.3         Each specialized pediatric laboratory in the
                              service area, including those laboratories located
                              in children's hospitals.

               7.12.4         HMO must include significant traditional providers
                              (STPs) as designated by TDH in its provider
                              network to provide primary care and specialty care
                              services. HMO must include STPs in its provider
                              network for at least three (3) years following the
                              Implementation Date in the service area.

               7.12.5         STPs must agree to the contract requirements
                              contained in Article 7.2, unless exempted from a
                              requirement by law or rule. STPs must also agree
                              to the following contract requirements:

               7.12.5.1       STP must agree to accept the standard
                              reimbursement rate offered by HMO to other
                              providers for the same or similar services.

               7.12.5.2       STP must meet the credentialing requirements of
                              HMO. HMO must not require STPs to meet a different
                              or higher credentialing standard than is required
                              of other providers providing the same or similar
                              services. HMO may not require STPs to contract
                              with a subcontractor which requires a different or
                              higher credentialing standard than HMO, if the
                              application of the higher standard results in a
                              disproportionate number of STPs being excluded
                              from the subcontractor.

               7.12.6         Failure to demonstrate a good faith effort to meet
                              TDH's compliance objectives to include STPs in
                              HMO's provider network, is a default under this
                              contract and may result in any or all of the
                              sanctions and remedies included in Article XVIII
                              of this contract. HMO's fulfillment of TDH's
                              compliance objectives for STP participation will
                              be monitored by TDH based on HMOs electronic file
                              submission to the Enrollment Broker as required in
                              Article 12.5.1 and other documentation submitted
                              by HMO, as needed.

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               7.13           RURAL HEALTH PROVIDERS

               7.13.1         In rural areas of the service area, HMO must seek
                              the participation in its provider network of rural
                              hospitals, physicians, home and community support
                              service agencies, and other rural health care
                              providers who:

               7.13.1.1       are the only providers located in the service
                              area; and

               7.13.1.2       are Significant Traditional Providers.

               7.13.2         In order to contract with HMO, rural health
                              providers must also:

               7.13.2.1       agree to accept the prevailing provider contract
                              rate of HMO based on provider type; and

               7.13.2.2       have the credentials required by HMO, provided
                              that lack of board certification or accreditation
                              by JCAHO may not be the only grounds for exclusion
                              from the provider network.

               7.13.3         HMO must reimburse rural hospitals with 100 or
                              fewer licensed beds in counties, with fewer than
                              50,000 persons for acute care services at a rate
                              calculated using the higher of the prospective
                              payment system rate or the cost reimbursed
                              methodology authorized under the Tax Equity and
                              Fiscal Responsibility Act of 1982 (TEFRA).
                              Hospitals reimbursed under TEFRA cost principles
                              shall be paid without the imposition of the TEFRA
                              cap.

               7.13.4         HMO must reimburse physicians who practice in
                              rural counties with fewer than 50,000 at a rate
                              using the current Medicaid fee schedule, including
                              negotiated fee for service.

               7.14           FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND
                              RURAL HEALTH CLINICS (RHC)

               7.14.1         HMO must make reasonable efforts to include FQHCs
                              and RHCs (Freestanding and hospital-based) in its
                              provider network.

               7.14.2         FQHCs or RHCs will receive a cost settlement from
                              TDH and must agree to accept initial payments from
                              HMO in an amount that is equal to or greater than
                              HMO's payment terms for other providers providing
                              the same or similar services.

               7.14.2.1       HMO must submit monthly FQHC and RHC encounter and
                              payment reports to all contracted FQHCs and RHCs,
                              and FQHCs and RHCs with whom there have been
                              encounters, not later than 21 days from the end of
                              the month for which the report

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                              is submitted. The format will be developed by
                              TDH. The FQHC and RHC must validate the encounter
                              and payment information contained in the
                              report(s). Both HMO and the FQHC/RHC must sign the
                              report(s) after each party agrees that it
                              accurately reflects encounters and payments for
                              the month reported. HMO must submit the signed
                              FQHC and RHC encounter and payment reports to TDH
                              not later than 45 days from the end of the month
                              for which the report is submitted.

               7.14.2.2       For FQHCs, TDH will determine the amount of the
                              interim settlement based on the difference
                              between: an amount equal to the number of Medicaid
                              allowable encounters multiplied by the rate per
                              encounter from the latest settled FQHC fiscal year
                              cost report; and, the amount paid by HMO to the
                              FQHC for the quarter. For RHCs, TDH will determine
                              the amount of the interim settlement based on the
                              difference between a reasonable cost amount
                              methodology provided by TDH and the amount paid by
                              HMO to the RHC for the quarter. TDH will pay the
                              FQHC or the RHC the amount of the interim
                              settlement, if any, as determined by TDH or
                              collect and retain the quarterly recoupment
                              amount, if any.

               7.14.2.3       TDH will cost settle with each FQHC and RHC
                              annually, based on the FQHC or the RHC fiscal year
                              cost report and the methodology described in
                              paragraph 7.14.2.2. TDH will make additional
                              payments or recoup payments from the FQHC or the
                              RHC based on reasonable costs less prior interim
                              payment settlements.

               7.15           COORDINATION WITH PUBLIC HEALTH

               7.15.1         Reimbursed Arrangements. HMO must make a good
                              faith effort to enter into a subcontract for the
                              covered health care services as specified below
                              with TDH Public Health Regions, city and/or county
                              health departments or districts in each county of
                              the service area that will be providing these
                              services to the Members (Public Health Entities),
                              who will be paid for services by HMO, including
                              any or all of the following services or any
                              covered service which the public health department
                              and HMO have agreed to provide:

               7.15.1.1       Sexually Transmitted Diseases (STDs) Services (See
                              Article 6.15);

               7.15.1.2       Confidential HIV Testing (See Article 6.15);

               7.15.1.3       Immunizations

               7.15.1.4       Tuberculosis (TB) Care (See Article 6.12).

               7.15.1.5       Family Planning Services (See Article 6.7);

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               7.15.1.6       THSteps checkups (See Article 6.8);

               7.15.1.7       Prenatal services (see Article 6.9).

               7.15.2         HMO must make a good faith effort to enter into
                              subcontracts with public health entities in the
                              service area. The subcontracts must be available
                              for review by TDH or its designated agent(s) on
                              the same basis as all other subcontracts. If any .
                              changes are made to the contract, it must be
                              resubmitted to TDH. If an HMO is unable to enter
                              into a contract with public health entities, HMO
                              must document current and past efforts to TDH.
                              Documentation must be submitted no later than 120
                              days after the execution of this contract. Public
                              health subcontracts must include the following
                              areas:

               7.15.2.1       The general relationship between HMO and the
                              Public Health entity. The subcontracts must
                              specify the scope and responsibilities of both
                              parties, the methodology and agreements regarding
                              billing and reimbursements, reporting
                              responsibilities, Member and provider educational
                              responsibilities, and the methodology and
                              agreements regarding sharing of confidential
                              medical record, information between the public
                              health entity and the PCP.

               7.15.2.2       Public Health Entity responsibilities:

                              (1)   Public health providers must inform Members
                                    that confidential health care information
                                    will be provided to the PCP.

                              (2)   Public health providers must refer Members
                                    back to PCP for any follow-up diagnostic,
                                    treatment, or referral services.

                              (3)   Public health providers must educate Members
                                    about the importance of having a PCP and
                                    assessing PCP services during office hours
                                    rather than seeking care from Emergency
                                    Departments, Public Health Clinics, or other
                                    Primary Care Providers or Specialists.

                              (4)   Public health entities must identify a staff
                                    person to act as liaison to HMO to
                                    coordinate Member needs; Member referral,
                                    Member and provider education, and the
                                    transfer of confidential medical record
                                    information.

                7.15.2.3       HMO Responsibilities:

                              (1)   HMO must identify care coordinators who will
                                    be available to assist public health
                                    providers and PCPs in getting efficient
                                    referrals of Members to the

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                                    public health providers, specialists, and
                                    health-related service providers either
                                    within or outside HMO's network.

                           (2)      HMO must inform Members that confidential
                                    health care information will be provided to
                                    the PCP.

                           (3)      HMO must educate Members on how to better
                                    utilize their PCPs, public health providers,
                                    emergency departments, specialists, and
                                    health-related service providers.

               7.15.2.4       Existing contracts must include the provisions in
                              Articles 7.15.2.1 through 7.15.2.3.

               7.15.3         Non-Reimbursed Arrangements with Public Health
                              Entities.

               7.15.3.1       Coordination with Public Health Entities. HMOs
                              must make a good faith effort to enter into a
                              Memorandum of Understanding (MOU) with Public
                              Health Entities in the service area regarding the
                              provision of services for essential public health
                              care services. These MOUs must be entered into in
                              each service area and are subject to TDH approval.
                              If any changes are made to the MOU, it must be
                              resubmitted to TDH. If an HMO is unable to enter
                              into an MOU with a public health entity, HMO must
                              document current and past efforts to TDH.
                              Documentation must be submitted no later than 120
                              days after the execution of this contract. MOUs
                              must contain the roles and responsibilities of HMO
                              and the public health department for the following
                              services:

                              (1)   Public health reporting requirements
                                    regarding communicable diseases and/or
                                    diseases which are preventable by
                                    immunization as defined by state law;

                              (2)   Notification of and referral to the local
                                    Public Health Entity, as defined by state
                                    law, of communicable disease outbreaks
                                    involving Members;

                              (3)   Referral to the local Public Health Entity
                                    for TB contact investigation and evaluation
                                    and preventive treatment of persons whom the
                                    Member has come into contact;

                              (4)   Referral to the local Public Health Entity
                                    for STD/HIV contact investigation and
                                    evaluation and preventive treatment of
                                    persons whom the Member has come into
                                    contact; and,

                              (5)   Referral for WIC services and information
                                    sharing;

                              (6)   Coordination and follow-up of suspected or
                                    confirmed cases of childhood lead exposure.

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               7.15.3.2        Coordination with Other TDH Programs. HMOs must
                               make a good faith effort to enter into a
                               Memorandum of Understanding (MOU) with other TDH
                               programs regarding the provision of services for
                               essential public health care services. These MOUs
                               must be entered into in each service area and are
                               subject to TDH approval. If any changes are made
                               to the MOU, it must be resubmitted to TDH. If an
                               HMO is unable to enter into an MOU with other TDH
                               programs, HMO must document current and past
                               efforts to TDH. Documentation must be submitted
                               no later than 120 days after the execution of
                               this contract. MOUs must delineate the roles and
                               responsibilities of HMO and the TDH programs for
                               the following services:

                              (1)   Use of the TDH laboratory for THSteps
                                    newborn screens; lead testing; and
                                    hemoglobin/hematocrit tests;

                              (2)   Availability of vaccines through the
                                    Vaccines for Children Program;

                              (3)   Reporting of immunizations provided to the
                                    statewide ImmTrac Registry including
                                    parental consent to share data;

                              (4)   Referral for WIC services and information
                                    sharing;

                              (5)   Pregnant Women and Infant (PWI) Targeted
                                    Case Management;

                              (6)   THSteps outreach, informing and Medical Case
                                    Management;

                              (7)   Participation in the community-based
                                    coalitions with the Medicaid-funded case
                                    management programs in MHMR, ECI, TCB, and
                                    TDH (PWI, CIDC and THSteps Medical Case
                                    Management);

                              (8)   Referral to the TDH Medical Transportation
                                    Program; and,

                              (9)   Cooperation with activities required of
                                    public health authorities to conduct the
                                    annual population and community based needs
                                    assessment.

                              (10)  Coordination and follow-up of suspected or
                                    confirmed cases of childhood lead exposure.

               7.15.4         All public health contracts must contain provider
                              network requirements in Article VII, as
                              applicable.

               7.16           COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE
                              AND REGULATORY SERVICES


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7.16.1      HMO must cooperate and coordinate with the Texas Department of
            Protective and Regulatory Services (TDPRS) for the care of a child
            who is receiving services from or has been placed in the
            conservatorship of TDPRS.

7.16.2      HMO must comply with all provisions of a court order or TDPRS
            service plan with respect to a child in the conservatorship of TDPRS
            (Order) entered by a Court of continuing jurisdiction placing a
            child under the protective custody of the TDPRS or a service plan
            voluntarily entered into by the parents or person having legal
            custody of a minor and TDPRS, which relates to the health and
            behavioral health services required to be provided to the Member.

7.16.3      HMO cannot deny, reduce, or controvert the medical necessity of any
            health services included in an Order entered by a court. HMO may
            participate in the preparation of the medical and behavioral care
            plan prior to TDPRS submitting the health care plan to the Court.
            Any modification or termination of ordered services must be
            presented and approved by the court with jurisdiction over the
            matter.

7.16.4      A Member or the parent or guardian whose rights are subject to an
            Order or Service Plan cannot appeal the necessity of the services
            ordered through HMO's complaint or appeal processes, or to TDH for a
            fair hearing.

7.16.5      HMO must include information in its provider training and manuals
            regarding:

7.16.5.1    providing medical records,

7.16.5.2    scheduling medical and behavioral health appointments within 14
            days unless requested earlier by TDPRS,

7.16.5.3    recognition of abuse and neglect and appropriate referral to TDPRS.

7.16.6      HMO must continue to provide all covered services to a Member
            receiving services from or in the protective custody of TDPRS until
            the Member has been disenrolled from HMO as a result of loss of
            eligibility in Medicaid managed care or placement into foster care.

7.17        DELEGATED NETWORKS (IPAS, LIMITED PROVIDER NETWORKS AND ANHCS)

7.17.1      All HMO contracts with any of the entities described in Texas
            Insurance Code Article 20A.02(ee) or a group of providers who are
            licensed to provide the same health care services or an entity that
            is wholly-owned or controlled by one or more


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            hospitals and physicians including a physician-hospital organization
            (delegated network contracts) must:

7.17.1.1    contain the mandatory contract provisions for all subcontractors in
            Article 3.2 of this contract,

7.17.1.2    comply with the requirements, duties and responsibilities of this
            contract,

7.17.1.3    not creates a barrier for full participation to significant
            traditional providers,

7.17.1.4    not interferes with TDH's oversight and audit responsibilities
            including collection and validation of encounter data, or

7.17.1.5    be consistent with the federal requirement for simplicity in the
            administration of the Medicaid program.

7.17.2      In addition to the mandatory provisions for all subcontracts under
            Articles 3.2 and 7.2, all HMO/delegated network contracts must
            include the following mandatory standard provisions:

7.17.2.1    HMO is required to include subcontract provisions in its delegated
            network contracts which require the UM protocol used by an delegated
            network to produce substantially similar outcomes, as approved by
            TDH, as the UM protocol employed by the contracting HMO. The
            responsibilities of an HMO in delegating UM functions to a delegated
            network will be governed by Article 16.3.12 of this contract.

7.17.2.2    Delegated networks that have been delegated claims payment
            responsibility by HMO must also have the responsibility to submit
            encounter, utilization, quality, and financial data to HMO. HMO
            remains responsible for integrating all delegated network data
            reports into HMO's reports required under this contract. If HMO is
            not able to collect and report all delegated network data for HMO
            reports required by this contract, HMO must not delegate claims
            processing to the delegated network.

7.17.2.3    The delegated network must comply with the same records retention
            and production requirements, including Open Records requirements, as
            HMO under this contract.

7.17.2.4    The delegated network is subject to the same marketing restrictions
            and requirements as the HMO under this contract.

7.17.2.5    HMO is responsible for ensuring that delegated network contracts
            comply with the requirements and provisions of the TDH/HMO contract.
            TDH will impose appropriate sanctions and remedies upon HMO for any
            default under the TDH/HMO


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            contract which is caused directly or indirectly by the acts or
            omissions of the delegated network.

7.17.3      HMO cannot enter into contracts with delegated networks to provide
            services under this contract which require the delegated network to
            enter into exclusive contracts with the HMO as a condition for
            participation with the HMO.

7.17.3.1    Provision 7.17.3 does not apply to providers who are employees or
            participants in limited or closed panel provider networks.

7.17.4      All delegated networks that limit Member access to those providers
            contracted with the delegated network (closed or limited panel
            networks) with whom HMO contracts must either independently meet the
            access provisions of 28 Texas Administrative Code Section 11.1607,
            relating to access requirements for those Members enrolled or
            assigned to the delegated network, or HMO must provide for access
            through other network providers outside the closed panel delegated
            network.

7.17.5      HMO cannot delegate to delegated network the enrollment,
            reenrollment, assignment or reassignment of a Member.

7.17.6      In addition to the above provision HMO and approved Non-Profit
            Health Corporations must comply with all of the requirements
            contained in 28 TAC Section 11.1604, relating to Requirements of
            Certain Contracts between Primary HMOs and ANHCs and Primary HMOs
            and Provider HMOs.

7.17.7      HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES
            AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
            RESPONSIBILITY OR SERVICE IS CONTRACTED OR DELEGATED TO ANOTHER.
            HMO MUST PROVIDE A COPY OF THE CONTRACT PROVISIONS THAT SET OUT
            HMO'S DUTIES, RESPONSIBILITIES, AND SERVICES TO ANY PROVIDER NETWORK
            OR GROUP WITH WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE SERVICES ON
            A RISK SHARING OR CAPITATED BASIS OR TO PROVIDE HEALTH CARE
            SERVICES.

ARTICLE VIII MEMBER SERVICES REQUIREMENTS

8.1         MEMBER EDUCATION

            HMO must provide the Member education requirements as contained in
            Article VI at 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13, 6.14
            and this Article of the contract.


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8.2         MEMBER HANDBOOK

8.2.1       HMO must mail each newly enrolled Member a Member Handbook no later
            than five (5) days after HMO receives the Enrollment File. If the
            5th day falls on a weekend or state holiday, the Member Handbook
            must be mailed by the following working day. The Member Handbook
            must be written at a 4th - 6th grade reading comprehension level.
            The Member Handbook must contain all critical elements specified by
            TDH. See Appendix D, Required Critical Elements, for specific
            details regarding content requirements. HMO must submit a Member
            Handbook to TDH for approval prior to the effective date of the
            contract unless previously approved (see Article 3.4.1 regarding the
            process for plan materials review.)

8.2.2       Member Handbook Updates. HMO must provide updates to the Handbook to
            all Members as changes are made to the Required Critical Elements in
            Appendix D. HMO must make the Member Handbook available in the
            languages of the major populations and in a format accessible to the
            visually impaired served by HMO.

8.2.3       THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE APPROVED BY
            TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO MEMBERS. (See Article
            3.4.1 regarding the process for plan materials review).

8.3         ADVANCE DIRECTIVES

8.3.1       Federal and state law requires HMOs and providers to maintain
            written policies and procedures for informing and providing written
            information to all adult Members 18 years of age and older about
            their rights under state and federal law, in advance of their
            receiving care (Social Security Act Section 1902(a)(57) and Section
            1903(m)(1)(A). Written policies and procedures must contain
            procedures for providing written information regarding the Member's
            right to refuse, withhold or withdraw medical and mental health
            treatment advance directives. HMO's policies and procedures must
            comply with provisions contained in 42 C.F.R. Section 434.28 and 42
            C.F.R. Section 489, SubPart I, relating to advance directives for
            all hospitals, critical access hospitals, skilled nursing
            facilities, home health agencies, providers of home health care,
            providers of personal care services and hospices, as well as
            following state laws and rules:

8.3.1.1     a Member's right to self-determination in making health care
            decisions; and

8.3.1.2     the Advance Directives Act, Chapter 166, Texas Health and Safety
            Code, which includes:

8.3.1.2.1   a Member's rights to execute an advance written directive to
            physicians and family or surrogates, or to make a non-written
            directive to administer, withhold or withdraw life sustaining
            treatment in the event of a terminal or irreversible condition;


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8.3.1.2.2   a Member's rights to make written and non-written Out-of-Hospital
            Do-Not-Resuscitate Orders;

8.3.1.2.3   a Member's right to execute a Medical Power of Attorney to appoint
            an agent to make health care decisions on Member's behalf if the
            Member becomes incompetent; and

8.3.1.3     the declaration for Mental Health Treatment, Chapter 137, Texas
            Civil Practices and Remedies Code, which includes: a Member's right
            to execute a declaration for mental health treatment in a document
            making a declaration of preferences or instructions regarding mental
            health treatment.

8.3.2       HMO must maintain written policies for implementing a Member's
            advance directive. Those policies must include a clear and precise
            statement of limitations if HMO or a participating provider cannot
            or will not implement a Member's advance directive.

8.3.2.1     A statement of limitation on implementing a Member's advance
            directive should include at least the following information:

8.3.2.1.1   a clarification of any differences between HMO's conscience
            objections and those which may be raised by the Member's PCP or
            other providers;

8.3.2.1.2   identification of the state legal authority permitting HMO's
            conscience objections to carrying out an advance directive; and

8.3.2.1.3   a description of medical and mental health conditions or procedures
            affected by the conscience objection.

8.3.3       HMO cannot require a Member to execute or issue an advance directive
            as a condition for receiving health care services.

8.3.4       HMO cannot discriminate against a Member based on whether or not the
            Member executed or issued an advance directive.

8.3.5       HMO's policies and procedures must require HMO and Subcontractor to
            comply with the requirements of state and federal laws relating to
            advance directives. HMO must provide education and training to
            employees, Members and the community on issues concerning advance
            directives.

8.3.6       All materials provided to Members regarding advance directives must
            be written at a 7th - 8th grade reading comprehension level, except
            where a provision is required by state or federal law, and the
            provision cannot be reduced or modified to a 7th - 8th


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            grade reading level, because it is a reference to the law or is
            required to be included "as written" in the state or federal law.
            HMO must submit to TDH any revisions to existing approved advanced
            directive materials.

8.3.7       HMO must notify Members of any changes in state or federal laws
            relating to advance directives within 90 days from the effective
            date of the change, unless the law or regulation contains a specific
            time requirement for notification.

8.4         MEMBER ID CARDS

8.4.1       A Medicaid Identification Form (Form 3087) is issued monthly by the
            TDHS. The form includes the "STAR" Program logo and the name and
            toll free number of the Member's health plan. A Member may have a
            temporary Medicaid Identification (Form 1027-A) which will include a
            STAR indicator.

8.4.2       HMO must issue a Member Identification Card (ID) to the Member
            within five (5) days from the date the HMO receives the monthly
            Enrollment File from the Enrollment Broker. If the 5th day falls on
            a weekend or state holiday, the ID Card must be issued by the
            following working day. The ID Card must include, at a minimum, the
            following: Member's name; Member's Medicaid number; either the issue
            date of the card or effective date of the PCP assignment; PCP's
            name, address, and telephone number; name of HMO; name of IPA to
            which the Member's PCP belongs, if applicable; the 24-hour, seven
            (7) day a week toll-free telephone number operated by HMO; the
            toll-free number for behavioral health care services; and directions
            for what to do in an emergency. The ID Card must be reissued if the
            Member reports a lost card, there is a Member name change, if Member
            requests a new PCP, or for any other reason which results in a
            change to the information disclosed on the ID Card.

8.5         MEMBER COMPLAINT PROCESS

8.5.1       HMO must develop, implement and maintain a Member complaint system
            that complies with the requirements of Article 20A.12 of the Texas
            Insurance Code, relating to the Complaint System, except where
            otherwise provided in this contract or in federal law. The complaint
            and appeals procedure must be the same for all Members and must
            comply with the Texas Insurance Code, Article 20A.12 or applicable
            federal law. Modifications and amendments must be submitted to TDH
            at least 30 days prior to the implementation of the modification or
            amendment.

8.5.2       HMO must have written policies and procedures for receiving,
            tracking, reviewing, and reporting and resolving of Member
            complaints. The procedures must be reviewed and approved in writing
            by TDH. Any changes or modifications to the


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            procedures must be submitted to TDH for approval thirty (30) days
            prior to the effective date of the amendment.

8.5.3       HMO must designate an officer of HMO who has primary responsibility
            for ensuring that complaints are resolved in compliance with written
            policy and within the time required. An "officer" of HMO means a
            president, vice president, secretary, treasurer, or chairperson of
            the board for a corporation, the sole proprietor, the managing
            general partner of a partnership, or a person having similar
            executive authority in the organization.

8.5.4       HMO must have a routine process to detect patterns of complaints and
            disenrollments and involve management and supervisory staff to
            develop policy and procedural improvements to address the
            complaints. HMO must cooperate with TDH and TDH's enrollment broker
            in addressing Member complaints relating to enrollment and
            disenrollment.

8.5.5       HMO's complaint procedures must be provided to Members in writing
            and in alternative communications formats. A written description of
            HMO's complaint procedures must be in appropriate languages and easy
            for Members to understand. HMO must include a written description of
            the complaint procedures in the Member Handbook. HMO must maintain
            at least one local and one toll-free telephone number for making
            complaints.

8.5.6       HMO's process must require that every complaint received in person,
            by telephone or in writing, is recorded in a written record and is
            logged with the following details: date, identification of the
            individual filing the complaint, identification of the individual
            recording the complaint, nature of the complaint; disposition of the
            complaint, corrective action required, and date resolved.

8.5.7       HMO's process must include a requirement that the Governing Body of
            HMO reviews the written records (logs) for complaints and appeals.

8.5.8       HMO is prohibited from discriminating against a Member because that
            Member is making or has made a complaint.

8.5.9       HMO cannot process requests for disenrollments through HMO's
            complaint procedures. Requests for disenrollments must be referred
            to TDH within five (5) business days after the Member makes a
            disenrollment request.

8.5.10      HMO must develop, implement and maintain an appeal of adverse
            determination procedure that complies with the requirements of
            Article 21.58A of the Texas Insurance Code, relating to the
            utilization review, except where otherwise provided in their
            contract and in applicable federal law. The appeal of an adverse


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            determination procedure must be the same for all Members and must
            comply with Texas Insurance Code, Article 21.58A or applicable
            federal law. Modifications and amendments must be submitted to TDH
            no less than 30 days prior to the implementation of the modification
            or amendment. When an enrollee, a person acting on behalf of an
            enrollee, or an enrollee's provider of record expresses orally or in
            writing any dissatisfaction or disagreement with an adverse
            determination, HMO or UR agent must regard the expression of
            dissatisfaction as a request to appeal an adverse determination.

8.5.11      If a complaint or appeal of an adverse determination relates to the
            denial, delay, reduction, termination or suspension of covered
            services by either HMO or a utilization review agent contracted to
            perform utilization review by HMO, HMO must inform Members they have
            the right to access the TDH fair hearing process at any time in lieu
            of the internal complaint system provided by HMO. HMO is required to
            comply with the requirements contained in 1 TAC Chapter 357,
            relating to notice and fair hearings in the Medicaid program,
            whenever an action is taken to deny, delay, reduce, terminate or
            suspend a covered service.

8.5.12      If Members utilize HMO's internal complaint or appeal of adverse
            determination system and the complaint relates to the denial,
            delay, reduction, termination or suspension of covered services by
            either HMO or a utilization review agent contracted to perform
            utilization review by HMO, HMO must inform the Member that they
            continue to have a right to appeal the decision through the TDH fair
            hearing process.

8.5.13      The provisions of Article 21.58A, Texas Insurance Code, relating to
            a Member's right to appeal an adverse determination made by HMO or a
            utilization review agent by an independent review organization, do
            not apply to a Medicaid recipient. Federal fair hearing requirements
            (Social Security Act Section 1902a(3), codified at 42 C.F.R. 431.200
            et. seq.) require the agency to make a final decision, after a fair
            hearing which conflicts with the State requirement that the IRO make
            a final decision, therefore the State requirement is pre-empted by
            the federal requirement.

8.5.14      HMO will cooperate with the Enrollment Broker and TDH to resolve all
            Member complaints. Such cooperation may include, but is not limited
            to, participation by HMO or Enrollment Broker and/or TDH internal
            complaint committees.

8.5.15      HMO must have policies and procedures in place outlining the role of
            HMO's Medical Director in the Member Complaint System and appeal of
            an adverse determination. The Medical Director must have a
            significant role in monitoring, investigating and hearing
            complaints.


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8.5.16      HMO must provide Member Advocates to assist Members in understanding
            and using HMO's complaint system and appeal of an adverse
            determination.

8.5.17      HMO's Member Advocates must assist Members in writing or filing a
            complaint or appeal of an adverse determination and monitoring the
            complaint or appeal through the Contractor's complaint process or
            appeal of an adverse determination until the issue is resolved.

8.6         MEMBER NOTICE, APPEALS AND FAIR HEARINGS

8.6.1       HMO must send Members the notice required by 25 TAC, Chapter 36,
            whenever HMO takes an action to deny, delay, reduce or terminate
            covered services to a Member. The notice must be mailed to the
            Member no less than 10 days before HMO intends to take an action. If
            an emergency exists, or if the time within which the service must be
            provided makes giving 10 days notice impractical or impossible,
            notice must be provided by the most expedient means reasonably
            calculated to provide actual notice to the Member, including by
            phone, or through the provider's office.

8.6.2       The notice must contain the following information:

8.6.2.1     the Member's right to immediately access TDH's Fair Hearing process;

8.6.2.2     a statement of the action HMO will take;

8.6.2.3     the date the action will be taken;

8.6.2.4     an explanation of the reasons HMO will take the action;

8.6.2.5     a reference to the state and/or federal regulations which support
            HMO's action;

8.6.2.6     an address where written requests may be sent and a toll-free number
            Member can call to: request the assistance of a Member
            representative, file a complaint, or request a Fair Hearing;

8.6.2.7     a procedure by which the Member may appeal HMO's action through
            either HMO's complaint process or TDH's fair hearings process;

8.6.2.8     an explanation that the Member may represent themselves, or be
            represented by HMO's representative, a friend, a relative, legal
            counsel or another spokesperson;

8.6.2.9     an explanation of whether and under what circumstances services may
            be continued if a complaint is filed or a Fair Hearing requested;


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8.6.2.10    a statement that if the Member wants a TDH Fair Hearing on the
            action, Member must make the request for a Fair Hearing within 90
            days of the date on the notice or the right to request a hearing is
            waived;

8.6.2.11    a statement explaining that HMO must make its decision within 30
            days from the date the complaint is received by HMO; and

8.6.2.12    a statement explaining that a final decision must be made by TDH
            within 90 days from the date a Fair Hearing is requested.

8.7         MEMBER ADVOCATES

8.7.1       HMO must provide Member Advocates to assist Members. The Member
            Advocates must be physically located within the Service Area. Member
            Advocates must inform Members of their rights and responsibilities,
            the complaint process, the health education and the services
            available to them, including preventive services.

8.7.2       The Member Advocates must assist Members in writing complaints and
            are responsible for monitoring the complaint through HMO's complaint
            process until the Member's issues are resolved or a TDH Fair Hearing
            requested. (See Articles 8.6.15, 8.6.16 and 8.6.17.)

8.7.3       Member Advocates are responsible for making recommendations to
            management on any changes needed to improve either the care provided
            or the way care is delivered. Advocates are also responsible for
            helping or referring Members to community resources available to
            meet Member needs that are not available from HMO as Medicaid
            covered services.

8.7.4       Member Advocates must provide outreach to Members and participate in
            TDH-sponsored enrollment activities.

8.8         MEMBER CULTURAL AND LINGUISTIC SERVICES

8.8.1       Cultural Competency Plan. HMO must have a comprehensive written
            Cultural Competency Plan describing how HMO will ensure culturally
            competent services, and provide linguistic and disability related
            access. The Plan must describe how the individuals and systems
            within HMO will effectively provide services to people of all
            cultures, races, ethnic backgrounds, and religions, as well as those
            with disabilities, in a manner that recognizes, values, affirms, and
            respects the worth of the individuals and protects and preserves the
            dignity of each. HMO must submit a written plan to TDH prior to the
            effective date of this contract unless previously submitted.
            Modifications and amendments to the written plan must be submitted
            to


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            TDH no less than 30 days prior to implementation of the modification
            or amendment. The Plan must also be made available to HMO's network
            of providers.

8.8.2       The Cultural Competency Plan must include the following:

8.8.2.1     HMO's written policies and procedures for ensuring effective
            communication through the provision of linguistic services following
            Title VI of the Civil Rights Act guidelines and the provision of
            auxiliary aids and services, in compliance with the Americans with
            Disabilities Act, Title III, Department of Justice Regulation
            36.303. HMO must disseminate these policies and procedures to ensure
            that both Staff and subcontractors are aware of their
            responsibilities under this provision of the contract.

8.8.2.2     A description of how HMO will educate and train its staff and
            subcontractors on culturally competent service delivery, and the
            provision of linguistic and/or disability-related access as related
            to the characteristics of its Members;

8.8.2.3     A description of how HMO will implement the plan in its
            organization, identifying a person in the organization who will
            serve as the contact with TDH on the Cultural Competency Plan;

8.8.2.4     A description of how HMO will develop standards and performance
            requirements for the delivery of culturally competent care and
            linguistic access, and monitor adherence with those standards and
            requirements;

8.8.2.5     A description of how HMO will provide outreach and health education
            to Members including racial and ethnic minorities, non-English
            speakers or limited-English speakers, and those with disabilities;
            and

8.8.2.6     A description of how HMO will help Members access culturally and
            linguistically appropriate community health or social services
            resources.

8.8.3       Linguistic, Interpreter Services, and Provision of Auxiliary Aids
            and Services. HMO must provide experienced, professional
            interpreters when technical, medical or treatment information is to
            be discussed. See Title VI of the Civil Rights Act of 1964, 42
            USC Sections 2000d, et seq. HMO must ensure the provision of
            auxiliary aids and services necessary for effective communication;
            as per the Americans with Disabilities Act, Title III, Department of
            Justice Regulations 36.303.

8.8.3.1     HMO must adhere to and provide to Members the Member Bill of Rights
            and Responsibilities as adopted by the Texas Health and Human
            Services Commission and contained at 1 Texas Administrative Code
            (TAC) Sections 353.202-353.203. The Member Bill of Rights and
            Responsibilities assures Members the right "to have interpreters, if
            needed, during appointments with [their] providers and when talking


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            to [their] health plan. Interpreters include people who can speak in
            [their] native language, assist with a disability, or help [them]
            understand the information."

8.8.3.2     HMO must have in place policies and procedures that outline how
            Members can access face-to-face interpreter services in a provider's
            office if necessary to ensure the availability of effective
            communication regarding treatment, medical history or health
            education for a Member. HMO must inform its providers on how to
            obtain an updated list of participating, qualified interpreters.

8.8.3.3     A competent interpreter is defined as someone who is:

8.8.3.4     proficient in both English and the other language, and

8.8.3.5     has had orientation or training in the ethics of interpreting, and

8.8.3.6     has the ability to interpret accurately and impartially.

8.8.3.7     HMO must provide 24-hour access to interpreter services for Members
            to access emergency medical services within HMO's network.

8.8.3.8     Family Members, especially minor children, should not be used as
            interpreters in assessments, therapy or other medical situations in
            which impartiality and confidentiality are critical, unless
            specifically requested by the Member. However, a family member or
            friend may be used as an interpreter if they can be relied upon to
            provide a complete and accurate translation of the information being
            provided to the Member; the Member is advised that a free
            interpreter is available; and the Member expresses a preference to
            rely on the family member or friend.

8.8.4       All Member orientation presentations, education classes and
            materials must be presented in the languages of the major population
            groups making up 10% or more of the Medicaid population in the
            service area as specified by TDH. HMO must provide auxiliary aids
            and services, as needed, including materials in alternative formats
            (i.e., large print, tape or Braille), and interpreters or real-time
            captioning to accommodate the needs of persons with disabilities
            that affect communication.

8.8.5       HMO must provide access to Telecommunications Device for the Deaf to
            Members who are deaf or hearing impaired, directly or through the
            state's relay services.

8.9         CERTIFICATION DATE

8.9.1       On the date of the new Member's enrollment, TDH will provide HMOs
            with the Member's Medicaid periodic review date.


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ARTICLE IX  MARKETING AND PROHIBITED PRACTICES

9.1         MARKETING MATERIAL MEDIA, AND DISTRIBUTION

            HMOs may present their marketing materials to eligible Medicaid
            recipients through any method or media determined to be acceptable
            by TDH. The media may include but are not limited to: written
            materials, such as brochures, posters, or fliers which can be mailed
            directly to the client or left at Texas Department of Human Services
            eligibility offices; TDH sponsored community enrollment events; and
            paid or public service announcements on radio. All marketing
            materials must be approved by TDH prior to distribution (see Article
            3.4).

9.2         MARKETING ORIENTATION AND TRAINING

            HMO must require that all HMO staff having direct contact with
            Members as part of their job duties and their supervisors have
            satisfactorily completed TDH's marketing orientation and training
            program prior to engaging in marketing activities on behalf of HMO.
            TDH will notify HMO of scheduled orientations.

9.3         PROHIBITED MARKETING PRACTICES

9.3.1       HMO and its agents, subcontractors and providers are prohibited from
            engaging in the following marketing practices:

9.3.1.1     conducting any direct contact marketing to prospective Members
            except through TDH-sponsored enrollment events;

9.3.1.2     making any written or oral statement containing material
            misrepresentations of fact or law relating to HMO's plan or the
            STAR program;

9.3.1.3     making false, misleading or inaccurate statements relating to
            services or benefits of HMO or the STAR program;

9.3.1.4     offering prospective Members anything of material or financial value
            as an incentive to enroll with a particular PCP or HMO; and

9.3.1.5     discriminating against an eligible Member because of race, creed,
            age, color, sex, religion, national origin, ancestry, marital
            status; sexual orientation, physical or mental handicap, health
            status, or requirements for health care services.

9.3.2       HMO may offer nominal gifts with a retail value of no more than $10
            and/or free health screens to potential Members, as long as these
            gifts and free health screenings are offered whether or not the
            client enrolls in HMO. Free health screenings cannot


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            be used to discourage less healthy potential Members from joining
            HMO. All gifts must be approved by TDH prior to distribution to
            Members. The results of free screenings must be shared with the
            Member's PCP if the Member enrolls with HMO providing the screen.

9.3.3       Marketing representatives may not conduct or participate in
            marketing activities for more than one HMO.

9.4         NETWORK PROVIDER DIRECTORY

9.4.1       The provider directory and any revisions must be approved by TDH
            prior to publication and distribution to prospective Members (see
            Article 3.4.1 regarding the process for plan materials review). The
            directory must contain all critical elements specified by TDH. See
            Appendix D, Required Critical Elements, for specific details
            regarding content requirements.

9.4.2       If HMO contracts with limited provider networks, the provider
            directory must comply with the requirements of 28 TAC
            11.1600(b)(11), relating to the disclosure and notice of limited
            provider networks.

9.4.3       Updates to the provider directory must be provided to the Enrollment
            Broker at the beginning of each state fiscal year quarter. This
            includes the months of September, December, March and June. HMO is
            responsible for submitting draft updates to TDH only if changes
            other than PCP information are incorporated. HMO is responsible for
            sending three final paper copies and one electronic copy of the
            updated provider directory to TDH each quarter. If an electronic
            format is not available, five paper copies must be sent. TDH will
            forward two updated provider directories, along with its approval
            notice, to the Enrollment Broker to facilitate their distribution.

ARTICLE X   MIS SYSTEM REQUIREMENTS

10.1        MODEL MIS REQUIREMENTS

10.1.1      HMO must maintain a MIS that will provide support for all functions
            of HMO's processes and procedures related to the flow and use of
            data within HMO. The MIS must enable HMO to meet the requirements of
            this contract. The MIS must have the capacity and capability of
            capturing and utilizing various data elements to develop information
            for HMO administration.


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10:1.2      HMO must maintain a claim retrieval service processing system that
            can identify date of receipt, action taken on all provider claims or
            encounters (i.e., paid, denied, other), and when any action was
            taken in real time.

10.1.3      HMO must have a system that can be adapted to the changes in
            Business Practices/Policies within a short period of time.

10.1.4      HMO is required to submit and receive data as specified in this
            contract and HMO Encounter Data Submissions Manual. HMO must provide
            encounter data for all capitated services within the scope of
            services of the contract between HMO and TDH. Encounter data must
            follow the format, data elements and method of transmission
            specified in the contract and HMO Encounter Data Submissions Manual.
            HMO must submit encounter data, including adjustments to encounter
            data. The Encounter transmission will include all encounter data and
            encounter data adjustments processed by HMO for the previous month.
            Data quality validation will incorporate assessment standards
            developed jointly by HMO and TDH. Original records will be made
            available for inspection by TDH for validation purposes. Data which
            does not meet quality standards must be corrected and returned
            within a time period specified by TDH.

10.1.5      HMO must use the procedure codes, diagnosis codes, and other codes
            used for reporting encounters and fee-for-service claims in the most
            recent edition of the Medicaid Provider Procedures Manual or as
            otherwise directed by TDH. Any exceptions will be considered on a
            code-by-code basis after TDH receives written notice from HMO
            requesting an exception. HMO must also use the provider numbers as
            directed by TDH for both encounter and fee-for-service claims
            submission.

10.1.6      HMO must have hardware, software, network and communications system
            with the capability and capacity to handle and operate all MIS
            subsystems.

10.1.7      HMO must notify TDH of any changes to HMO's MIS department dedicated
            to or supporting this contract by Phase I of Renewal Review. Any
            updates to the organizational chart and the description of
            responsibilities must be provided to TDH at least 30 days prior to
            the effective date of the change. Official points of contact must be
            provided to TDH on an on-going basis. An Internet E-mail address
            must be provided for each point of contact.

10.1.8      HMO must operate and maintain a MIS that meets or exceeds the
            requirements outlined in the Model MIS Guidelines that follow:

10.1.8.1    Eight subsystems are used in the Model MIS Requirements to identify
            specific functions or features required by HMO's MIS. These
            subsystems focus on the


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            individual systems functions or capabilities to support the
            following operational and administrative areas:

            (1) Enrollment/Eligibility Subsystem

            (2) Provider Subsystem

            (3) Encounter/Claims Processing Subsystem

            (4) Financial Subsystem

            (5) Utilization/Quality Improvement Subsystem

            (6) Reporting Subsystem

            (7) Interface Subsystem

            (8) TPR Subsystem

10.2     SYSTEM-WIDE FUNCTIONS

            HMO MIS system must include functions and/or features which must
            apply across all subsystems as follows:

            (1) Ability to update and edit data.

            (2) Maintain a history of changes and adjustments and audit trails
                for current and retroactive data. Audit trails will capture
                date, time, and reasons for the change, as well as who made the
                change.

            (3) Allow input mechanisms through manual and electronic
                transmissions.

            (4) Have procedures and processes for accumulating, archiving, and
                restoring data in the event of a system or subsystem failure.

            (5) Maintain automated or manual linkages between and among all MIS
                subsystems and interfaces.

            (6) Ability to relate Member and provider data with utilization,
                service, accounting data, and reporting functions.

            (7) Ability to relate and extract data elements into summary and
                reporting formats attached as Appendices to contract.


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            (8) Must have written process and procedures manuals which document
                and describe all manual and automated system procedures and
                processes for all the above functions and features, and the
                various subsystem components.

            (9) Maintain and cross-reference all Member-related information with
                the most current Medicaid number.

10.3     ENROLLMENT/ELIGIBILITY SUBSYSTEM

            The Enrollment/Eligibility Subsystem is the central processing
            point for the entire MIS. It must be constructed and programmed to
            secure all functions which require Membership data. It must have
            function and/or features which support requirements as follows:

            (1) Identify other health coverage available or third party
                liability (TPL), including type of coverage and effective dates.

            (2) Maintain historical data (files) as required by TDH.

            (3) Maintain data on enrollments/disenrollments and complaint
                activities. This data must include reason or type of
                disenrollment, complaint and resolution by incidence.

            (4) Receive, translate, edit and update files in accordance with TDH
                requirements prior to inclusion in HMO's MIS. Updates will be
                received from TDH's agent and processed within two working days
                after receipt.

            (5) Provide error reports and a reconciliation process between new
                data and data existing in MIS.

            (6) Identify enrollee changes in primary care provider and the
                reason(s) for those changes and effective dates.

            (7) Monitor PCP capacity and limitations prior to connecting the
                enrollee to PCP in the system, and provide a kick-out report
                when capacity and limitations are exceeded.

            (8) Verify enrollee eligibility for medical services rendered or for
                other enrollee inquiries.

            (9) Generate and track referrals, e.g., Hospitals/Specialists.


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            (10) Search records by a variety of fields (e.g., name, unique
                 identification numbers, date of birth, SSN, etc.) for
                 eligibility verification.

            (11) Send PCP assignment updates to TDH in the format as specified
                 by TDH.

10.4        PROVIDER SUBSYSTEM

            The provider subsystem must accept, process, store and retrieve
            current and historical data on providers, including services,
            payment methodology, license information, service capacity, and
            facility linkages.

            Functions and Features:

            (1) Identify specialty(s), admission privileges, enrollee linkage,
                capacity, facility linkages, emergency arrangements or contact,
                and other limitations, affiliations, or restrictions.

            (2) Maintain provider history files to include audit trails and
                effective dates of information.

            (3) Maintain provider fee schedules/remuneration agreements to
                permit accurate payment for services based on the financial
                agreement in effect on the date of service.

            (4) Support HMO credentialing, recredentialing, and credential
                tracking processes; incorporates or links information to
                provider record.

            (5) Support monitoring activity for physician to enrollee ratios
                (actual to maximum) and total provider enrollment to physician
                and HMO capacity.

            (6) Flag and identify providers with restrictive conditions (e.g.,
                limits to capacity, type of patient, and other services if
                approved out of network, to include age restrictions).

            (7) Support national provider number format (UPIN, NPIN, CLIA, etc.
                as required by TDH).

            (8) Provide provider network files 90 days prior to implementation
                and updates monthly. Format will be provided by TDH to
                contracted entities.

            (9) Support the national CLIA certification numbers for clinical
                laboratories.


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            (10) Exclude providers from participation that have been identified
                 by TDH as ineligible or excluded. Files must be updated to
                 reflect period and reason for exclusion.

10.5        ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM

            The encounter/claims processing subsystem must collect, process, and
            store data on all health services delivered for which HMO is
            responsible. The functions of these subsystems are claims/encounter
            processing and capturing health service utilization data. The
            subsystem must capture all health care services, including medical
            supplies, using standard codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92
            Revenue Codes) rendered by health-care providers to an eligible
            enrollee regardless of payment arrangement (e.g. capitation or
            fee-for-service). It approves, prepares for payment, or may reject
            or deny claims submitted. This subsystem may integrate manual and
            automated systems to validate and adjudicate claims and encounters.
            HMO must use encounter data validation methodologies prescribed by
            TDH.

            Functions and Features:

            (1)  Accommodate multiple input methods - electronic submission,
                 tape, claim document, and media.

            (2)  Support entry and capture of a minimum of all required data
                 elements specified in the Encounter Data Submissions manual.

            (3)  Edit and audit to ensure allowed services are provided by
                 eligible providers for eligible recipients.

            (4)  Interface with Member and provider subsystems.

            (5)  Capture and report TPL potential, reimbursement or denial.

            (6)  Edit for utilization and service criteria, medical policy, fee
                 schedules, multiple contracts, contract periods and conditions.

            (7)  Submit data to TDH through electronic transmission using
                 specified formats.

            (8)  Support multiple fee schedule benefit packages and capitation
                 rates for all contract periods for individual providers,
                 groups, services, etc. A claim encounter must be initially
                 adjudicated and all adjustments must use the fee applicable to
                 the date of service.

            (9)  Provide timely, accurate, and complete data for monitoring
                 claims processing performance.

            (10) Provide timely, accurate, and complete data for reporting
                 medical service utilization.

            (11) Maintain and apply prepayment edits to verify accuracy and
                 validity of claims data for proper adjudication.

            (12) Maintain and apply edits and audits to verify timely, accurate,
                 and complete encounter data reporting.


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            (13) Submit reimbursement to non-contracted providers for emergency
                 care rendered to enrollees in a timely and accurate fashion.

            (14) Validate approval and denials of precertification and prior
                 authorization requests during adjudication of
                 claims/encounters.

            (15) Track and report the exact date a service was performed. Use of
                 date ranges must have State approval.

            (16) Receive and capture claim and encounter data from TDH.

            (17) Receive and capture value-added services codes.

            (18) Capability of identifying adjustments and linking them to the
                 original claims/encounters.

10.6        FINANCIAL SUBSYSTEM

            The financial subsystem must provide the necessary data for all
            accounting functions including cost accounting, inventory, fixed
            assets, payroll, general ledger, accounts receivable and payable,
            financial statement presentation, and any additional data required
            by TDH. The financial subsystem must provide management with
            information that can demonstrate that the proposed or existing HMO
            is meeting, exceeding, or falling short of fiscal goals. The
            information must also provide management with the necessary data to
            spot the early signs of fiscal distress, far enough in advance to
            allow management to take corrective action where appropriate.

            Functions and Features:

            (1)  Provide information on HMO's economic resources, assets, and
                 liabilities and present accurate historical data and
                 projections based on historical performance and current assets
                 and liabilities.

            (2)  Produce financial statements in conformity with Generally
                 Accepted Accounting Principles and in the format prescribed by
                 TDH.

            (3)  Provide information on potential third party payers;
                 information specific to the client; claims made against third
                 party payers; collection amounts and dates; denials, and
                 reasons for denials.

            (4)  Track and report savings by category as a result of cost
                 avoidance activities.

            (5)  Track payments per Member made to network providers compared to
                 utilization of the provider's services.

            (6)  Generate Remittance and Status Reports.

            (7)  Make claim and capitation payments to providers or groups.


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            (8)  Reduce/increase accounts payable/receivable based on
                 adjustments to claims or recoveries from third party resources.

10.7        UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM

            The quality management/quality improvement/utilization review
            subsystem combines data from other subsystems, and/or external
            systems, to produce reports for analysis which focus on the review
            and assessment of quality of care given, detection of over and under
            utilization, and the development of user defined reporting criteria
            and standards. This system profiles utilization of providers and
            enrollees and compares them against experience and norms for
            comparable individuals. This system also supports the quality
            assessment function.

            The subsystem tracks utilization control function(s) and monitoring
            inpatient admissions, emergency room use, ancillary, and out-of-area
            services. It provides provider profiles, occurrence reporting, and
            monitoring and evaluation studies. The subsystem may integrate HMO's
            manual and automated processes or incorporate other software
            reporting and/or analysis programs.

            The subsystem incorporates and summarizes information from enrollee
            surveys, provider and enrollee complaints, and appeal processes.

            Functions and Features:

            (1)  Supports provider credentialing and recredentialing activities.

            (2)  Supports HMO processes to monitor and identify deviations in
                 patterns of treatment from established standards or norms.
                 Provides feedback information for monitoring progress toward
                 goals, identifying optimal practices, and promoting continuous
                 improvement.

            (3)  Supports development of cost and utilization data by provider
                 and service.

            (4)  Provides aggregate performance and outcome measures using
                 standardized quality indicators similar to HEDIS or as
                 specified by TDH.

            (5)  Supports focused quality of care studies.

            (6)  Supports the management of referral/utilization control
                 processes and procedures, including prior authorization and
                 precertifications and denials of services.

            (7)  Monitors primary care provider referral patterns.

            (8)  Supports functions of reviewing access, use and coordination of
                 services (i.e. actions of Peer Review and alert/flag for review
                 and/or follow-up; laboratory, x-ray and other ancillary service
                 utilization per visit).

            (9)  Stores and reports patient satisfaction data through use of
                 enrollee surveys.

            (10) Provides fraud and abuse detection, monitoring and reporting.


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            (11) Meets minimum report/data collection/analysis functions of
                 Article XI and Appendix A of this Contract.

            (12) Monitors and tracks provider and enrollee complaints and
                 appeals from receipt to disposition or resolution by provider.

10.8        REPORT SUBSYSTEM

            The reporting subsystem supports reporting requirements of all HMO
            operations to HMO management and TDH. It allows HMO to develop
            various reports to enable HMO management and TDH to make decisions
            regarding HMO activity.

            Functions and Capabilities:

            (1)  Produces standard, TDH-required reports and ad hoc reports from
                 the data available in all MIS subsystems. All reports will be
                 submitted on hard copy or electronically in a format approved
                 by TDH.

            (2)  Have system flexibility to permit the development of reports at
                 irregular periods as needed.

            (3)  Generate reports that provide unduplicated counts of enrollees,
                 providers, payments and units of service unless otherwise
                 specified.

            (4)  Generate an alphabetic Member listing.

            (5)  Generate a numeric Member listing.

            (6)  Generate a client eligibility listing by PCP (panel report).

            (7)  Report on PCP change by reason code.

            (8)  Report on TPL (COB) information to TDH.

            (9)  Report on provider capacity and assignment from date of service
                 to date received.

            (10) Generate or produce an aged outstanding liability report.

            (11) Produce a Member ID Card.

            (12) Produce client/provider mailing labels.

10.9        DATA INTERFACE SUBSYSTEM

10.9.1      The interface subsystem supports incoming and outgoing data from and
            to other organizations. It allows HMO to maintain enrollee, benefit
            package, eligibility, disenrollment/enrollment status, and medical
            services received outside of capitated services and associated cost.
            All interfaces must follow the specifications frequencies and
            formats listed in the Interface Manual.

10.9.2      HMO must obtain access to the TexMedNet BBS. Some file transfers and
            E-mail will be handled through this mechanism.


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10.9.3      Provider Network File. The provider file shall supply Network
            Provider data between an HMO and TDH. This process shall accomplish
            the following:

            (1)  Provide identifying information for all managed care providers
                 (e.g. name, address, etc.).

            (2)  Maintain history on provider enrollment/disenrollment.

            (3)  Identify PCP capacity.

            (4)  Identify any restrictions (e.g., age, sex, etc.).

            (5)  Identify number and types of specialty providers available to
                 Members.

10.9.4      Eligibility/Enrollment Interface. The enrollment interface must
            provide eligibility data between TDH and HMOs.

            (1)  Provides benefit package data to HMOs in accordance with
                 capitated services.

            (2)  Provides PCP assignments.

            (3)  Provides Member eligibility status data.

            (4)  Provides Member demographics data.

            (5)  Provides HMOs with cross-reference data to identify duplicate
                 Members.

10.9.5      Encounter/Claim Data Interface. The encounter/claim interface must
            transfer paid fee-for-service claims data to HMOs and capitated
            services/encounters from HMO, including adjustments. This file will
            include all service types, such as inpatient, outpatient, and
            medical services. TDH's agent will process claims for non-capitated
            services.

10.9.6      Capitation Interface. The capitation interface must transfer premium
            and Member information to HMO. This interface's basic purpose is to
            balance HMO's Members and premium amount.

10.9.7      TPR Interface. TDH will provide a data file that contains
            information on enrollees that have other insurance. Because Medicaid
            is the payer of last resort, all services and encounters should be
            billed to the other insurance companies for recovery. TDH will also
            provide an insurance company data file which contains the name and
            address of each insurance company.

10.9.8      TDH will provide a diagnosis file which will give the code and
            description of each diagnosis permitted by TDH.

10.9.9      TDH will provide a procedure file which contains the procedures
            which must be used on all claims and encounters. This file contains
            HCPCS, revenue, and ICD9-CM surgical procedure codes.


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10.9.10     TDH will provide a provider file that contains the Medicaid provider
            numbers, and the provider's names and addresses. The provider number
            authorized by TDH must be submitted on all claims, encounters, and
            network provider submissions.

10.10       TPR SUBSYSTEM

            HMO's third party recovery system must have the following
            capabilities and capacities:

            (1)  Identify, store, and use other health coverage available to
                 eligible Members or third party liability (TPL) including type
                 of coverage and effective dates.

            (2)  Provide changes in information to TDH as specified by TDH.

            (3)  Receive TPL data from TDH to be used in claim and encounter
                 processing.

ARTICLE XI QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.1        QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM

            HMO must develop, maintain, and operate a Quality Improvement
            Program (QIP) system which complies with federal regulations
            relating to Quality Assurance systems, found at 42 C.F.R.
            Section 434.34. The system must meet the Standards for Quality
            Improvement Programs contained in Appendix A.

11.2        WRITTEN QIP PLAN

            HMO must have on file with TDH an approved plan describing its
            Quality Improvement Plan (QIP), including how HMO will accomplish
            the activities pertaining to each Standard (I-XVI) in Appendix A.
            Modifications and amendments must be submitted to TDH no later than
            60 days prior to the implementation of the modification or
            amendment.

11.3        QIP SUBCONTRACTING


            If HMO subcontracts any of the essential functions or reporting
            requirements of QIP to another entity, HMO must maintain a file of
            the subcontractors. The file must be available for review by TDH or
            its designee upon request. HMO must notify TDH no later than 90 days
            prior to terminating any subcontract affecting a major performance
            function of this contract (see Article 3.2.1.2).

11.4        ACCREDITATION


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           If HMO is accredited by an external accrediting agency,
           documentation of accreditation must be provided to TDH. HMO must
           provide TDH with their accreditation status upon request.

11.5       BEHAVIORAL HEALTH INTEGRATION INTO QIP

           HMO must integrate behavioral health into its QIP system and
           include a systematic and on-going process for monitoring,
           evaluating, and improving the quality and appropriateness of
           behavioral health services provided to Members. HMO's QIP must
           enable HMO to collect data, monitor and evaluate for improvements to
           physical health outcomes resulting from behavioral health
           integration into the overall care of the Member. All Memorandums of
           Agreement (MOAs) between HMOs and BHOs addressing care coordination
           must be adhered to.

11.6       QIP REPORTING REQUIREMENTS

           HMO must meet all of the QIP Reporting Requirements contained in
           Article XII.

ARTICLE XII REPORTING REQUIREMENTS

12.1       FINANCIAL REPORTS

12.1.1     Monthly MCFS Report. HMO must submit the Managed Care Financial
           Statistical Report (MCFS) included in Appendix I. The report must be
           submitted to TDH no later than 30 days after the end of each state
           fiscal year quarter (i.e., Dec. 30, March 31, June 30, Sept. 30) and
           must include complete financial and statistical information for each
           month. The MCFS Report must be submitted for each claims processing
           subcontractor in accordance with this Article. HMO must incorporate
           financial and statistical data received by its delegated networks
           (IPAs, ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.2     For any given month in which an HMO has a net loss of $200,000 or
           more for the contract period to date, HMO must submit an MCFS Report
           for that month by the 30th day after the end of the reporting month.
           The MCFS Report must be completed in accordance with the Instructions
           for Completion of the Managed Care Financial-Statistical Report
           developed by TDH.

12.1.3     An HMO must submit monthly reports for each of the first 6 months
           following the Implementation Date. If the cumulative net loss for
           the contract period to date after the 6th month is less than
           $200,000, HMO may submit quarterly reports in


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            accordance with the above provisions unless conditions 12.1.2 or
            12.1.3 exist, in which case monthly reports must be submitted.

12.1.4      Final MCFS Report. HMO must file two Final Managed Care Financial
            Statistical Reports. The first final report must reflect expenses
            incurred through the 90th day after the end of the contract. The
            first final report must be filed on or before the 120th day after
            the end of the contract. The second final report must reflect data
            completed through the 334th day after the end of the contract and
            must be filed on or before the 365th day following the end of the
            contract.

12.1.5      Administrative expenses reported in the monthly and Final MCFS
            Reports must be reported in accordance with Appendix L, Cost
            Principles for Administrative Expenses. Indirect administrative
            expenses must be based on an allocation methodology for Medicaid
            managed care activities and services that is developed or approved
            by TDH.

12.1.6      Affiliated Report. HMO must submit an Affiliated Report to TDH if
            this information has changed since the last report was submitted.
            The report must contain the following information:

12.1.6.1    A listing of all Affiliate; and

12.1.6.2    A schedule of all transactions with Affiliates which, under the
            provisions of this Contract, will be allowable as expenses in
            either Line 4 or Line 5 of Part 1 of the MCFS Report for services
            provided to HMO by the Affiliate, including financial terms, a
            detailed description of the services to be provided and an estimated
            amount which will be incurred by HMO for such services during the
            Contract period.

12.1.7      Annual Audited Financial Report. On or before June 30th of each
            year, HMO must submit to TDH a copy of the annual audited financial
            report filed with TDI.

12.1.8      Form HCFA-1513. HMO must file an updated Form HCFA-1513 regarding
            control, ownership, or affiliation of HMO 30 days prior to the end
            of the contract year. An updated Form HCFA-1513 must also be filed
            within 30 days of any change in control, ownership, or affiliation
            of HMO. Forms may be obtained from TDH.

12.1.9      Section 1318 Financial Disclosure Report. HMO must file an updated
            HCFA Public Health Service (PHS) "Section 1318 Financial Disclosure
            Report" within 30 days from the end of the contract year and within
            30 days of entering into, renewing, or terminating a relationship
            with an affiliated party. These forms may be obtained from TDH.


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12.1.10     TDI Examination Report. HMO must furnish a copy of any TDI
            Examination Report within 10 days after receipt from TDI.

12.1.11     IBNR Plan. HMO must furnish a written IBNR Plan to manage
            incurred-but-not-reported (IBNR) expenses, and a description of the
            method of insuring against insolvency, including information on all
            existing or proposed insurance policies. The Plan must include the
            methodology for estimating IBNR. The plan and description must be
            submitted to TDH no later than 60 days after the effective date of
            this contract, unless previously submitted to TDH. Changes to the
            IBNR plan and description must be submitted to TDH no later than 30
            days before changes to the plan are implemented by HMO.

12.1.12     Third Party Recovery (TPR) Reports. HMO must file quarterly (based
            on State Fiscal Year quarters) Third Party Recovery (TPR) Reports in
            accordance with the format developed by TDH. TPR reports must
            include total dollars recovered from third party payers for services
            to HMO's Members for each month and the total dollars recovered
            through coordination of benefits, subrogation, and worker's
            compensation.

12.1.13     Each report required under this Article must be mailed to: Bureau of
            Managed Care; Texas Dept. Of Health; 1100 W. 49th Street; Austin, TX
            78756-3168 (Exception: The MCFS Report may be submitted to TDH via
            E-mail). HMO must also mail a copy of the reports, except for items
            in Article 12.1.7 and Article 12.1.10 to Texas Department of
            Insurance, Mail Code 106-3A, HMO Division, Attention: HMO Division
            Director, P.O. Box 149104, Austin, TX 78714-9104.

12.2        STATISTICAL REPORTS

12.2.1      HMO must electronically file the following monthly reports: (1)
            encounter; (2) encounter detail; (3) institutional; (4)
            institutional detail; and (5) claims detail for cost-reimbursed
            services filed, if any, with HMO. Encounter data must include the
            data elements, follow the format, and use the transmission method
            specified by TDH in the Encounter Data Submission Manual. Encounters
            must be submitted by HMO to TDH no later than 45 days after the date
            of adjudication (finalization) of the claims.

12.2.2      Monthly reports must include current month encounter data and
            encounter data adjustments to the previous month's data.

12.2.3      Data quality standards will be developed jointly by HMO and TDH.
            Encounter data must meet or exceed data quality standards. Data that
            does not meet quality standards must be corrected and returned
            within the period specified by TDH. Original records must be made
            available to validate all encounter data.


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<PAGE>   108
12.2.4   HMO cannot submit newborn encounters to TDH until the State-issued
         Medicaid ID number is received for a newborn. HMO must match the proxy
         ID number issued by the HMO with the State-issued Medicaid ID number
         prior to submission of encounters to TDH and submit the encounter in
         accordance to the HMO Encounter Data Submission Manual. The encounter
         must include the State-issued Medicaid ID number. Exceptions to the
         45-day deadline will be granted in cases in which the Medicaid ID
         number is not available for a newborn Member.

12.2.5   HMO must require providers to submit claims and encounter data to HMO
         no later than 95 days after the date services are provided.

12.2.6   HMO must use the procedure codes, diagnosis codes and other codes
         contained in the most recent edition of the Texas Medicaid Provider
         Procedures Manual and as otherwise provided by TDH. Exceptions or
         additional codes must be submitted for approval before HMO uses the
         codes.

12.2.7   HMO must use its TDH-specified identification numbers on all encounter
         data submissions. Please refer to the TDH Encounter Data Submission
         Manual for further specifications.

12.2.8   HMO must validate all encounter data using the encounter data
         validation methodology prescribed by TDH prior to submission of
         encounter data to TDH.

12.2.9   All Claims Summary Report. HMO must submit the "All Claims Summary
         Report" identified in the Texas Managed Care Claims Manual as a
         contract year-to-date report. The report must be submitted quarterly by
         the last day of the month following the reporting period. The reports
         must be submitted to TDH in a format specified by TDH.

12.2.10  Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must file
         preliminary and final Medicaid Disproportionate Share Hospital (DSH)
         reports, required by TDH to identify and reimburse hospitals that
         qualify for Medicaid DSH funds. The preliminary and final DSH reports
         must include the data elements and be submitted in the form and format
         specified by TDH. The preliminary DSH reports are due on or before June
         1 of the year following the state fiscal year for which data is being
         reported. The final DSH reports are due no later than July 15 of the
         year following the state fiscal year for which data is being reported.

12.3     ARBITRATION/LITIGATION CLAIMS REPORT

         HMO must submit an Arbitration/Litigation Claims Report in a format
         provided by TDH (see Appendix M) identifying all provider or HMO
         requests for arbitration or matters in litigation. The report must be
         submitted within 30 days from the date the

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         matter is referred to arbitration or suit is filed, or whenever there
         is a change of status in a matter referred to arbitration or
         litigation.

12.4     SUMMARY REPORT OF PROVIDER COMPLAINTS

         HMO must submit a Summary Report of Provider Complaints. HMO must also
         report complaints submitted through its subcontracted risk groups
         (e.g., IPAs). The complaint report must be submitted in two paper
         copies and one electronic copy no later than 45 days after the end of
         the state fiscal quarter using a form specified by TDH.

12.5     PROVIDER NETWORK REPORTS

12.5.1   Provide Network Reports. HMO must submit to the Enrollment Broker an
         electronic file summarizing changes in HMO's provider network including
         PCPs, specialists, ancillary providers and hospitals. The file must
         indicate if the PCPs and specialists participate in a closed network
         and the name of the delegated network. The electronic file must be
         submitted in the format specified by TDH and can be submitted as often
         as daily, but must be submitted at least weekly.

12.5.1.1 Provider Termination Report. HMO must submit a monthly report which
         identifies any providers who cease to participate in HMO's provider
         network, either voluntarily or involuntarily. The report must be
         submitted to TDH in the format specified by TDH. HMO will submit the
         report no later than thirty (30) days after the end of the reporting
         month. The information must include the provider's name, Medicaid
         number, the reason for the provider's termination, and whether the
         termination was voluntary or involuntary.

12.6     MEMBER COMPLAINTS

         HM0 must submit a quarterly summary report of Member complaints. HMO
         must also report complaints submitted through its delegated networks
         (e.g., IPAs). The complaint report format must be submitted to TDH as
         two (2) paper copies and one (1) electronic copy on or before 45 days
         following the end of the state fiscal quarter using a form specified by
         TDH.

12.7     FRAUDULENT PRACTICES

         HMO must report all fraud and abuse enforcement actions or
         investigations taken against HMO and/or any of its Subcontractors or
         providers by any state or federal agency for fraud or abuse under Title
         XVIII or Title XIX of the Social Security Act or any State law or
         regulation and any basis upon which an action for fraud or abuse

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         may be brought by a State or federal agency as soon as such information
         comes to the attention of HMO.

12.8     UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH

         Behavioral health (BH) utilization management reports are required on
         a semi-annual basis. Refer to Appendix H for the standardized reporting
         format for each report detailed instructions for obtaining the specific
         data required in the report.

12.8.1   In addition, data files are due to the TDH External Quality Review
         Organization five working days following the end of each State Quarter.
         See Appendix H for submission instructions. The BH utilization report
         and data file submission instructions may periodically be updated by
         TDH to facilitate clear communication to the health plans.

12.9     UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH

         Physical health (PH) utilization management reports are required on a
         semi-annual basis. Refer to Appendix J for the standardized reporting
         format for each report and detailed instructions for obtaining specific
         data required in the report.

12.9.1   In addition, data files are due to the TDH External Quality Review
         Organization five working days following the end of each State Quarter.
         See Appendix J for submission instructions. The PH utilization report
         and data file submission instruction may periodically be updated by TDH
         to facilitate clear communication to the health plan.

12.10    QUALITY IMPROVEMENT REPORTS

12.10.1  HMO must conduct health Focused Studies in well child and pregnancy,
         and a study chosen by HMO that may be performed in the areas of
         behavioral health care, asthma, or other chronic conditions. Well child
         and pregnancy studies shall be conducted and data collected using
         criteria and methods developed by TDH. The following format shall be
         utilized:

         (1)      Executive Summary.

         (2)      Definition of the population and health areas of concern.

         (3)      Clinical guidelines/standards, quality indicators, and audit
                  tools.

         (4)      Sources of information and data collection methodology.

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         (5)      Data analysis and information/results.

         (6)      Corrective actions if any, implementation, and follow up plans
                  including monitoring, assessment of effectiveness, and methods
                  for provider feedback.

12.10.2  Annual Focus Studies. Focused Studies on well child, pregnancy, and a
         study chosen by the plan must be submitted to TDH according to due
         dates established by TDH.

12.10.3  Annual QIP Summary Report. An annual QIP summary report must be
         conducted yearly based on the state fiscal year. The annual QIP
         summary report must be submitted by March 31 of each year. This
         report must provide summary information on HMO's QIP system and
         include the following:

         (1)      Executive summary of QIP - include results of all QI reports
                  and interventions.

         (2)      Activities pertaining to each standard (I through XVI) in
                  Appendix A. Report must list each standard.

         (3)      Methodologies for collecting, assessing data and measuring
                  outcomes.

         (4)      Tracking and monitoring quality of care.

         (5)      Role of health professionals in QIP review.

         (6)      Methodology for collection data and providing feedback to
                  provider and staff.

         (7)      Outcomes and/or action plan.

12.10.4  Provider Medical Record Audit and Report. HMO is required to conform to
         commonly accepted medical record standards such as those used by NCQA,
         JCAHO, or those used for credentialing review such as the Texas
         Environment of Care Assessment Program (TECAP), and have documentation
         on file at HMO for review by TDH or its designee during an on-site
         review.

12.11    HUB REPORTS

         HMO must submit quarterly reports documenting HMO's HUB program
         efforts and accomplishments. The report must include a narrative
         description of HMO's program efforts and a financial report
         reflecting payments made to HUB. HMO must use the format included in
         Appendix B for HUB Quarterly reports. For HUB Certified Entities: HMO
         must include the General Services Commission (GSC)

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         Vendor Number and the ethnicity/gender under which a contracting entity
         is registered with GSC. For HUB Qualified (but not certified) Entities:
         HMO must include the ethnicity/gender of the major owner(s) (51%) of
         the entity. Any entities for which HMO cannot provide this information
         cannot be included in the HUB report. For both types of entities, an
         entity will not be included in the HUB Report if HMO does not list
         ethnicity/gender information.

12.12.   THSTEPS REPORTS

         Minimum reporting requirements. HMO must submit, at a minimum, 80% of
         all THSteps checkups on HCFA 1500 claim forms as part of the encounter
         file submission to the TDH Claims Administrator within thirty (30) days
         after the date of final adjudication (finalization) of the claims.
         Failure to comply with these minimum reporting requirements will result
         in Article XVIII sanctions and money damages.

ARTICLE XIII   PAYMENT PROVISIONS

13.1     CAPITATION AMOUNTS

13.1.1   TDH will pay HMO monthly premiums calculated by multiplying the number
         of Member months by Member risk group times the monthly capitation
         amount by Member risk group. For additional information regarding the
         actuarial basis and methodology used to compute the capitation rates,
         please reference the waiver under the document titled "Actuarial
         Methodology for Determination of Maximum Monthly Capitation Amounts".
         HMO and network providers are prohibited from billing or collecting any
         amount from a Member for health care services covered by this contract,
         in which case the Member must be informed of such costs prior to
         providing non-covered services.

13.1.2   Delivery Supplemental Payment (DSP). The monthly capitation amounts and
         the DSP amount are listed below.

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<TABLE>
<CAPTION>
                                                     MONTHLY CAPITATION AMOUNTS
           RISK GROUP                                 SEPTEMBER 1, 2000 -
                                                        AUGUST 31, 2001
<S>                                                  <C>
TANF Adults                                                  $131.03

TANF Children > 12 Months                                    $ 58.03
of Age

Expansion Children > 12                                      $136.84
Months of Age

Newborns LESS THAN OR EQUAL TO 12 Months of                  $276.92
Age

TANF Children LESS THAN OR EQUAL TO 12 Months                $276.92
of Age

Expansion Children LESS THAN OR EQUAL TO 12                  $276.92
Months of Age

Federal Mandate Children                                     $ 55.44

CHIP Phase 1                                                 $ 94.31

Pregnant Women                                               $232.66

Disabled/Blind                                               $ 14.00
Administration
</TABLE>

         Delivery Supplemental Payment: A one-time per pregnancy supplemental
         payment for each delivery shall be paid to HMO as provided below in the
         following amount: $3,076.23.

13.1.2.1 HMO will receive a DSP for each live or still birth. The one-time
         payment is made regardless of whether there is a single or multiple
         births at time of delivery. A delivery is the birth of a liveborn
         infant, regardless of the duration of the pregnancy or, a stillborn
         (fetal death) infant of 20 weeks or more gestation. A delivery does not
         include a spontaneous or induced abortion, regardless of the duration
         of the pregnancy.

13.1.2.2 For an HMO Member who is classified in the Pregnant Women, TANF Adults,
         or TANF Children > 12 months; Expansion Children > 12 months, Federal
         Mandate Children, or CHIP risk group, HMO will be paid the monthly
         capitation amount identified in section 13.1.2 for each month of
         classification, plus the DSP amount.

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13.1.2.3 HMO must submit a monthly DSP Report (report) that includes the data
         elements specified by TDH. TDH will consult with contracted HMOs prior
         to revising the report data elements and requirements. The reports must
         be submitted to TDH in the format and time specified by TDH. The report
         must include only unduplicated deliveries. The report must include only
         deliveries for which HMO has made a payment for the delivery, to either
         a hospital or other provider. No DSP will be made for deliveries which
         are not reported by HMO to TDH within 210 days after the date of
         delivery, or within 30 days from the date of discharge from the
         hospital for the stay related to the delivery, whichever is later.

13.1.2.4 HMO must maintain complete claims and adjudication disposition
         documentation, including paid and denied amounts for each delivery. HMO
         must submit the documentation to TDH within five (5) days from the date
         of a TDH request for documents.

13.1.2.5 The DSP will be made by TDH to HMO within twenty (20) state working
         days after receiving an accurate report from HMO.

13.1.2.6 All infants of age equal to or less than twelve months (Newborns) in
         the TANF Children, Expansion Children, and Newborns risk groups will be
         capitated at the Newborns classification capitation amount in paragraph
         13.1.2.

13.1.3   The monthly premium payment to HMO is based on monthly enrollments
         adjusted to reflect money damages set out in Article 18.8 and
         adjustments to premiums in Article 13.5.

13.1.4   The monthly premium payments will be made to HMO no later than the 10th
         working day of the month for which premiums are paid. HMO must accept
         payment for premiums by direct deposit into an HMO account.

13.1.5   Payment of monthly capitation amounts is subject to availability of
         appropriations. If appropriations are not available to pay the full
         monthly capitation amounts, TDH will equitably adjust capitation
         amounts for all participating HMOs, and reduce scope of service
         requirements as appropriate.

13.2     EXPERIENCE REBATE TO STATE

13.2.1   For the contract Period. HMO must pay to TDH an experience rebate
         calculated in accordance with the tiered rebate method listed below
         based on the excess of allowable HMO STAR revenues over allowable HMO
         STAR expenses as measured by any positive amount on Line 7 of "Part 1:
         Financial Summary, All Coverage Groups Combined" of the Final Managed
         Care Financial Statistical Report set forth

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         in Appendix I, as reviewed and confirmed by TDH. TDH reserves the right
         to have an independent audit performed to verify the information
         provided by HMO.
<TABLE>
<CAPTION>
                                                       Graduated Rebate
                                                       ----------------
                    Experience Rebate as                   HMO Share                        State Share
                    --------------------                   ---------                        -----------
<S>                 <C>                                <C>                                  <C>
                           0% - 3%                           100%                                0%
                        Over 3% - 7%                          75%                               25%
                        Over 7% -10%                          50%                               50%
                       Over 10% - 15%                         25%                               75%
                          Over 15%                             0%                              100%
</TABLE>

13.2.2   Carry Forward of Prior Contract Period Losses: Losses incurred for one
         contract period can only be carried forward to the next contract
         period.

13.2.2.1 Carry Forward of Loss from one Service Delivery Area to Another: If HMO
         operates in multiple Service Delivery Areas (SDAs), Losses in one SDA
         cannot be used to offset net income before taxes in another SDA.

13.2.3   Experience rebate will be based on a pre-tax basis.

13.2.4   Population-Based Initiatives (PBIs) and Experience Rebates: HMO may
         subtract from an experience rebate owed to the State, expenses for
         population-based health initiatives that have been approved by TDH. A
         population-based initiative (PBI) is a project or program designed to
         improved some aspect of quality of care, quality of life, or health
         care knowledge for the community as a whole: Value-added service does
         not constitute a PBI. Contractually required services and activities do
         not constitute a PBI.

13.2.5   There will be two settlements for payment of the experience rebate. The
         first settlement shall equal 100 percent of the experience rebate as
         derived from Line 7 of Part 1 (Net Income Before Taxes) of the first
         Final Managed Care Financial Statistical (MCFS) Report shall be paid on
         the same day the first Final MCFS Report is submitted to TDH. The
         second settlement shall be an adjustment to the first settlement and
         shall be paid to TDH on the same day that the second Final MCFS Report
         is submitted to TDH if the adjustment is a payment from HMO to TDH. TDH
         or its agent may audit or review the MCFS reports. If TDH determines
         that corrections to the MCFS reports are required, based on a TDH
         audit/review or other

                        109                         Dallas Service Area Contract
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         documentation acceptable to TDH, to determine an adjustment to the
         amount of the second settlement, then final adjustment shall be made
         within two years from the date that HMO submits the second Final MCFS
         report. HMO must pay the first and second settlements on the due dates
         for the first and second Final MCFS reports respectively as identified
         in Article 12.1.4. TDH may adjust the experience rebate if TDH
         determines HMO has paid affiliates amounts for goods or services that
         are higher than the fair market value of the goods and services in the
         service area. Fair market value may be based on the amount HMO pays a
         non-affiliate(s) or the amount another HMO pays for the same or similar
         service in the service area. TDH will have final authority in auditing
         and determining the amount of the experience rebate.

13.3     PERFORMANCE OBJECTIVES

13.3.1   Preventive Health Performance Objectives are contained in this contract
         at Appendix K. HMO must accomplish the performance objectives or a
         designated percentage in order to be eligible for payment of financial
         incentives. Performance objectives are subject to change. TDH will
         consult with HMO prior to revising performance objectives.

13.3.2   HMO will receive credit for accomplishing a performance objective upon
         receipt of accurate encounter data required under article 10.5 and 12.2
         of this contract and/or a Detailed Data Element Report from HMO with
         report format as determined by TDH and aggregate data reported by HMO
         in accordance with a report format as determined by TDH (Performance
         Objectives Report). Accuracy and completeness of the detailed data
         element report and the aggregate data Performance Objectives Report
         will be determined by TDH through a TDH audit of HMO claims processing
         system. If TDH determines that the Detailed Data Element Report and
         Performance Objectives Report are sufficiently supported by the results
         of the TDH audit, the payment of financial incentives will be made to
         HMO. Conversely, if the audit results do not support the reports as
         determined by TDH, HMO will not receive payment of the financial
         incentive. TDH may conduct provider chart reviews to validate the
         accuracy of the claims data related to HMO accomplishment of
         performance objectives. If the results of the chart review do not
         support HMO claims system data or HMO Detailed Data Element Report and
         the Performance Objectives Report, TDH may recoup payments made to HMO
         for performance objectives incentives.

13.3.3   HMO will also receive credit for performance objectives performed by
         other organizations if a network primary care provider or HMO retains
         documentation from the performing organization which satisfies the
         requirements contained in Appendix K of this contract.

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<PAGE>   117

13.3.4   HMO will receive performance objective bonuses for accomplishing the
         following percentages of performance objectives:

<TABLE>
<CAPTION>
     Percent of Each Performance              Percent of Performance Objective
       Objective Accomplished                    Allocations Paid to HMO
       ----------------------                    -----------------------
<S>                                                     <C>
            60% to 65%                                  20%
            65% to 70%                                  30%
            70% to 75%                                  40%
            75% to 80%                                  50%
            80% to 85%                                  60%
            85% to 90%                                  70%
            90% to 95%                                  80%
           95% to 100%                                  90%
               100%                                    100%
</TABLE>

13.3.5   HMO must submit the Detailed Data Element Report and the Performance
         Objectives Reports regardless of whether or not HMO intends to claim
         payment of performance objective bonuses.

13.4     PAYMENT OF PERFORMANCE OBJECTIVE BONUSES

13.4.1   Payment of performance objective bonus is contingent upon availability
         of appropriations. If appropriations are not available to pay
         performance objective bonuses as set out below, TDH will equitably
         distribute all available funds to each HMO that has accomplished the
         performance objectives.

13.4.2   In addition to the capitation amounts set forth in Article 13.1.2, a
         performance premium of two dollars ($2.00) per Member month will be
         allocated by TDH for the accomplishment of performance objectives.

13.4.3   HMO must submit the Performance Objectives Report and the Detailed Data
         Element Report as referenced in Article 13.3.2, within 150 days from
         the end of each State fiscal year. Performance premiums will be paid to
         HMO within 120 days after the State receives and validates the data
         contained in each required Performance Objectives Report.

                        111                         Dallas Service Area Contract
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<TABLE>
<CAPTION>

<S>        <C>
13.4.4     The performance objective allocation for HMO will be assigned to each
           performance objective, described in Appendix K. The percentages will
           be determined following negotiation and agreement with all contracted
           Medicaid managed care HMOs. At the time these percentages are
           determined, this contract will be modified by written amendment.

13.5       ADJUSTMENTS TO PREMIUM

13.5.1     TDH may recoup premiums paid to HMO in error. Error may be either
           human or machine error on the part of TDH or an agent or contractor
           of TDH. TDH may recoup premiums paid to HMO if a Member is enrolled
           into HMO in error, and HMO provided no covered services to Member for
           the period of time for which premium was paid. If services were
           provided to Member as a result of the error, recoupment will not be
           made.
</TABLE>

                        112                        Dallas Service Area Contract
<PAGE>   119

<TABLE>
<CAPTION>
<S>        <C>
 13.5.2    TDH may recoup premium paid to HMO if a Member for whom premium is
           paid moves outside the United States, and HMO has not provided
           covered services to the Member for the period of time for which
           premium has been paid. TDH will not recoup premium if HMO has
           provided covered services to the Member during the period of time for
           which premium has been paid.

13.5.3     TDH may recoup premium paid to HMO if a Member for whom premium is paid
           dies before the first day of the month for which premium is paid.

13.5.4     TDH may recoup or adjust premium paid to HMO for a Member if the
           Member's eligibility status or program type is changed, corrected as a
           result of error, or is retroactively adjusted.

13.5.5     Recoupment or adjustment of premium under 13.5.1 through 13.5.4 may be
           appealed using the TDH dispute resolution process.

13.5.6     TDH may adjust premiums for all Members within an eligibility status or
           program type if adjustment is required by reductions in appropriations
           and/or if a benefit or category of benefits is excluded or included as
           a covered service. Adjustment must be made by amendment as required by
           Article 15.2. Adjustment to premium under this subsection may not be
           appealed using the TDH dispute resolution process.

13.6       NEWB0RN AND PREGNANT WOMEN PAYMENT PROVISIONS

13.6.1     Newborns born to Medicaid eligible mothers who are enrolled in HMO are
           enrolled into HMO for 90 days following the date of birth.

13.6.1.1   The mother of the newborn Member may change her newborn to another HMO
           during the first 90 days following the date of birth, but may only do
           so through TDH Customer Services.

13.6.2     MAXIMUS will provide HMO with a daily enrollment file which will list
           all newborns who have received State-issued Medicaid ID numbers. This
           file will include the Medicaid eligible mother's Medicaid ID number to
           allow the HMO to link the newborn's State-issued Medicaid ID numbers
           with the proxy ID number. TDH will guarantee capitation payments to HMO
           for all newborns who appear on the MAXIMUS daily enrollment file as HMO
           Members for each month the newborn is enrolled in the HMO.

13.6.3     All non-TP45 newborns whose mothers are HMO Members at the time of the
           birth of the newborn will be retroactively enrolled into the HMO
           through a manual process by DHS Data Control.
</TABLE>

                        113                        Dallas Service Area Contract
<PAGE>   120
<TABLE>
<CAPTION>
<S>        <C>
13.6.4     Newborns who do not appear on the MAXIMUS daily enrollment file before
           the end of the sixth month following the date of birth will not be
           retroactively enrolled into the HMO. TDH will manually reconcile
           payment to the HMO for services provided from the date of birth for
           TP45 and all other eligibility categories of newborns. Payment will
           cover services rendered from the effective date of the proxy ID number
           when first issued by the HMO regardless of plan assignment at the time
           the State-issued Medicaid ID number is received.

13.6.5     MAXIMUS will provide HMO with a daily enrollment file which will list
           all TP40 Members who have received State-issued Medicaid ID numbers.
           TDH will guarantee capitation payments to HMO for all TP40 Members who
           appear on the MAXIMUS daily enrollment file as HMO Members for each
           month the TP40 Member enrollment is effective.

ARTICLE  XIV ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1       ELIGIBILITY DETERMINATION

14.1.1     TDH will identify Medicaid recipients who are eligible for
           participation in the STAR program using the eligibility status
           described below.

14.1.2     Individuals in the following categories who reside in any part of the
           Service Area must enroll in one of the health plans providing services
           in the Service Areas:

14.1.2.1   TANF ADULTS - Individuals age 21 and over who are eligible for the TANF
           program. This category may also include some pregnant women.

14.1.2.2   TANF CHILDREN - Individuals under age 21 who are eligible for the TANF
           program. This category may also include some pregnant women and some
           children less than one year of age.

14.1.2.3   PREGNANT WOMEN receiving Medical Assistance Only (MAO) - Pregnant women
           whose families' income is below 185% of the Federal Poverty Level
           (FPL).

14.1.2.4   NEWBORN (MAO) - Children under age one born to Medicaid-eligible
           mothers.

14.1.2.5   EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for TANF
           because of the applied income of their stepparents or grandparents.

14.1.2.6   EXPANSION CHILDREN (MAO) - Children under age 1 whose families' income
           is below 185% FPL.
</TABLE>

                          114                       Dallas Service Area Contract
<PAGE>   121

<TABLE>
<CAPTION>
<S>        <C>
 14.1.2.7  EXPANSION CHILDREN MAO - Children age 1-5 whose families' income is
           at or below 133% of FPL.

 14.1.2.8  FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born before
           October 10, 1983, whose families' income is below the TANF income
           limit.

 14.1.2.9  CHIP PHASE I - Children's Health Insurance Program Phase I (Federal
           Mandate Acceleration) Children are children under age nineteen (19)
           born before October 1, 1983, with family income below 100% Federal
           Poverty Income Level.

 14.1.3    The following individuals are eligible for the STAR Program and are
           not required to enroll in a health plan, but have the option to
           enroll in a plan. HMO will be required to accept enrollment of those
           recipients from this group who elect to enroll in HMO.

 14.1.3.1  DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICS - Recipients with
           Supplemental Security Income (SSI) benefits who are not eligible for
           Medicare may elect to participate in the STAR program on a voluntary
           basis.

 14.1.3.2  Certain blind or disabled individuals who lose SSI eligibility
           because of Title II income and who are not eligible for Medicare.

 14.1.4    During the period after which the Medicaid eligibility determination
           has been made but prior to enrollment in HMO, Members will be
           enrolled under the traditional Medicaid program. All Medicaid
           eligible recipients will remain in the fee-for-service Medicaid
           program until enrolled in or assigned to an HMO.

 14.2      ENROLLMENT

 14.2.1    TDH has the right and responsibility to enroll and disenroll eligible
           individuals into the STAR program. TDH will conduct continuous open
           enrollment for Medicaid recipients and HMO must accept all persons
           who chose to enroll as Members in HMO or who are assigned as Members
           in HMO by TDH, without regard to the Member's health status or any
           other factor.

 14.2.2    All enrollments are subject to the accessibility and availability
           limitations and restrictions contained in the Section 1915(b) waiver
           obtained by TDH. TDH has the authority to limit enrollment into HMO
           if the number and distance limitations are exceeded.

 14.2.3    TDH makes no guarantees or representations to HMO regarding the
           number of eligible Medicaid recipients who will ultimately be
           enrolled as STAR Members of HMO.
</TABLE>

                        115                         Dallas Service Area Contract
<PAGE>   122

<TABLE>
<CAPTION>

<S>        <C>
 14.2.4    HMO must cooperate and participate in all TDH sponsored and announced
           enrollment activities. HMO must have a representative at all TDH
           enrollment activities unless an exception is given by TDH. The
           representative must comply with HMO's cultural and linguistic
           competency plan (see Cultural and Linguistic requirements in
           Paragraph 8.9 of this contract). HMO must provide marketing
           materials, HMO pamphlets, Member handbooks, a list of network
           providers, HMO's linguistic and cultural capabilities and other
           information requested or required by TDH or its Enrollment Broker to
           assist potential Members in making informed choices.

 14.2.5    TDH will provide HMO with at least 10 days written notice of all TDH
           planned activities. Failure to participate in, or send a
           representative to a TDH sponsored enrollment activity is a default of
           the terms of the contract. Default may be excused if HMO can show
           that TDH failed to provide the required notice, or if HMO's absence
           is excused by TDH.

 14.3      NEWBORN ENROLLMENT

           The HMO is responsible for newborns who are born to mothers who are
           enrolled in HMO on the date of birth as follows:

 14.3.1    Newborns are presumed Medicaid eligible and enrolled in the mother's
           HMO for at least 90 days from the date of birth.

 14.3.1.1  A mother of a newborn Member may change plans for her newborn during
           the first 90 days by contacting TDH Customer Services. TDH will
           notify HMO of newborn plan changes made by a mother when the change
           is made by TDH Customer Services.

 14.3.2    HMO must establish and implement written policies and procedures to
           require providers to notify HMOs of a birth of a newborn to a Member
           at the time of delivery.

 14.3.2.1  HMO must create a proxy ID number in the HMO'S Enrollment/Eligibility
           and claims processing systems. HMO proxy ID number effective date is
           equal to the date of birth of the newborn.

 14.3.2.2  IB40 must match the proxy ID number and the State-issued Medicaid ID
           number once the State-issued Medicaid ID number is received.

 14.3.2.3  HMO must submit a Form 7484A to DHS Data Control requesting DHS Data
           Control to research DHSs files for a Medicaid ID number if HMO has
           not received a State-issued Medicaid ID number for a newborn within
           30 days from the date of
</TABLE>

                        116                         Dallas Service Area Contract
<PAGE>   123

<TABLE>
<CAPTION>

<S>        <C>
           birth. If DHS finds that no Medicaid ID number has been issued to the
           newborn, DHS Data Control will issue the Medicaid ID number using the
           information provided on the Form 7484A.

 14.3.3    Newborns certified Medicaid eligible after the end of the sixth month
           following the date of birth will not be retroactively enrolled to an
           HMO, but will be enrolled in Medicaid fee-for-service. TDH will
           manually reconcile payment to the HMO for services provided from the
           date of birth for all Medicaid eligible newborns as described in
           Article 13.6.4.

14.4       DISENROLLMENT

 14.4.1    HMO has a limited right to request a Member be disenrolled from HMO
           without the Member's consent. TDH must approve any HMO request for
           disenrollment of a Member for cause. Disenrollment of a Member may be
           permitted under the following circumstances:

 14.4.1.1  The Member misuses or loans the Member's HMO membership card to
           another person to obtain services.

 14.4.1.2  The Member is disruptive, unruly, threatening or uncooperative to the
           extent that the Member's membership seriously impairs HMO's or
           provider's ability to provide services to the Member or to obtain
           Members, and the Member's behavior is not caused by a physical or
           behavioral health condition.

 14.4.1.3  Member steadfastly refuses to comply with managed care restrictions
           (e.g., repeatedly using emergency room in combination with refusing
           to allow HMO to treat the underlying medical condition).

 14.4.2    HMO must take reasonable measures to correct Member behavior prior to
           requesting disenrollment. Reasonable measures may include providing
           education and counseling regarding the offensive acts or behaviors.

 14.4.3    HMO must notify the Member of HMO's decision to disenroll the Member
           if all reasonable measures have failed to remedy the problem.

 14.4.4    If the Member disagrees with the decision to disenroll the Member
           from HMO, HMO must notify the Member of the availability of the
           complaint procedure and TDH's fair hearing process.

 14.4.5    HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
           MEMBER'S HEALTH STATUS OR UTILIZATION OF
</TABLE>

                        117                         Dallas Service Area Contract
<PAGE>   124
           SERVICES WHICH ARE MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S
           CONDITION.

 14.5      AUTOMATIC RE-ENROLLMENT

 14.5.1    Members who are disenrolled because they are temporarily ineligible
           for Medicaid will be automatically re-enrolled into the same health
           plan. Temporary loss of eligibility is defined as a period of 6
           months or less.

 14.5.2    HMO must inform its Members of the automatic re-enrollment procedure.
           Automatic re-enrollment must be included in the Member Handbook (See
           Article 8.2.1).

 14.6      ENROLLMENT REPORTS


 14.6.1    TDH will provide HMO enrollment reports listing all STAR Members
           who have enrolled in or were assigned to HMO during the initial
           enrollment period.

 14.6.2    TDH will provide monthly HMO Enrollment Reports to HMO on or before
           the first of the month.

 14.6.3    TDH will provide Member verification to HMO and network providers
           through telephone verification or TexMedNet.

ARTICLE XV       GENERAL PROVISIONS

 15.1      INDEPENDENT CONTRACTOR

           HMO, its agents, employees, network providers and subcontractors are
           independent contractors, and do not perform services under this
           contract as employees or agents of TDH. HMO is given express, limited
           authority to exercise the State's right of recovery as provided in
           4.9.

 15.2      AMENDMENT

 15.2.1    This contract must be amended by TDH if amendment is required to
           comply with changes in state or federal laws, rules, or regulations.

 15.2.2    TDH and HMO may amend this contract if reductions in funding or
           appropriations make full performance of either party impracticable or
           impossible, and amendment

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<PAGE>   125
           could provide a reasonable alternative to termination. If HMO does
           not agree to the amendment, contract may be terminated under Article
           XVIII.

 15.2.3    This contract must be amended if either party discovers a material
           omission of a negotiated or required term, which is essential to the
           successful performance or maintaining compliance with the terms of
           the contract. The party discovering the omission must notify the
           other party of the omission in writing as soon as possible after
           discovery. If there is a disagreement regarding whether the omission
           was intended to be a term of the contract, the parties must submit
           the dispute to dispute resolution under paragraph 15.8 of this
           contract.

 15.2.4    This contract may be amended by mutual agreement at any time.

 15.2.5    All amendments to this contract must be in writing and signed by both
           parties.

 15.2.6    No agreement shall be used to amend this contract unless it is made a
           part of this contract by specific reference, and is numbered
           sequentially by order of its adoption.

 15.3      LAW, JURISDICTION AND VENUE

           Venue and jurisdiction shall be in the state and federal district
           courts of Travis County, Texas. The laws of the State of Texas shall
           be applied in all matters of state law.

 15.4      NON-WAIVER

           Failure to enforce any provision or breach shall not be taken by
           either party as a waiver of the right to enforce the provision or
           breach in the future.

 15.5      SEVERABILITY

           Any part of this contract which is found to be unenforceable,
           invalid, void, or illegal shall be severed from the contract. The
           remainder of the contract shall be effective.

 15.6      ASSIGNMENT

           This contract was awarded to HMO based on HMO's qualifications to
           perform personal and professional services. HMO cannot assign this
           contract without the written consent of TDI and TDH. This provision
           does not prevent HMO from subcontracting duties and responsibilities
           to qualified subcontractors. If TDI and TDH consent to an assignment
           of this contract, a transition period of 90 days will run from the
           date the assignment is approved by TDI and TDH so that Members'
           services are not interrupted and, if necessary, the notice provided
           for in Article 15.7 can be

                        119                        Dallas Service Area Contract
<PAGE>   126
           sent to Members. The assigning HMO must also submit a transition
           plan, as set out in Article 18.2.1, subject to TDH approval.

 15.7      MAJOR CHANGE IN CONTRACTING

           TDH may send notice to Members when a major change affecting HMO
           occurs. A "major change" includes, but is not limited to, a
           substantial change of subcontractors and assignment of this contract.
           The notice letter to Members may permit the Member to re-select their
           plan and PCP. TDH will bear the cost of preparing and sending the
           notice letter in the event of an approved assignment of the contract.
           For any other major change in contracting, HMO will prepare the
           notice letter and submit it to TDH for review and approval. After TDH
           has approved the letter for distribution to Members, HMO will bear
           the cost of sending the notice letter.

 15.8      NON-EXCLUSIVE

           This contract is a non-exclusive agreement. Either party may contract
           with other entities for similar services in the same service area.

 15.9      DISPUTE RESOLUTION


           The dispute resolution process adopted by TDH in accordance with
           Chapter 2260, Texas Government Code, will be used to attempt to
           resolve all disputes arising under this contract. All disputes
           arising under this contract shall be resolved through TDH's dispute
           resolution procedures, except where a remedy is provided for through
           TDH's administrative rules or processes. All administrative remedies
           must be exhausted prior to other methods of dispute resolution.

 15.10     DOCUMENTS CONSTITUTING CONTRACT

           This contract includes this document and all amendments and
           appendices to this document, the Request for Application, the
           Application submitted in response to the Request for Application, the
           Texas Medicaid Provider Procedures Manual and Texas Medicaid
           Bulletins addressed to HMOs, contract interpretation memoranda issued
           by TDH for this contract, and the federal waiver granting TDH
           authority to contract with HMO. If any conflict in provisions between
           these documents occurs, the terms of this contract and any amendments
           shall prevail. The documents listed above constitute the entire
           contract between the parties.

 15.11     FORCE MAJEURE

           TDH and HMO are excused from performing the duties and obligations
           under this contract for any period that they are prevented from
           performing their services as a

                        120                        Dallas Service Area Contract
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           result of a catastrophic occurrence, or natural disaster, clearly
           beyond the control of either party, including but not limited to an
           act of war, but excluding labor disputes.

 15.12     NOTICES

           Notice may be given by any means which provides for verification of
           receipt. All notices to TDH shall be addressed to Bureau Chief, Texas
           Department of Health, Bureau of Managed Care, 1100 W. 49th Street,
           Austin, TX 78756-3168, with a copy to the Contract Administrator.
           Notices to HMO shall be add to CEO/President,

                           James D. Donovan Jr.
                           2730 N. Stemmons Freeway,
                           Suite 608 West Tower
                           Dallas, Texas 75207



 15.13     SURVIVAL


           The provisions of this contract which relate to the obligations of
           HMO to maintain records and reports shall survive the expiration or
           earlier termination of this contract for a period not to exceed six
           (6) years unless another period may be required by record retention
           policies of the State of Texas or HCFA.


ARTICLE XVI DEFAULT

 16.1      DEFAULT BY TDH

 16.1.1    FAILURE TO MAKE CAPITATION PAYMENTS

           Failure by TDH to make capitation payments when due is a default
           under this contract.

 16.1.2    FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES

           Failure by TDH to perform a material duty or responsibility as set
           out in this contract is a default under this contract.

 16.2      REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT

           HMO may terminate this contract as set out in Article 18.1.5 of this
           contract if TDH commits either of the events of default set out in
           Article 16.1


 16.3      DEFAULT BY HMO

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<PAGE>   128
16.3.1      FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION

            Failure of HMO to perform an administrative function is a default
            under this contract. Administrative functions are any requirements
            under this contract that are not direct delivery of health or
            health-related services, including claims payment, encounter date
            submission, filing any report when due, cooperating in good faith
            with TDH, an entity acting on behalf of TDH, or an agency authorized
            by statute or law to require the cooperation of HMO in carrying out
            an administrative, investigative, or prosecutorial function of the
            Medicaid program, providing or producing records upon request or
            entering into contracts or implementing procedures necessary to
            carry out contract obligations.

16.3.1.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to perform an administrative function under this
            contract, TDH may:

            -           Terminate the contract if the applicable condition set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;

            -           Assess liquidated money damages as set out in Article
                        18.4; and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.2      ADVERSE ACTION AGAINST HMO BY TDI

            Termination or suspension of HMO's TDI Certificate of Authority or
            any adverse action taken by TDI that TDH determines will affect the
            ability of HMO to provide health care services to Members is a
            default under this contract.

16.3.2.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For an adverse action against HMO by TDI, TDH may:


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            -           Terminate the contract if the applicable condition set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;
                        and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.3      INSOLVENCY

            Failure of HMO to comply with state and federal solvency standards
            or incapacity of HMO to meet its financial obligation as they come
            due is a default under this contract.

16.3.3.1    REMEDIES AVAILABLE TO THD FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's insolvency, TDH may:

            -           Terminate the contract if the applicable condition set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;
                        and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.4      FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS

            Failure of HMO to comply with the federal requirements for Medicaid,
            including but not limited to, federal law regarding
            misrepresentation, or fraud, or abuse; and, by incorporation,
            Medicare standards, requirements, or prohibitions, is a default of
            this contract.

            The following events are defaults under this contract pursuant to 42
            USC Sections 1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1    HMO's substantial failure to provide medically nary items and
            services that are required under this contract be provided to
            Members;

16.3.4.2    HMO's imposition of premiums or charges on Members in excess of the
            premiums or charges permitted by federal law;

16.3.4.3    HMO's acting to discriminate among Members on the basis of their
            health status or requirements for health care services, including
            expulsion or refusal to enroll an


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            individual, except as permitted by federal law, or engaging in any
            practice that would reasonably be expected to have the effect of
            denying or discouraging enrollment with HMO by eligible individuals
            whose medical condition or history indicates a need for substantial
            future medical services;

16.3.4.4    HMO's misrepresentation or falsification of information that is
            furnished to HCFA, TDH, a Member, a potential Member, or a health
            care provider;

16.3.4.5    HMO's failure to comply with the physician incentive requirements
            under 42 USC Section 1396b(m)(2)(A)(x); or

16.3.4.6    HMO's distribution, either directly or through any agent or
            independent contractor, or marketing materials that contain false or
            misleading information, excluding materials prior approved by TDH.

16.3.5      REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. If HMO repeatedly fails
            to meet the requirements of Article 16.3.4.1 through and including
            16.3.4.6, TDH must, regardless of what other sanctions are provided,
            appoint temporary management and permit Members to disenroll without
            cause. Exercise of any remedy in whole or in part does not limit TDH
            in exercising all or part of any remaining remedies.

            For HMO's failure to comply with federal laws and regulations, TDH
            may:

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;

            -           Appoint temporary management as set out in Article 18.5;

            -           Initiate disenrollment of a Member or Members without
                        cause as set out in Article 18.6;

            -           Suspend or default all enrollment of individuals;

            -           Suspend payment to HMO;

            -           Recommend to HCFA that sanctions be taken against HMO as
                        set out in Article 18.7;

            -           Assets civil monetary penalties as set out in Article
                        18.8; and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.6      FAILURE TO COMPLY WITH APPLICABLE STATE LAW


                                       124          Dallas Service Area Contract
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            HMO's failure to comply with Texas law applicable to Medicaid,
            including, but not limited to Article 32.039 of the Texas Human
            Resources Code and state law regarding misrepresentation, fraud, or
            abuse; is a default under this contract.

16.3.6.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to comply with applicable state law, TDH may:

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;

            -           Assess administrative penalties as set out in Article
                        32.039, Texas Government Code, with the opportunity for
                        notice and appeal as required by Article 32.039; and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.7      MISREPRESENTATION FRAUD OR ABUSE

            HMO's misrepresentation or fraud under Article 4.8 of this contract
            is a default under this contract.

16.3.7.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by laws or in equity, are joint and several, and
            may be exercised concurrently or consecutively. Exercise of any
            remedy in whole or in part does not limit TDH in exercising all or
            part of any remaining remedies.

            For HMO's misrepresentation or fraud under Article 4.8, TDH may:

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;
                        and/or

            -           Require forfeiture of all or pat of the TDI performance
                        bond as set out in Article 18.9.

16.3.8      EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID


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16.3.8.1    Exclusion of HMO or any of the managing employees or persons with an
            ownership interest whose disclosure is required by Section 1124(a)
            of the Social Security Act (the Act) from the Medicaid or Medicare
            program, under the provisions of Section 1128(a) and/or (b) of the
            Act, is a default of this contract.

16.3.8.2    Exclusion of any provider or Subcontractor or any of the managing
            employees or persons with an ownership interest of the provider or
            Subcontractor whose disclosure is required by Section 1124(a) of the
            Social Security Act (the Act) from the Medicaid or Medicare program,
            under the provisions of Section 1128(a) and/or (b) of the Act, is a
            default of this contract if the exclusion will materially affect
            HMO's performance under this contract.

16.3.8.3    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's exclusion from Medicare or Medicaid, TDH may:

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;
                        and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.9      FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS

            HMO's failure to make timely and appropriate payments to network
            providers and Subcontractors is a default under this contract.
            Withholding or recouping capitation payments as allowed or required
            under other articles of this contract is not a default under this
            contract.

16.3.9.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to make timely and appropriate payment to network
            providers and subcontractors, TDH may:


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            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;

            -           Assess liquidated money damages as set out in Article
                        18.4; and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.10     FAILURE TO TIMELY ADJUDICATE CLAIMS

            Failure of HMO to adjudicate (paid, denied, or external pended) at
            least ninety (90%) of all claims within thirty (30) days of receipt
            and ninety-nine percent (99%) of all claims within ninety (90) days
            of receipt for the contract year is a default under this contract.

16.3.10.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to THD by law or in equity, are joint and several, and may
            be exercised concurrently or consequently. Exercise of any remedy in
            whole or in part does not limit TDH in exercising all or part of any
            remaining remedies.

            For HMO's failure to timely adjudicate claims, TDH may:

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;
                        and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.11     FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS

            Failure to pass any of the mandatory system or delivery functions of
            the Renewal Review required in Article I of this contract is a
            default under the contract.

16.3.11.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to demonstrate the ability to perform contract
            functions, TDH may:


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            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;
                        and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.12     FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
            NETWORK PROVIDERS

16.3.12.1   Failure of HMO to audit, monitor, supervise, or enforce functions
            delegated by contract to another entity that results in a default
            under this contract or constitutes a violation of state or federal
            laws, rules, or regulations is a default under this contract.

16.3.12.2   Failure of HMO to properly credential its providers, conduct
            reasonable utilization review, or conduct quality monitoring is a
            default under this contract.

16.3.12.3   Failure of HMO to require providers and contractors to provide
            timely and accurate encounter, financial, statistical and
            utilization data is a default under this contract.

16.3.12.4   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to monitor and/or supervise activities of
            contractors or network providers, TDH may:

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18:3;
                        and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.13     PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY

            HMO's placing the health and safety of the Members in jeopardy is a
            default under this contract.

16.3.13.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or


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            consecutively. Exercise of any remedy in whole or in part does not
            limit TDH in exercising all or part of any remaining remedies.

            For HMO's placing the health and safety of Members in jeopardy, TDH
            may:

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;
                        and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

16.3.14     FAILURE TO MEET ESTABLISHED BENCHMARK

            Failure of HMO to meet any benchmark established by TDH under this
            contract is a default under this contract.

16.3.14.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to meet any benchmark established by TDH under
            this contract, TDH may:

            -           Remove the THSteps component from the capitation paid to
                        HMO if the benchmark(s) missed is for THSteps;

            -           Terminate the contract if the applicable conditions set
                        out in Article 18.1.1 are met;

            -           Suspend new enrollment as set out in Article 18.3;

            -           Assess liquidated money damages as set out in Article
                        18.4; and/or

            -           Require forfeiture of all or part of the TDI performance
                        bond as set out in Article 18.9.

ARTICLE XVII      NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1        TDH will provide HMO with written notice of default (Notice of
            Default) under this contract. The Notice of Default may be given by
            any means that provides verification of receipt. The Notice of
            Default must contain the following information:

17.1.1      A clear and concise statement of the circumstances or conditions
            which constitute a default under this contract;


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17.1.2      The contract provision(s) under which default is being declared;

17.1.3      A clear and concise statement of how and/or whether the default may
            be cured;

17.1.4      A clear and concise statement of the time period HMO may cure the
            default if HMO is allowed to cure;

17.1.5      The remedy or remedies TDH is electing to pursue and when the remedy
            or remedies will take effect;

17.1.6      If TDH is electing to impose money damages and/or civil monetary
            penalties, the amount that TDH intends to withhold or impose and the
            factual basis on which TDH is imposing the chosen remedy or
            remedies;

17.1.7      Whether any part of money damages or civil monetary penalties, if
            TDH elects to pursue one or both of those remedies, may be passed
            through to an individual or entity who is or may be responsible for
            the act or omission for which default is declared;

17.1.8      Whether failure to cure the default within the given time period, if
            any, will result in TDH pursuing an additional remedy or remedies,
            including, but not limited to, additional damages or sanctions
            referral for investigation or action by another agency, and/or
            termination of the contract.

ARTICLE XVIII     REMEDIES AND SANCTIONS

18.1        TERMINATION

18.1.1      TERMINATION BY TDH

            TDH may terminate this contract if:

18.1.1.1    HMO substantially fails or refuses to provide medically necessary
            services and items that are required under this contract to be
            provided to Members after notice and opportunity to cure;

18.1.1.2    HMO substantially fails or refuses to perform administrative
            functions under this contract after notice and opportunity to cure;

18.1.1.3    HMO materially defaults under any of the provisions of Article XVI;

18.1.1.4    Federal or state funds for the Medicaid program are no longer
            available; or


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18.1.1.5    TDH has a reasonable belief that HMO has placed the health or
            welfare of Members in jeopardy.

18.1.2      TDH must give HMO 90 days written notice of intent to terminate this
            contract if termination is the result of HMO's substantial failure
            or refusal to perform administrative functions or a material default
            under any of the provisions of Article XVI. TDH must give HMO
            reasonable notice under the circumstances if termination is the
            result of federal or state funds for the Medicaid program no longer
            being available. TDH must give the notice required under TDH's
            formal hearing procedures set out in Section 1.2.1 in Title 25 of
            the Texas Administrative Code if termination is the result of HMO's
            substantial failure or refusal to provide medically necessary
            services and items that are required under the contract to be
            provided to Members or TDH's reasonable belief that HMO has placed
            the health or welfare of Members in jeopardy.

18.1.2.1    Notice may be given by any means that gives verification of receipt.

18.1.2.2    Unless termination is the result of HMO's substantial failure or
            refusal to provide medically necessary services and items that are
            required under this contract to be provided to Members or is the
            result of TDH's reasonable belief that HMO has placed the health or
            welfare of Members in jeopardy, the termination date is 90 days
            following the date that HMO receives the notice of intent to
            terminate. For HMO's substantial failure or refusal to provide
            services and items, HMO is entitled to request a pre-termination
            hearing under TDH's formal hearing procedures set out in Section
            1.2.1 of Title 25, Texas Administrative Code.

18.1.3      TDH may, for termination for HMO's substantial failure or refusal to
            provide medically necessary services and items, notify HMO's Members
            of any hearing requested by HMO and permit Members to disenroll
            immediately without cause. Additionally, if TDH terminates for this
            reason, TDH may enroll HMO's Members with another HMO or permit
            HMO's Members to receive Medicaid-covered services other than from
            an HMO.

18.1.4      HMO must continue to perform services under the transition plan
            described in Article 18.2.1 until the last day of the month
            following 90 days from the date of receipt of notice if the
            termination is for any reason other than TDH's reasonable belief
            that HMO is placing the health and safety of the Members in
            jeopardy. If termination is due to this reason, TDH may prohibit
            HMO's further performance of services under the contract.

18.1.5      If TDH terminates this contract, HMO may appeal the termination
            under Section 32.034, Texas Human Resources Code.


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18.1.6      TERMINATION BY HMO

            HMO may terminate this contract if TDH fails to pay HMO as required
            under Article XIII of this contract or otherwise materially defaults
            in its duties and responsibilities under this contract. Retaining
            premium, recoupment, sanctions, or penalties that are allowed under
            this contract or that result from HMO's failure to perform or HMO's
            default under the terms of this contract is not cause for
            termination.

18.1.7      HMO must give TDH 90 days written notice of intent to terminate this
            contract. Notice may be given by any means that gives verification
            of receipt. The termination date will be calculated as the last day
            of the month following 90 days from the date the notice of intent to
            terminate is received by TDH.

18.1.8      TDH must be given 30 days from the date TDH receives HMO's written
            notice of intent to terminate for failure to pay HMO to pay all
            amounts due. If TDH pays all amounts then due within this 30-day
            period, HMO cannot terminate the contract under this article for
            that reason.

18.1.9      TERMINATION BY MUTUAL CONSENT

            This contract may be terminated at any time by mutual consent of
            both HMO and TDH.

18.2        DUTIES OF CONTRACTING PARTIES UPON TERMINATION

            When termination of the contract occurs, TDH and HMO must meet the
            following obligations:

18.2.1      TDH and HMO must prepare a transition plan, which is acceptable to
            and approved by TDH, to ensure that Members are reassigned to other
            plans without interruption of services. That transition plan will be
            implemented during the 90-day period between receipt of notice and
            the termination date unless termination is the result of TDH's
            reasonable belief that HMO is placing the health or welfare of
            Members in jeopardy.

18.2.2      If the contract is terminated by TDH for any reason other than
            federal or state funds for the Medicaid program no longer being
            available or if HMO terminates the contract based on lower
            capitation rates for the second contract year as set out in Article
            13.1.4.1:

18.2.2.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services;


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18.2.2.2    HMO is responsible for all expenses related to giving notice to
            Members; and

18.2.2.3    HMO is responsible for all expenses incurred by TDH in implementing
            the transition plan.

18.2.3      If the contract is terminated by HMO:

18.2.3.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services;

18.2.3.2    TDH is responsible for all expenses related to giving notice to
            Members; and

18.2.3.3    TDH is responsible for all expenses it incurs in implementing the
            transition plan.

18.2.4      If the contract is terminated by mutual consent:

18.2.4.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services

18.2.4.2    HMO is responsible for all expenses related to giving notice to
            Members; and

18.2.4.3    TDH is responsible for all expenses it incurs in implementing the
            transition plan.

18.3        SUSPENSION OF NEW ENROLLMENT

18.3.1      TDH must give HMO 30 days notice of intent to suspend new enrollment
            in the Notice of Default other than for default for fraud and abuse
            or imminent danger to the health or safety of Members. The
            suspension date will be calculated as 30 days following the date
            that HMO receives the Notice of Default.

18.3.2      TDH may immediately suspend new enrollment into HMO for a default
            declared as a result of fraud and abuse or imminent danger to the
            health and safety of Members.

18.3.3      The suspension of new enrollment may be for any duration, up to the
            termination date of the contract. TDH will base the duration of the
            suspension upon the type and severity of the default and HMO's
            ability, if any, to cure the default.

18.4        LIQUIDATED MONEY DAMAGES

18.4.1      The measure of damages in the event that HMO fails to perform its
            obligations under this contract may be difficult or impossible to
            calculate or quantify. Therefore, should HMO fail to perform in
            accordance with the terms and conditions of this contract, TDH may
            require HMO to pay sums as specified below as liquidated


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            damages. The liquidated damages set out in this Article are not
            intended to be in the nature of a penalty but are intended to be
            reasonable estimates of TDH's financial loss and damage resulting
            from HMO's non-performance.

18.4.2      If TDH imposes money damages, TDH may collect those damages by
            reducing the amount of any monthly premium payments otherwise due to
            HMO by the amount of the damages. Money damages that are withheld
            from monthly premium payments are forfeited and will not be
            subsequently paid to HMO upon compliance or cure of default unless a
            determination is made after appeal that the damages should not have
            been imposed.

18.4.3      Failure to file or filing incomplete or inaccurate annual,
            semi-annual or quarterly reports may result in money damages of not
            more than $11,000.00 for every month from the month the report is
            due until submitted in the form and format required by TDH. These
            money damages apply separately to each report.

18.4.4      Failure to produce or provide records and information requested by
            TDH, an entity acting on behalf of TDH, or an agency authorized by
            statute or law to require production of records at the time and
            place the records were required or requested may result in money
            damages of not more than $5,000.00 per day for each day the records
            are not produced as required by the requesting entity or agency if
            the requesting entity or agency is conducting an investigation or
            audit relating to fraud or abuse, and not more than $1,000.00 per
            day for each day records are not produced if the requesting entity
            or agency is conducting routine audits or monitoring activities.

18.4.5      Failure to file or filing incomplete or inaccurate encounter data
            may result in money damages of not more than $25,000 for each month
            HMO fails to submit encounter data in the form and format required
            by TDH. TDH will use the encounter data validation methodology
            established by TDH to determine the number of encounter data and the
            number of months for which damages will be assessed.

18.4.6      Failing or refusing to cooperate with TDH, an entity acting on
            behalf of TDH, or an agency authorized by statute or law to require
            the cooperation of HMO in carrying out an administrative,
            investigative, or prosecutorial function of the Medicaid program may
            result in money damages of not more than $8,000.00 per day for each
            day HMO fails to cooperate.

18.4.7      Failure to enter into a required or mandatory contract or failure to
            contract for or arrange to have all services required under this
            contract provided may result in money damages of not more than
            $1,000.00 per day that HMO either fails to negotiate in good faith
            to enter into the required contract or fails to arrange to have
            required services delivered.


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18.4.8      Failure to meet the benchmark for benchmarked services under this
            contract may result in money damages of not more than $25,000 for
            each month that HMO fails to meet the established benchmark.

18.4.9      TDH may also impose money damages for a default under Article
            16.3.9, Failure to Make Payments to Network Providers and
            subcontractors, of this contract. These money damages are in
            addition to the interest HMO is required to pay to providers under
            the provisions of Articles 4.10.4 and 7.2.7.10 of this contract.

18.4.9.1    If TDH determines that HMO has failed to pay a provider for a claim
            or claims for which the provider should have been paid, TDH may
            impose money damages of $2 per day for each day the claim is not
            paid from the date the claim should have been paid (calculated as 30
            days from the date a clean claim was received by HMO) until the
            claim is paid by HMO.

18.4.9.2    If TDH determines that HMO has failed to pay a capitation amount to
            a provider who has contracted with HMO to provide services on a
            capitated basis, TDH may impose money damages of $10 per day, per
            Member for whom the capitation is not paid, from the date on which
            the payment was due until the capitation amount is paid.

18.5        APPOINTMENT OF TEMPORARY MANAGEMENT

18.5.1      TDH may appoint temporary management to oversee the operation of HMO
            upon a finding that there is continued egregious behavior by HMO or
            there is a substantial risk to the health of the Members.

18.5.2      TDH may appoint temporary management to assure the health of HMO's
            Members if there is a need for temporary management while:

18.5.2.1    there is an orderly termination or reorganization of HMO; or

18.5.2.2    are made to remedy violations found under Article 16.3.4.

18.5.3      Temporary management will not be terminated until TDH has determined
            that HMO has the capability to ensure that the violations that
            triggered appointment of temporary management will not recur.

18.5.4      TDH is not required to appoint temporary management before
            terminating this contract.

18.5.5      No pre-termination hearing is required before appointing temporary
            management.


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18.5.6      As with any other remedy provided under this contract, TDH will
            provide notice of default as is set out in Article XVII to HMO.
            Additionally, as with any other remedy provided under this contract,
            under Article 18.1 of this contract, HMO may dispute the imposition
            of this remedy and seek review of the proposed remedy.

18.6        TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE

            TDH must give HMO 30 days notice of intent to initiate disenrollment
            of a Member of Members in the Notice of Default. The TDH-initiated
            disenrollment date will be calculated as 30 days following the date
            that HMO receives the Notice of Default.

18.7        RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO

18.7.1      If HCFA determines that HMO has violated federal law or
            regulations and that federal payments will be withheld, TDH will
            deny and withhold payments for new enrollees of HMO.

18.7.2      HMO must be given notice and opportunity to appeal a decision of TDH
            and HCFA pursuant to 42 C.F.R. Section 434.67.

18.8        CIVIL MONETARY PENALTIES

18.8.1      For a default under Article 16.3.4.1, TDH may assess not more than
            $25,000 for each default;

18.8.2      For a default under Article 16.3.4.2, TDH may assess double the
            excess amount charged in violation of the federal requirements for
            each default. The excess amount shall be deducted from the penalty
            and returned to the Member concerned.

18.8.3      For a default under Article 16.3.4.3, TDH may assess not more than
            $100,000 for each default, including $15,000 for each individual not
            enrolled as a result of the practice described in Article 16.3.4.3.

18.8.4      For a default under Article 16.3.4.4, TDH may assess not more than
            $100,000 for each default if the material was provided to HCFA or
            TDH and not more than $25,000 for each default if the material was
            provided to a Member, a potential Member, or a health care provider.

18.8.5      For a default under Article 16.3.4.5, TDH may assess not more than
            $25,000 for each default.


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18.8.6      For a default under Article 16.3.4.6, TDH may assess not more than
            $25,000 for each default.

18.8.7      HMO may be subject to civil money penalties under the provisions of
            42 C.F.R. 1003 in addition to or in place of withholding payments
            for a default under Article 16.3.4.

18.9        FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND

            TDH may require forfeiture of all or a portion of the face amount of
            the TDI performance bond if TDH determines that an event of default
            has occurred. Partial payment of the face amount shall reduce the
            total bond amount available pro rata.

18.10       REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED

18.10.1     HMO may dispute the imposition of any sanction under this contract.
            HMO notifies TDH of its dispute by filing a written response to the
            Notice of Default, clearly stating the reason HMO disputes the
            proposed sanction. With the written response, HMO must submit to TDH
            any documentation that supports HMO's position. HMO must file the
            review within 15 days from HMO's receipt of the Notice of Default,
            Filing a dispute in a written response to the Notice of Default
            suspends imposition of the proposed sanction.

18.10.2     HMO and TDH must attempt to informally resolve the dispute. If HMO
            and TDH are unable to informally resolve the dispute, HMO must
            notify the Bureau Chief of Managed Care that HMO and TDH cannot
            agree. The Bureau Chief will refer the dispute to the Associate
            Commissioner for Health Care Financing who will appoint a committee
            to review the dispute under TDH's dispute resolution procedures. The
            decision of the dispute resolution committee will be TDH's final
            administrative decision.

ARTICLE XIX       TERM

19.1        The effective date of this contract is September 1, 2000. This
            contract will terminate on August 31, 2001, unless terminated
            earlier as provided elsewhere in this contract.

19.2        This contract may be renewed for an additional one-year period by
            written amendment to the contract executed by the parties prior to
            the termination date of the present contract. TDH will notify HMO no
            later than 90 days before the end of the contract period of its
            intent not to renew the contract.


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19.3        If either party does not intend to renew the contract beyond its
            contract period, the party intending not to renew must submit a
            written notice of its intent not to renew to the other party no
            later than 90 days before the termination date set out in Article
            19.1.

19.4        If either party does not intend to renew the contract beyond its
            contract period and sends the notice required in Article 19.3, a
            transition period of 90 days will run from the date the notice of
            intent not to renew is received by the other party. By signing this
            contract, the parties agree that the terms of this contract shall
            automatically continue during any transition period.

19.5        The party that does not intend to renew the contract beyond its
            contract period and sends the notice required by Article 19.3 is
            responsible for sending notices to all members on how the Member can
            continue to receive covered services. The expense of sending the
            notices will be paid by the non-renewing party. If TDH does not
            intend to renew and sends the required notice, TDH is responsible
            for any costs it incurs in ensuring that members are reassigned to
            other plans without interruption of services. If HMO does not
            intend to renew and sends the required notice, HMO is responsible
            for any costs TDH incurs in ensuring that Members are reassigned to
            other plans without interruption of services. If both parties do not
            intend to renew the contract beyond its contract period, TDH will
            send the notices to Members and the parties will share equally in
            the cost of sending the notices and of implementing the transition
            plan.

            SIGNED 31 day of August, 2000.

            TEXAS DEPARTMENT OF HEALTH          Americaid Texas, Inc.
                                                dba Americaid Community Care HMO

            BY: /s/ William R. Archer III, M.D. BY: /s/ Amy N. Williams
               -------------------------------     -----------------------------
                  William R. Archer III, M.D.           Amy N. Williams
                  Commissioner of Health                President and COO

            Approved as to Form:


            /s/   MaryAnn Slavin
            -------------------------------
            Office of General Counsel


                                       138          Dallas Service Area Contract