Exhibit 10.17

                                                          Contract/RFP YH8-0001
================================================================================

          ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                       DIVISION OF BUSINESS AND FINANCE
                              CONTRACT AMENDMENT
(AHCCCS LOGO)
                                                                    Page 1 of 3

================================================================================
1.  AMENDMENT        2. CONTRACT      9. EFFECTIVE DATE OF       4. PROGRAM
    NUMBER:             NO.:             AMENDMENT:
         20             YH8-0001-08             October 1, 2001     OMC
================================================================================
5. CONTRACTOR'S NAME AND ADDRESS:
     VHS Phoenix Health Plan
     2700 N. Third Street, Suite 3000
     Phoenix AZ 85004
================================================================================
6. PURPOSE OF AMENDMENT: To establish new capitation rates and allow the
Contractor to elect their risk band method of the Title XIX Waiver Group.

================================================================================
7. THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

     A. New Capitation Rates are provided on page two (2) of this amendment; and

     B. The Contractor must select one of the two methods of the Title XIX
     Waiver Group risk bands. The election form is page three (3) of this
     amendment and incorporated by reference herein.

NOTE: Please sign and date both and then
      return one to:                         Michael Veit, MD 5700
                                             AHCCCS Contracts and Purchasing
                                             701 E Jefferson Street
                                             Phoenix AZ 85034
================================================================================
8. EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN UNCHANGED AND IN FULL
EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
================================================================================
9. SIGNATURE OF AUTHORIZED              10. SIGNATURE OF AHCCCSA CONTRACTING
REPRESENTATIVE:                         OFFICER:
     /s/ Nancy Novick                        /s/ Michael Veit
================================================================================
TYPED NAME:
          NANCY NOVICK                          MICHAEL VEIT
================================================================================
TITLE:                                       CONTRACTS & PURCHASING
          CHIEF EXECUTIVE OFFICER                 ADMINISTRATOR
================================================================================
DATE: 9/25/01                           DATE: Sep. 11, 2001
================================================================================
                                                            Acute Care (CYE 02)


<PAGE>

<TABLE>

                                             ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
                                                CAPITATION RATE SUMMARY - ACUTE RATES
                                              Phoenix Health Plan/Community Connection
                                                       CYE '02 (as of 10/01/01)

                    TANF      TANF      TANF      TANF      TANF      SSI       SSI            DELIVERY    TITLE XIX    HOSPITALIZED
Title XIX Rates:  <1, M/F  1-13, M/F  14-44, F  14-44, M  45+, M/F   w/ Med   w/o Med    SFP     KICK     WAIVER GROUP      KICK
---------------- --------  ---------  --------  --------  --------   -------  -------  ------  ---------  ------------  ------------
<S>               <C>        <C>       <C>       <C>       <C>       <C>      <C>      <C>     <C>           <C>         <C>
8 Gila/Pinal      $378.04    $84.05    $152.99   $109.65   $316.92   $205.64  $421.30  $19.69  $5,188.60     $368.42     $13,967.42
12 Maricopa       $349.92    $76.75    $123.09    $98.83   $280.82   $206.22  $385.26  $19.68  $4,911.82     $314.65     $12,591.60

                 KIDSCARE  KIDSCARE   KIDSCARE  KIDSCARE                                       DELIVERY
Title XXI Rates: <1, M/F   1-13, M/F  14-18, F  14-18, M                                         KICK
---------------- --------  ---------  --------  --------                                     -----------
8 Gila/Pinal      $277.40     $80.48   $130.14    $81.51                                      $5,188.60
12 Maricopa       $281.83     $82.56   $118.58    $81.01                                      $4,911.82

                   TANF      TANF      TANF       TANF      TANF       SSI      SSI                       TITLE XIX
PPC Rates:       <1, M/F   1-13, M/F  14-44, F  14-44, M  45+, M/F   w/ Med   w/o Med                    WAIVER GROUP
----------       --------  ---------  --------  --------  --------   -------  -------                   --------------
8 Gila/Pinal      $849.22    $38.77    $146.46    $77.78   $227.98    $14.40   $44.14                        $254.23
12 Maricopa     $1,164.82    $32.70    $136.50    $76.91   $180.25    $14.50   $61.79                        $229.19

Rates have been adjusted for $35,000 Reinsurance Deductible
</TABLE>



<PAGE>

                                                         Contract/REP YH8-0001
================================================================================
                                                                    Page 3 of 3

                        Title XIX Waiver Group Risk Band

                                 Election Form


Per Contract YH8-0001, Paragraph 37, (Compensation, Risk Sharing for Title XIX
Waiver Members: For CYE '02 and CYE '03, AHCCCSA will reconcile
the contractor's PPC and prospective medical cost expenses to PPC capitation,
prospective capitation, and hospitalized supplements paid to the Contractor
during the year. For CYE '02, the contractor has a choice to elect:

[ ]  Default Method: This reconciliation will limit the Contractor's losses to
     2% and profits to 4%. Any losses in excess of 2% will be reimbursed to the
     Contractor, and likewise, profits in excess of 4% will be recouped.

[ ]  Alternative Method: This reconciliation will limit the Contractor's losses
     to 1% and profits to 1%. Any losses in excess of 1% will be reimbursed to
     the Contractor, and likewise, profits in excess of 1% will be recouped.


------------------------------------              ------------------------------
Signature                                         Date


--------------------------------------------------------------------------------
Health Plan

*P1ease sign and return this form to AHCCCS by December 1, 2001. If not
returned, AHCCCS wi1l assign the Default Method as stated above.


                                                            Acute Care (CYE 02)
<PAGE>

                                                          Contract/RFP YH8-0001
================================================================================

          ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                       DIVISION OF BUSINESS AND FINANCE
                         SECTION A. CONTRACT AMENDMENT
(AHCCCS LOGO)

================================================================================
1.  AMENDMENT        2. CONTRACT      9. EFFECTIVE DATE OF       4. PROGRAM
    NUMBER:             NO.:             AMENDMENT:
         19             YH8-0001-08             October 1, 2001    OMC
================================================================================
5. CONTRACTOR'S NAME AND ADDRESS:
     VHS Phoenix Health Plan
     2700 N. Third Street, Suite 3000
     Phoenix AZ 85004
================================================================================
6. PURPOSE OF AMENDMENT: To incorporate changes to contract requirements due to
the passage of Proposition 204.

================================================================================
7. THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

     A. Proposition 204. The attached pages represent modifications to the
     contract requirements as a result of the passage of Proposition 204.

     B. Included in this amendment are revised capitation rates for the period
     beginning October 1, 2001 and ending September 30, 2002.

     NOTE: Please sign and date both and then
     return one to:                          Michael Veit, MD 5700
                                             AHCCCS Contracts and Purchasing
                                             701 E Jefferson Street
                                             Phoenix AZ 85034
================================================================================
8. EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN UNCHANGED AND IN FULL
EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
================================================================================
9. SIGNATURE OF AUTHORIZED              10. SIGNATURE OF AHCCCSA CONTRACTING
REPRESENTATIVE:                         OFFICER:
     /s/ Nancy Novick                        /s/ Michael Veit
================================================================================
TYPED NAME:
          NANCY NOVICK                          MICHAEL VEIT
================================================================================
TITLE:                                       CONTRACTS & PURCHASING
       CHIEF EXECUTIVE OFFICER                    ADMINISTRATOR
================================================================================
DATE: 9/18/01                           DATE: Aug. 31, 2001
================================================================================

                                                    Acute Care Renewal (CYE 02)
                                                                    Final Draft

<PAGE>


                                                       Contract/RFP No. YH8-0001
================================================================================

                               TABLE OF CONTENTS

SECTION A. CONTRACT AMENDMENT ............................................    1
SECTION B - CAPITATION RATES .............................................    5
SECTION C: DEFINITIONS ...................................................    6
SECTION D: PROGRAM REQUIREMENTS ..........................................   13
   1. SCOPE OF SERVICES ..................................................   13
   2. BEHAVIORAL HEALTH SERVICES .........................................   19
   3. AHCCCS MEDICAL POLICY MANUAL .......................................   21
   4. VACCINE FOR CHILDREN PROGRAM .......................................   21
   5. DENIALS OR REDUCTIONS OF SERVICES ..................................   22
   6. ENROLLMENT AND DISENROLLMENT .......................................   22
   7. MAINSTREAMING OF AHCCCS MEMBERS ....................................   24
   8. MEMBER INFORMATION .................................................   25
   9. MEMBER SURVEYS .....................................................   28
   10. MARKETING PLANS ...................................................   28
   11. ANNUAL ENROLLMENT CHOICE ..........................................   28
   12. TRANSITION OF MEMBERS .............................................   28
   13. STAFF REQUIREMENTS AND SUPPORT SERVICES ...........................   29
   14. WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS .................   30
   15. ADVANCE DIRECTIVES ................................................   31
   16. PERFORMANCE MEASUREMENT ...........................................   31
   17. QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM) .............   34
   18. PHYSICIAN INCENTIVES ..............................................   34
   19. APPOINTMENT STANDARDS .............................................   35
   20. REFERRAL PROCEDURES AND STANDARDS .................................   36
   21. PROVIDER MANUAL ...................................................   36
   22. PRIMARY CARE PROVIDER STANDARDS ...................................   37
   23. OTHER PROVIDER STANDARDS ..........................................   38
   24. NETWORK DEVELOPMENT ...............................................   39
   25. NETWORK MANAGEMENT ................................................   40
   26. FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) .........................   40
   27. PROVIDER REGISTRATION .............................................   41
   28. PROVIDER AFFILIATION TAPE .........................................   41
   29. PERIODIC REPORT REQUIREMENTS ......................................   41
   30. DISSEMINATION OF INFORMATION ......................................   42
   31. REQUESTS FOR INFORMATION ..........................................   42
   32. OPERATIONAL AND FINANCIAL READINESS REVIEWS .......................   42
   33. OPERATIONAL AND FINANCIAL REVIEWS .................................   42
   34. CLAIMS PAYMENT SYSTEM .............................................   43
   35. HOSPITAL SUBCONTRACTING AND REIMBURSEMENT .........................   44
   36. NURSING FACILITY REIMBURSEMENT ....................................   44
   37. COMPENSATION ......................................................   45
   38. CAPITATION ADJUSTMENTS ............................................   46
   39. REINSURANCE .......................................................   47
   40. COORDINATION OF BENEFITS/THIRD PARTY LIABILITY ....................   49
   41. MEDICARE SERVICES AND COST SHARING ................................   51
   42. COPAYMENTS ........................................................   51
   43. RECORDS RETENTION .................................................   51
   44. MEDICAL RECORDS ...................................................   52


                                       2             Acute Care Renewal (CYE 02)
                                                                     Final Draft

<PAGE>


                                                      Contract/REP No. YH8-0001
================================================================================

   45. ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS ....................   53
   46. ACCUMULATED FUND DEFICIT ..........................................   53
   47. DATA EXCHANGE REQUIREMENT .........................................   53
   48. ENCOUNTER DATA REPORTING ..........................................   54
   49. MONTHLY ROSTER RECONCILIATION .....................................   54
   50. TERM OF CONTRACT AND OPTION TO RENEW ..............................   55
   51. SUBCONTRACTS ......................................................   55
   52. SPECIALTY CONTRACTS ...............................................   57
   53. MANAGEMENT SERVICES SUBCONTRACTORS ................................   57
   54. MANAGEMENT SERVICES SUBCONTRACTOR AUDITS ..........................   57
   55. MINIMUM CAPITALIZATION REQUIREMENTS ...............................   58
   56. PERFORMANCE BOND OR BOND SUBSTITUTE ...............................   58
   57. AMOUNT OF PERFORMANCE BOND ........................................   59
   58. FINANCIAL VIABILITY CRITERIA/PERFORMANCE GUIDELINES ...............   59
   59. MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP ....................   60
   60. SANCTIONS..........................................................   61
   61. AUTO-ASSIGNMENT ALGORITHM .........................................   61
   62. GRIEVANCE PROCESS AND STANDARDS ...................................   61
   63. QUARTERLY GRIEVANCE REPORT ........................................   62
   64. KIDSCARE...........................................................   62
   65. PENDING LEGISLATIVE ISSUES ........................................   62
   66. SEPARATE INCORPORATION ............................................   63
   67. CULTURAL COMPETENCY ...............................................   63
   68. MEDICAID IN THE PUBLIC SCHOOLS.....................................   63

SECTION E: CONTRACT CLAUSES...............................................   64

   1) APPLICABLE LAW .....................................................   64
   2) AUTHORITY ..........................................................   64
   3) ORDER OF PRECEDENCE ................................................   64
   4) CONTRACT INTERPRETATION AND AMENDMENT ..............................   64
   5) SEVERABILITY .......................................................   64
   6) RELATIONSHIP OF PARTIES ............................................   64
   7) ASSIGNMENT AND DELEGATION ..........................................   64
   8) GENERAL INDEMNIFICATION ............................................   64
   9) INDEMNIFICATION -- PATENT AND COPYRIGHT ............................   65
   10) COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS ............   65
   11) ADVERTISING AND PROMOTION OF CONTRACT..............................   65
   12) PROPERTY OF THE STATE .............................................   65
   13) THIRD PARTY ANTITRUST VIOLATIONS...................................   65
   14) RIGHT TO ASSURANCE ................................................   65
   15) TERMINATION FOR CONFLICT OF INTEREST ..............................   65
   16) GRATUITIES ........................................................   65
   17) SUSPENSION OR DEBARMENT ...........................................   66
   18) TERMINATION FOR CONVENIENCE .......................................   66
   19) TERMINATION FOR DEFAULT ...........................................   66
   20) TERMINATION-AVAILABILITY OF FUNDS..................................   67
   21) RIGHT OF OFFSET ...................................................   67
   22) NON-EXCLUSIVE REMEDIES ............................................   67
   23) NON-DISCRIMINATION.................................................   67
   24) EFFECTIVE DATE ....................................................   67
   25) INSURANCE .........................................................   67
   26) DISPUTES ..........................................................   68
   27) RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS .......................   68
   28) INCORPORATION BY REFERENCE ........................................   68


                                       3             Acute Care Renewal (CYE 02)
                                                                     Final Draft

<PAGE>



                                                      Contract/RFP No. YH8-0001
================================================================================
   29) COVENANT AGAINST CONTINGENT FEES ..................................   68
   30) CHANGES ...........................................................   68
   31) TYPE OF CONTRACT ..................................................   68
   32) AMERICANS WITH DISABILITIES ACT ...................................   68
   33) WARRANTY OF SERVICES ..............................................   69
   34) NO GUARANTEED QUANTITIES ..........................................   69
   35) CONFLICT OF INTEREST ..............................................   69
   36) DISCLOSURE OF CONFIDENTIAL INFORMATION ............................   69
   37) COOPERATION WITH OTHER CONTRACTORS ................................   69
   38) ASSIGNMENT OF CONTRACT AND BANKRUPTCY .............................   69
   39) OWNERSHIP OF INFORMATION AND DATA .................................   69
   40) AHCCCSA RIGHT TO OPERATE CONTRACTOR ...............................   70
   41) AUDITS AND INSPECTIONS.............................................   70
   42) FRAUD AND ABUSE ...................................................   70
   43) LOBBYING ..........................................................   71
   44) CHOICE OF FORUM ...................................................   71

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS..............................    1

   1) EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES ..    1
   2) RECORDS AND REPORTS ................................................    1
   3) LIMITATIONS ON BILLING AND COLLECTION PRACTICES ....................    1
   4) ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES ...........    1
   5) APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS ...............    2
   6) WARRANTY OF SERVICES ...............................................    2
   7) SUBJECTION OF SUBCONTRACT ..........................................    2
   8) AWARDS OF OTHER SUBCONTRACTS .......................................    2
   9) INDEMNIFICATION BY CONTRACTOR ......................................    2
   10) MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES ...    2
   11) COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS .......................    2
   12) SEVERABILITY ......................................................    2
   13) VOIDABILITY OF SUBCONTRACT ........................................    2
   14) CONFIDENTIALITY REQUIREMENT .......................................    2
   15) GRIEVANCE AND REQUEST FOR HEARING PROCEDURES ......................    3
   16) TERMINATION OF SUBCONTRACT ........................................    3
   17) PRIOR AUTHORIZATION AND UTILIZATION REVIEW ........................    3
   18) NON-DISCRIMINATION REQUIREMENTS ...................................    3
   19) COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION .....    4
   20) CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION ...................    4
   21) CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING.    4
   22) CONFLICT IN INTERPRETATION OF PROVISIONS ..........................    4
   23) ENCOUNTER DATA REQUIREMENT ........................................    4
   24) CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988 ..........    4
   25) INSURANCE .........................................................    4
   26) FRAUD AND ABUSE ...................................................    5

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS ...............................    1

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS.....    1

ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS...........................    1

ATTACHMENT G: AUTO-ASSIGNMENT ALGORITHM...................................    1


                                       4             Acute Care Renewal (CYE 02)
                                                                     Final Draft

<PAGE>


                                                       Contract/RFP No. YH8-0001
================================================================================

SECTION B - CAPITATION RATES

The Contractor shall provide services as described in this contract. In
consideration for these services, the Contractor will be paid the attached
rates for the term October 1, 2001 through September 30, 2002.

CAPITATION RATES
(per member per month)

Capitation rates specific to contractor










                                       5            Acute Care Renewal (CYE 02)
                                                                    Final Draft

<PAGE>


DEFINITIONS                                            Contract/RFP No. YH8-0001
================================================================================

                            SECTION C: DEFINITIONS

ADHS                     Arizona Department of Health Services, the state agency
                         mandated to serve the public health needs of all
                         Arizona citizens.

AGENT                    Any person who has been delegated the authority to
                         obligate or act on behalf of another person or entity.

AHCCCS                   Arizona Health Care Cost Containment System, which is
                         composed of the Administration, contractors, and other
                         arrangements through which health care services are
                         provided to an eligible person, as defined by A.R.S.
                         ss. 36-2902, et seq.

AHCCCS BENEFITS          See "COVERED SERVICES".

AHCCCS MEMBER            See "MEMBER".

AHCCCSA                  Arizona Health Care Cost Containment System
                         Administration.

ALTCS                    The Arizona Long Term Care System (ALTCS), a program
                         under AHCCCSA that delivers long term, acute,
                         behavioral health and case management services to
                         members, as authorized by A.R.S. ss. 36-2932.

AMBULATORY CARE          Preventive, diagnostic and treatment services provided
                         on an outpatient basis by physicians, nurse
                         practitioners, physician assistants and other health
                         care providers.

AMPM                     AHCCCS Medical Policy Manual.

ARIZONA                  State regulations established pursuant to relevant
ADMINISTRATIVE           statutes. For purposes of this solicitation, the
CODE (A.A.C.)            relevant sections of the AAC are referred to throughout
                         this document as "AHCCCS Rules".

A.R.S.                   Arizona Revised Statutes.

AT RISK                  Refers to the period of time that a member is enrolled
                         with a contractor during which time the Contractor is
                         responsible to provide AHCCCS covered services under
                         capitation.

BIDDERS LIBRARY          A repository of manuals, statutes, rules and other
                         reference material located at the AHCCCS office in
                         Phoenix.

BOARD CERTIFIED          An individual who has successfully completed all
                         prerequisites of the respective specialty board and
                         successfully passed the required examination for
                         certification.

CAPITATION               Payment to contractor by AHCCCSA of a fixed monthly
                         payment per person in advance for which the contractor
                         provides a full range of covered services as
                         authorized under A.R.S. ss. 36-2942 and ss. 36-2931.

CATEGORICALLY            Member eligible for Medicaid under Title XIX of the
LINKED TITLE XIX         Social Security Act including those eligible under 1931
MEMBER                   provisions of the Social Security Act (previously
                         AFDC), Sixth Omnibus Budget Reconciliation Act
                         (SOBRA), Supplemental Security Income (SSI),
                         SSI-related groups. To be categorically linked, the
                         member must be aged (65 or over), blind, disabled, a
                         child under age 19, parent of a dependent child, or
                         pregnant.


                                        6            Acute Care Renewal (CYE 02)
                                                                     Final Draft

<PAGE>


DEFINITIONS                                            Contract/RFP No. YH8-0001
================================================================================
CLEAN CLAIM              A claim that may be processed without obtaining
                         additional information from the provider of service or
                         from a third party; but does not include claims under
                         investigation for fraud or abuse or claims under
                         review for medical necessity, as defined by A.R.S. ss.
                         36-2904.

CMS (formally HCFA)      Center for Medicare and Medicaid Services, an
                         organization within the U.S. Department of Health and
                         Human Services, which administers the Medicare and
                         Medicaid programs and the State Children's Health
                         Insurance Program.

COMPETITIVE BID          A state procurement system used to select contractors
PROCESS                  to provide covered services on a geographic basis.

CONTINUING               An AHCCCS contractor during CYE 97 that submits a
OFFEROR                  proposal pursuant to this solicitation.

CONTRACT                 See "COVERED SERVICES".
SERVICES

CONTRACT YEAR            Corresponds to federal fiscal year (Oct. 1 through
(CY)                     Sept. 30). For example, Contract Year 02 is 10/01/01 -
                         9/30/02.

CONTRACTOR               A person, organization or entity agreeing through a
                         direct contracting relationship with AHCCCSA to
                         provide the goods and services specified by this
                         contract in conformance with the stated contract
                         requirements, AHCCCS statute and rules and federal law
                         and regulations.

CONVICTED                A judgment of conviction has been entered by a federal,
                         state or local court, regardless of whether an appeal
                         from that judgment is pending.

CO-PAYMENT               A monetary amount specified by the Director that the
                         member pays directly to a contractor or provider at
                         the time covered services are rendered, as defined in
                         R9-22-107.

COUNTY                   Amount of funds contributed to the AHCCCS fund by each
CONTRIBUTION             Arizona county based on funding formulas established by
                         law.

COVERED SERVICES         Health care services to be delivered by a contractor
                         which are designated in Section D of this contract and
                         also AHCCCS Rules R9-22, Article 2 and R9-31, Article
                         2.

CRS                      Children's Rehabilitative Services, as defined in
                         R9-22-114.

CSHCN                    Children with Special Health Care Needs, Children under
                         age 19 who are: Blind/Disabled Children and Related
                         Populations (eligible for SSI under Title XVI).
                         Children eligible under section 1902 (e)(3) of the
                         Social Security Act (Katie Beckett); In foster care or
                         other out-of-home placement; Receiving foster care or
                         adoption assistance; or receiving services through a
                         family-centered, community-based coordinated care
                         system that receives grant funds under section
                         501(a)(1)(D) of Title V (CRS).

CY                      See "CONTRACT YEAR".

CYE                      Contract Year Ended; same as "CONTRACT YEAR".

DAYS                     Calendar days unless otherwise specified as defined in
                         the text, as defined in R9-22-101.

DIRECTOR                 The Director of AHCCCSA.


                                       7             Acute Care Renewal (CYE 02)
                                                                     Final Draft



<PAGE>



DEFINITIONS                                            Contract/RFP No. YH8-0001
================================================================================

DISCLOSING ENTITY        An AHCCCS provider or a fiscal agent.

DME                      Durable Medical Equipment, which is an item, or
                         appliance that can withstand repeated use, is
                         designated to serve a medical purpose, and is not
                         generally useful to a person in the absence of a
                         medical condition, illness or injury as defined in
                         R9-22-102.

DUAL ELIGIBLE            A member who is eligible for both Medicare and
                         Medicaid.

ELIGIBILITY              A process of determining, through a written
DETERMINATION            application, including required documentation, whether
                         an applicant meets the qualifications for Title XIX or
                         Title XXI.

EMERGENCY                A medical condition manifesting itself by acute
MEDICAL                  symptoms of sufficient severity (including severe pain)
CONDITION                such that a prudent layperson, who possess an average
                         knowledge of health and medicine, could reasonably
                         expect the absence of immediate medical attention to
                         result in: a) placing the patient's health in serious
                         jeopardy; b) serious impairment to bodily functions;
                         or c) serious dysfunction of any bodily organ or part.

EMERGENCY                Services provided after the sudden onse of a medical
MEDICAL SERVICE          condition manifesting itself by acute symptoms of
                         sufficient severity (including severe pain) that the
                         absence of immediate medical attention could
                         reasonably be expected to result in: a) placing the
                         patient's health in serious jeopardy; b) serious
                         impairment to bodily functions; or c) serious
                         dysfunction of any bodily organ or part, as defined in
                         R9-22-102.

ENCOUNTER                A record of a medically related service rendered by a
                         provider or providers registered with AHCCCSA to a
                         member who is enrolled with a Contractor on the date
                         of service. It includes all services for which the
                         contractor incurred any financial liability.

ENROLLMENT               The process by which an eligible person becomes a
                         member of a contractor's health plan.

EPSDT                    Early and Periodic Screening, Diagnosis and Treatment;
                         services for persons under 21 years of age as
                         described in AHCCCS rules R9-22, Article 2.

FAMILY PLANNING          A program that provides family planning services only
SERVICES                 for a maximum of 24 months to SOBRA women whose
EXTENSION                pregnancy has ended and the woman is not otherwise
PROGRAM                  eligible for Title XIX.

FEDERALLY                An entity which meets the requirements and receives a
QUALIFIED HEALTH         grant and funding pursuant to Section 330 of the Public
CENTER (FQHC)            Health Service Act. An FQHC includes an outpatient
                         health program or facility operated by a tribe or
                         tribal organization under the Indian Self-
                         Determination Act (PL 93-638) or an urban Indian
                         organization receiving funds under Title V of the
                         Indian Health Care Improvement Act.

FEE-FOR-SERVICE          A method of payment to registered providers on an
(FFS)                    amount-per service basis.

FFP                      Federal financial participation (FFP) refers to the
                         contribution that the federal government makes to the
                         Title XIX and Title XXI program portions of AHCCCS as
                         defined in 42 CFR 400.203.


                                        8            Acute Care Renewal (CYE 02)
                                                                     Final Draft

<PAGE>


DEFINITIONS                                            Contract/RFP No. YH8-0001
================================================================================

FISCAL YEAR (FY)         The budget year - Federal Fiscal Year: October 1
                         through September 30; State fiscal year: July 1 through
                         June 30.

GATEKEEPER               Primary care provider who is primarily responsible
                         for all medical treatment rendered and who makes
                         referrals as necessary and monitors the member's
                         treatment.

GEOGRAPHIC               A specific county or defined grouping of counties
SERVICE AREA             designated by the Administration within which a
(GSA)                    contractor of record provides, directly or through
                         subcontract, covered health care to members enrolled
                         with that contractor of record

GROUP OF                 Two or more health care professionals who practice
PROVIDERS                their profession at a common location (whether or not
                         they share facilities, supporting staff, or equipment).

HEALTH                   Various forms of plan organization, including staff and
MAINTENANCE              group models, that meet the HMO licensing requirements
ORGANIZATION (HMO)       of the federal and/or state government and offer a full
                         array of health care services to members on a capitated
                         basis.

HEALTH PLAN              See "CONTRACTOR".

IBNR                     Incurred But Not Reported: Liability for services
                         rendered for which claims have not been received.

IHS                      Indian Health Services authorized as a federal agency
                         pursuant to 25 U.S.C. 1661.

LIEN                     A legal claim filed with the County Recorder's office
                         in which a member resides and in the county an injury
                         was sustained for the purpose of ensuring that AHCCCS
                         receives reimbursement for medical services paid. The
                         lien is attached to any settlement the member may
                         receive as a result of an injury.

MANAGED CARE             Systems that integrate the financing and delivery of
                         health care services to covered individuals by means
                         of arrangements with selected providers to furnish
                         comprehensive services to members; establish explicit
                         criteria for the selection of health care providers;
                         have significant financial incentives for members to
                         use providers and procedures associated with the plan;
                         and have formal programs for quality assurance and
                         utilization review.

MANAGEMENT               A person or organization that agrees to perform any
SERVICES                 administrative function or service for the Contractor
SUBCONTRACTOR            specifically related to securing or fulfilling the
                         Contractor's obligations to AHCCCSA under the terms of
                         the contract.

MANAGING                 A general manager, business manager, administrator,
EMPLOYEE                 director, or other individual who exercises operational
                         or managerial control over, or who directly or
                         indirectly conducts the day-to-day operation of, an
                         institution, organization or agency.

MATERIAL                 A fact, data or other information excluded from a
OMISSION                 report, contract, etc. the absence of which could lead
                         to erroneous conclusions following reasonable review
                         of such report, contract, etc.

MEDICAID                 A Federal/State program authorized by Title XIX of the
                         Social Security Act, as amended.


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DEFINITIONS                                            Contract/RFP No. YH8-0001
================================================================================

MEDICAL EXPENSE          Title XIX Waiver member whose income is more than 100%
DEDUCTION (MED)          of the Federal Poverty Level, and has medical expenses
                         that reduce income to or below 40% of the Federal
                         Poverty Level. The 40% Federal Poverty Level will be
                         adjusted annually to reflect annual Federal Poverty
                         Level adjustments. MED's may have a categorical link
                         to a Title XIX program; however, their income exceeds
                         the limits of the Title XIX program.

MEDICARE                 A Federal program authorized by Title XVIII of the
                         Social Security Act, as amended.

MEMBER                   A person eligible who is enrolled in the system, as
                         defined in A.R.S. ss. 36-2901.

NEW OFFEROR              The organization, entity or person which submits a
                         proposal in response to this solicitation and which
                         has not been an AHCCCS contractor during CYE 97.

NON-CONTRACTING          A person who provides services as prescribed in A.R.S.
PROVIDER                 ss. 36-2939 and who does not have a subcontract with an
                         AHCCCS contractor.

OFFEROR                  A person or other entity that submits a proposal to the
                         Administration in response to an RFP, as defined in
                         R9-22-106.

PERFORMANCE              A set of standardized indicators designed to assist
STANDARDS                AHCCCS in evaluating, comparing and improving the
                         performance of its contractors. Specific descriptions
                         of health services measurement goals are found in
                         Section D, Paragraph 16, Performance standards.

PMMIS                    AHCCCSA's Prepaid Medical Management Information
                         System.

PRIMARY CARE             An individual who meets the requirements of A.R.S.
PROVIDER (PCP)           ss. 36-2901, and who is responsible for the management
                         of a member's health care. A PCP may be a physician
                         defined as a person licensed as allopathic or
                         osteopathic physician according to A.R.S. Title 32,
                         Chapter 13 or Chapter 17 or a practitioner defined as
                         a physician assistant licensed under A.R.S. Title 32,
                         Chapter 25, or a certified nurse practitioner licensed
                         under A.R.S. Title 32, Chapter 15.

PRIOR PERIOD             The period of time from the 1st day of the month of
                         application or the 1st eligible month, whichever is
                         later, to the day a member is enrolled with the
                         Contractor. The Contractor receives notification from
                         the Administration of the member's enrollment. Also,
                         the period of time between the date a MED member was
                         approved and the date the member met spenddown or 1st
                         day of the month the member reduced resources
                         whichever is later.

PROPOSITION 204          Referendum that increased eligibility for AHCCCS
                         services to individuals whose income is at or below
                         100% of Federal Poverty Level.

PROVIDER                 Any person who contracts with the Administration for
                         the provision of hospitalization and medical care to
                         members according to the provisions A.R.S. ss. 36-2901
                         or any subcontractor of provider delivering services
                         pursuant to A.R.S. ss. 36-2901.

QUALIFIED                A person, eligible under A.R.S. ss. 36-2971(4), who is
MEDICARE                 entitled to Medicare Part A insurance, meets
BENEFICIARY              certain income and residency requirements of the
(QMB)                    Qualified Medicare Beneficiary program. A QMB who is
                         also eligible for Medicaid is commonly referred to as
                         a QMB dual eligible.


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DEFINITIONS                                            Contract/RFP No. YH8-0001
================================================================================
QISMC                    Quality Improvement System for Managed Care developed
                         by the Centers for Medicare/Medicaid (CMS), formerly
                         (HCFA), for use in evaluation and management of the
                         quality of care provided by Medicare and Medicaid
                         managed care contractors. QISMC serves as one of the
                         key elements for the AHCCCS QM and UM requirements
                         included in this contract.

RATE CODE                Eligibility classification for capitation payment
                         purposes.

REGIONAL                 An organization under contract with ADHS to administer
BEHAVORIAL               covered behavioral health services in a geographically
HEALTH                   specific area of the state. Tribal governments,
AUTHORITY (RBHA)         through an agreement with ADHS, may operate a tribal
                         regional behavioral health authority (TRBHA) for the
                         provision of behavioral health services to Native
                         American members living on-reservation.

REINSURANCE              A risk-sharing program provided by the Administration
                         to contractors for the reimbursement of certain
                         contract service costs incurred by a member beyond a
                         certain monetary threshold.

RELATED PARTY            A party that has, or may have, the ability to control
                         or significantly influence a contractor, or a party
                         that is, or may be, controlled or significantly
                         influenced by a contractor. "Related parties" include,
                         but are not limited to, agents, managing employees,
                         persons with an ownership or controlling interest in
                         the disclosing entity, and their immediate families,
                         subcontractors, wholly-owned subsidiaries or
                         suppliers, parent companies, sister companies, holding
                         companies, and other entities controlled or managed by
                         any such entities or persons.

RFP                      Request For Proposals which is a document prepared by
                         AHCCCSA which describes the services required and
                         which instructs prospective offerors how to prepare a
                         response (proposal), as defined in R9-22-107.

SCOPE OF SERVICES        See "COVERED SERVICES".

SOBRA                    Section 9401 of the Sixth Omnibus Budget and
                         Reconciliation Act, 1986, amended by the Medicare
                         Catastrophic Coverage Act of 1988, 42 CFR U.S.C.
                         1396a(a)(10)(A)(ii)(IX), July 1, 1988.

STATE                    The State of Arizona.

STATE PLAN               The written agreements between the State and CMS which
                         describes how the AHCCCS program meets CMS
                         requirements for participation in the Medicaid program
                         and the State Children's Health Insurance Program.

SUBCONTRACT              An agreement entered into by Contractor with a
                         provider of health care services who agrees to furnish
                         covered services to members, or with a marketing
                         organization, or with any other organization or person
                         who agrees to perform any administrative function or
                         service for Contractor specifically related to
                         fulfilling Contractor's obligations to AHCCCSA under
                         the terms of this contract, as defined in R9-22-101.

 SUBCONTRACTOR           (1) A person, agency or organization to that a
                         contractor has contracted with or delegated some of
                         its management functions or responsibilities to
                         provide covered services to its members; or (2) A
                         person, agency or organization that a fiscal agent has
                         entered into a contract, agreement, purchase order or
                         lease (or leases of real property) to obtain space,
                         supplies, equipment or services provided under the
                         AHCCCS agreement.


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DEFINITIONS                                            Contract/RFP No. YH8-0001
================================================================================
SUPPLEMENTAL             Federal cash assistance program under Title XVI of the
SECURITY INCOME          Social Security Act.
(SSI)

TEFRA RISK HMO           A Health Maintenance Organization or Comprehensive
                         Medical Plan, which provides Medicare services to
                         Medicare beneficiaries pursuant to a Medicare risk
                         contract with CMS under ss. 1876 of the Social
                         Security Act.

TEMPORARY                A Federal cash assistance program under the Social
ASSISTANCE TO            Security Act. It replaced Aid To Families With
NEEDY FAMILIES           Dependent Children (AFDC).
(TANF)

THIRD PARTY              An individual, entity or program that is or may be
                         liable to pay all or part of the medical cost of
                         injury, disease or disability of an AHCCCS applicant
                         or member, as defined in R9-22-110.

THIRD PARTY              The resources available from a person or entity that
LIABILITY                is, or may be, by agreement, circumstance or otherwise,
                         liable to pay all or part of the medical expenses
                         incurred by an AHCCCS applicant or member, as defined
                         in R9-22-110.

TITLE XIX MEMBER         Member eligible for Federally funded Medicaid programs
                         under Title XIX of the Social Security Act including
                         those eligible under 1931 provisions of the Social
                         Security Act (previously AFDC), Sixth Omnibus Budget
                         Reconciliation Act (SOBRA), Supplemental Security
                         Income (SSI), SSI-related groups, and Title XIX Waiver
                         groups.

TITLE XIX WAIVER         All MED (Medical Expense Deduction) members, and
MEMBER                   adults or childless couples at or below 100% of
                         the Federal Poverty Level who are not categorically
                         linked to another Title XIX program. This would also
                         include Title XIX linked individuals who's income
                         exceeds the limits of the categorical program.

TITLE XXI MEMBER         Member eligible for acute care services under Title XXI
                         of the Social Security Act, referred to in federal
                         legislation as the "State Children's Health Insurance
                         Program" (SCHIP). The Arizona version of SCHIP is
                         referred to as "KidsCare."

TRIBAL FACILITY          A facility that is operated by an Indian tribe and that
(638 TRIBAL              is authorized to provide services pursuant to Public
FACILITY)                Law 93-638, as amended.

YEAR                     See "Contract Year".

[END OF DEFINITIONS]


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CONTRACT CLAUSES                                       Contract/RFP No. YH8-0001
================================================================================

                        SECTION D: PROGRAM REQUIREMENTS

1. SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable federal, State and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R9-22, Article 2, the AHCCCS Medical Policy
Manual (AMPM), and the document entitled "AHCCCS Health Plan Performance
Indicators", all of which are incorporated herein by reference and may be found
in the Bidder's Library. The covered services are briefly described below.
Covered services must be medically necessary and provided by, or coordinated
with, a primary care provider, except for behavioral health and children's
preventive dental services. Services must be rendered by providers that are
appropriately licensed or certified, operating within their scope of practice,
and registered as an AHCCCS provider. The Contractor shall provide the same
standard of care for all members regardless of the member's eligibility
category.

The Contractor shall ensure that its providers are not restricted or
inhibited in any way from communicating freely with members regarding the
members' health care, medical needs and treatment options even if needed
services are not covered by the Contractor.

KidsCare Covered Services: Effective 10/1/01: KidsCare members are eligible for
the same services covered for members under the Title XIX program.

Ambulatory Surgery and Anesthesiology: The Contractor shall provide surgical
services for either emergency or scheduled surgeries when provided in an
ambulatory or outpatient setting such as a free-standing surgical center or a
hospital based outpatient surgical setting.

Audiology: The Contractor shall provide audiology services to members under the
age of 21 including the identification and evaluation of hearing loss and
rehabilitation of the hearing loss through other than medical or surgical means
(i.e. hearing aids). Only the identification and evaluation of hearing loss are
covered for members 21 years of age and older unless the hearing loss is due to
an accident or injury-related emergent condition.

Behavioral Health: The Contractor shall provide behavioral health services as
described in Section D, Paragraph 2, Behavioral Health Services.

Children's Rehabilitative Services (CRS): The program for children with
CRS-covered conditions is administered by the Arizona Department of Health
Services (ADHS) for children who meet CRS eligibility criteria. The Contractor
shall refer children to the CRS program who are potentially eligible for
services related to CRS covered conditions, as specified in R9-22, Article 2
A.R.S. Title 36, Chapter 2, Article 3. Eligibility criteria and the referral
process are described in the CRS Policy and Procedures Manual available in the
Bidder's Library.

The Contractor shall monitor referrals to CRS to ensure CRS covered services
are provided in a timely manner to eligible members. Referral to CRS does not
relieve the Contractor of the responsibility for providing medically necessary
services not covered by CRS to CRS eligible members. The Contractor is also
responsible for initial care of newborn members, who are CRS eligible. The
Contractor must require the member's Primary Care Provider (PCP) to coordinate
their care with the CRS program. All services provided must be included in the
member's medical record maintained by the PCP.



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CONTRACT CLAUSES                                       Contract/RFP No. YH8-0001
================================================================================

The Contractor is not responsible for payment of those CRS covered services for
which a CRS eligible member refuses to receive through the CRS program. A
member with private insurance is not required to utilize CRS. If the member
uses their private insurance network for a CRS covered condition, and the
member is not enrolled with CRS, the Contractor is responsible for all
applicable deductibles and copays.

The Contractor remains ultimately responsible for the provision of all covered
services to its members. If the Contractor becomes aware that CRS has failed to
meet the established appointment standards, or has failed to provide medically
necessary CRS covered services, the Contractor shall immediately notify
AHCCCSA, Office of Medical Management, of the occurrence. In accordance with
AHCCCS policy, the Contractor may seek reimbursement from CRS for providing CRS
covered services.

Chiropractic Services: The Contractor shall provide chiropractic services to
members under age 21 when prescribed by the member's PCP and approved by the
Contractor in order to ameliorate the member's medical condition. Medicare
approved chiropractic services shall also be covered, subject to limitations
specified in CFR 410.22, for Qualified Medicare Beneficiaries if prescribed by
the member's PCP and approved by the Contractor.

Dental: The Contractor shall provide all members under the age of 21 with all
medically necessary dental services including emergency dental services, dental
screening and preventive services in accordance with the AHCCCS periodicity
schedule, therapeutic dental services, dentures, and pre-transplantation dental
services. The Contractor shall monitor compliance with the EPSDT periodicity
schedule for dental screening services and ensure that dental service reports
are included in the member's medical record maintained by the PCP. The
Contractor is required to meet specific utilization rates for members as
described in Section D, Paragraph 16, Performance Standards. The Contractor
shall ensure that members are notified when dental screenings are due if the
member has not been scheduled for a visit. If no dental screening is received
by the member, a second notice must be sent. Members under the age of 21 may
request dental services without referral and may choose a dental provider from
the Contractor's provider network. For members who are 21 years of age and
older, the Contractor shall provide emergency dental care, medically necessary
dentures and dental services for transplantation services as specified in the
AMPM. Dental standards may be found in the AMPM, Section 310, which is
incorporated herein by reference and which may be found in the Bidder's
Library.

Dialysis: The Contractor shall provide medically necessary dialysis, supplies,
diagnostic testing and medication for all members when provided by
Medicare-certified hospitals or Medicare-certified end stage renal disease
(ESRD) providers. Services may be provided on an outpatient basis, or on an
inpatient basis if the hospital admission is not solely to provide chronic
dialysis services.

Early and Periodic Screening, Diagnosis and Treatment (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment to correct or
ameliorate defects and physical or mental illness discovered by the screenings
for members under age 21. The Contractor shall ensure that these members
receive required health screenings, including developmental/behavioral health,
in compliance with the AHCCCS periodicity schedule (Exhibit 430-1 in the AMPM)
and to submit to the AHCCCS Office of Medical Management; all EPSDT reports as
required by AHCCCS medical policy. The Contractor is required to meet specific
participation/utilization rates for members as described in Section D,
Paragraph 16, Performance Standards. Because behavioral health benefits for
Title XIX and Title XXI members are provided through the ADHS/RBHA system, the
Contractor shall ensure the initiation and coordination of the referral of
these members to the RBHA and shall follow up with the RBHA to monitor whether
members have received behavioral health services.



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CONTRACT CLAUSES                                       Contract/RFP No. YH8-0001
================================================================================

Emergency services: The Contractor shall have and/or provide the following as a
minimum:

a.   Emergency services facilities adequately staffed by qualified medical
     professionals to provide pre-hospital, emergency care on a 24-hour-a-day,
     7-day-a-week basis, for the sudden onset of a medically emergent condition
     as defined by AHCCCS Rule R9-22-101 and R9-31-101. Emergency medical
     services are covered without prior authorization. The Contractor is
     encouraged to contract with emergency service facilities for the provision
     of emergency services. The Contractor is encouraged to contract with or
     employ the services of non-emergency facilities (e.g. urgent care centers)
     to address member non-emergency care issues occurring after regular office
     hours or on weekends. The Contractor shall be responsible for educating
     members and providers regarding appropriate utilization of emergency room
     services including behavioral health emergencies. The Contractor shall
     monitor emergency service utilization (by both provider and member) and
     shall have guidelines for implementing corrective action for inappropriate
     utilization. For utilization review, the test for appropriateness of the
     request for emergency services shall be whether a prudent layperson,
     similarly situated, would have requested such services. For purposes of
     this contract, a "prudent layperson" is a person who possesses an average
     knowledge of health and medicine.

b.   All medical services necessary to rule out an emergency condition

c.   Emergency transportation

d.   Member access by telephone to a physician, registered nurse, physician
     assistant or nurse practitioner for advice in emergent or urgent
     situations, 24 hours per day, 7 days per week.

e.   The Contractor shall comply with guidelines regarding the coordination of
     post-stabilization care.

Eye Examinations/Optometry: The Contractor shall provide all medically
necessary emergency eye care, vision examinations, prescriptive lenses, and
treatments for conditions of the eye for all members under the age of 21. For
members who are 21 years of age and older, the Contractor shall provide
emergency care for eye conditions which meet the definition of an emergency
medical condition, cataract removal, and/or medically necessary vision
examinations and prescriptive lenses if required following cataract removal and
other eye conditions as specified in the AMPM.

Family Planning: The Contractor shall provide family planning services in
accordance with the AMPM, Section 420 for all members who choose to delay or
prevent pregnancy. These include medical, surgical, pharmacological and
laboratory services, as well as contraceptive devices. Information and
counseling necessary to allow the members to make informed decisions regarding
family planning methods shall also be included. If the Contractor does not
provide family planning services, it must contract for these services through
another health care delivery system, which allows members freedom of choice in
selecting a provider. A prospective offeror may discuss arrangements for family
planning services only with other prospective offerors during the RFP process
for the purpose of making arrangements for the provision of family planning
services.

The Contractor shall provide services to members enrolled in the Family
Planning Services Extension Program; a program that provides only family
planning services for a maximum of 24 months to women whose SOBRA eligibility
has terminated. The Contractor is also responsible for notifying AHCCCSA when a
SOBRA woman is sterilized to prevent inappropriate enrollment in the SOBRA
Family Planning Services Extension Program. Notification may be made at the
time the newborn is reported or after the sterilization procedure is completed.

Health Risk Assessment and Screening: The Contractor shall provide these
services for non-hospitalized members 21 years of age and older. These services
include, but are not limited to, screening for hypertension, elevated
cholesterol, colon cancer, sexually transmitted diseases, tuberculosis and
HIV/AIDS; nutritional assessment in cases when the member has a chronic
debilitating disease affected by nutritional needs; mammograms and prostate
screenings; physical examinations and diagnostic work-ups; and immunizations.



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CONTRACT CLAUSES                                       Contract/RFP No. YH8-0001
================================================================================

Required assessment and screening services for members under age 21 are
included in the AHCCCS EPSDT periodicity schedule.

Home Health: The Contractor shall provide part-time or intermittent care for
members who do not require hospital care. This service is provided under the
direction of a physician to prevent re-hospitalization or institutionalization
and may include nursing, therapies, supplies and home health aide services.

Hospice: These services are covered for members under 21 years of age who are
certified by a physician as being terminally ill and having six months or less
to live. See the AMPM for details on covered hospice services.

Hospital: Inpatient services include semi-private accommodations for routine
care, intensive and coronary care, surgical care, obstetrics and newborn
nurseries, and behavioral health emergency/crisis services. If the member's
medical condition requires isolation; private inpatient accommodations are
covered. Nursing services, dietary services and ancillary services such as
laboratory, radiology, pharmaceuticals, medical supplies, blood and blood
derivatives, etc. are also covered. Outpatient services include any of the
above services, which may be provided on an outpatient or ambulatory basis
(i.e. laboratory, radiology, therapies, ambulatory surgery, etc.). Observation
services may be provided on an outpatient basis for up to 24 hours if
determined reasonable and necessary to decide whether the member should be
admitted for inpatient care. Observation services include the use of a bed and
periodic monitoring by hospital nursing staff and/or other staff to evaluate,
stabilize or treat medical conditions of significant degree of instability
and/or disability.

Immunizations: The Contractor shall provide immunizations for adults (21 years
of age and older) to include diphtheria-tetanus, influenza, pneumococcus,
rubella, measles and hepatitis-B. For all members under the age of 21,
immunization requirements include diphtheria, tetanus, pertussis vaccine (DPT),
inactivated polio vaccine (IPV), measles, mumps, rubella (MMR) vaccine, H.
influenza, type B (HIB) vaccine, hepatitis B (Hep B) vaccine, and varicella
zoster virus (VZV) vaccine, and pneumococcal conjugate vaccine (PCV). The
Contractor is required to meet specific immunization rates for members under
the age of 21, which are described in Section 16, Performance Standards.

Indian Health Services (IHS): The Contractor may choose to subcontract with and
pay an IHS or 638 tribal facility as part of their provider network for covered
services provided to members. The Contractor is responsible for reimbursement
to IHS or tribal facilities for emergency services provided to Title XXI Native
American members enrolled with the Contractor. AHCCCSA will reimburse claims on
a FFS basis to providers for acute care services that are medically necessary
and eligible for 100% Federal reimbursement, and that are provided to Title XIX
members in an IHS or a 638 tribal facility.

Laboratory: Laboratory services for diagnostic, screening and monitoring
purposes are covered when ordered by the member's PCP, other attending
physician or dentist, and provided by a CLIA (Clinical Laboratory Improvement
Act) approved free standing laboratory or hospital laboratory, clinic,
physician office or other health care facility laboratory.

Upon written request, a Contractor may obtain laboratory test data on members
from a laboratory or hospital based laboratory subject to the requirements
specified in A.R.S. ss. 36-2903(R) and (S). The data shall be used exclusively
for quality improvement activities and health care outcome studies required
and/or approved by the Administration.

Maternity: The Contractor shall provide pre-conception counseling, pregnancy
identification, prenatal care, treatment of pregnancy related conditions, labor
and delivery services, and postpartum care for members. Services may be
provided by physicians, physician assistants or nurse practitioners certified
in midwifery.


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CONTRACT CLAUSES                                       Contract/RFP No. YH8-0001
================================================================================

Members may select or be assigned to a PCP specializing in obstetrics.
Circumcisions are covered as described in the AMPM. All members anticipated to
have a low-risk delivery may elect to receive labor and delivery services in
their home from their maternity provider if this setting is included in
allowable settings for the Contractor, and the Contractor has providers in its
network that offer home labor and delivery services. All members anticipated to
have a low-risk prenatal course and delivery may elect to receive maternity
services of prenatal care, labor and delivery and postpartum care provided by
licensed midwives if they are in the Contractor's provider network. All
licensed midwife labor and delivery services must be provided in the member's
home since licensed midwives do not have admitting privileges in hospitals or
AHCCCS registered free-standing birthing centers. Members receiving maternity
services from a licensed midwife must also be assigned to a PCP for other
health care and medical services. The Contractor shall allow women and their
newborns to receive up to 48 hours of inpatient hospital care after a routine
vaginal delivery and up to 96 hours of inpatient care after a cesarean
delivery. The attending health care provider, in consultation with the mother,
may discharge the mother or newborn prior to the 48-hour minimum length of
stay. A normal newborn may be granted an extended stay in the hospital of birth
when the mother's continued stay in the hospital is beyond the 48 or 96 hour
stay.

The Contractor shall inform all assigned AHCCCS pregnant women of voluntary
prenatal HIV testing and the availability of medical counseling if the test is
positive. The Contractor shall provide information in the member handbook and
annually in the member newsletter to encourage pregnant women to be tested and
instructions on where to be tested. Semi-annually, the Contractor shall report
to AHCCCS the number of pregnant women who have been identified as HIV/AIDS
positive. This report is due no later than 30 days after the end of the second
and fourth quarters of the contract year.

Medical Foods: Medical foods are covered within limitations defined in the AMPM
for members diagnosed with a metabolic condition included under the ADHS
Newborn Screening Program and specified in the AMPM. The medical foods,
including metabolic formula and modified low protein foods, must be prescribed
or ordered under the supervision of a physician.

Medically-Necessary Pregnancy Terminations: AHCCCS covers pregnancy termination
when it is the result of rape or incest, or in circumstances where the member
suffers form a physical disorder, physical injury, or physical illness,
including a life endangering physical condition caused by or arising form the
pregnancy itself, that would, as certified by a physician, place the member in
danger of death unless the pregnancy is terminated. In addition, providers must
submit to the Contractor a Certificate of Medical Necessity for Pregnancy
Termination. Prior authorization is required. If the procedure is performed on
an emergency basis, documentation, outlined in the AMPM, is required for a
member under eighteen years of age or a member who is considered an
incapacitated adult who seeks a medically necessary pregnancy termination, as
defined above.

Medical Supplies, Durable Medical Equipment (DME), Orthotic and Prosthetic
Devices: These services are covered when prescribed by the member's PCP,
attending physician or practitioner, or by a dentist. Medical equipment may be
rented or purchased only if other sources are not available which provide the
items at no cost. The total cost of the rental must not exceed the purchase
price of the item. Reasonable repairs or adjustments of purchased equipment are
covered to make the equipment serviceable and/or when the repair cost is less
than renting or purchasing another unit.

Nursing Facility: The Contractor shall provide nursing facility services,
including religious nonmedical health care institutions, for members who
require short-term convalescent care not to exceed 90 days per contract year.
In lieu of a nursing facility, the member may be placed in an assisted living
facility or alternative residential setting, or receive home and community
based services (HCBS) as defined in R9-22, Article 2 and R9-28, Article 2 that
meet the provider standards described in R9-28, Article 5, and subject to the
limitations set forth in Chapter 1200 of the AMPM.


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CONTRACT CLAUSES                                       Contract/RFP No. YH8-0001
================================================================================

Nursing facility services must be provided in a dually-certified
Medicare/Medicaid facility which includes in the per-diem rate: nursing
services, basic patient care equipment and sickroom supplies, dietary services,
administrative physician visits, non-customized DME, necessary maintenance
rehabilitation therapies, over-the-counter medications, social, recreational and
spiritual activities, and administrative, operational medical direction
services. The Contractor shall provide medically necessary nursing facility
services for any member who has a pending ALTCS application, who is currently
residing in a nursing facility and is eligible for services provided under this
contract. If the member becomes ALTCS eligible and is enrolled with an ALTCS
Program Contractor before the end of the maximum 90 days of nursing facility
coverage, the Contractor is only responsible for nursing facility coverage
during the time the member is enrolled with the Contractor. Nursing facility
services covered by a third party insurer (including Medicare) while the member
is enrolled with the Contractor shall be applied to the 90 day limitation. See
Paragraph 36, Nursing Facility Reimbursement, for further details.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application and to prepare for potential fee-for-service coverage if the stay
goes beyond the 90-day maximum.

Nutrition: Nutritional assessments may be conducted as a part of the EPSDT
screenings for members under age 21, and to assist members 21 years of age and
older whose health status may improve with nutritional intervention. Assessment
of nutritional status on a periodic basis may be provided as determined
necessary, and as a part of the health risk assessment and screening services
provided by the member's PCP. AHCCCS covers nutritional therapy on an enteral,
parenteral or oral basis, when determined medically necessary to provide either
complete daily dietary requirements, or to supplement a member's daily
nutritional and caloric intake and when AHCCCS criteria specified in the AMPM
are met.

Physician: The Contractor shall provide physician services to include medical
assessment, treatments and surgical services provided by licensed allopathic or
osteopathic physicians.

Podiatry: The Contractor shall provide podiatry services to include
bunionectomies, casting for the purpose of constructing or accommodating
orthotics, medically necessary orthopedic shoes that are an integral part of a
brace, and medically necessary routine foot care for patients with a severe
systemic disease which prohibits care by a nonprofessional person.

Prescription Medications: Medications ordered by a PCP, attending physician or
dentist and dispensed under the direction of a licensed pharmacist are covered
subject to limitations related to prescription supply amounts, Contractor
formularies and prior authorization requirements, as well as restrictions for
immunosuppressant drugs addressed in AHCCCS medical policies for
transplantation's. Appropriate over-the-counter medication may be prescribed
when it is determined to be a lower-cost alternative to prescription
medication.

Primary Care Provider (PCP): PCP services are covered when provided by a
physician, physician assistant or nurse practitioner selected by, or assigned
to, the member. The PCP provides primary health care and serves as a gatekeeper
and coordinator in referring the member for specialty medical services,
behavioral health and dental services. The PCP is responsible for maintaining
the member's primary medical record, which contains documentation of all health
risk assessments and health care services of which they are aware whether or
not they were provided by the PCP.

Radiology and Medical Imaging: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical


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condition. Services are generally provided in hospitals, clinics, physician
offices and other health care facilities.

Rehabilitation Therapy: The Contractor shall provide occupational, physical and
speech therapies. Therapies must be prescribed by the member's PCP or attending
physician for an acute condition and the member must have the potential for
improvement due to the rehabilitation. Occupational and speech therapies are
only covered on an inpatient basis for those members who are 21 and over;
physical therapy for all members and occupational and speech therapies for
members under the age of 21 are covered on both an inpatient and outpatient
basis if not used as a maintenance regimen.

Respiratory Therapy: This therapy is covered on an inpatient or outpatient
basis when prescribed by the member's PCP or attending physician and is
necessary to restore, maintain or improve respiratory functioning.

Transplantation of Organs and Tissue, and Related Immunosuppressant Drugs:
These services are covered within limitations defined in the AMPM for members
diagnosed with specified medical conditions. Such limitations include whether
the stage of the disease is such that the transplant can affect the outcome;
the member has no other conditions that substantially reduce the potential for
successful transplantation; and whether the member will be able to comply with
necessary and required regimens of treatment. Bone grafts are also covered
under this service. Services include pre-transplant inpatient or outpatient
evaluation; donor search; organ/tissue harvesting or procurement; preparation
and transplantation services; and convalescent care. In addition, if a member
receives a transplant covered by a source other than AHCCCS, medically
necessary non-experimental services are provided within limitations after the
discharge from the acute care hospitalization for the transplantation. AHCCCS
has contracted with transplantation providers for the Contractor's use or the
Contractor may select its own transplantation provider. However, the quality of
services must be equal to or exceed those of the AHCCCS provider and the rate
paid can not exceed the AHCCCS provider's negotiated rate.

AHCCCSA is in the process of releasing a Request for Proposal (RFP) for the
purpose of contracting with an entity that will coordinate transplant services
for all AHCCCS members. It is anticipated that the responsibility for
transplant services will be transferred to the new contractor on January 1,
2002.

Transportation: These services include emergency and non-emergency medically
necessary transportation. Emergency transportation, including transportation
initiated by an emergency response system such as 911, may be provided by
ground, air or water ambulance to manage an AHCCCS member's emergency medical
condition at an emergency scene and transport the member to the nearest
appropriate medical facility. Non-emergency transportation shall be provided for
members who are unable to provide their own transportation for medically
necessary services.

Triage/Screening and Evaluation: These are covered services when provided by
acute care hospitals, IHS facilities and urgent care centers to determine
whether or not an emergency exists, assess the severity of the member's medical
condition and determine services necessary to alleviate or stabilize the
emergent condition. The provider must notify the Contractor within 12 hours of
the member's registration with the facility for emergency services. Supporting
documentation for services rendered must be provided when reporting or billing
a service. Triage/screening services must be reasonable, cost effective and
meet the criteria for severity of illness and intensity of service.

2. BEHAVIORAL HEALTH SERVICES

Title XIX and Title XXI members are eligible for comprehensive behavioral
health services. The behavioral health benefit for these members is provided
through the ADHS - Regional Behavioral Health Authority


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(RBHA) system. The Contractor shall be responsible for member education
regarding these benefits; provision of limited emergency inpatient services;
and screening and referral to the RBHA system of members identified as
requiring behavioral health services.

Member Education: The Contractor shall be responsible for educating members in
the member handbook and other printed documents about covered behavioral health
services and where and how to access services. Covered services include:

a.   Behavior Management (behavioral health personal assistance, family
     support, peer support)

b.   Case Management Services

c.   Emergency/Crisis Behavioral Health Services

d.   Emergency Transportation

e.   Evaluation and Screening

f.   Group Therapy and Counseling

g.   Individual Therapy and Counseling

h.   Family Therapy and Counseling

i.   Inpatient Hospital

j.   Inpatient Psychiatric Facilities for persons under 21 years of age
     (residential treatment centers and sub-acute facilities)

k.   Institutions for Mental Diseases (with limitations)

l.   Laboratory and Radiology Services for Psychotropic Medication Regulation
     and Diagnosis

m.   Non-Emergency Transportation

n.   Partial Care (Supervised day program, therapeutic day program, and medical
     day program)

o.   Psychosocial Rehabilitation (living skills training; health promotion;
     per-job training, education and development; job coaching and employment
     support)

p.   Psychotropic Medication

q.   Psychotropic Medication Adjustment and Monitoring

r.   Respite Care

s.   Therapeutic foster care

Referrals: As specified in Section D, Paragraph 1, EPSDT, the Contractor must
provide developmental/behavioral health screenings for members up to 21 years
of age in compliance with the AHCCCS periodicity schedule. The Contractor shall
ensure the initiation and coordination of behavioral health referrals of these
members to the RBHA when determined necessary through the screening process.

The Contractor is responsible for RBHA referral and follow-up collaboration, as
necessary, for other Title XIX and Title XXI members identified as needing
behavioral health evaluation and treatment. Members may also access the RBHA
system for evaluation by self-referral or be referred by schools, State
agencies or other service providers. The Contractor is responsible for
providing transportation to a member's first RBHA evaluation appointment if a
member is unable to provide their own transportation.

Emergency Services: For Title XIX and Title XXI members not enrolled with ADHS,
the Contractor is responsible for up to three days of inpatient behavioral
health services per emergency episode not to exceed 12 days per contract year.
A referral to the RBHA for evaluation and enrollment should be initiated as
soon as possible after admission.

When Title XIX and Title XXI members present in an emergency room setting, the
Contractor is responsible for all emergency medical services including triage,
physician assessment and diagnostic tests. For Title XIX and Title XXI members
not enrolled with ADHS, the Contractor is responsible to provide medically
necessary psychiatric consultations or psychological consultations in emergency
room settings to help stabilize the


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member or determine the need for inpatient behavioral health services. ADHS is
responsible for medically necessary psychiatric consultations provided to Title
XIX and Title XXI ADHS enrolled members in emergency room settings.

Coordination of Care: The Contractor is responsible for ensuring that a medical
record is established by the PCP when behavioral health information is received
from the RBHA or provider about an assigned member even if the PCP has not yet
seen the assigned member. In lieu of actually establishing a medical record,
such information may be kept in an appropriately labeled file but must be
associated with the member's medical record as soon as one is established. The
Contractor shall require the PCP to respond to RBHA/provider information
requests pertaining to ADHS enrolled members including, but not limited to,
current diagnosis, medication, pertinent laboratory results, last PCP visit,
and last hospitalization. For prior period coverage, the Contractor is
responsible for payment of all claims for medically necessary covered
behavioral health services to members not enrolled with ADHS.

Medication Management Services: The Contractor shall allow PCPs to provide
medication management services (prescriptions, medication monitoring visits,
laboratory and other diagnostic tests necessary for diagnosis and treatment of
behavioral disorders) to members with diagnoses of depression, anxiety and
attention deficit hyperactivity disorder. The Contractor shall make available,
on the Contractor's formulary, medications for the treatment of these
disorders.

The Contractor shall ensure that training and education is available to PCPs
regarding behavioral health referral and consultation procedures. The
Contractor shall establish policies and procedures for referral and
consultation and shall include them in their provider manual. Also, Contractors
shall inform PCPs about the availability of resource information through the
Maricopa Integrated Health System's Psychiatric Residency Training Program and
the Arizona Medical Association regarding the diagnosis and treatment of
behavioral health disorders.

The Contractor shall ensure that its quality management program incorporates
monitoring of the PCP's management of behavioral health disorders.

3. AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference
into this contract. The Contractor is responsible for complying with the
requirements set forth within. The AMPM with search capability and linkages to
AHCCCS rules, Statutes and other resources is available to all interested
parties through the AHCCCS Home Page on the Internet (www.ahcccs.state.az.us).
Upon adoption by AHCCCSA, AMPM updates will be available through the Internet
at the beginning of each month. If required, the Contractors may receive one
hard copy of the AMPM, free of charge, from AHCCCSA, Office of Medical
Management, however, the Contractor shall be responsible for maintaining such
copies current with these updates.

4. VACCINE FOR CHILDREN PROGRAM

Federal legislation passed in 1993 (OBRA 93) amended Title XIX of the Social
Security Act and created the Vaccine for Children (VFC) program which became
effective 10/1/94. Through this program, the federal and state governments
purchase, and make available to providers free of charge, vaccines for AHCCCS
children under age 19. Therefore, the Contractor shall not utilize AHCCCS
funding to purchase vaccines for members under the age of 19. Any provider,
licensed by the State to administer immunizations, may register with ADHS as a
"VFC provider" and receive free vaccines. The Contractor shall comply with all
VFC requirements and


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monitor its providers to ensure that, if providing immunizations to AHCCCS
members under the age of 19, the providers are registered with ADHS/VFC.

5. DENIALS OR REDUCTIONS OF SERVICES

When any covered service subject to prior authorization is denied, reduced,
suspended or terminated, the Contractor shall comply with the notice, request
for hearing and continuation of benefit requirements specified in 42 CFR
ss.431.200, et seq., A.A.C. R9-22-Article 13 and R9-31-Article 13, and the
AHCCCS Member Rights and Responsibilities Policy. This information must be
explained in the Member handbook provided for each member by the Contractor.
The Contractor is required to promptly provide any services specified in the
AHCCCS Director's decisions, irrespective of whether or not a Petition for
Rehearing is filed. Also, refer to Attachment H, Grievance and Request for
Hearing Process and Standards.

6. ENROLLMENT AND DISENROLLMENT

AHCCCSA has the exclusive authority to enroll and disenroll members. The
Contractor shall not disenroll any member for any reason unless directed to do
so by AHCCCSA. Eligibility for the various AHCCCS coverage groups is determined
by one of the following agencies:

Social Security
Administration (SSA)          SSA determines eligibility for the Supplementary
                              Security Income (SSI) cash program. SSI cash
                              recipients are automatically eligible for AHCCCS
                              coverage.

Department of Economic
Security (DES)                DES determines eligibility for the families with
                              children, pregnant women and children under SOBRA,
                              under section 1931 of the Social Security Act, the
                              Adoption Subsidy Program, Title IV-E foster care
                              children, Young Adult Transition Insurance
                              Program, the Federal Emergency Services program
                              (FES), and effective 10/1/2001, the Title XIX
                              Waiver Members.

AHCCCSA                       AHCCCSA determines eligibility for the SSI/MAO
                              groups, including the FES program for this
                              population (aged, disabled, blind), the Arizona
                              Long-Term Care System (ALTCS), the Qualified
                              Medicare Beneficiary program and other Medicare
                              cost sharing programs, and the Title XXI program,
                              KidsCare.

Arizona's 15 Counties         Proposition 204 legislation permits DES to allow
                              counties to continue to perform eligibility
                              determinations for AHCCCS until October 1, 2002.

AHCCCS acute care members are enrolled with contractors in accordance
with the rules set forth in R9-22, Article 17.

Health Plan Choice

Title XIX members, including Title XIX waiver members, have a choice of
available health plans. A listing of the available health plans and their
telephone numbers will be given to each applicant during the application
process for AHCCCS benefits. Also included are instructions to applicants to
call the health plans directly with specific questions concerning the health
plan. If there is only one health plan available for the applicant's


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Geographical Service Area, no choice is offered. Members who do not choose
prior to AHCCCSA's being notified of their eligibility are automatically
assigned to a health plan based on family continuity or the auto-assignment
algorithm.

Title XXI members must select a health plan prior to being determined eligible
and therefore, will not be auto-assigned. When a member is transferred from
Title XIX to Title XXI and has not made a health plan choice for Title XXI, the
member will remain with the Title XIX health plan and a choice notice will be
sent to the member. The member may then change plans no later than 16 days from
the date the choice notice is sent.

Exceptions to the above enrollment policies for Title XIX members include:
previously enrolled members who have been disenrolled for less than 90 days
will be automatically enrolled with the same contractor, if that contractor is
still available. Also, women who are eligible for the Family Planning Services
Extension Program will automatically remain assigned to the same health plan.
The Family Planning Services Extension Program provides a maximum of 24 months
of family planning services.

The effective date of enrollment for a new Title XIX member with the Contractor
will generally be the day prior to the date the Contractor receives
notification from AHCCCSA via the daily roster. However, the Contractor is
responsible for payment of medically necessary covered services retroactive to
the member's beginning date of eligibility.

The effective date of enrollment for a Title XXI member will be the first day of
the month following notification to the health plan. If a Title XXI member is
determined eligible by the 25th of the month, the member will be enrolled with
the health plan as of the 1st of the following month. If the member is
determined eligible AFTER the 25th of the month, the member will be enrolled
with the health plan as of the 1st of the second following month.

Proposition 204 and Title XIX Waiver Member Expansion/Conversion:

<TABLE>

                                             Date Expansion or             Enrollment
Expansion and Conversion Population       Conversion is Initiated          Methodology
----------------------------------------  ------------------------         -----------
<S>                                          <C>                      <C>
QMB Only to QMB Dual Conversion
  under SSI-MAO                              4/1/01                   Current Title XIX rules
New SSI-MAO's from 76% to 100% FPL           4/1/01 onward            Current Title XIX rules
Eligible parents of SOBRA children
  and KidsCare children up to 100% FPL       7/1/01-9/1/01            Family Continuity
17 & 18 year old KidsCare children
  converting to Title XIX                    Redetermination date     Remain in current health plan
MNMI (prior to 10/1/01)                      4/1/01-10/1/01           Current MNMI rules
SOBRA Family Planning notified of
  increase in Title XIX income limit to
  100% FPL.                                  10/1/01                  Remain in current health plan
SMI SSI's                                     7/1/01-9/1/01            Current Title XIX rules
Premium Sharing Conversion members with
  income at or below 100% FPL who are
  not parents of SOBRA children or
  KidsCare children                          10/1/O1                  Remain in current health plan
EAC/ELIC's who don't convert to KidsCare
  will be converted to a Title XIX
  group, probably SOBRA                      10/1/O1                  Remain in current health plan
Title XIX Waiver members                     10/1/01                  Current Title XIX rules
----------------------------------------------------------------------------------------------------
</TABLE>

Prior Period Coverage: AHCCCS provides prior period coverage for Title XIX
members. Prior period coverage starts from the first day of the month of
application, or first eligible month, whichever is later, to the day a member
is enrolled with the Contractor. For MED's, prior period coverage is the time
period from the


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date the member met spenddown to the date of eligibility approval. The
Contractor is responsible for payment of all claims for medically necessary
covered services provided to members during prior period coverage. This may
include services provided prior to the contract year (See Section D, Paragraph
37, Compensation, for a description of the Contractor's reimbursement from
AHCCCSA for this eligibility time period.)

Newborns: Newborns born to AHCCCS-eligible mothers, including Title XXI
mothers, who were enrolled at the time of the child's birth, and whose newborn
notification was received by AHCCCSA, will be enrolled with the mother's health
plan. The Contractor is responsible for notifying AHCCCSA of a child's birth to
an enrolled member. Capitation to the Contractor will begin on the date
notification is received by AHCCCSA (except for cases of births during prior
period coverage). The effective date of AHCCCS eligibility will be the
newborn's date of birth, and the Contractor is responsible for all covered
services to the newborn whether or not AHCCCSA has received notification of the
child's birth. Note that AHCCCSA is currently available to receive notification
calls 24 hours a day, 7 days a week. Eligible mothers of newborns are sent a
letter advising them of their right to choose a different contractor for their
child; otherwise the child will remain with the mother's contractor.

Newborns of FES mothers are auto-assigned to a health plan and mothers of these
newborns are sent a letter advising them of their right to choose a different
health plan for their child. In the event the FES mother chooses a different
health plan, AHCCCS will recoup all capitation paid to the originally assigned
plan and the baby will be enrolled retroactive to the date of birth in the
second plan. The second plan will receive prior period capitation from the date
of birth to the day before assignment and prospective capitation from the date
of assignment forward. The second contractor will be responsible for all
covered services to the newborn from date of birth.

Enrollment Guarantees: Upon initial capitated enrollment as a Title
XIX-eligible member, the member is guaranteed a minimum of five full months of
continuous enrollment. Upon initial capitated enrollment as a Title
XXI-eligible member, the member is guaranteed a minimum of 12 full months of
continuous enrollment. Enrollment guarantees do not apply to Native Americans
who choose to obtain their covered services through Indian Health Services
(IHS) on a fee-for-service basis or children enrolled with Department of
Economic Security/Comprehensive Medical and Dental Program. The enrollment
guarantee applies a maximum of one time per member per eligibility category for
Title XIX and Title XXI members. If a member changes from one contractor to
another within the enrollment guarantee period, the remainder of the guarantee
period applies to the new contractor. The enrollment guarantee may not be
granted or may be terminated if the member is incarcerated or, if a minor child
is adopted. AHCCCS Rule R9-22, Article 17 and R9-31, Article 3 describes other
reasons for which the enrollment guarantee may not apply.

Native Americans: Native Americans, on or off-reservation, have a choice to
receive services from Indian Health Services (IHS), a PL 93-638 tribal facility
or any available contractor. If choice is not available or made within the
specified time limit, Native American Title XIX members living on-reservation
will be assigned to IHS. Native American Title XIX members living
off-reservation will be assigned to an available contractor using AHCCCSA's
family continuity policy and auto-assignment algorithm. Native Americans may
change from IHS to a contractor or from a contractor to IHS at any time. Native
American Title XXI members must make a choice prior to being determined
eligible.

7. MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take
affirmative action so that members are provided covered services without regard
to payer source, race, color, creed, sex, religion, age, national origin,
ancestry, marital status, sexual preference, genetic information, or physical
or mental handicap, except where medically indicated. Contractors must take
into account a member's culture, when addressing members


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and their concerns, and must take reasonable steps to encourage subcontractors
to do the same. The Contractor must make interpreters available for members to
ensure appropriate delivery of covered services.

Examples of prohibited practices include, but are not limited to, the
following:

a.   Denying or not providing a member any covered service or access to an
     available facility.

b.   Providing to a member any covered service which is different, or is
     provided in a different manner or at a different time from that provided
     to other members, other public or private patients or the public at large
     except where medically necessary.

c.   Subjecting a member to segregation or separate treatment in any manner
     related to the receipt of any covered service; restricting a member in any
     way in his or her enjoyment of any advantage or privilege enjoyed by
     others receiving any covered service.

d.   The assignment of times or places for the provision of services on the
     basis of the race, color, creed, religion, age, sex, national origin,
     ancestry, marital status, sexual preference, income status, AHCCCS
     membership, or physical or mental handicap of the participants to be
     served.

If the Contractor knowingly executes a subcontract with a provider with the
intent of allowing or permitting the subcontractor to implement barriers to
care (i.e. the terms of the subcontract act to discourage the full utilization
of services by some members), the Contractor will be in default of its
contract.

If the Contractor identifies a problem involving discrimination by one of its
providers, it shall promptly intervene and implement a corrective action plan.
Failure to take prompt corrective measures may place the Contractor in default
of its contract.

8. MEMBER INFORMATION

All informational materials prepared by the Contractor shall be approved by
AHCCCSA prior to distribution to members. The reading level and name of the
evaluation methodology used should be included.

o All materials shall be translated when the Contractor is aware that a
language is spoken by 3,000 or 10% (whichever is less) of the Contractor's
members who also have Limited English Proficiency (LEP) in that language.

o All vital materials shall be translated when the Contractor is aware that a
language is spoken by 1,000 or 5% (whichever is less) of the Contractor's
members who also have LEP in that language. Vital materials must include, at a
minimum, notices for denials, reductions, suspensions or terminations of
services, vital information from the member handbooks and consent forms.

o All written notices informing members of their right to interpretation and
translation services in a language shall be translated when the Contractor is
aware that 1,000 or 5% (whichever is less) of the Contractor's members speak
that language and have LEP.

When there are program or service site changes, notification shall be provided
to the affected members at least 14 days before implementation. The Contractor
shall review and update the Member Handbook at least once a year. The Handbook
must be submitted to AHCCCSA Office of Managed Care for approval by Sept. 1 of
each contract year, or within four weeks of receiving the annual renewal
amendment, whichever is later.

The Contractor shall make every effort to ensure that all information prepared
for distribution to members is written at a 4th grade level.


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The Contractor shall produce and provide the following printed information to
each member or family within 10 days of receipt of notification of the
enrollment date:

I.   A Member Handbook which, at a minimum, shall include the following items
     that are also listed in the Office of Managed Care, Operations Policy
     #404, Member Information Policy:

     a.   A table of contents.

     b.   A general description of how managed care works, particularly in
          regards to member responsibilities, appropriate utilization of
          services and the PCP's role as gatekeeper of services.

     c.   A description of all available covered services and an explanation of
          any service limitations or exclusions from coverage and a notice
          stating that the Contractor will be liable only for those services
          authorized by the Contractor. The description should include a brief
          explanation of the Contractor's approval and denial process.

     d.   Information on what to do when family size changes.

     e.   How to obtain a PCP.

     f.   How to change PCPs.

     g.   How to make, change and cancel appointments with a PCP or dentist.

     h.   List of applicable copayments (including a statement that care will
          not be denied due to lack of copayment). The member handbook must
          clearly state that members cannot be billed for covered services
          (other than applicable copayments), what to do if they are billed,
          and under what circumstances a member may be billed for non-covered
          services.

     i.   Dual eligibility (i.e. Medicare and Medicaid); services received in
          and out of the Contractor's network; copayments. See Section D,
          Paragraph 41, Medicare Services and Cost Sharing.

     j.   The process of referral to specialists and other providers, including
          access to behavioral health services provided by the ADHS RBHA
          system.

     k.   How to contact Member Services and a description of its function.

     l.   What to do in case of an emergency and instructions for receiving
          advice on getting care in case of an emergency. In a life-threatening
          situation, the member handbook should instruct members to use the
          emergency medical services (EMS) available and/or activate EMS by
          dialing 9-1-1. The handbook should contain information on proper
          emergency service utilization.

     m.   How to obtain emergency transportation and medically necessary
          transportation.

     n.   EPSDT services. A description of the purpose and benefits of EPSDT
          services, including the required components of EPSDT screenings and
          the provision of all medically necessary services to treat a physical
          or mental illness discovered by the screenings. Screenings include a
          comprehensive history and developmental/behavioral health screening,
          comprehensive unclothed physical examination, appropriate vision
          testing, hearing testing, laboratory tests, dental screening and
          immunizations.

     o.   Maternity and family planning services.

     p.   Description of covered behavioral health services and how to access
          these services.

     q.   Description of all covered dental services and how to access these
          services.

     r.   Out of county/out of state moves.

     s.   Grievance and request for hearing procedures, including a clear
          explanation of the members right to file a grievance and request for
          hearing and to appeal any decision that affects the member's receipt
          of covered services.

     t.   Contributions the member can make towards his/her own health, member
          responsibilities, appropriate and inappropriate behavior, and any
          other information deemed essential by the Contractor or AHCCCS. This
          shall include a statement that the member is responsible for
          protecting his or her ID card and that misuse of the card, including
          loaning, selling or giving it to others could result in loss of the
          members eligibility and/or legal action. A sentence shall be included
          that stresses the importance of members keeping, not discarding, the
          swipe ID card.


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     u.   How to access after-hours care (urgent care).

     v.   Advance directives for adults.

     w.   Use of other sources of insurance. See Section D, Paragraph 40,
          Coordination of Benefits.

     x.   The last revision date.

     y.   Member's notification rights and responsibilities under AAC R9-22,
          Article 13 and AHCCCS policy.

     z.   A description of Fraud and Abuse including instructions on how to
          report suspected fraud or abuse. This shall include a statement that
          misuse of a member's identification card, including loaning, selling
          or giving it to others could result in loss of the member's
          eligibility and/or legal action against the member

     aa.  A statement that informs the member of their right to request
          information on whether or not the health plan has Physician Incentive
          Plans (PIP) that affect the use of referral services, the right to
          know the types of compensation arrangements the plan uses, the right
          to know whether stop-loss insurance is required and the right to a
          summary of member survey results (in accordance with PIP regulation).

     bb.  Members right to be treated fairly regardless of race, religion, sex,
          age or ability to pay.

     cc.  Instructions for obtaining culturally competent materials, including
          translated member materials.

     dd.  A description of the criteria and procedures for requesting a health
          plan change.

     ee.  Information regarding prenatal HIV testing and counseling services.

     ff.  Members have a right to know of providers who speak languages other
          than English.


II.  A list of the names, telephone numbers and service site addresses of PCPs
     available for selection by the member and a description of the selection
     process. Upon request by the member, the Contractor must make information
     available regarding provider qualifications.

Regardless of the format chosen by the Contractor, the member handbook must be
printed in a type style and size, which can easily be read by members with
varying degrees of visual impairment. At a minimum, the member handbook shall
also contain the following language regarding questions, problems, grievances
and requests for hearings (Ref. AHCCCS Rule R9-22-518 and R9-31-518):

Q.   What if I have any questions, problems or complaints about [Contractor's
     name]?

A.   If you have a question or problem, please call _____________________
     and ask to talk to a Member Representative. They are there to help you.

A.   If you have a specific complaint about your medical care, the Member
     Representative will help you.

Q.   What if I'm not happy with the help given to me by the Member
     Representative?

A.   If you are unhappy with the answer you receive, you can tell the Member
     Representative you want to file a written or oral grievance. The grievance
     must be filed not later than 60 days after the date of the action,
     decision, or incident.

A.   [Contractor's name] will make a final decision for grievances within 30
     days of receiving your written or oral grievance. A letter will be mailed
     to you stating the health plan's decision and the reason for the decision.
     The letter will tell you how you can appeal the decision if you are still
     unhappy. You must let the health plan know you want to appeal the decision
     letter.

A.   If you are appealing the health plan's decision, [Contractor's name] will
     send your request for appeal to the AHCCCSA. You will receive information
     from AHCCCSA on how your appeal will be handled. AHCCCSA will then decide
     if the health plan's decision was correct under the circumstances.


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9. MEMBER SURVEYS

AHCCCSA may periodically conduct a survey of a representative sample of the
Contractor's membership. AHCCCSA will design a questionnaire to assess
accessibility, availability and continuity of care with PCPs; communication
between members and the Contractor; and general member satisfaction with the
AHCCCS program. To ensure comparability of results, the questions to the
members will be the same for all contractors. AHCCCSA will consider suggestions
from the Contractor for questions to be included in each survey. The results of
these surveys will become public information and available to all interested
parties upon request. In addition, unless waived by AHCCCSA, the Contractor
shall perform its own annual general or focused member survey. All such
contractor surveys must be approved in advance by AHCCCSA.

10. MARKETING

The Contractor shall submit all proposed marketing and outreach materials and
events that will involve the general public to the AHCCCS Marketing Committee
for prior approval in accordance with the AHCCCS Health Plan Marketing Policy.
The Contractor must have signed contracts with PCPs, specialists, dentists, and
pharmacies in order for them to be included in marketing materials.

11. ANNUAL ENROLLMENT CHOICE

AHCCCSA conducts an Annual Enrollment Choice (AEC) for members on their annual
anniversary date. AHCCCSA may hold an open enrollment on a limited basis as
deemed necessary. During AEC, members may change contractors subject to the
availability of other contractors within their Geographic Service Area. Members
are mailed a printed enrollment form and may choose a new contractor by
contacting AHCCCSA to complete the enrollment process. If the member does not
participate in the AEC, no change of contractor will be made (except for
approved changes under the Change of Plan Policy) during the new anniversary
year. This holds true if the Contractor's contract is renewed and the member
continues to live in the Contractor's service area. The Contractor shall comply
with the Office of Managed Care Member Transition for Annual Enrollment Choice
and Other Plan Changes policy.

12. TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM, and the Office of Managed Care
Member Transition for Annual Enrollment Choice and Other Plan Changes standards
for member transitions between health plans or GSAs, to or from an ALTCS
program contractor, IHS, a PL 93-638 tribal entity, and upon tennination or
expiration of a contract. The Contractor shall develop and implement policies
and procedures, which comply with AHCCCS medical policy to address transition
of:

1.   Members with significant medical conditions such as a high-risk pregnancy
     or pregnancy within the last 30 days, the need for organ or tissue
     transplantation, chronic illness resulting in hospitalization or nursing
     facility placement, etc.;

2.   Members who are receiving ongoing services such as dialysis, home health,
     chemotherapy and/or radiation therapy or who are hospitalized at the time
     of transition;

3.   Members who have received prior authorization for services such as
     scheduled surgeries, out-of-area specialty services, nursing home
     admission;

4.   Prescriptions, DME and medically necessary transportation ordered for the
     transitioning member by the relinquishing contractor; and


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5.   Medical records of the transitioning member (the cost of reproducing and
     forwarding medical records shall be the responsibility of the
     relinquishing AHCCCS contractor).

When relinquishing members, the Contractor is responsible for timely
notification of the receiving contractor regarding pertinent information
related to any special needs of transitioning members. The Contractor, when
receiving a transitioning member with special needs, is responsible to
coordinate care with the relinquishing contractor in order that services not be
interrupted, and for providing the new member with health plan and service
information, emergency numbers and instructions of how to obtain services.

In the event the contract, or any portion thereof, is terminated for any
reason, or expires, the Contractor shall assist AHCCCSA in the transition of
its members to other contractors, and shall abide by standards and protocols
set forth above. In addition, AHCCCSA reserves the right to extend the term of
the contract on a month-to-month basis to assist in any transition of members.
The Contractor shall make provision for continuing all management and
administrative services until the transition of all members is completed and
all other requirements of this contract are satisfied. The Contractor shall be
responsible for providing all reports set forth in this contract and necessary
for the transition process and shall be responsible for the following:

a.   Notification of subcontractors and members.

b.   Payment of all outstanding obligations for medical care rendered to
     members.

c.   Until AHCCCSA is satisfied that the Contractor has paid all such
     obligations, the Contractor shall provide the following reports to
     AHCCCSA:

d.   A monthly claims aging report by provider/creditor including IBNR amounts;

e.   A monthly summary of cash disbursements;

f.   Copies of all bank statements received by the Contractor.

g.   Such reports shall be due on the fifth day of each succeeding month for
     the prior month.

h.   In the event of termination or suspension of the contract by AHCCCSA, such
     termination or suspension shall not affect the obligation of the
     Contractor to indemnify AHCCCSA for any claim by any third party against
     the State or AHCCCSA arising from the Contractor's performance of this
     contract and for which the Contractor would otherwise be liable under this
     contract.

i.   Any dispute by the Contractor with respect to termination or suspension of
     this contract by AHCCCSA shall be exclusively governed by the provisions
     of Section E, Paragraph 26, Disputes.

j.   Any funds advanced to the Contractor for coverage of members for periods
     after the date of termination shall be returned to AHCCCSA within 30 days
     of termination of the contract.


13. STAFF REQUIREMENTS AND SUPPORT SERVICES

The Contractor shall have in place the organization, management and
administrative systems capable of fulfilling all contract requirements. For the
purposes of this contract, the Contractor shall not employ or contract with any
individual that has been debarred, suspended or otherwise lawfully prohibited
from participating in any public procurement activity. At a minimum, the
following staff is required.

a.   A full-time Administrator/CEO/COO who is available at all times to fulfill
     the responsibilities of the position and to oversee the entire operation
     of the health plan. The Administrator shall devote sufficient time to the
     Contractor's operations to ensure adherence to program requirements and
     timely response to AHCCCS Administration.

b.   A Medical Director who shall be an Arizona-licensed physician. The Medical
     Director shall be actively involved in all-major clinical programs and
     QM/UM components of the Contractor's health plan. The Medical Director
     shall devote sufficient time to Contractor's health plan to ensure timely
     medical decisions, including after-hours consultation as needed.


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c.   A Chief Financial Officer/CFO who is available at all times to fulfill the
     responsibilities of the position and to oversee the budget and accounting
     systems implemented by the Contractor.

d.   A Quality Management/Utilization Management Coordinator who is an
     Arizona-licensed registered nurse, physician or physician's assistant.

e.   A Maternal Healthl/EPSDT Coordinator who shall be an Arizona-licensed
     registered nurse, physician or physician's assistant; or have a Master's
     degree in health services, public health or health care administration or
     other related field.

f.   A Behavioral Health Coordinator who shall be a behavioral health
     professional as described in Health Services Rule R9-20. The Behavioral
     Health Coordinator shall devote sufficient time to ensure that the
     Contractor's behavioral health referral and coordination activities are
     implemented per AHCCCSA requirements.

g.   Prior Authorization staff to authorize medical care 24 hours per day, 7
     days per week. This staff shall include an Arizona-licensed registered
     nurse, physician or physician's assistant.

h.   Concurrent Review staff to conduct inpatient concurrent review. This staff
     shall consist of an Arizona-licensed registered nurse, physician,
     physician's assistant or an Arizona-licensed practical nurse experienced
     in concurrent review and under the direct supervision of a registered
     nurse, physician or physician's assistant.

i.   Member Services Manager and staff to coordinate communications with
     members and act as member advocates. There shall be sufficient Member
     Service staff to enable members to receive prompt resolution to their
     problems, and to meet the Contractor's standards for telephone abandonment
     rates and telephone hold times.

j.   Provider Services Manager and staff to coordinate communications between
     the Contractor and its subcontractors. There shall be sufficient Provider
     Services staff to enable providers to receive prompt resolution to their
     problems or inquiries.

k.   A Claims Administrator and Claims Processors to ensure the timely and
     accurate processing of original claims, claims correction letters,
     re-submissions and overall adjudication of claims.

1.   Encounter Processors to ensure the timely and accurate processing and
     submission to AHCCCSA of encounter data and reports.

m.   A Grievance Coordinator who will manage and adjudicate member and provider
     grievances.

n.   Clerical and Support staff to ensure appropriate functioning of the
     Contractor's operation.

The Contractor shall inform AHCCCSA, Office of Managed Care, in writing and
provide a resume within seven days of staffing changes in the following key
positions:

<TABLE>
<S>                                     <C>

     Administrator                       Member Services Manager
     Medical Director                    Provider Services Manager
     Chief Financial Officer             Claims Administrator
     Maternal Health/ EPSDT Coordinator  Quality Management/Utilization Management
     Grievance Coordinator               Coordinator
                                         Behavioral Health Coordinator
</TABLE>

The Contractor shall ensure that all staff has appropriate training, education,
experience and orientation to fulfill the requirements of the position. See the
AMPM, Chapter 600 for specific position requirements.

14. WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures


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shall be reviewed at least annually to ensure that the Contractor's written
policies reflect current practices. Reviewed policies shall be dated and signed
by the Contractor's appropriate manager, coordinator, director or
administrator. All medical and quality management policies must be approved and
signed by the Contractor's Medical Director. Job descriptions shall be reviewed
at least annually to ensure that current duties performed by the employee
reflect written requirements.

15. ADVANCE DIRECTIVES

The Contractor shall maintain policies and procedures addressing advanced
directives for adult members that specify:

a.   Each contract or agreement with a hospital, nursing facility, home health
     agency, hospice or organization responsible for providing personal care
     must comply with federal and State law regarding advance directives for
     adult members. Requirements include:

     (1)  Maintaining written policies that address the rights of adult members
          to make decisions about medical care, including the right to accept
          or refuse medical care, and the right to execute an advance
          directive. If the agency/organization has a conscientious objection
          to carrying out an advance directive, it must be explained in
          policies. (A health care provider is not prohibited from making such
          objection when made pursuant to A.R.S. ss. 36-3205.C.1.)

     (2)  Provide written information to adult members regarding each
          individual's rights under State law to make decisions regarding
          medical care, and the health care provider's written policies
          concerning advance directives (including any conscientious
          objections).

     (3)  Documenting in the member's medical record whether or not the adult
          member has been provided the information and whether an advance
          directive has been executed.

     (4)  Not discriminating against a member because of his or her decision to
          execute or not execute an advance directive, and not making it a
          condition for the provision of care.

     (5)  Providing education to staff on issues concerning advance directives
          including notification of direct care providers of services, such as
          home health care and personal care, of any advanced directives
          executed by members to whom they are assigned to provide services.

b.   Contractors shall encourage subcontracted PCPs to comply with the
     requirements of subparagraph a. (2) through (5) above. Contractors shall
     also encourage health care providers specified in subparagraph a. to
     provide a copy of the member's executed advanced directive, or
     documentation of refusal, to the member's PCP for inclusion in the
     member's medical record.

16. PERFORMANCE STANDARDS

All Performance Standards described below apply to Title XIX, Title XXI, and
state-only member populations. Effective October 1, 2001, AHCCCS requires
Contractors to implement the Quality Improvement System for Managed Care
(QISMC). AHCCCS will work with the Contractors to develop quality improvement
projects that will meet the QISMC guidelines. Compliance with this requirement
is a part of the Operational and Financial Review.

Contractors must meet AHCCCS stated Minimum Performance Standards. However, it
is equally important that Contractors continually improve their performance
indicator outcomes from year to year, as defined by QISMC. Contractors shall
strive to meet the ultimate standard, or Benchmark, established by AHCCCS.


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Any statistically significant drop in the Contractor's performance level for
any indicator must be explained by the Contractor in its annual quality
management program evaluation. If a Contractor has a significant drop in any
indicator without a justifiable explanation, it will be required to submit a
corrective action plan and may be subject to sanctions.

AHCCCS has established three levels of performance:

o    Minimum Performance Standard - A Minimum Performance Standard is the
     minimally expected level of performance by the Contractor. If a Contractor
     does not achieve this standard for two consecutive years, the Contractor
     will be required to submit a corrective action plan and may be subject to
     sanctions. If the rate for any indicator declines to a level below the
     AHCCCS Minimum Performance, the Contractor will be required to submit a
     corrective action plan and may be subject to sanctions.

o    Goal - A Goal is a reachable standard for a given performance indicator
     for the Contract Year. If the Contractor has already met or exceeded the
     AHCCCS Minimum Performance Standard for any indicator, the Contractor must
     strive to meet the CYE 2002 Goal for the indicator(s).

o    Benchmark - A Benchmark is the ultimate standard to be achieved.
     Contractors that have already achieved or exceeded the Goal for any
     performance indicator must strive to meet the Benchmark for the
     indicator(s). Contractors that have achieved the Benchmark are expected to
     maintain this level of performance for future years.

A Contractor that has not shown demonstrable and sustained improvement toward
meeting AHCCCS Performance Standards shall develop a corrective action plan.
The corrective action plan must be received by the Office of Medical Management
within 30 days of receipt of notification from AHCCCS. This plan must be
approved by AHCCCS prior to implementation. AHCCCS may conduct one or more
follow-up onsite reviews to verify compliance with a corrective action plan.
Failure to achieve adequate improvement may result in sanction imposed by
AHCCCS.

Performance Indicators: For CYE 2001, the Contractor shall comply with AHCCCS
quality management requirements to improve performance for all AHCCCS
established performance indicators. Complete descriptions of these indicators
can be found in the Technical Specifications section of the most recently
published Health Plan Performance Standards Results and Analysis documents for
perinatal, pediatric and adult/adolescent services. For CYE 2002, the indicator
for postpartum visits has been eliminated as a contractual performance
standard. The Contractor shall continue to monitor rates for postpartum visits
and implement interventions as necessary to improve or sustain its rates. This
activity will be monitored by AHCCCS during the annual Operational and
Financial Review.

In addition, AHCCCS has established standards for the following indicators:

EPSDT Participation: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program. The participant rate is the number
of children younger than 21 years receiving at least one medical screen during
the contract year, compared to the number of children expected to receive at
least one medical screen. The number of children expected to receive at least
one medical screen is based on the AHCCCS EPSDT periodicity schedule and the
average period of eligibility.

Pediatric immunizations: The Contractor shall ensure members under age 21
receive age-appropriate immunizations as specified in the AMPM.


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The Contractor shall participate in an annual immunization audit based on
random sampling to assess and verify the immunization status of two-year-old
members. AHCCCS will provide the Contractor the selected sample, specifications
for conducting the audit, the AHCCCSA reporting requirements, and technical
assistance. The Contractor shall identify each child's PCP, conduct the
assessment, and report to AHCCCS in the required format all immunization data
for the two-year-old children sampled. If medical records are missing for more
that 5 percent of the sample group, the Contractor is subject to sanctions by
AHCCCSA. An External Quality Review Organization (EQRO) may conduct a study to
validate the Contractor's reported rates.

The following table identifies the Minimum Performance Standards, Goals and
Benchmarks for each indicator:

<TABLE>

                                                                                                Benchmark*
Performance Indicator                                CYE 02 Minimum               CYE 02        (Healthy
                                                     Performance Standard         Goal          People Goals)
-------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>              <C>
Immunization of two-year-olds 3 antigen series             78%                      82%              90%
(4:3:1)
Immunization of two-year-olds 5 antigen series             67%                      73%              90%
(4:3:1:2:3)
Immunizations of two-year-olds                             82%                      85%              90%
  DtaP      4 doses
  Polio     3 doses                                        88%                      90%              90%
  MMR -     1 dose                                         88%                      90%              90%
  Hib       2 doses                                        85%                      90%              90%
  HBV       3 doses                                        81%                      87%              90%
  Varicella 1 dose                                         73%                      80%              90%
Dental visits                                              45%                      55%              90%
Well-child Visits 15 Months                                58%                      64%              90%
Well-child Visits 3-6 Years                                48%                      64%              80%
EPSDT Participation                                        58%                      80%              80%
Children's Access to PCP's                                 77%                      80%              95%
Cervical Cancer Screening (3-yr period) **                 57%                      60%              85%
Breast Cancer Screening                                    55%                      60%              60%
Adolescent Well-care Visits                                48%                      49%              50%
Adult Ambulatory/Preventive Care                           78%                      80%              95%
Low Birth Weight                                           8.5%                     7.5%              5%
Initiation of Prenatal Care                                59%                      65%              90%
-------------------------------------------------------------------------------------------------------------

*Benchmarks for each performance indicator are based on Healthy People 2000 and 2010 goals for health
promotion and disease prevention, as determined by the U.S. Department of Health and Human Services.
**AHCCCS reported an overall three-year rate for cervical cancer screening, consistent with HEDIS
methodology, for CYE 1999. Results were not calculated for individual Health Plans. AHCCCS will develop a
methodology for compiling a three-year rate for individual Health Plans for CYE 2000 and use this rate in the
future.
</TABLE>

Access to Care: During the contract year AHCCCSA will pursue the feasibility of
developing and establishing baseline information for two new measures: Provider
Turnover and Availability of Language Interpretation Services.


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17. QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)

Quality Management (QM): The Contractor shall provide quality medical care to
members, regardless of payer source or eligibility category. The Contractor
shall execute processes to assess, plan, implement and evaluate quality
management and improvement activities, as specified in the AMPM, Chapter 900,
that include at least the following:

o    Conducting Quality Improvement Projects (QIPs);

o    QM monitoring and evaluation activities;

o    Credentialing and recredentialing processes;

o    Investigation, analysis, tracking and trending of quality of care issues,
     abuse and/or complaints; and

o    AHCCCS mandated performance indicators.

The Contractor shall submit, within timelines specified in Attachment F, a
written QM plan that addresses its strategies for quality improvement and
conducting the quality management activities described in this section.
Although the Contractor is no longer required to conduct two clinical studies
during each contract year, the Contractor shall conduct quality improvement
projects as required by the AMPM, Chapter 900.

The Contractor may combine its plan for quality improvement and quality
management activities with the plan that addresses utilization management as
described below.

Utilization Management (UM): The Contractor shall execute processes to assess,
plan, implement and evaluate utilization management activities, as specified in
the AMPM, Chapter 1000 that include at least the following:

o    Prior authorization;

o    Concurrent review;

o    Continuity and coordination of care;

o    Monitoring and evaluation of over and /or under utilization of services;

o    Evaluation of new medical technologies, and new uses of existing
     technologies; and

o    Development and/or adoption of practice guidelines.

The Contractor shall maintain a written UM plan that addresses its plan for
monitoring UM activities described in this section. The plan must be submitted
for review by AHCCCS OMM within timelines specified in Attachment F.

18. PHYSICIAN INCENTIVES

The Contractor must comply with all applicable physician incentive requirements
and conditions defined in 42 CFR 417.479. These regulations prohibit physician
incentive plans that directly or indirectly make payments to a doctor or a
group as an inducement to limit or refuse medically necessary services to a
member. The Contractor is required to disclose all physician incentive
agreements to AHCCCSA and to AHCCCS members who request them.

The Contractor shall not enter into contractual arrangements that place
providers at significant financial risk as defined in CFR 417.479 unless
specifically approved in advance by the Office of Managed Care. In order to
obtain approval, the following must be submitted to the Office of Managed Care
45 days prior to the implementation of the contract:


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1.   A complete copy of the contract

2.   A plan for the member satisfaction survey

3.   Details of the stop-loss protection provided

4.   A summary of the compensation arrangement that meets the substantial
     financial risk definition.

The Contractor shall disclose to AHCCCSA the information on physician incentive
plans listed in 42 CFR 417.479(h)(1) through 417.479(I) upon contract renewal,
prior to initiation of a new contract, or upon request from AHCCCSA or CMS.
Please refer to the "Physician Incentive Guidelines" in the Bidder's Library
for details on providing required disclosures.

19. APPOINTMENT STANDARDS

For purposes of this section, "urgent" is defined as an acute, but not
necessarily life-threatening disorder, which, if not attended to, could
endanger the patient's health. The Contractor shall have procedures in place
that ensure the following standards are met:

a.   Emergency PCP appointments -       same day of request

b.   Urgent care PCP appointments -     within two days of request

c.   Routine care PCP appointments -    within 21 days of request

For specialty referrals, the Contractor shall be able to provide:

a.   Emergency appointments -           within 24 hours of referral

b.   Urgent care appointments -         within three days of referral

c.   Routine care appointments -        within 30 days of referral

For dental appointments, the Contractor shall be able to provide:

a.   Emergency appointments -           within 24 hours of request

b.   Urgent appointments -              within three days of request

c.   Routine care appointments -        within 45 days of request

For maternity care, the Contractor shall be able to provide initial prenatal
care appointments for enrolled pregnant members as follows:

a.   First trimester -                  within 14 days of request

b.   Second trimester -                 within 7 days of request

c.   Third trimester -                  within three days of request

d.   High risk pregnancies -            within three days of identification of
                                        high risk by the Contractor or maternity
                                        care provider, or immediately if an
                                        emergency exists

If a member needs non-emergent medically necessary transportation, the
Contractor shall require its transportation provider to schedule the
transportation so that the member arrives no sooner than one hour before the
appointment; does not have to wait more than one hour after making the call to
be picked up; nor have to wait for more than one hour after conclusion of the
appointment for transportation home.

The Contractor shall actively monitor the adequacy of its appointment processes
and reduce the unnecessary use of alternative methods such as emergency room
visits. The Contractor shall actively monitor and ensure


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that a member's waiting time for a scheduled appointment at the PCP's or
specialist's office is no more than 45 minutes, except when the provider is
unavailable due to an emergency.

The Contractor shall have written policies and procedures about educating its
provider network regarding appointment time requirements. The Contractor must
assign a specific staff member or unit within its organization to monitor
compliance with appointment standards, and shall require a corrective action
plan when appointment standards are not met. Appointment standards shall be
included in the Provider Manual.

20. REFERRAL PROCEDURES AND STANDARDS

The Contractor shall have adequate written procedures regarding referrals to
specialists, to include, at a minimum, the following:

a.   Use of referral forms clearly identifying the Contractor

b.   A system for resolving disputes regarding the referrals

c.   Having a process in place that ensures the member's PCP receives all
     specialist and consulting reports and a process to ensure PCP follow-up of
     all referrals including EPSDT referrals for behavioral health services

d.   A referral plan for any member who is about to lose eligibility and who
     requests information on low-cost or no-cost health care services

e.   Referral to Medicare HMO including payment of copayments

The Contractor shall comply with all applicable physician referral requirements
and conditions defined in Sections 1903(s) and 1877 of the Social Security Act.
Upon finalization of the regulations, the Contractor shall comply with all
applicable physician referral requirements and conditions defined in 42 CFR
Part 411, Part 424, Part 435 and Part 455. Sections 1903(s) and 1877 of the Act
prohibits physicians from making referrals for designated health services to
health care entities with which the physician or a member of the physician's
family has a financial relationship. Designated health services include:

     Clinical laboratory services
     Physical therapy services
     Occupational therapy services
     Radiology services
     Radiation therapy services and supplies
     Durable medical equipment and supplies
     Parenteral and enteral nutrients, equipment and supplies
     Prosthetics, orthotics and prosthetic devices and supplies
     Home health services
     Outpatient prescription drugs
     Inpatient and outpatient hospital services

21. PROVIDER MANUAL

The Contractor shall develop, distribute and maintain a provider manual. The
Contractor shall ensure that each contracted provider is issued a copy of the
provider manual and is encouraged to distribute a provider manual to any
individual or group that submits claim and encounter data. The Contractor
remains liable for ensuring that all providers, whether contracted or not, meet
the applicable AHCCCS requirements such as covered services, billing, etc. At a
minimum, the Contractor's provider manual must contain information on the
following:


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a.   Introduction to the Contractor which explains the Contractor's
     organization and administrative structure

b.   Provider responsibility and the Contractor's expectation of the provider

c.   Overview of the Contractor's Provider Service department and function

d.   Listing and description of covered and non-covered services, requirements
     and limitations including behavioral health services

e.   Emergency room utilization (appropriate and non-appropriate use of the
     emergency room)

f.   EPSDT Services - screenings include a comprehensive history,
     developmental/behavioral health screening, comprehensive unclothed
     physical examination, appropriate vision testing, hearing testing,
     laboratory tests, dental screenings and immunizations

g.   Dental services

h.   Maternity/Family Planning services

i.   The Contractor's policy regarding PCP assignments

j.   Referrals to specialists and other providers, including access to
     behavioral health services provided by the ADHS/RBHA system.

k.   Grievance and request for hearing rights

1.   Billing and encounter submission information
     -indicate which form UB92, HCFA 1500, or Form C is to be used for services
     -indicate which fields are required for a claim to be considered acceptable
      by the Contractor. A completed sample of each form shall be included

m.   Contractor's written policies and procedures which affect the provider(s)
     and/or the provider network

n.   Claims re-submission policy and procedure

o.   Reimbursement, including reimbursement for dual eligibles (i.e. Medicare
     and Medicaid) or members with other insurance

p.   Explanation of remittance advice

q.   Prior authorization and notification requirements

r.   Claims medical review

s.   Concurrent review

t.   Fraud and Abuse

u.   Formularies (with updates and changes provided in advance to providers,
     including pharmacies)

v.   AHCCCS appointment standards

w.   Americans with Disabilities Act (ADA) requirements and Title VI, as
     applicable

x.   Eligibility verification

y.   Cultural competency information, including notification about Title VI of
     the Civil Rights Act of 1964. Providers should also be informed of how to
     access interpretation services to assist members who speak a language
     other the English or who use sign language.

22. PRIMARY CARE PROVIDER STANDARDS

The Contractor shall include in its provider network a sufficient number of
PCPs to meet the requirements of this contract. Health care providers
designated by the Contractor as PCPs shall be licensed in Arizona as allopathic
or osteopathic physicians who generally specialize in family practice, internal
medicine, obstetrics, gynecology, or pediatrics; certified nurse practitioners
or certified nurse midwifes; or physician's assistants.

The Contractor shall assess the PCP's ability to meet AHCCCS appointment
availability and other standards, when determining the appropriate number of
its members to be assigned to a PCP. The Contractor should also consider the
PCP's total panel size (i.e. AHCCCS and non-AHCCCS patients) when making this
determination. AHCCCS members shall not comprise the majority of a PCP's panel
of patients. AHCCCSA shall inform the Contractor when a PCP has a panel of more
that 1,800 AHCCCS members (assigned by a single or multiple contractors), to
assist in the assessment of the size of their panel. This information will be


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provided on a quarterly basis. The Contractor will adjust the size of a PCP's
panel, as needed, for the PCP to meet AHCCCS standards.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data
regarding PCP assignments is current. The Contractor is encouraged to assign
members with complex medical conditions, who are age 12 and younger, to Board
Certified pediatricians. PCP's with assigned members diagnosed with AIDS or as
HIV positive shall meet criteria and standards set forth in the AHCCCS Medical
Policy Manual.

To the extent required by this contract, the Contractor shall offer members
freedom of choice in selecting a PCP. When a new member has been assigned to
the Contractor, the Contractor shall inform the member in writing of his
enrollment and of his PCP assignment within 10 days of the Contractor's receipt
of notification of assignment by AHCCCSA. The Contractor shall include with the
enrollment notification a list of all the Contractor's available PCPs and the
process for changing the PCP assignment, should the member desire to do so. The
Contractor shall confirm any PCP change in writing to the member. Members may
make both their initial PCP selection and any subsequent PCP changes either
verbally or in writing.

At a minimum, the Contractor shall hold the PCP responsible for the following
gatekeeping activities:

a.   Supervision, coordination and provision of care to each assigned member

b.   Initiation of referrals for medically necessary specialty care

c.   Maintaining continuity of care for each assigned member

d.   Maintaining the member's medical record, including documentation of all
     services provided to the member by the PCP, as well as any specialty or
     referral services.

The Contractor shall establish and implement policies and procedures to monitor
PCP gatekeeping activities and to ensure that PCPs are adequately notified of,
and receive documentation regarding, specialty and referral services provided
to assigned members by specialty physicians, dentists and other health care
professionals. Contractor policies and procedures shall be subject to approval
by AHCCCSA, Office of Managed Care, and shall be monitored through operational
audits. PCPs and specialists who provide inpatient services to the Contractor's
members shall have admitting and treatment privileges in a minimum of one
general acute care hospital that is located within the Contractor's service
area.

23. OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and procedures to:

a.   Recruit sufficient specialty physicians, dentists, health care
     professionals, health care institutions and support services to meet the
     medical needs of its members.

b.   Monitor the adequacy, accessibility and availability of its provider
     network to meet the needs of its members, including the provision of care
     to members with limited proficiency in English.

Contractor policies shall be subject to approval by AHCCCSA, Office of Managed
Care, and shall be monitored through operational audits.

For specialty services, the Contractor shall ensure that:

a.   PCP referral shall be required for specialty physician services, except
     that women shall have direct access to GYN providers without a referral
     for preventive and routine services. Any waiver of this requirement by the
     Contractor must be approved in advance by AHCCCSA.


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b.   Specialty physicians shall not begin a course of treatment for a medical
     condition other than that for which the member was referred, unless
     approved by the member's PCP.

c.   The specialty physicians shall provide to the member's PCP complete
     documentation of all diagnostic services including copies: of test
     results; if applicable; treatment services provided; and the resulting
     outcome for each.

The Contractor shall ensure that a maternity care provider is designated for
each pregnant member for the duration of her pregnancy and postpartum care and
that maternity services are provided in accordance with the AMPM. The
Contractor may include in its provider network the following maternity care
providers:

a.   Arizona licensed allopathic and/or osteopathic physicians who are general
     practitioners or specialize in family practice or obstetrics

b.   Certified nurse midwives

c.   Licensed midwives.

Members may choose, or be assigned, a PCP who provides obstetric care
(physician or certified nurse midwife). Such assignment shall be consistent
with the freedom of choice requirements for selecting health care professionals
while ensuring that the continuity of care is not compromised. Members who
choose to receive maternity services from a licensed midwife shall also be
assigned to a PCP for medical care as primary care is not within the scope of
practice for licensed midwives.

All physicians and certified nurse midwives who perform deliveries shall have
OB hospital privileges. Licensed midwives perform deliveries only in the
member's home. Labor and delivery services may also be provided in the member's
home by physicians, certified nurse practitioners and certified nurse midwives
who include such services within their practice.

24. NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is sufficient
to provide all covered services to AHCCCS members. It shall ensure covered
services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient personnel for the
provision of covered services, including emergency medical care on a
24-hour-a-day, 7-days-a-week basis. The proposed network shall be sufficient to
provide covered services within designated time and distance limits. For
Maricopa and Pima Counties only, this includes a network such that 95% of its
members residing within the boundary area of metropolitan Phoenix and Tucson do
not have to travel more than 5 miles to see a PCP or pharmacy. 95% of its
members residing outside the boundary area must not have to travel more than 10
miles to see such providers. See Attachment B, Minimum Network Requirements,
for details on network requirements by Geographic Service Area. Also see
Section D, Paragraph 35, Hospital Subcontracting and Reimbursement, for details
on changes in hospital subcontracting effective October 1, 2001.

Under the Balanced Budget Act of 1997, the Contractor shall not discriminate
with respect to participation in the AHCCCS program, reimbursement or
indemnification against any provider based solely on the provider's type of
licensure or certification. This provision, however, does not prohibit the
Contractor from limiting provider participation to the extent necessary to meet
the needs of the Contractor's members. This provision also does not interfere
with measures established by the Contractor to control costs consistent with
its responsibilities under this contract.


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25. NETWORK MANAGEMENT

The Contractor shall have policies and procedures in place that pertain to all
service specifications described in the AMPM, Chapters 300, 600 and 900. In
addition, the Contractor shall have policies on how the Contractor will:

a.   Communicate with the network regarding contractual and/or program changes
     and requirements

b.   Monitor and control network compliance with policies and rules of AHCCCSA
     and the Contractor, including compliance with all policies and procedures
     related to the grievance process and ensuring the member's care is not
     compromised during the grievance process.

c.   Evaluate the quality of services delivered by the network

d.   Provide or arrange for medically necessary covered services should the
     network become temporarily insufficient within the contracted service area

e.   Monitor network capacity to ensure that there are sufficient providers to
     handle the volume of members

f.   Ensure service accessibility, including monitoring appointment procedures
     standards, appointment waiting times, and service provision standards

All material changes in the Contractor's provider network must be approved in
advance by AHCCCSA, Office of Managed Care. A material change is defined as
one, which affects, or can reasonably be foreseen to affect, the Contractor's
ability to meet the performance and network standards as described in this
contract. The Office of Managed Care must be notified of planned material
changes in the provider network before the change process has begun, for
example before issuing a 60-day termination notice to a provider. The
notification shall be made within one working day if the change is unexpected.
AHCCCSA will assess proposed changes in the Contractor's provider network for
potential impact on members' health care and provide a written response to the
Contractor within 14 days of receipt of request. For emergency situations,
AHCCCSA will expedite the approval process.

The Contractor shall notify AHCCCSA, Office of Managed Care, within one working
day of any unexpected changes that would impair its provider network. This
notification shall include (1) information about how the change will affect the
delivery of covered services, and (2) the Contractor's plans for maintaining
the quality of member care if the provider network change is likely to result
in deficient delivery of covered services.

26. FEDERALLY QUALIFIED HEALTHCENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide covered
services and must comply with the federal mandates. Under the Benefits
Improvement and Protection Act of 2000 (BIPA), AHCCCSA is required to reimburse
FQHCs the difference between the Contractor's reimbursement to the FQHC, and
what the FQHC would have received under the Medicaid Prospective Payment System
(PPS). This requirement replaces the supplemental payment methodology that
began October 1, 1997. AHCCCSA and its contractors are required to comply with
this legislation.

AHCCCSA and the FQHCs have agreed that AHCCCSA will reimburse the FQHCs $1.75
per member per month for Title XIX members only. This payment methodology was
implemented effective January 1, 2001. To comply with BIPA requirements,
AHCCCSA will establish a baseline rate. After a baseline rate is established,
AHCCCSA will adjust the payment rate annually in accordance with annual
inflation trends.

Contractors are required to submit member month information for Title XIX
members, including Title XIX Waiver members, for each FQHC on a quarterly basis
to AHCCCS Office of Managed Care. AHCCCSA will perform periodic audits of the
member month information submitted. Contractors should refer to the Office of
Managed Care's policy on FQHC reimbursement for further guidance. The following
FQHCs are currently recognized by CMS:


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          Canyonlands Community Health Care
          Chiricahua Community Health Centers, Inc.
          Clinica Adelante, Inc.
          Desert Senita Community Health Center
          El Rio Health Center
          Inter-Tribal Health Care Center
          Marana Health Center
          Mariposa Community Health Center, Inc.
          Mountain Park Health Center
          Native American Community Health Center, Inc.
          Native Americans for Community Action Family Health Center
          North Country Community Health Center
          Sun Life Family Health Center
          Sunset Community Health Center (formerly Valley Health Center, Inc.)
          United Community Health Center, Inc.

Any other clinics that subsequently become FQHC's will be subject to the
reimbursement methodology described above.

27. PROVIDER REGISTRATION

The Contractor shall ensure that all of its subcontractors register with
AHCCCSA as an approved service provider and receive an AHCCCS Provider ID
Number. A Provider Participation Agreement must be signed by each provider who
does not already have a current AHCCCS ID number. The original shall be
forwarded to AHCCCSA. This provider registration process must be completed in
order for the Contractor to report services a subcontractor renders to enrolled
members and for the Contractor to be paid reinsurance.

28. PROVIDER AFFILIATION TRANSMISSION

The Contractor shall submit information quarterly regarding its provider
network. This information shall be submitted in the format described in the
Provider Affiliation Transmission User Manual on October 15, January 15, April
15, and July 15 of each contract year. The Manual may be found in the Bidder's
Library.

29. PERIODIC REPORT REQUIREMENTS

AHCCCSA, under the terms and conditions of its CMS grant award, requires
periodic reports, encounter data, and other information from the Contractor.
The submission of late, inaccurate, or otherwise incomplete reports shall
constitute failure to report subject to the penalty provisions described in
this contract. Standards applied for determining adequacy of required reports
are as follows:

     a.   Timeliness:   Reports or other required data shall be received on or
          before scheduled due dates.

     b.   Accuracy:   Reports or other required data shall be prepared in strict
          conformity with appropriate authoritative sources and/or AHCCCS
          defined standards.

     c.   Completeness:   All required information shall be fully disclosed in a
          manner that is both responsive and pertinent to report intent with no
          material omissions.


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AHCCCS requirements regarding reports, report content and frequency of
submission of reports are subject to change at any time during the term of the
contract. The Contractor shall comply with all changes specified by AHCCCSA.


The Contractor shall be responsible for continued reporting beyond the term of
the contract. For example, processing claims and reporting encounter data will
likely continue beyond the term of the contract because of lag time in filing
source documents by subcontractors.


The Contractor shall comply with all financial reporting requirements contained
in the Reporting Guide for Acute Health Care Contractors with the Arizona
Health Care Cost Containment System, a copy of which may be found in the
Bidder's Library. The required reports, which are subject to change during the
contract term, are summarized in Attachment F, Periodic Report Requirements.

30. DISSEMINATION OF INFORMATION

Upon request, the Contractor shall assist AHCCCSA in the dissemination of
information prepared by AHCCCSA or the federal government to its members. The
cost of such dissemination shall be borne by the Contractor. All advertisements,
publications and printed materials that are produced by the Contractor and
refer to covered services shall state that such services are funded under
contract with AHCCCSA.

31. REQUESTS FOR INFORMATION

AHCCCSA may, at any time during the term of this contract, request financial or
other information from the Contractor. Upon receipt of such requests for
information, the Contractor shall provide complete information as requested no
later than 30 days after the receipt of the request unless otherwise specified
in the request itself.

32. OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
successful offerors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business. The purpose of Readiness Reviews is to assess
new contractors' readiness and ability to provide contract services to members
at the start of the contract year and current contractors' readiness to expand
to new geographic service areas. A new contractor will be permitted to commence
operations only if the Readiness Review factors are met to AHCCCSA's
satisfaction.

33. OPERATIONAL AND FINANCIAL REVIEWS

In accordance with CMS requirements, AHCCCSA will conduct regular Operational
and Financial Reviews for the purpose of (but not limited to) ensuring
operational and financial program compliance. The Reviews will identify areas
where improvements can be made and make recommendations accordingly, monitor
the Contractor's progress towards implementing mandated programs and provide
the Contractor with technical assistance if necessary. The Contractor shall
comply with all other medical audit provisions as required by AHCCCS Rule
R9-22-521 and R9-31-521.

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful, AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with

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AHCCCSA and the AHCCCSA Review Team by forwarding in advance such policies,
procedures, job descriptions, contracts, logs and other information that
AHCCCSA may request. The Contractor shall have all requested medical records
on-site. Any documents not requested in advance by AHCCCSA shall be made
available upon request of the Review Team during the course of the review. The
Contractor personnel, as identified in advance shall be available to the Review
Team at all times during AHCCCSA on-site review activities. While on-site, the
Contractor shall provide the Review Team with workspace, access to a telephone,
electrical outlets and privacy for conferences. Certain documentation
submission requirements may be waived at the discretion of AHCCCSA if the
Contractor has obtained accreditation from NCQA, JCAHO or any other nationally
recognized accrediting body. The Contractor must submit the entire
accreditation report to AHCCCSA for such waiver consideration.

The Contractor will be furnished a copy of the Operational and Financial Review
Report and given an opportunity to comment on any review findings prior to
AHCCCSA publishing the final report. Operational and Financial Review findings
may be used in the scoring of subsequent bid proposals by that Contractor.
Recommendations made by the Review Team to bring the Contractor into compliance
with federal, State, AHCCCS, and/or RFP requirements must be implemented by the
Contractor. AHCCCSA may conduct a follow-up Operational and Financial Review to
determine the Contractor's progress in implementing recommendations and
achieving program compliance. Follow-up reviews may be conducted at any time
after the initial Operational and Financial Review.

AHCCCSA may conduct an Operational and Financial Review in the event the
Contractor undergoes a merger, reorganization, change in ownership or makes
changes in three or more key staff positions within a 12-month period.

34. CLAIMS PAYMENT SYSTEM

The Contractor shall develop and maintain a claims payment system capable of
processing, cost avoiding and paying claims in accordance with ARS 36-2904(H)
and (K), AHCCCS Rules R9-22-705, and R9-22-709, a copy of which may be found in
the Bidder's Library. In the absence of a subcontract provision to the
contrary, claims submission deadlines shall be calculated from the date of
service or the effective date of eligibility posting, whichever is later.
Remittance advices accompanying the Contractor's payments to providers must
contain, at a minimum, adequate descriptions of all denials and adjustments,
the reasons for such denials and adjustments, the amount billed, the amount
paid, and grievance and request for hearing rights. The Contractor's claims
payment system, as well as its prior authorization and concurrent review
process, must minimize the likelihood of having to recoup already-paid claims.
Any recoupment in excess of $50,000 per provider within a contract year must be
approved in advance by AHCCCSA, Office of Managed Care.

In accordance with the Balanced Budget Act of 1997, unless a subcontract
specifies otherwise, the Contractor shall ensure that 90% of all clean claims
are paid within 30 days of receipt of the clean claim and 99% are paid within
90 days of receipt of the clean claim.

During the term of this contract, AHCCCSA anticipates requiring all health
plans to use a standardized electronic format for electronic claims processing
between the plan and its providers. AHCCCSA plans to require the formats
outlined in the Technical Interface Guidelines under Claims Processing, which
is the format adopted by CMS FFS providers and their billing agents who submit
claims electronically to AHCCCS. The form UB-92 and 1500 layouts will be
supplemented by a Form C layout. All formats are subject to changes as required
by federal law. Reasonable implementation timeframes will be negotiated with
each plan.


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35. HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

Maricopa and Pima counties only: Legislation authorizes the Hospital
Reimbursement Pilot Program (Pilot), which is effective from October 1, 2001,
through September 30, 2003. The Pilot as defined by AHCCCS Rule R9-22-718
requires hospital subcontracts to be negotiated between health plans in
Maricopa and Pima counties and hospitals to establish reimbursement levels,
terms and conditions. Subcontracts shall be negotiated by the Contractor and
hospitals to cover operational concerns, such as timeliness of claims
submission and payment, payment of discounts or penalties, legal resolution,
which may, as an option, include establishing arbitration procedures. These
negotiated subcontracts shall remain under close scrutiny by AHCCCSA to ensure
availability of quality services within specific service districts, equity of
related party interests, reasonableness of rates. The general provisions of
this program encompass acute care hospital services and outpatient hospital
services that result in an admission. The Contractor shall submit all hospital
subcontracts and any amendments to AHCCCSA, Office of Managed Care, for prior
approval. For non-emergency patient-days, the Contractor shall ensure that at
least 65% of its members use contracted hospitals. AHCCCSA reserves the right
to subsequently adjust the 65% standard. Further, if in AHCCCSA's judgement the
number of emergency days at a particular non-contracted hospital becomes
significant, AHCCCSA may require a subcontract at that hospital.

All counties EXCEPT Maricopa and Pima: The Contractor shall reimburse hospitals
for member care in accordance with AHCCCS Rule R9-22-705. The Contractor is
encouraged to obtain contracts with hospitals in all GSA's and must submit
copies of these contracts, including amendments, to AHCCCSA, Office of Managed
Care, at least seven days prior to the effective dates thereof.

The Contractor may conduct prepayment and postpayment medical reviews of all
hospital claims including outlier claims. Erroneously paid claims are subject
to recoupment. If the Contractor fails to identify lack of medical necessity
through concurrent review and/or prepayment medical review, lack of medical
necessity identified during postpayment medical review shall not constitute a
basis for recoupment by the Contractor. This prohibition does not apply to
recoupments that are a result of an AHCCCS reinsurance audit. See also Section
D, Paragraph 34, Claims Payment System. For a more complete description of the
guidelines for hospital reimbursement, please consult the Bidder's Library for
applicable statutes and rules.

For Out-of-State Hospitals: The Contractor shall reimburse out-of-state
hospitals in accordance with AHCCCS Rule R9-22-705.

36. NURSING FACILITY REIMBURSEMENT

The Contractor shall not deny nursing facility services if the nursing facility
is unable to obtain prior authorization in situations where acute care
eligibility and ALTCS eligibility overlap and the member is enrolled with an
AHCCCS acute care contractor. In such situations, the Contractor shall impose
reasonable authorization requirements. The Contractor's payment responsibility
described above applies only in situations where the nursing facility has not
been notified in advance of the member's enrollment with an AHCCCS acute care
contractor. To further illustrate, when ALTCS eligibility overlaps AHCCCS acute
care enrollment, the acute care enrollment takes precedence. Although the
member could be ALTCS eligible for this time period, there is no ALTCS
enrollment that occurs on the same days as AHCCCS acute enrollment. The
Contractor is responsible for payment of services while the member is enrolled
with the Contractor. The Contractor is not responsible for the full 90 days per
contract year of nursing facility coverage if ALTCS enrollment occurs before
the 90 days has ended.

The Contractor shall provide medically necessary nursing facility services for
any member who has a pending ALTCS application, who is currently residing in a
nursing facility and is eligible for services provided under


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this contract. If the member becomes ALTCS eligible and is enrolled with an
ALTCS Program Contractor before the end of the maximum 90 days per contract
year of nursing facility coverage, the Contractor is only responsible for
nursing facility coverage during the time the member is enrolled with the
Contractor. Nursing facility services covered by a third party insurer
(including Medicare) while the member is enrolled with the Contractor shall be
applied to the 90 day per contract year limitation.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application process and to prepare for potential fee-for-service coverage if
the stay goes beyond the 90-day per contract year maximum.

37. COMPENSATION

The method of compensation under this contract will be Prior Period Coverage
(PPC) capitation, prospective capitation, delivery supplement, hospitalized
supplement for Title XIX Waiver members, HIV-AIDS supplement, reinsurance (PPC
and prospective), and third party liability, as described and defined within
this contract and appropriate laws, regulations or policies.

Subject to the availability of funds, AHCCCSA shall make payments to the
Contractor in accordance with the terms of this contract provided that the
Contractor's performance is in compliance with the terms and conditions of this
contract. Payment must comply with requirements of A.R.S. Title 36. AHCCCSA
reserves the option to make payments to the Contractor by wire or National
Automated Clearing House Association (NACHA) transfer and will provide the
Contractor at least 30 days notice prior to the effective date of any such
change.

Where payments are made by electronic funds transfer, AHCCCSA shall not be
liable for any error or delay in transfer nor indirect or consequential damages
arising from the use of the electronic funds transfer process. Any charges or
expenses imposed by the bank for transfers or related actions shall be borne by
the Contractor. Except for adjustments made to correct errors in payment, and
as otherwise specified in this section, any savings remaining to the Contractor
as a result of favorable claims experience and efficiencies in service delivery
at the end of the contract term may be kept by the Contractor.

All funds received by Contractor pursuant to this contract shall be separately
accounted for in accordance with generally accepted accounting principles.

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund. An error discovered by the State with or without an audit in the amount
of fees paid to Contractor will be subject to adjustment or repayment by
Contractor making a corresponding decrease in a current Contractor's payment or
by making an additional payment by AHCCCSA to the Contractor.

No payment due the Contractor by AHCCCSA may be assigned by the Contractor.
This section shall not prohibit AHCCCSA at its sole option from making payment
to a fiscal agent hired by Contractor.

The Contractor or its subcontractors shall collect any required copayment from
members but service will not be denied for inability to pay the copayment.
Except for permitted copayments, the Contractor or its subcontractors shall not
bill or attempt to collect any fee from, or for, a member for the provision of
covered services. Any required copayments collected shall belong to the
Contractor or its subcontractors.

Prior Period Coverage (PPC) Capitation: The Contractor will be paid capitation
for all PPC member months, including partial member months. This capitation
includes the cost of providing medically necessary covered


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services to members during prior period coverage. The PPC capitation rates will
be set by AHCCCSA and will be paid to the Contractor along with the prospective
capitation described below. Contractors will not receive PPC capitation for
newborns of members who were enrolled at the time of delivery.

Reconciliation of PPC Costs to Reimbursement: For CYE '02 and '03, a full
reconciliation to 0% profit or loss will be done by AHCCCSA for all eligibility
groups, except for the Title XIX Waiver Group. Only the retro period is
eligible for this reconciliation. AHCCCSA will reimburse the health plans 100%
of any excess reasonable costs as determined by reported encounters, and all
profits will be recouped. Refer to the Office of Managed Care's PPC
Reconciliation Policy for further details of the reconciliation process.

Risk Sharing for Title XIX Waiver Members: For CYE '02 and CYE '03, AHCCCSA
will reconcile the contractor's PPC and prospective medical cost expenses (net
of reinsurance, excluding administrative and non-operating expenses) to PPC
capitation, prospective capitation, and hospitalized supplements (net of
administration) paid to the Contractor during the year. This reconciliation
will limit the Contractor's losses to 2% and profits to 4%. Any losses in
excess of 2% will be reimbursed to the Contractor, and likewise, profits in
excess of 4% will be recouped. Encounter data will be used to determine medical
expenses.

The Contractor may choose to elect an alternative risk sharing methodology on
October 1, 2001 for CYE '02. In this alternative risk sharing methodology,
AHCCCSA will recoup profits in excess of 1% and reimburse losses in excess of
1%. Refer to the Title XIX Waiver Reconciliation Policy for details of the
reconciliation process.

Delivery Supplement: When the Contractor has an enrolled woman who delivers
during a prospective enrollment period, the Contractor will be entitled to a
supplemental payment. Supplemental payments will not apply to women who deliver
in a prior period coverage time period. AHCCCSA reserves the right at any time
during the term of this contract to adjust the amount of this payment for women
who deliver at home.

HIV-AIDS Supplement: On a quarterly basis, AHCCCSA shall utilize encounters to
determine the number of members receiving approved HIV/AIDS drugs and calculate
the amount of the supplemental payment. The rate of reimbursement for this
separate per member per month payment is specified in Section B and is subject
to review during the term of the contract. AHCCCSA reserves the right to recoup
any amounts paid for ineligible members as determined through an encounter data
review as well as an associated penalty for incorrect encounter reporting.

Refer to the Office of Managed Care's HIV/AIDS supplemental payment and review
policies for further details and requirements.

38. CAPITATION ADJUSTMENTS

Incentive Fund: AHCCCSA may retain a specified percentage of capitation
reimbursement in order to distribute to Contractors based on their performance
measure outcomes. AHCCCSA will notify Contractors 60 days prior to a new
contract year if this methodology will be implemented and will provide details
of the reimbursement methodology at that time.

Capitation Adjustments: Except for changes made specifically in accordance with
this contract, the rates set forth in Section B shall not be subject to
re-negotiation or modification during the contract period. AHCCCSA may, at its
option, review the effect of a program change and determine if a capitation
adjustment is needed. In these instances the adjustment will be prospective
with assumptions discussed with the Contractor prior to modifying capitation
rates. The Contractor may request a review of a program change if it believes
the program change was not equitable; AHCCCSA will not unreasonably withhold
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If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the default. The Contractor shall reimburse AHCCCSA
and/or AHCCCSA may deduct from future monthly capitation for any portion of a
month during which the Contractor was not at risk due to, for example:

a.   death of a member

b.   member's incarceration (not eligible for AHCCCS benefits from the date of
     incarceration)

c.   duplicate capitation to the same contractor

d.   adjustment based on change in member's contract type

If a member is enrolled twice with the same contractor, recoupment will be made
as soon as the double capitation is identified. AHCCCSA reserves the right to
modify its policy on capitation recoupments at any time during the term of this
contract.

39. REINSURANCE

Regular Acute Prospective Reinsurance: Reinsurance is a stop-loss program
provided by AHCCCSA to the Contractor for the partial reimbursement of covered
inpatient facility medical services incurred for a member with an acute medical
condition beyond an annual deductible (AHCCCS Rule R9-22-503 and R9-31-503).
Per diem rates paid for nursing facility services, including room and board,
provided in lieu of hospitalization for up to 90 days in any contract year
shall be eligible for reinsurance coverage. Refer to the AHCCCS Reinsurance
Claims Processing Manual for further details on the Reinsurance Program.

AHCCCSA is self-insured for the reinsurance program. The program is
characterized by an initial deductible level and a subsequent coinsurance
percentage. The coinsurance percent is the rate at which AHCCCSA will reimburse
the Contractor for inpatient covered services incurred above the deductible.
Prospective reinsurance coverage applies to prospective enrollment periods. The
deductible level is based on the Contractor's statewide AHCCCS acute care
enrollment (not including SOBRA Family Planning Extension services) as of
October 1st each contract year for all rate codes and counties, as shown in the
following table. These deductible levels are subject to change by AHCCCSA
during the term of this contract. Any change would have a corresponding impact
on capitation rates.

                         Prospective Reinsurance          PPC Reinsurance
--------------------------------------------------------------------------------
Statewide Plan           Title XIX                        Non-TXIX
Enrollment               Waiver Group   Coinsurance       Waiver     Coinsurance
--------------------------------------------------------------------------------
0-19,999                    $20,000         75%           $5,000        100%
20,000-49,999               $35,000         75%           $5,000        100%
50,000 and over             $50,000         75%           $5,000        100%
--------------------------------------------------------------------------------

A Contractor whose enrollment qualifies for the $35,000 or $50,000 deductible
level may, prior to the start of the contract period, elect one of the lower
deductible levels indicated in the above table. Contractors may not elect to
increase their deductible level. If a Contractor's actual deductible is
$35,000 or $50,000, AHCCCSA will increase the Contractor's capitation rate
awarded by defined amounts for each capitation risk group. These specific
capitation adjustments are available from the Office of Managed Care.

Prior Period Coverage Reinsurance: A separate reinsurance deductible and
coinsurance percentage will apply during prior period coverage. As noted in the
table above, all Contractors, regardless of enrollment, will


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be subject to a $5,000 deductible level. The coinsurance percentage for the
prior period coverage reinsurance is 100%. Expenses incurred during prior
period coverage will not apply toward the prospective reinsurance thresholds.
Effective October 1, 2001, the Title XIX Waiver Group will no longer be
eligible for prior period coverage reinsurance.

AHCCCSA will use inpatient encounter data to determine prospective and prior
period coverage reinsurance benefits. Reimbursement for these reinsurance
benefits will be made to the Contractor each month. AHCCCSA will also provide
for a reconciliation of reinsurance payments in the case where encounters used
in the calculation of reinsurance benefits are subsequently adjusted or voided.

Effective October 1, 1998, when a member changes Contractors within a contract
year, for reinsurance purposes, all eligible inpatient costs incurred for that
member will follow the member to the receiving health plan. Therefore, all
submitted encounters from the health plan the member is leaving (for dates of
service within the current contract year) will be applied toward the receiving
health plan's deductible level. For further details regarding this policy and
other reinsurance policies refer to the AHCCCS Reinsurance Claims Processing
Manual.

Medical review on prospective and prior period coverage reinsurance cases will
be determined based on statistically valid retrospective random sampling.
AHCCCSA, Office of Medical Management, will generate the sampling and will
notify the Contractor of documentation needed for the retrospective medical
review process to occur at the Contractor's offices. Reinsurance consideration
will be given to inpatient facility contracts, and hearing decisions rendered
by the Office of Legal Assistance. Pre-hearing and/or hearing penalties
discoverable during the review process will not be reimbursed under
reinsurance. A recoupment of reinsurance reimbursements made to the Contractor
will occur based on the results of the medical review sampling. The results of
the medical review sampling will be separately extrapolated to the entire
prospective and prior period coverage reinsurance reimbursement populations in
the review time frame for the Contractor. AHCCCSA will give the Contractor at
least 45 days advance notice of any on-site review. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance
by AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor representative shall be available to the
Review Team at all times during AHCCCSA on-site review activities. While
on-site, the Contractor shall provide the Review Team with workspace, access to
a telephone, electrical outlets and privacy for conferences. The Contractor
will be furnished a copy of the Reinsurance Review Report within 60 days of the
onsite review and given an opportunity to comment on any review findings.

Catastrophic Reinsurance: The reinsurance program also includes a special
Catastrophic Reinsurance program. This program encompasses members diagnosed
with hemophilia, von Willebrand's Disease, and Gaucher's Disease. This program
also covers members who are eligible to receive covered major organ and tissue
transplantation including bone marrow, heart, heart/lung, lung, liver, kidney,
and other organ transplantation. For additional detail and restrictions refer
to the AHCCCS Reinsurance Claims Processing Manual and the AMPM. There are no
deductibles for catastrophic reinsurance cases. All catastrophic claims are
subject to medical review by AHCCCSA.

The Contractor shall notify AHCCCSA, Office of Medical Management, Reinsurance
Unit, of cases identified for catastrophic non-transplant reinsurance coverage
within 30 days of (a) initial diagnosis, (b) enrollment with the Contractor,
and (c) the beginning of each contract year. Catastrophic reinsurance will be
paid for a maximum 30-day retroactive period from the date of notification to
AHCCCSA.

HEMOPHILIA: When a member is identified as being catastrophically
eligible by AHCCCSA due to the specific diagnosis of hemophilia (ICD9 codes
286.0, 286.1, 286.2), all medically necessary covered services provided during
the contract year shall be eligible for reimbursement at 85% of the
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VON WILLEBRAND'S DISEASE: Catastrophic reinsurance coverage is available for
all members diagnosed with von Willebrand's Disease who are non-DDAVP
responders and dependent on Plasma Factor VIII. The Contractor must promptly
notify AHCCCS Office of Medical Management Reinsurance Unit after diagnosis.
All medically necessary covered services provided during the contract year
shall be eligible for reimbursement at 85% of the Contractor's paid amount.

GAUCHER'S DISEASE: Catastrophic reinsurance is available for members diagnosed
with Gaucher's Disease classified as Type I and are dependent on enzyme
replacement therapy. All medically necessary covered services provided during
the contract year shall be eligible for reimbursement at 85% of the
Contractor's paid amount.

TRANSPLANTS: Bone grafts and cornea transplantation services are not eligible
for catastrophic reinsurance coverage but are eligible under the regular
(non-catastrophic) reinsurance program. Refer to the AMPM, Chapter 300 for
covered services for organ and tissue transplants. Catastrophic reinsurance
coverage for transplants is limited to 85% of the AHCCCS contract amount for
the transplantation services rendered, or 85% of the Contractor's paid amount,
whichever is lower. The AHCCCS contracted transplantation rates may be found in
the Bidder's Library. When a member is referred to a transplant facility for an
AHCCCS-covered organ transplant, the Contractor shall notify AHCCCSA, Office of
Medical Management.

Encounter data will not be used to determine catastrophic reinsurance benefits
for transplants. However, this does not relieve the Contractor of the
responsibility for submitting encounters for all catastrophic reinsurance
services.

Effective October 1, 2000, Contractors will be reimbursed 100% for medically
necessary expenses provided in a contract year, after a catastrophic
reinsurance case reaches $650,000. This additional reimbursement will limit a
Contractor's medical expenses to $97,500 per catastrophic reinsurance case.

All reinsurance claims must be submitted within fifteen months after the date
of service, or date of eligibility posting, whichever is later.

40. COORDINATION OF BENEFITS/THIRD PARTY LIABILITY

By law, AHCCCSA is the payer of last resort. This means AHCCCSA shall be used
as a source of payment for covered services only after all other sources of
payment have been exhausted. The two methods used in the coordination of
benefits are cost avoidance and postpayment recovery. The Contractor shall use
these methods as described in A.A.C. R9-22-10. See Section D, Paragraph 41,
Medicare Services and Cost Sharing.

Cost Avoidance: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires the member to pay any
copayment, coinsurance or deductible, the Contractor is responsible for making
these payments, even if the services are provided outside of the Contractor's
network. The Contractor's liability for coinsurance and deductibles is limited
to what the Contractor would have paid for the entire service pursuant to a
written contract with the provider or the AHCCCS fee-for-service rate, less any
amount paid by the third party. (The Contractor must decide whether it is more
cost-effective to provide the service within its network or pay coinsurance and
deductibles for a service outside its network. For continuity of care, the
Contractor may also choose to provide the service within its network.) If the
Contractor refers the member for services to a third-party insurer (other than
Medicare), and the insurer requires payment in advance of all copayments,
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If the Contractor knows that the third party insurer will neither pay for nor
provide the covered service, and the service is medically necessary, the
Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so. (See also Section D, Paragraph 41,
Medicare Services and Cost Sharing.)

The requirement to cost-avoid applies to all AHCCCS covered services. For
prenatal care and preventive pediatric services, AHCCCS may require the
Contractor to provide such service and then coordinate payment with the
potentially liable third party ("pay and chase"). In emergencies, the
Contractor shall provide the necessary services and then coordinate payment
with the third-party payer. The Contractor shall also provide medically
necessary transportation so the member can receive third-party benefits.
Further, if a service is medically necessary, the Contractor shall ensure that
its cost avoidance efforts do not prevent a member from receiving such service
and that the member shall not be required to pay any coinsurance or deductibles
for use of the other insurer's providers.

Postpayment Recoveries: Postpayment recovery is necessary in cases where the
Contractor was not aware of third-party coverage at the time services were
rendered or paid for, or was unable to cost-avoid. The Contractor shall
identify all potentially liable third parties and pursue reimbursement from
them except in the circumstances below. The Contractor shall not pursue
reimbursement in the following circumstances unless the case has been referred
to the Contractor by AHCCCSA or AHCCCSA's authorized representative:

Uninsured/underinsured motorist insurance    Restitution Recovery
First-and third-party liability insurance    Worker's Compensation
Tortfeasors, including casualty              Estate recovery
Special Treatment Trusts recovery

The Contractor shall report any cases involving the above circumstances to
AHCCCSA's authorized representative should the Contractor identify such a
situation. See AHCCCS Rule R9-22-1002 and R9-31-1002. The Contractor shall
cooperate with AHCCCSA's authorized representative in all collection efforts.
In joint cases involving both AHCCCS fee-for-service or reinsurance and the
Contractor, AHCCCSA's authorized representative is responsible for performing
all research, investigation and payment of lien-related costs, subsequent to
the referral of any and all relevant case information to AHCCCSA's authorized
representative by the Contractor. AHCCCSA's authorized representative is also
responsible for negotiating and acting in the best interest of all parties to
obtain a reasonable settlement in joint cases and may compromise a settlement
in order to maximize overall reimbursement, net of legal and other costs. For
total plan cases involving only payments from the Contractor, the Contractor is
responsible for performing all research, investigation, the filing of liens and
payment of lien filing fees and other related costs. The Contractor shall use
the cover sheet as prescribed by AHCCCS when filing liens.

The Contractor may retain up to 100% of its third-party collections if all of
the following conditions exist:

a.   Total collections received do not exceed the total amount of the
     Contractor's financial liability for the member

b.   There are no payments made by AHCCCS related to fee-for-service,
     reinsurance or administrative costs (i.e. lien filing, etc.)

c.   Such recovery is not prohibited by state or federal law

Reporting: The Contractor may be required to report case level detail of
third-party-collections and cost avoidance, including number of referrals on
total plan cases. In addition, upon AHCCCSA's request, the


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Contractor shall provide an electronic extract of the Casualty cases, including
open and closed cases. Data elements include, but are not limited to: the
member's first and last name; AHCCCS ID; date of incident; claimed amount;
paid/recovered amount; and case status. The AHCCCSA TPL Section shall provide
the format and reporting schedule for this information to the Contractor. The
Contractor shall notify AHCCCSA's authorized representative within five working
days of the identification of a third-party liability case with reinsurance.
Failure to report reinsurance cases may result in one of the remedies specified
in Paragraph 60 (Sanctions) of Section D. The Contractor shall communicate any
known change in health insurance information, including Medicare, to AHCCCS
Administration, Division of Member Services, not later than 10 days from the
date of discovery using the AHCCCS Third-Party Coverage Form found in the
Bidder's Library.

AHCCCSA will provide the Contractor, on an agreed upon schedule, with a
complete file of all third-party coverage information (other than Medicare) for
the purpose of updating the Contractor's files. The Contractor shall notify
AHCCCSA of any known changes in coverage within deadlines and in a format
prescribed by AHCCCSA.

Title XXI (KidsCare): Eligibility for KidsCare benefits requires that the
applicant/member not be enrolled with or entitled to any other health insurance
benefits. If the Contractor becomes aware of any such potential coverage, the
Contractor shall notify AHCCCSA immediately. The Contractor shall follow the
same cost avoidance and postpayment recovery practices for the KidsCare
population as it does for the Title XIX population, and shall maintain a
reporting system which allows Title XIX and KidsCare information to be reported
separately.

Contract Termination: Upon termination of this contract, the Contractor will
complete the existing third party liability cases or make any necessary
arrangements to transfer the cases to AHCCCSA's authorized TPL representative.

41. MEDICARE SERVICES AND COST SHARING

AHCCCS has members enrolled who are eligible for both Medicaid and Medicare.
These members are referred to as "dual eligible". Generally, Contractors are
responsible for payment of Medicare coinsurance and/or deductibles for covered
services provided to dual eligible members. However, there are different cost
sharing responsibilities that apply to dual eligible members based on a variety
of factors. The Contractor is responsible for adhering to the cost sharing
responsibilities presented in the AHCCCS Medicare Cost Sharing policy.
Effective 10/1/97, the Contractor shall have no cost sharing obligation if the
Medicare payment exceeds what the Contractor would have paid for the same
service of a non-Medicare member.

42. COPAYMENTS

The Contractor is responsible for the collection of copayments from members in
accordance with AHCCCS Rule R9-22-711 and R9-31-711. The Contractor may not
collect copayments for family planning and EPSDT services.

43. RECORDS RETENTION

The Contractor shall maintain books and records relating to covered services
and expenditures including reports to AHCCCSA and working papers used in the
preparation of reports to AHCCCSA. The Contractor shall comply with all
specifications for record keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as required by AHCCCS
Rules and policies. Records shall include but not be


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limited to financial statements, records relating to the quality of care,
medical records, prescription files and other records specified by AHCCCSA.

The Contractor agrees to make available at its office at all reasonable times
during the term of this contract and the period set forth in paragraphs a. and
b. below any of its records for inspection, audit or reproduction by any
authorized representative of AHCCCSA, State or Federal government.

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this contract except as
provided in paragraphs a. and b. below:

If this contract is completely or partially terminated, the records relating to
the work terminated shall be preserved and made available for a period of five
years from the date of any such termination. Records which relate to
grievances, disputes, litigation or the settlement of claims arising out of the
performance of this contract, or costs and expenses of this contract to which
exception has been taken by AHCCCSA, shall be retained by the Contractor for a
period of five years after the date of final disposition or resolution thereof.

44. MEDICAL RECORDS

The member's medical record is the property of the provider who generates the
record. Each member is entitled to one copy of his or her medical record free
of charge. The Contractor shall have written policies and procedures to
maintain the confidentiality of all medical records. AHCCCSA shall be afforded
access to all members' medical records whether electronic or paper within 20
working days of receipt of request.

The Contractor is responsible for ensuring that a medical record is established
when information is received about a member. If the PCP has not yet seen the
member, such information may be kept temporarily in an appropriately labeled
file, in lieu of actually establishing a medical record, but must be associated
with the member's medical record as soon as one is established.

The Contractor shall have written policies and procedures for the maintenance
of medical records so that those records are documented accurately and in a
timely manner, are readily accessible, and permit prompt and systematic
retrieval of information.

The Contractor shall have written standards for documentation on the medical
record for legibility, accuracy and plan of care which comply with the AMPM.

The Contractor shall have written plans for providing training and evaluating
providers' compliance with the Contractor's medical records standards. Medical
records shall be maintained in a detailed and comprehensive manner which
conforms to good professional medical practice, permits effective professional
medical review and medical audit processes, and which facilitates an adequate
system for follow-up treatment. Medical records must be legible, signed and
dated.

When a member changes PCPs, his or her medical records or copies of medical
records must be forwarded to the new PCP within 10 working days from receipt of
the request for transfer of the medical records.

AHCCCSA is not required to obtain written approval from a member before
requesting the member's medical record from the PCP or any other agency. The
Contractor may obtain a copy of a member's medical records without written
approval of the member if the reason for such request is directly related to
the administration of the AHCCCS program.

Information related to fraud and abuse may be released so long as protected
HIV-related information is not disclosed. (A.R.S. ss.36-664I)


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45. ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

The Contractor shall not, without the prior approval of AHCCCSA, make any
advances to a related party or subcontractor. The Contractor shall not, without
similar prior approval, make any distribution, loan or loan guarantee to any
entity, including another fund or line of business within its organization. All
investments, other than investments in U.S. Government securities or
Certificates of Deposit, also require AHCCCSA prior approval. (See the
Reporting Guide for Acute Care Contractors for alternatives to the prior
approval of individual investments.) All requests for prior approval are to be
submitted to the Office of Managed Care.

46. ACCUMULATED FUND DEFICIT

The Contractor and its owners shall fund any accumulated fund deficit through
capital contributions in a form acceptable to AHCCCSA within 30 days after
receipt by AHCCCSA of the final audited financial statements, or as otherwise
requested by AHCCCSA. AHCCCSA may, at its option, impose enrollment caps in any
or all GSA's as a result of an accumulated deficit, even if unaudited.

47. DATA EXCHANGE REQUIREMENT

The Contractor is authorized to exchange data with AHCCCSA relating to the
information requirements of this contract and as required to support the data
elements to be provided AHCCCSA in the format specified in the AHCCCS Technical
Interface Guidelines which is available in the Bidder's Library. The
information so recorded and submitted to AHCCCSA shall be in accordance with
all procedures, policies, rules, or statutes in effect during the term of this
contract. If any of these procedures, policies, rules, regulations or statutes
are hereinafter changed both parties agree to conform to these changes
following appropriate notification to both parties by AHCCCSA.

The Contractor is responsible for any incorrect data, delayed submission or
payment (to the Contractor or its subcontractors), and/or penalty applied due
to any error, omission, deletion, or erroneous insert caused by
Contractor-submitted data. Any data that does not meet the standards required
by AHCCCSA shall not be accepted by AHCCCSA.

The Contractor is responsible for identifying any inconsistencies immediately
upon receipt of data from AHCCCSA. If any unreported inconsistencies are
subsequently discovered, the Contractor shall be responsible for the necessary
adjustments to correct its records at its own expense.

The Contractor shall accept from AHCCCSA original evidence of eligibility and
enrollment in a form appropriate for electronic data exchange. Upon request by
AHCCCSA, the Contractor shall provide to AHCCCSA updated date-sensitive PCP
assignments in a form appropriate for electronic data exchange.

The Contractor shall be provided with a Contractor-specific security code for
use in all data transmissions made in accordance with contract requirements.
Each data transmission by the Contractor shall include the Contractor's
security code. The Contractor agrees that by use of its security code, it
certifies that any data transmitted is accurate and truthful, to the best of
the Contractor's knowledge. The Contractor further agrees to indemnify and hold
harmless the State of Arizona and AHCCCSA from any and all claims or
liabilities, including but not limited to consequential damages, reimbursements
or erroneous billings and reimbursements of attorney fees incurred as a
consequence of any error, omission, deletion or erroneous insert caused by the
Contractor in the submitted input data. Neither the State of Arizona nor
AHCCCSA shall be responsible for any incorrect or delayed payment to


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the Contractor's AHCCCS services providers (subcontractors) resulting from such
error, omission, deletion, or erroneous input data caused by the Contractor in
the submission of AHCCCS claims.

The publication AHCCCS Contracted Health Plan Technical Interface Guidelines
describes the specific technical and procedural requirements for interfaces
between AHCCCS and the Contractor and its subcontractors. The Contractor is
responsible for complying with all technical requirements as stated in this
manual as well as any subsequent changes to the manual. A copy may be found in
the Bidder's Library.

The costs of software changes are included in administrative costs paid to the
Contractor. There is no separate payment for software changes. A PMMIS systems
contact will be assigned after contract award. AHCCCSA will work with the
health plans as they evaluate Electronic Data Interchange options.

Health Insurance Portability and Accountability Act (HIPAA): The Contractor
shall comply with the Administrative Simplification requirements of Subpart F
of the HIPPA of 1996 (Public Law 107-191, 110 Statutes 1936) and all federal
regulations implementing that Subpart that are applicable to the operations of
the Contractor by the dates required by the implementing federal regulations.
Failure to comply with the requirements of this paragraph constitute grounds
for the termination of this contract.

Contract Termination for Failure to Comply with HIPAA: The Contractor shall
notify AHCCCS no later than one hundred and twenty (120) days prior to any
required compliance date if the Contractor is unwilling to or anticipates that
it will be unable to comply with any of the requirements of the preceding
paragraph. Receipt by AHCCCS of a notice of anticipated inability of
unwillingness to comply as required by this paragraph constitute grounds for
the termination of this contract.

48. ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to the success
of the AHCCCS program. AHCCCSA uses encounter data to pay reinsurance benefits,
set fee-for-service and capitation rates, determine disproportionate share
payments to hospitals, and to determine compliance with performance standards.
The Contractor shall submit encounter data to AHCCCSA for all covered services
for which the Contractor incurred a financial liability, including services
provided during prior period coverage. This requirement is a condition of the
CMS grant award.

Encounter data must be provided to AHCCCSA by electronic media and must be
submitted in the PMMIS AHCCCSA supplied formats. Formatting and specific
requirements for encounter data are described in the AHCCCS Encounter Reporting
User Manual and the AHCCCS Technical Interface Guidelines, copies of which may
be found in the Bidder's Library. The Encounter Submission Requirements are
included herein as Attachment I.

An Encounter Submission Tracking Report must be maintained and made available
to AHCCCSA upon request. The Tracking Report's purpose is to link each claim to
an adjudicated or pended encounter returned to the Contractor. Further
information regarding the Encounter Submission Tracking Report may be found in
The Encounter User's Manual.

49. MONTHLY ROSTER RECONCILIATION

AHCCCSA produces daily roster updates identifying new members and changes to
members' demographic, eligibility and enrollment data, which the Contractor
shall use to update its member records. The daily roster

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which is run prior to the monthly roster is referred to as the "last daily" and
will contain all rate code changes made for the prospective month, as well as
any new enrollments and disenrollments.

The monthly roster is generally produced two days before the end of every
month. The roster will identify the total active population for the Contractor
as of the first day of the next month. This roster contains the information
used by AHCCCSA to produce the monthly capitation payment for the next month.
The Contractor will reconcile their member files with the AHCCCS monthly
roster. After reconciling the monthly roster information, the Contractor
resumes posting daily roster updates beginning with the last two days of the
month. The last two daily rosters are different from the regular daily rosters
in that they pay and/or recoup capitation into the next month.

Refer to the AHCCCS Contracted Health Plan Technical Interface Guidelines
available in the Bidder's Library for additional information.

50. TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/97 through 9/30/98. In
addition, AHCCCSA reserves the sole option to extend the term of the contract.
Legislation was passed that allows AHCCCSA the right to extend the contract in
excess of five years. As a result of this legislation, AHCCCSA is exercising
it's right to extend the contract to 9/30/03. The new contract cycle will be
effective 10/01/03. All contract extensions shall be through contract
amendment. If, in conjunction with a contract extension, AHCCCSA elects to
increase the capitation rate for any risk category, such increase will not
exceed in aggregate the inflation rate recognized by the Arizona Legislature.

If the Contractor has been awarded a contract in more than one GSA, each such
contract will be considered separately renewable. AHCCCSA may renew the
Contractor's contract in one GSA but not in another. In addition, if the
Contractor has had significant problems of non-compliance in one GSA, it may
result in the capping of the Contractor's enrollment in another. Further,
AHCCCSA may require a contractor to renew all GSA's, or may terminate remaining
GSA's if the Contractor does not agree to renew all GSA's.

When AHCCCSA issues an amendment to extend the contract, the provisions of such
extension will be deemed to have been accepted 60 days after the date of
mailing by AHCCCSA, even if the extension amendment has not been signed by the
Contractor, unless within that time the Contractor notifies AHCCCSA in writing
that it refuses to sign the extension amendment. If the Contractor provides
such notification, AHCCCSA will initiate contract termination proceedings.

Contractor's Notice of Intent Not To Renew: If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the
Contractor provides AHCCCSA written notice of its intent not to renew this
contract at least 180 days before its expiration, this liability for transition
costs may be waived by AHCCCSA.

51. SUBCONTRACTS

The Contractor shall be legally responsible for contract performance whether or
not subcontracts are used. No subcontract shall operate to terminate the legal
responsibility of the Contractor to assure that all activities carried out by
the subcontractor conform to the provisions of this contract. Subject to such
conditions, any function required to be provided by the Contractor pursuant to
this contract may be subcontracted to a qualified person or organization. All
such subcontracts must be in writing. See policy on claims processing by
subcontracted providers in the Bidder's Library.


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All subcontracts entered into by the Contractor are subject to prior review and
approval by AHCCCSA, Contracts and Purchasing, and shall incorporate by
reference the terms and conditions of this contract. The following subcontracts
shall be submitted to AHCCCSA Contracting Office for prior approval at least 30
days prior to the beginning date of the subcontract:

a.   Automated data processing

b.   Third-party administrators

c.   Management Services (See also Section D, Paragraphs 53 & 54)

d.   Model subcontracts

e.   Capitated or other risk subcontracts requiring claims processing by the
     subcontractor must be submitted to AHCCCSA, Office of Managed Care.

The Contractor shall maintain a fully executed original of all subcontracts,
which shall be accessible to AHCCCSA within two working days of request by
AHCCCSA. A subcontract is violable and subject to immediate cancellation by
AHCCCSA in the event any subcontract pertinent to "a" through "e" above is
implemented without the prior written approval of AHCCCSA. All subcontracts
shall comply with the applicable provisions of Federal and State laws,
regulations and policies.

The Contractor shall not include covenant-not-to-compete requirements in its
provider agreements. Specifically, the Contractor shall not contract with a
provider and require that the provider not provide services for any other
AHCCCS contractor.

The Contractor must enter into a written agreement with any provider the
Contractor reasonably anticipates will be providing services on its behalf more
than 25 times during the contract year. Exceptions to this requirement include
the following:

a.   If a provider who provides services more than 25 times during the contract
     year refuses to enter into a written agreement with the Contractor, the
     Contractor shall submit documentation of such refusal to AHCCCS Office of
     Managed Care within seven days of its final attempt to gain such
     agreement.

b.   If a provider performs emergency services such as an emergency room
     physician or an ambulance company, a written agreement is not required.

These and any other exceptions to this requirement must be approved by AHCCCS
Office of Managed Care. Each subcontract must contain verbatim all the
provisions of Attachment A, Minimum Subcontract Provisions. In addition, each
subcontract must contain the following:

a.   Full disclosure of the method and amount of compensation or other
     consideration to be received by the subcontractor.

b.   Identification of the name and address of the subcontractor.

c.   Identification of the population, to include patient capacity, to be
     covered by the subcontractor.

d.   The amount, duration and scope of medical services to be provided, and for
     which compensation will be paid.

e.   The term of the subcontract including beginning and ending dates, methods
     of extension, termination and renegotiation.

f.   The specific duties of the subcontractor relating to coordination of
     benefits and determination of third-party liability.

g.   A provision that the subcontractor agrees to identify Medicare and other
     third-party liability coverage and to seek such Medicare or third party
     liability payment before submitting claims to the Contractor.

h.   A description of the subcontractor's patient, medical and cost record
     keeping system.

i.   Specification that the subcontractor shall cooperate with quality
     assurance programs and comply with the utilization control and review
     procedures specified in 42 CFR Part 456, as implemented by AHCCCSA.


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j.   A provision stating that a merger, reorganization or change in ownership
     of a subcontractor that is related to or affiliated with the Contractor
     shall require a contract amendment and prior approval of AHCCCSA.

k.   Procedures for enrollment or re-enrollment of the covered population (may
     also refer to the Provider Manual).

1.   A provision that the subcontractor shall be fully responsible for all tax
     obligations, Worker's Compensation Insurance, and all other applicable
     insurance coverage obligations which arise under this subcontract, for
     itself and its employees, and that AHCCCSA shall have no responsibility or
     liability for any such taxes or insurance coverage.

m.   A provision that the subcontractor must obtain any necessary authorization
     from the Contractor or AHCCCSA for services provided to eligible and/or
     enrolled members.

n.   A provision that the subcontractor must comply with encounter reporting
     and claims submission requirements as described in the subcontract.

52. SPECIALTY CONTRACTS

AHCCCSA may at any time negotiate or contract on behalf of the Contractor and
AHCCCSA for specialized hospital and medical services. AHCCCSA will consider
existing Contractor resources in the development and execution of specialty
contracts. AHCCCSA may require the Contractor to modify its delivery network to
accommodate the provisions of specialty contracts. Specialty contracts shall
take precedence over and supersede existing and future subcontracts for
services that are subject to specialty contracts. AHCCCSA may consider waiving
this requirement in particular situations if such action is determined to be in
the best interest of the State; however, in no case shall reimbursement exceed
that payable under the relevant AHCCCSA specialty contract.

During the tern of specialty contracts, AHCCCSA may act as an intermediary
between the Contractor and specialty contractors to enhance the cost
effectiveness of service delivery. AHCCCSA reserves the right to make direct
payments to specialty contractors on behalf of the Contractor. Adjudication of
claims related to such payments provided under specialty contracts shall remain
the responsibility of the Contractor. AHCCCSA may provide technical assistance
prior to the implementation of any specialty contracts.

AHCCCSA shall provide at least 60 days advance written notice to the Contractor
prior to the implementation of any specialty contract.

53. MANAGEMENT SERVICES SUBCONTRACTORS

All proposed management services subcontracts and/or corporate cost allocation
plans must be approved in advance by AHCCCSA Contracting Office as described in
Section D, Paragraph 51, Subcontracts. Cost allocation plans must be submitted
with the proposed management fee agreement. AHCCCSA reserves the right to
perform a thorough review of actual management fees charged and/or corporate
allocations made. If the fees or allocations actually paid out are determined
to be unjustified or excessive, amounts may be subject to repayment to the
Contractor, the Contractor may be placed on monthly financial reporting, and/or
financial sanctions may be imposed.

54. MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

All management services subcontractors that have oversight responsibilities for
the Contractor's program operations (such as third-party administrators) are
required to have an annual financial audit. A copy of this audit shall be
submitted to AHCCCSA, Office of Managed Care, within 120 days of the
subcontractors fiscal year end.


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If services billed by a consultant or actuary are less than $50,000, AHCCCSA
will waive the requirement for an audit of that consultant or actuary.

55. MINIMUM CAPITALIZATION REQUIREMENTS

In order to be considered for contract award, the Offeror must meet a minimum
capitalization requirement for each GSA bid. The capitalization requirement for
both new and continuing offerors must be met within 15 days after contract
award.

Minimum capitalization requirements by GSA are as follows:

          ----------------------------------------------------------------------
          Geographic Service Area                 Capitalization Requirement

          GSA #2    Yuma                                    $1,400,000
          GSA #4    Mohave, La Paz                           1,150,000
          GSA #6    Yavapai, Coconino                        1,250,000
          GSA #8    Pinal, Gila                              1,450,000
          GSA #10   Pima                                     1,250,000
          GSA #12   Maricopa                                 2,500,000
          GSA #14   Graham, Greenlee                           350,000
          GSA #16   Apache, Navajo                             650,000
          GSA #18   Cochise, Santa Cruz                      1,450,000
          ----------------------------------------------------------------------

New Offerors: To be considered for a contract award in a given GSA or group of
GSA's, a new offeror must meet the minimum capitalization requirements listed
above. The capitalization requirement is subject to a $5,000,000 ceiling
regardless of the number of GSA's awarded. This requirement is in addition to
the Performance Bond requirements defined in Paragraphs 56 and 57 below and
must be met with cash with no encumbrances, such as a loan subject to
repayment. The capitalization requirements may be applied toward meeting the
equity per member requirement (see Section D, Paragraph 58, Financial Viability
Criteria) and is intended for use in operations of the Contractor.

Continuing Offerors: Continuing offerors that are bidding a county or GSA that
they are currently servicing must meet the equity per member standard (see
Section D, Paragraph 58, Financial Viability Criteria) for their current
membership. Continuing offerors that do not meet the equity standard must fund
through capital contribution the necessary amount to meet this requirement.
Continuing offerors that are bidding a new GSA must provide the additional
capitalization for the new GSA they are bidding. (See the table of requirements
by GSA above). Continuing offerors will not be required to provide additional
capitalization if they currently meet the equity per member standard with their
existing membership and their excess equity is sufficient to cover the proposed
additional members, or they have at least $5,000,000 in equity.

56. PERFORMANCE BOND OR BOND SUBSTITUTE

The Contractor shall be required to provide a performance bond of standard
commercial scope issued by a surety company doing business in this State, an
irrevocable letter of credit, or a cash deposit ("Performance Bond") to AHCCCSA
for as long as the Contractor has AHCCCS-related liabilities of $50,000 or more
outstanding, or 15 months following the effective date of this contract,
whichever is later, to guarantee: (1) payment of the Contractor's obligations
to providers, non-contracting providers, and non-providers; and (2) performance
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Contractor of its obligations under this contract. The Performance Bond shall
be in a form acceptable to AHCCCSA as described in the AHCCCS Performance Bond
policy available in the Office of Managed Care.

In the event of a default by the Contractor, AHCCCSA shall, in addition to any
other remedies it may have under this contract, obtain payment under the
Performance Bond or substitute security for the purposes of the following:

a.   Paying any damages sustained by providers, non-contracting providers and
     nonproviders by reason of a breach of the Contractor's obligations under
     this contract,

b.   Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of the
     Contractor, and

c.   Reimbursing AHCCCSA for any extraordinary administrative expenses incurred
     by reason of a breach of the Contractor's obligations under this contract,
     including, but not limited to, expenses incurred after termination of this
     contract for reasons other than the convenience of the State by AHCCCSA.

In the event AHCCCSA agrees to accept substitute security in lieu of the
Performance Bond, irrevocable letter of credit or cash deposit, the Contractor
agrees to execute any and all documents and perform any and all acts necessary
to secure and enforce AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and necessary UCC filings
pursuant to the Arizona Uniform Commercial Code. In the event such substitute
security is agreed to and accepted by AHCCCSA, the Contractor acknowledges that
it has granted AHCCCSA a security interest in such substitute security to
secure performance of its obligations under this contract. The Contractor is
solely responsible for establishing the credit-worthiness of all forms of
substitute security. AHCCCSA may, after written notice to the Contractor,
withdraw its permission for substitute security, in which case the Contractor
shall provide AHCCCSA with a form of security described above. The Contractor
may not change the amount, duration or scope of the performance bond without
prior written approval from AHCCCSA, Office of Managed Care.

The Contractor shall not leverage the bond for another loan or create other
creditors using the bond as security.

57. AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110% of the total
capitation payment expected to' be paid in the month of October 1997, or as
determined by AHCCCSA. The total capitation amount shall include SOBRA
supplemental payments. This requirement must be satisfied by the Contractor not
later than 15 days after notification by AHCCCSA of the amount required.
Thereafter, AHCCCSA shall evaluate the enrollment statistics of the Contractor
on a monthly basis. If there is an increase in capitation payment that exceeds
10% of the performance bond amount, AHCCCSA may require an increase in the
amount of the Performance Bond. The Contractor shall have 15 days following
notification by AHCCCSA to increase the amount of the Performance Bond. The
Perfornance Bond amount that must be maintained after the contract term shall
be sufficient to cover all outstanding liabilities and will be determined by
AHCCCSA. The Contractor may not change the amount of the performance bond
without prior written approva from AHCCCSA, Office of Managed Care.

58. FINANCIAL VIABILITY STANDARDS/PERFORMANCE GUIDELINES

AHCCCSA has established the following financial viability standards/performance
guidelines. On a quarterly basis, AHCCCSA will review the following ratios with
the purpose of monitoring the financial health of the Contractor. The two
Financial Viability Standards, the Current Ratio and Equity per Member, are the
standards that best represent the financial solvency of the Contractor.
Therefore, the Contractor must comply with these two financial viability
standards.


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AHCCCSA will also monitor the Medical Expense Ratio, the Administrative Cost
Percentage, and the RBUC's Days Outstanding. These guidelines are analyzed as
part of AECCCSA's due diligence in financial statement monitoring. Sanctions
will not be imposed if the Contractor does not meet these performance
guidelines. However, if a critical combination of the Financial Viability
Standards and Performance Guidelines are not met, additional monitoring, such
as monthly reporting, may be required.

FINANCIAL VIABILITY STANDARDS:

Current Ratio            Current assets* divided by current liabilities.
                         "Current assets" includes any long-tern investments
                         that can be converted to cash within 24 hours without
                         significant penalty (i.e., greater than 20%).
                         Standard: At least 1.00

                         *if current assets includes a receivable from a parent
                         company, the parent company must have liquid assets
                         that support the amount of the intercompany loan.

Equity per Member        Equity*, less on-balance sheet performance bond,
                         divided by the number of non-SOBRA Family Planning
                         Extension Services members enrolled at the end of the
                         period.
                         Standard: At least $150
                         (Failure to meet this standard may result in an
                         enrollment cap being imposed in any or all contracted
                         GSAs.)

                         *for purposes of this measurement, the equity to be
                         measured must be supported by unencumbered current
                         assets.

PERFORMANCE GUIDELINES:

Medical Expense Ratio    Total medical expenses (net of reinsurance, TPL,
                         HIV/AIDS Supplement) divided by total capitation +
                         Delivery Supplement. Standard: At least 85%

Administrative Cost      Total administrative expenses (excluding income taxes),
Percentage               divided by total capitation + Delivery Supplement +
                         TPL + reinsurance + HIV/AIDS Supplement.
                         Standard: No more than 10%

59. MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

A proposed merger, reorganization or change in ownership of the Contractor
health plan shall require prior approval of AHCCCSA and a subsequent contract
amendment. The Contractor must submit a detailed merger, reorganization and/or
transition plan to AHCCCSA Contracting Office for AHCCCSA review. The purpose
of the plan review is to ensure uninterrupted services to members, evaluate the
new entity's ability to support the provider network, ensure that services to
members are not diminished and that major components of the organization and
AHCCCS programs are not adversely affected by such merger, reorganization or
change in ownership.


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60. SANCTIONS

AHCCCSA may impose sanctions, suspend, deny, refuse to renew, or terminate this
contract or any related subcontracts in accordance with AHCCCS Rules R9-22-606
and the terms of this contract and applicable federal or State law and
regulations. Written notice will be provided to the Contractor specifying the
sanction to be imposed, the grounds for such sanction and either the length of
suspension or the amount of capitation prepayment to be withheld. The
Contractor may appeal the decision to impose a sanction in accordance with
AHCCCS Rule R9-22-804.

In lieu of the above remedies, AHCCCSA may, at its option, impose partial or
full enrollment caps on the Contractor. Among the contract violations that may
result in an enrollment cap are, but are not limited to, the following:

a.   Marketing violations

b.   Failure to meet AHCCCS Financial Viability Standards

c.   Material deficiency in the Contractor's provider network

d.   Quality of care and quality management issues

e.   Failure to meet AHCCCS encounter standards

Cure Notice Process: Prior to the imposition of a sanction for non-compliance,
AHCCCSA may provide a written cure notice to the Contractor regarding the
details of the non-compliance. The cure notice will specify the period of time
during which the Contractor must bring its performance back into compliance
with contract requirements. If, at the end of the specified time period, the
Contractor has complied with the cure notice requirements, AHCCCSA will take no
further action. If, however, the Contractor has not complied with the cure
notice requirements, AHCCCSA will proceed with the imposition of sanctions.

61. AUTO-ASSIGNMENT ALGORITHM

Members who do not exercise their right to choose and don't have family
continuity, are assigned to Contractors through an auto-assignment algorithm.
The algorithm is a mathematical formula used to distribute members to the
various Contractors in a manner that is predictable and consistent with AHCCCSA
goals. The algorithm favors those Contractors with lower capitation rates. For
further details on the AHCCCS Auto-Assignment Algorithm, refer to Attachment G.
AHCCCSA may change the algorithm at any time during the term of the contract
and frequently does so in response to Contractor-specific issues of
non-compliance (e.g. imposition of an enrollment cap). The Contractor should
consider this in preparing its response to this RFP. AHCCCSA is not obligated
to adjust for any financial impacts this may have on the Contractor.

62. GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS

The Contractor shall have in place a written grievance and request for hearing
process for members and providers which defines and explains their rights
regarding any adverse action by the Contractor. The Contractor shall provide
the appropriate personnel to establish, implement and maintain the necessary
functions related to grievances, requests for hearing, and denials and
reductions of services. Refer to Attachment H for Grievance and Request for
Hearing Process and Standards and Paragraph 5, Denials and Reductions of
Services.

The grievance and request for hearing process shall be in accordance with
applicable federal and state laws, AHCCCS rules and policies, including, but
not limited to R9-22-Article 8, R9-31-Article 8 and the Members Rights and
Responsibilities Policy. The Contractor must ensure that the Contractor's
grievance and request for hearing policies include processing procedures and
documentation requirements. The Contractor must ensure that


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it provides written information to both members and providers which clearly
explains the grievance and request for hearing process.

The Contractor shall be responsible to provide the necessary professional,
paraprofessional, and clerical services for the representation of the
Contractor in all issues relating to grievances, denials and reductions of
services and any other matters arising under this contract which rise to the
level of administrative hearing or a judicial proceeding.

63. QUARTERLY GRIEVANCE REPORT

The Contractor shall submit a Quarterly Grievance Report to AHCCCSA, Office of
Legal Assistance, using the Quarterly Grievance Report Format on file in the
Bidder's Library. The Quarterly Grievance Report must be received by the
AHCCCSA, Office of Legal Assistance, no later than 45 days from the end of the
quarter.

64. KIDSCARE

On November 1, 1998, AHCCCSA implemented a Title XXI Children's Health
Insurance Program, referred to as "KidsCare". KidsCare provides health care
coverage statewide to eligible children under age 19 and is provided through
the existing AHCCCS health plans, state employee HMOs that elect to participate
at the beginning of a contract cycle, and tribal facilities or Indian Health
Service for Native Americans who elect to receive services through them.

The KidsCare service package is established by the legislature and approved by
CMS through the State Plan. Capitation rates payable to the Contractor for
KidsCare members will be set by AHCCCSA in conjunction with an independent
actuary.

KidsCare members in families with gross household income over 150% and up to
200% of the federal poverty limit shall pay a premium to AHCCCSA. The premium
amount shall be based on the number of members in the household and the gross
family income in accordance with 9 A.A.C., Article 14.

Title XXI Parent Guardian Health Insurance Coverage: A.R.S. ss.36-2984 mandates
that the Contractor offer health insurance coverage to the parent(s) or legal
guardian(s) of a child who is eligible for Title XXI. The Contractor shall
establish rates for this coverage, which must be approved by AHCCCSA, Office of
Managed Care, prior to implementation. Title XXI funds or any other federal or
state funds shall not be used to subsidize family coverage. The full cost of
the premium shall be paid by the parent or legal guardian who elects this
coverage. The Contractor may include provisions for pre-existing conditions and
any other medical underwriting considerations that are necessary to protect it
from adverse risk. For further information, refer to the Title XXI
Parent/Guardian Health Insurance Coverage Guidelines on file in the Bidder's
Library.

65. PENDING LEGISLATIVE ISSUES

In addition to the requirements described in this RFP, there are several
legislative issues that will have an impact on services provided by the
Contractor on or after October 1, 2001. The following is a brief summary of the
issues.:

Breast and Cervical Cancer: Legislation was passed to adopt a federal program
that expands Title XIX eligibility to women under the age of 65 who are between
100% and 250% of FPL that have been diagnosed with either breast or cervical
cancer. This program will be implemented early in 2002.


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Ticket to Work: Legislation was passed to adopt a federal program that expands
Title XIX eligibility to individuals, 16 through 64 years old who meet SSI
eligibility criteria, and whose earned income is at or below 250% FPL. This
program will be implemented early in 2002.

AHCCCS Coverage for the Parents of Children Eligible for KidsCare: During the
2001 legislative session, AHCCCS is required to apply for an 1115 Waiver to
cover the parents of children eligible for KidsCare up to 200% of FPL. AHCCCS
will need state match if the waiver is approved, and will seek legislative
expenditure authority. It is anticipated that this program will be effective
October 1, 2002.

In addition to the above pending legislative issues, the final regulations for
the Budget Balanced Act of 1997 have not been finalized. Contractors shall
comply with the BBA regulations upon finalization.

66. SEPARATE INCORPORATION

As specified in A.R.S. ss. 36-2906.01, within 60 days of contract award, a
non-governmental Contractor shall have established a separate corporation for
the purposes of this contract, whose sole activity is the performance of
contract function with AHCCCS.

67. CULTURAL COMPETENCY

The Contractor shall have a Cultural Competency Plan that meets the
requirements of the AHCCCS Cultural Competency Policy. The Contractor must
identify a staff member responsible for the cultural competency plan and inform
the office of Managed Care of that person's identity.

68. MEDICAID IN THE PUBLIC SCHOOLS

Pursuant to an Intergovernmental Agreement with the Department of Education,
and a contract with a Third Party Administrator, AHCCCS began paying
participating school districts for specifically identified Medicaid services
when provided to Medicaid-eligible children who are included under the
Individuals with Disabilities Education Act (IDEA). The Medicaid services must
be identified in the member's Individual Education Plan (IEP) as medically
necessary for the child to obtain a public school education. In the first phase
of the Medicaid in the Public Schools (MIPS) program, AHCCCS began
reimbursement to school districts for services provided beginning July 1, 2000.
These services included speech, physical and occupational therapies, nursing
services, attendant care (health aid services provided in the classroom),
transportation to and from school on days when the child receives an
AHCCCS-covered MIPS service, and behavioral health services.

Services provided through MIPS are specifically intended to allow children to
attend school and do not replace medically necessary services provided outside
the educational setting. Thus, the Contractor's determination of whether
services are medically necessary and should be provided to a child shall be
made independently of whether that child also is receiving MIPS services. If a
request is made for services that also are covered under the MIPS program for a
child enrolled with the Contractor, the request shall be evaluated on the same
basis as any request for a covered service.

[END OF SECTION D]

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SECTION E: CONTRACT CLAUSES

1) APPLICABLE LAW

Arizona Law - The law of Arizona applies to this contract including, where
applicable, the Uniform Commercial Code, as adopted in the State of Arizona.

Implied Contract Terms - Each provision of law and any terms required by law to
be in this contract are a part of this contract as if fully stated in it.

2) AUTHORITY

This contract is issued under the authority of the Contracting Officer who
signed this contract. Changes to the contract, including the addition of work
or materials, the revision of payment terms, or the substitution of work or
materials, directed by an unauthorized state employee or made unilaterally by
the Contractor are violations of the contract and of applicable law. Such
changes, including unauthorized written contract amendments, shall be void and
without effect, and the Contractor shall not be entitled to any claim under
this contract based on those changes.

3) ORDER OF PRECEDENCE

The parties to this contract shall be bound by all terms and conditions
contained herein. For interpreting such terms and conditions the following
sources shall have precedence in descending order: The Constitution and laws of
the United States and applicable federal regulations; the terms of the CMS 1115
waiver for the State of Arizona; the Constitution and laws of Arizona, and
applicable State rules; the terms of this contract, including all attachments
and executed amendments and modifications; AHCCCSA policies and procedures.

4) CONTRACT INTERPRETATION AND AMENDMENT

No Parol Evidence - This contract is intended by the parties as a final and
complete expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term used in
this contract.

No Waiver - Either party's failure to insist on strict performance of any term
or condition of the contract shall not be deemed a waiver of that term or
condition even if the party accepting or acquiescing in the non-conforming
performance knows of the nature of the performance and fails to object to it.

Written Contract Amendments - The contract shall be modified only through a
written contract amendment within the scope of the contract signed by the
procurement officer on behalf of the State.

5) SEVERABILITY

The provisions of this contract are severable to the extent that any provision
or application held to be invalid shall not affect any other provision or
application of the contract, which may remain in effect without the invalid
provision, or application.

6) RELATIONSHIP OF PARTIES

The Contractor under this contract is an independent contractor. Neither party
to this contract shall be deemed to be the employee or agent of the other party
to the contract.

7) ASSIGNMENT AND DELEGATION

The Contractor shall not assign any right nor delegate any duty under this
contract without prior written approval of the Contracting Officer, who will
not unreasonably withhold such approval.

8) GENERAL INDEMNIFICATION

The Contractor shall defend, indemnify and hold harmless the State from any
claim, demand, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation) arising out of or relating to


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injury, disease, or death of persons or damage to or loss of property resulting
from or in connection with the negligent performance of this contract by the
Contractor, its agents, employees, and subcontractors or anyone for whom the
Contractor may be responsible. The obligations, indemnities and liabilities
assumed by the Contractor under this paragraph shall not extend to any
liability caused by the negligence of the State or its employees. The
Contractor's liability shall not be limited by any provisions or limits of
insurance set forth in this contract. The State shall reasonably notify the
Contractor of any claim for which it may be liable under this paragraph. The
Administration shall bear no liability for subcontracts that a contractor
executes with other parties for the provision of administrative or management
services, medical services or covered health care services, or for any other
purposes.

9) INDEMNIFICATION -- PATENT AND COPYRIGHT

The Contractor shall defend, indemnify and hold harmless the State against any
liability including costs and expenses for infringement of any patent,
trademark or copyright arising out of contract performance or use by the State
of materials furnished or work performed under this contract. The State shall
reasonably notify the Contractor of any claim for which it may be liable under
this paragraph.

10) COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS

The materials and services supplied under this contract shall comply with all
applicable federal, state and local laws, and the Contractor shall maintain all
applicable licenses and permits.

11) ADVERTISING AND PROMOTION OF CONTRACT

The Contractor shall not advertise or publish information for commercial
benefit concerning this contract without the prior written approval of the
Contracting Officer.

12) PROPERTY OF THE STATE

Any materials, including reports, computer programs and other deliverables,
created under this contract are the sole property of AHCCCSA. The Contractor is
not entitled to a patent or copyright on those materials and may not transfer
the patent or copyright to anyone else. The Contractor shall not use or release
these materials without the prior written consent of AHCCCSA.

13) THIRD PARTY ANTITRUST VIOLATIONS

The Contractor assigns to the State any claim for overcharges resulting from
antitrust violations to the extent that those violations concern materials or
services supplied by third parties to the Contractor toward fulfillment of this
contract.

14) RIGHT TO ASSURANCE

If AHCCCSA, in good faith, has reason to believe that the Contractor does not
intend to perform or continue performing this contract, the procurement officer
may demand in writing that the Contractor give a written assurance of intent to
perform. The demand shall be sent to the Contractor by certified mail, return
receipt required. Failure by the Contractor to provide written assurance within
the number of days specified in the demand may, at the State's option, be the
basis for terminating the contract.

15) TERMINATION FOR CONFLICT OF INTEREST

AHCCCSA may cancel this contract without penalty or further obligation if any
person significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of AHCCCSA is, or becomes at any time while the
contract or any extension of the contract is in effect, an employee of, or a
consultant to, any other party to this contract with respect to the subject
matter of the contract. The cancellation shall be effective when the Contractor
receives written notice of the cancellation unless the notice specifies a later
time.

16) GRATUITIES

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that employment or a gratuity was offered or made by
the Contractor or a representative of the Contractor to any officer or employee
of the State for the purpose of influencing the outcome of the procurement or
securing the

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contract, an amendment to the contract, or favorable treatment concerning the
contract, including the making of any determination or decision about contract
performance. AHCCCSA, in addition to any other rights or remedies, shall be
entitled to recover exemplary damages in the amount of three times the value of
the gratuity offered by the Contractor.

17) SUSPENSION OR DEBARMENT

The Contractor shall not employ, consult, subcontract or enter into any
agreement for Title XIX services with any person or entity who is debarred,
suspended or otherwise excluded from federal procurement activity.
This prohibition extends to any entity which employs, consults, subcontracts
with or otherwise reimburses for services any person substantially involved in
the management of another entity which is debarred, suspended or otherwise
excluded from federal procurement activity.

The Contractor shall not retain as a director, officer, partner or owner of 5%
or more of the Contractor entity, any person, or affiliate of such a person,
who is debarred, suspended or otherwise excluded from federal procurement
activity.

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that the Contractor has been debarred, suspended or
otherwise lawfully prohibited from participating in any public procurement
activity.

18) TERMINATION FOR CONVENIENCE

AHCCCSA reserves the right to terminate the contract in whole or in part at any
time for the convenience of the State without penalty or recourse. The
Contracting Officer shall give written notice by certified mail, return receipt
requested, to the Contractor of the termination at least 90 days before the
effective date of the termination. In the event of termination under this
paragraph, all documents, data and reports prepared by the Contractor under the
contract shall become the property of and be delivered to AHCCCSA. The
Contractor shall be entitled to receive just and equitable compensation for
work in progress, work completed and materials accepted before the effective
date of the termination.

19) TERMINATION FOR DEFAULT

AHCCCSA reserves the right to terminate this contract in whole or in part due
to the failure of the Contractor to comply with any term or condition of the
contract or failure to take corrective action as required by AHCCCSA to comply
with the terms of the contract. If the Contractor is providing services under
more than one contract with AHCCCSA, AHCCCSA may deem unsatisfactory
performance under one contract to be cause to require the Contractor to provide
assurance of performance under any and all other contracts. In such situations,
AHCCCSA reserves the right to seek remedies under both actual and anticipatory
breaches of contract if adequate assurance of performance is not received. The
Contracting Officer shall mail written notice of the termination and the
reason(s) for it to the Contractor by certified mail, return receipt requested.

In the event the Contractor requests a hearing prior to termination, AHCCCSA is
required by the Balanced Budget Act of 1997 to oversee the operation of the
Contractor entity through appointment of temporary management prior to the
hearing.

Upon termination under this paragraph, all documents, data, and reports
prepared by the Contractor under the contract shall become the property of and
be delivered to AHCCCSA on demand.

AHCCCSA may, upon termination of this contract, procure, on terms and in the
manner that it deems appropriate, materials or services to replace those under
this contract. The Contractor shall be liable for any excess costs incurred by
AHCCCSA in re-procuring the materials or services.


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20) TERMINATION - AVAILABILITY OF FUNDS

Funds are not presently available for performance under this contract beyond
the current fiscal year. No legal liability on the part of AHCCCSA for any
payment may arise under this contract until funds are made available for
performance of this contract.

21) RIGHT OF OFFSET

AHCCCSA shall be entitled to offset against any amounts due the Contractor any
expenses or costs incurred by AHCCCSA concerning the Contractor's
non-conforming performance or failure to perform the contract.

22) NON-EXCLUSIVE REMEDIES

The rights and the remedies of AHCCCSA under this contract are not exclusive.

23) NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 99-4, which mandates
that all persons, regardless of race, color, religion, sex, national origin or
political affiliation, shall have equal access to employment opportunities, and
all other applicable federal and state laws, rules and regulations, including
the Americans with Disabilities Act and Title VI. The Contractor shall take
positive action to ensure that applicants for employment, employees, and
persons to whom it provides service are not discriminated against due to race,
creed, color, religion, sex, national origin or disability.

24) EFFECTIVE DATE

The effective date of this contract shall be the date that the Contracting
Officer signs the award page (page 1) of this contract.

25) INSURANCE

A certificate of insurance naming the State of Arizona and AHCCCSA as the
"additional insured" must be submitted to AHCCCSA within 10 days of
notification of contract award and prior to commencement of any services under
this contract. This insurance shall be provided by carriers rated as "A+" or
higher by the A.M. Best Rating Service. The following types and levels of
insurance coverage are required for this contract:

a.   Commercial General Liability: Provides coverage of at least $1,000,000 for
     each occurrence for bodily injury and property damage to others as a
     result of accidents on the premises of or as the result of operations of
     the Contractor.

b.   Commercial Automobile Liability: Provides coverage of at least $1,000,000
     for each occurrence for bodily injury and property damage to others
     resulting from accidents caused by vehicles operated by the Contractor.

c.   Workers Compensation: Provides coverage to employees of the Contractor for
     injuries sustained in the course of their employment. Coverage must meet
     the obligations imposed by federal and state statutes and must also
     include Employer's Liability minimum coverage of $100,000. Evidence of
     qualified self-insured status will also be considered.

d.   Professional Liability (if applicable): Provides coverage for alleged
     professional misconduct or lack of ordinary skills in the performance of a
     professional act of service.

The above coverage's may be evidenced by either one of the following:

a.   The State of Arizona Certificate of Insurance: This is a form with the
     special conditions required by the contract already pre-printed on the
     form. The Contractor's agent or broker must fill in the pertinent policy
     information and ensure the required special conditions are included in the
     Contractor's policy.


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b.   The Accord form: This standard insurance industry certificate of insurance
     does not contain the preprinted special conditions required by this
     contract. These conditions must be entered on the certificate by the agent
     or broker and read as follows:

     The State of Arizona and Arizona Health Care Cost Containment System are
     hereby added as additional insureds. Coverage afforded under this
     Certificate shall be primary and any insurance carried by the State or any
     of its agencies, boards, departments or commissions shall be in excess of
     that provided by the insured Contractor. No policy shall expire, be
     canceled or materially changed without 30 days written notice to the
     State. This Certificate is not valid unless countersigned by an authorized
     representative of the insurance company.

26) DISPUTES

The exclusive manner for the Contractor to assert any claim, grievance, dispute
or demand against AHCCCSA shall be in accordance with AHCCCS Rule R9-28-804(C).
Pending the final resolution of any disputes involving this contract, the
Contractor shall proceed with performance of this contract in accordance with
AHCCCSA's instructions, unless AHCCCSA specifically, in writing, requests
termination or a temporary suspension of performance.

27) RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS

AHCCCSA may, at reasonable times, inspect the part of the plant or place of
business of the Contractor or subcontractor that is related to the performance
of this contract, in accordance with A.R.S. ss.41-2547.

28) INCORPORATION BY REFERENCE

This solicitation and all attachments and amendments, the Contractor's
proposal, best and final offer accepted by AHCCCSA, and any approved
subcontracts are hereby incorporated by reference into the contract.

29) COVENANT AGAINST CONTINGENT FEES

The Contractor warrants that no person or agency has been employed or retained
to solicit or secure this contract upon an agreement or understanding for a
commission, percentage, brokerage or contingent fee. For violation of this
warranty, AHCCCSA shall have the right to annul this contract without
liability.

30) CHANGES

AHCCCSA may at any time, by written notice to the Contractor, make changes
within the general scope of this contract. If any such change causes an
increase or decrease in the cost of, or the time required for, performance of
any part of the work under this contract, the Contractor may assert its right
to an adjustment in compensation paid under this contract. The Contractor must
assert its right to such adjustment within 30 days from the date of receipt of
the change notice. Any dispute or disagreement caused by such notice shall
constitute a dispute within the meaning of Section E, Paragraph 26, Disputes,
and be administered accordingly.

When AHCCCSA issues an amendment to modify the contract, the provisions of such
amendment will be deemed to have been accepted 60 days after the date of
mailing by AHCCCSA, even if the amendment has not been signed by the
Contractor, unless within that time the Contractor notifies AHCCCSA in writing
that it refuses to sign the amendment. If the Contractor provides such
notification, AHCCCSA will initiate termination proceedings.

31) TYPE OF CONTRACT

Firm Fixed-Price

32) AMERICANS WITH DISABILITIES ACT

People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling Michael Veit at (602) 417-4762.

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33) WARRANTY OF SERVICES

The Contractor warrants that all services provided under this contract will
conform to the requirements stated herein. AHCCCSA's acceptance of services
provided by the Contractor shall not relieve the Contractor from its
obligations under this warranty. In addition to its other remedies, AHCCCSA
may, at the Contractor's expense, require prompt correction of any services
failing to meet the Contractor's warranty herein. Services corrected by the
Contractor shall be subject to all of the provisions of this contract in the
manner and to the same extent as the services originally furnished.

34) NO GUARANTEED QUANTITIES

AHCCCSA does not guarantee the Contractor any minimum or maximum quantity of
services or goods to be provided under this contract.

35) CONFLICT OF INTEREST

The Contractor shall not undertake any work that represents a potential
conflict of interest, or which is not in the best interest of AHCCCSA or the
State without prior written approval by AHCCCSA. The Contractor shall fully and
completely disclose any situation that may present a conflict of interest. If
the Contractor is now performing or elects to perform during the term of this
contract any services for any AHCCCS health plan, provider or Contractor or an
entity owning or controlling same, the Contractor shall disclose this
relationship prior to accepting any assignment involving such party.

36) DISCLOSURE OF CONFIDENTIAL INFORMATION

The Contractor shall not, without prior written approval from AHCCCSA, either
during or after the performance of the services required by this contract, use,
other than for such performance, or disclose to any person other than AHCCCSA
personnel with a need to know, any information, data, material, or exhibits
created, developed, produced, or otherwise obtained during the course of the
work required by this contract. This nondisclosure requirement shall also
pertain to any information contained in reports, documents, or other records
furnished to the Contractor by AHCCCSA.

37) COOPERATION WITH OTHER CONTRACTORS

AHCCCSA may award other contracts for additional work related to this contract
and Contractor shall fully cooperate with such other contractors and AHCCCSA
employees or designated agents, and carefully fit its own work to such other
contractors' work. Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor or by AHCCCSA
employees.

38) ASSIGNMENT OF CONTRACT AND BANKRUPTCY

This contract is voidable and subject to immediate cancellation by AHCCCSA upon
Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or assigning rights or obligations
under this contract without the prior written consent of AHCCCSA.

39) OWNERSHIP OF INFORMATION AND DATA

Any data or information system, including all software, documentation and
manuals, developed by Contractor pursuant to this contract, shall be deemed to
be owned by AHCCCSA. The federal government reserves a royalty-free,
nonexclusive, and irrevocable license to reproduce, publish, or otherwise use
and to authorize others to use for federal government purposes, such data or
information system, software, documentation and manuals. Proprietary software
which is provided at established catalog or market prices and sold or leased to
the general public shall not be subject to the ownership or licensing
provisions of this section.

Data, information and reports collected or prepared by Contractor in the course
of performing its duties and obligations under this contract shall be deemed to
be owned by AHCCCSA. The ownership provision is in consideration of
Contractor's use of public funds in collecting or preparing such data,
information and reports. These items shall not be used by Contractor for any
independent project of Contractor or publicized by Contractor without the prior
written permission of AHCCCSA. Subject to applicable state and federal laws


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and regulations, AHCCCSA shall have full and complete rights to reproduce,
duplicate, disclose and otherwise use all such information. At the termination
of the contract, Contractor shall make available all such data to AHCCCSA
within 30 days following termination of the contract or such longer period as
approved by AHCCCSA, Office of the Director. For purposes of this subsection,
the term "data" shall not include member medical records.

Except as otherwise provided in this section, if any copyrightable or
patentable material is developed by Contractor in the course of performance of
this contract, the federal government, AHCCCSA and the State of Arizona shall
have a royalty-free, nonexclusive, and irrevocable right to reproduce, publish,
or otherwise use, and to authorize others to use, the work for state or federal
government purposes. Contractor shall additionally be subject to the applicable
provisions of 45 CFR Part 74 and 45 CFR Parts 6 and 8.

40) AHCCCSA RIGHT TO OPERATE CONTRACTOR

If, in the judgment of AHCCCSA, Contractor's performance is in material breach
of the contract or Contractor is insolvent, AHCCCSA may directly operate
Contractor to assure delivery of care to members enrolled with Contractor until
cure by Contractor of its breach, by demonstrated financial solvency or until
the successful transition of those members to other contractors.

If AHCCCS undertakes direct operation of the Contractor, AHCCCS, through
designees appointed by the Director, shall be vested with full and exclusive
power of management and control of the Contractor as necessary to ensure the
uninterrupted care to persons and accomplish the orderly transition of persons
to a new or existing Contractor, or until the Contractor corrects the Contract
Performance failure to the satisfaction of AHCCCS. AHCCCS shall have the power
to employ any necessary assistants, to execute any instrument in the name of
the Contractor, to commence, defend and conduct in its name any action or
proceeding in which the Contractor may be a party.

All reasonable expenses of AHCCCS related to the direct operation of the
Contractor, including attorney fees, cost of preliminary or other audits of the
Contractor and expenses related to the management of any office or other assets
of the Contractor, shall be paid by the Contractor or withheld from payment due
from AHCCCS to the Contractor.

41) AUDITS AND INSPECTIONS

The Contractor shall comply with all provisions specified in applicable AHCCCS
Rule R9-22-519, -520 and -521 and AHCCCS policies and procedures relating to
the audit of Contractor's records and the inspection of Contractor's
facilities. Contractor shall fully cooperate with AHCCCSA staff and allow them
reasonable access to Contractor's staff, subcontractors, members, and records.

At any time during the term of this contract, the Contractor's or any
subcontractor's books and records shall be subject to audit by AHCCCSA and,
where applicable, the federal government, to the extent that the books and
records relate to the performance of the contract or subcontracts.

AHCCCSA and the federal government may evaluate through on-site inspection or
other means, the quality, appropriateness and timeliness of services performed
under this contract.

42) FRAUD AND ABUSE

It shall be the responsibility of the Contractor to report all cases of
suspected fraud and abuse by subcontractors, members or employees. The
Contractor shall provide written notification of all such incidents to AHCCCSA.
The Contractor shall comply with the AHCCCS Health Plans and Program
Contractors Policy for Prevention, Detection and Reporting of Fraud and Abuse
which is available in the Bidder's Library and incorporated herein by
reference.

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As stated in A.R.S. ss. 13-2310, incorporated herein by reference, any person
who knowingly obtains any benefit by means of false or fraudulent pretenses,
representations, promises or material omissions is guilty of a class 2 felony.

Contractors are required to research potential overpayments identified by a
fraud and abuse investigation or audit conducted by AHCCCSA. After conducting a
cost benefit analysis to determine if such action is warranted, the Contractor
should attempt to recover any overpayments identified due to erroneous, false
or fraudulent billings.

43) LOBBYING

No funds paid to the Contractor by AHCCCSA, or interest earned thereon, shall
be used for the purpose of influencing or attempting to influence an officer or
employee of any federal or State agency, a member of the United States Congress
or State Legislature, an officer or employee of a member of the United States
Congress or State Legislature in connection with awarding of any federal or
State contract, the making of any federal or State grant, the making of any
federal or State loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment or modification of any federal or
State contract, grant, loan, or cooperative agreement. The Contractor shall
disclose if any funds other than those paid to the Contractor by AHCCCSA have
been used or will be used to influence the persons and entities indicated above
and will assist AHCCCSA in making such disclosures to CMS.

44) CHOICE OF FORUM

The parties agree that jurisdiction over any action arising out of or relating
to this contract shall be brought or filed in a court of competent jurisdiction
located in the State of Arizona.


[END OF SCTION E]

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ATTACHMENT A                                           Contract/RFP No. YH8-0001
================================================================================

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS


[The following provisions must be included verbatim in every subcontract.]

1) EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES

The Arizona Health Care Cost Containment System Administration (AHCCCSA) or the
U.S. Department of Health and Human Services may evaluate, through inspection
or other means, the quality, appropriateness or timeliness of services
performed under this subcontract.

2) RECORDS AND REPORTS

The Contractor shall maintain all forms, records, reports and working papers
used in the preparation of reports, files, correspondence, financial
statements, records relating to quality of care, medical records, prescription
files, statistical information and other records specified by AHCCCSA for
purposes of audit and program management. The Contractor shall comply with all
specifications for record-keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as shall properly reflect
each service provided and all net costs, direct and indirect, of labor,
materials, equipment, supplies and services, and other costs and expenses of
whatever nature for which payment is made to the Contractor. Such material
shall be subject to inspection and copying by the state, AHCCCSA and the U.S.
Department of Health and Human Services during normal business hours at the
place of business of the person or organization maintaining the records.

The Contractor agrees to make available at the office of the Contractor, at all
times reasonable times, any of its records for inspection, audit or
reproduction, by any authorized representative of the state or federal
governments.

The Contractor shall preserve and make available all records for a
period of five years from the date of final payment under this subcontract
except as provided in paragraphs a. and b. below:

a.   If this subcontract is completely or partially terminated, the records
     relating to the work terminated shall be preserved and made available for
     a period of five years from the date of any such termination.

b.   Records which relate to disputes, litigation or the settlement of claims
     arising out of the performance of this subcontract, or costs and expenses
     of this subcontract to which exception has been taken by the state, shall
     be retained by the Contractor until such disputes, litigation, claims or
     exceptions have been disposed of.

The Contractor shall provide all reports requested by AHCCCSA, and all
information from records relating to the performance of the Contractor which
AHCCCSA may reasonably require. The Contractor reporting requirements may
include, but are not limited to, timely and detailed utilization statistics,
information and reports.

3) LIMITATIONS ON BILLING AND COLLECTION PRACTICES

The Contractor shall not bill, nor attempt to collect payment directly or
through a collection agency from a person claiming to be AHCCCS eligible
without first receiving verification from AHCCCSA that the person was
ineligible for AHCCCS on the date of service, or that services provided were
not AHCCCS covered services. This provision shall not apply to patient
contributions to the cost of services delivered by nursing homes.

4) ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES

No payment due the Contractor under this subcontract may be assigned without
the prior approval of AHCCCSA. No assignment or delegation of the duties of
this subcontract shall be valid unless prior written approval is received from
AHCCCSA.


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ATTACHMENT A                                           Contract/RFP No. YH8-0001
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5) APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS

This subcontract is subject to prior approval by AHCCCSA. The prime contractor
shall notify AHCCCSA in the event of any proposed amendment or termination
during the term hereof. Any such amendment or termination is subject to the
prior approval of AHCCCSA. Approval of the subcontract may be rescinded by the
Director of AHCCCSA for violation of federal or state laws or rules.

6) WARRANTY OF SERVICES

The Contractor, by execution of this subcontract, warrants that it has the
ability, authority, skill, expertise and capacity to perform the services
specified in this contract.

7) SUBJECTION OF SUBCONTRACT

The terms of this subcontract shall be subject to the applicable material terms
and conditions of the contract existing between the Contractor and AHCCCSA for
the provision of covered services.

8) AWARDS OF OTHER SUBCONTRACTS

AHCCCSA and/or the prime contractor may undertake or award other contracts for
additional or related work to the work performed by the Contractor and the
Contractor shall fully cooperate with such other contractors, subcontractors or
state employees. The Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor, subcontractor
or state employee.

9) INDEMNIFICATION BY CONTRACTOR

The Contractor agrees to hold harmless the state, all state officers and
employees, AHCCCSA and other appropriate state agencies, and all officers and
employees of AHCCCSA and all AHCCCS eligible persons in the event of nonpayment
to the Contractor. The Contractor shall further indemnify and hold harmless the
state, AHCCCSA, other appropriate state agencies, AHCCCS contractors, and their
agents, officers and employees against all injuries, deaths, losses, damages,
claims, suits, liabilities, judgments, costs and expenses which may, in any
manner, accrue against the State, AHCCCSA or its agents, officers or employees,
or AHCCCS contractors, through the intentional conduct, negligence or omission
of the Contractor, its agent, officers or employees.

10) MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES

The Contractor shall be registered with AHCCCSA and shall obtain and maintain
all licenses, permits and authority necessary to do business and render service
under this subcontract and, where applicable, shall comply with all laws
regarding safety, unemployment insurance, disability insurance and worker's
compensation.

11) COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS

The Contractor shall comply with all federal, State and local laws, rules,
regulations, standards and executive orders governing performance of duties
under this subcontract, without limitation to those designated within this
subcontract.

12) SEVERABILITY

If any provision of these standard subcontract terms and conditions is held
invalid or unenforceable, the remaining provisions shall continue valid and
enforceable to the full extent permitted by law.

13) VOIDABILITY OF SUBCONTRACT

This subcontract is voidable and subject to immediate termination by AHCCCSA
upon the Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or upon assignment or delegation
of the subcontract without AHCCCSA's prior written approval.

14) CONFIDENTIALITY REQUIREMENT

Confidential information shall be safeguarded pursuant to 42 CFR Part 431,
Subpart F, A.R.S. ss.36-107, 36-2903, 41-1959 and 46-135, and AHCCCS and/or
ALTCS Rules.


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ATTACHMENT A                                           Contract/RFP No. YH8-0001
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15) GRIEVANCE AND REQUEST FOR HEARING PROCEDURES

Any grievance and request for hearings filed by the Contractor shall be
adjudicated in accordance with AHCCCS Rules. However, on a case by case basis,
the parties may agree to resolve the dispute through binding arbitration.

16) TERMINATION OF SUBCONTRACT

AHCCCSA may, by written notice to the Contractor, terminate this subcontract if
it is found, after notice and hearing by the State, that gratuities in the form
of entertainment, gifts, or otherwise were offered or given by the Contractor,
or any agent or representative of the Contractor, to any officer or employee of
the State with a view towards securing a contract or securing favorable
treatment with respect to the awarding, amending or the making of any
determinations with respect to the performance of the Contractor; provided,
that the existence of the facts upon which the state makes such findings shall
be in issue and may be reviewed in any competent court. If the subcontract is
terminated under this section, unless the prime contractor is a governmental
agency, instrumentality or subdivision thereof, AHCCCSA shall be entitled to a
penalty, in addition to any other damages to which it may be entitled by law,
and to exemplary damages in the amount of three times the cost incurred by the
Contractor in providing any such gratuities to any such officer or employee.

17) PRIOR AUTHORIZATION AND UTILIZATION REVIEW

The prime contractor and Contractor shall develop, maintain and use a system
for Prior Authorization and Utilization Review which is consistent with AHCCCS
Rules and the prime contractor's policies.

18) NON-DISCRIMINATION REQUIREMENTS

If applicable, the Contractor shall comply with:

a.   The Equal Pay Act of 1963, as amended, which prohibits sex discrimination
     in the payment of wages to men and women performing substantially equal
     work under similar working conditions in the same establishment.

b.   Title VI of the Civil Rights Act of 1964, as amended, which prohibits the
     denial of benefits of, or participation in, contract services on the basis
     of race, color, or national origin.

c.   Title VII of the Civil Rights Act of 1964, as amended which prohibits
     private employers, state and local governments, and educational
     institutions from discriminating against their employees and job
     applicants on the basis of race, religion, color, sex, or national origin.

d.   Title I of the Americans with Disabilities Act of 1990, as amended, which
     prohibits private employers and state and local governments from
     discriminating against job applicants and employees on the basis of
     disability.

e.   The Civil Rights Act of 1991, which reverses in whole or in part, several
     recent Supreme Court decisions interpreting Title VII.

f.   The Age Discrimination in Employment Act (A.R.S. Title 41-1461, et seq.);
     which prohibits discrimination based on age.

g.   State Executive Order 99-4 and Federal Order 11246 which mandates that all
     persons, regardless of race, color, religion, sex, age, national origin or
     political affiliation, shall have equal access to employment
     opportunities.

h.   Section 503 of the Rehabilitation Act of 1973, as amended, which prohibits
     discrimination in the employment or advancement of the employment of
     qualified persons because of physical or mental handicap.


                                      A-3            Acute Care Renewal (CYE 02)
                                                                        Draft #3

<PAGE>



ATTACHMENT A                                           Contract/REP No. YH8-0001
================================================================================

i.   Section 504 of the Rehabilitation Act of 1973, as amended, which prohibits
     discrimination on the basis of handicap in delivering contract services.

19) COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION

The Contractor shall comply with all applicable AHCCCS Rules and Audit Guide
relating to the audit of the Contractor's records and the inspection of the
Contractor's facilities. If the Contractor is an inpatient facility, the
Contractor shall file uniform reports and Title XVIII and Title XIX cost
reports with AHCCCSA.

20) CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION

By signing this subcontract, the Contractor certifies that all representations
set forth herein are true to the best of its knowledge.

21) CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING

By signing this subcontract, the Contractor certifies that it has not engaged
in any violation of the Medicare Anti-Kickback statute (42 USC ss.ss.1320a-7b)
or the "Stark I" and "Stark ii" laws governing related-entity referrals (PL
101-239 and PL 101-432) and compensation therefrom. If the Contractor provides
laboratory testing, it certifies that it has complied with 42 CFR ss.411.361
and has sent to AHCCCSA simultaneous copies of the information required by that
rule to be sent to the Health Care Financing Administration.

22) CONFLICT IN INTERPRETATION OF PROVISIONS

In the event of any conflict in interpretation between provisions of this
subcontract and the AHCCCS Minimum Subcontract Provisions, the latter shall
take precedence.

23) ENCOUNTER DATA REQUIREMENT

If the Contractor does not bill the prime contractor (e.g., Contractor is
capitated), the Contractor shall submit encounter data to the prime contractor
in a form acceptable to AHCCCSA.

24) CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988

The Clinical Laboratory Improvement Amendment (CLIA) of 1988 requires
laboratories and other facilities that test human specimens to obtain either a
CLIA Waiver or CLIA Certificate in order to obtain reimbursement from the
Medicare and Medicaid (AHCCCS) programs. In addition, they must meet all the
requirements of 42 CFR 493, Subpart A.

To comply with these requirements, AHCCCSA requires all clinical laboratories
to provide verification of CLIA Licensure or Certificate of Waiver during the
provider registration process. Failure to do so shall result in either a
termination of an active provider ID number or denial of initial registration.
These requirements apply to all clinical laboratories.

Pass-through billing or other similar activities with the intent of avoiding
the above requirements are prohibited. Prime contractor may not reimburse
providers who do not comply with the above requirements.

25) INSURANCE

[This provision applies only if the Contractor provides services directly to
AHCCCS members]

The Contractor shall maintain for the duration of this subcontract a policy or
policies of professional liability insurance, comprehensive general liability
insurance and automobile liability insurance. The Contractor agrees that any
insurance protection required by this subcontract, or otherwise obtained by the
Contractor, shall not limit the responsibility of Contractor to indemnify, keep
and save harmless and defend the State and AHCCCSA, their agents, officers and
employees as provided herein. Furthermore, the Contractor shall be fully
responsible for all tax obligations, Worker's Compensation Insurance, and all
other applicable insurance coverage, for itself and its employees, and AHCCCSA
shall have no responsibility or liability for any such taxes or insurance
coverage.

                                      A-4            Acute Care Renewal (CYE 02)
                                                                        Draft #3

<PAGE>


ATTACHMENT A                                           Contract/RFP No. YH8-0001
================================================================================

26) FRAUD AND ABUSE

If the Contractor discovers, or is made aware, that an incident of potential
fraud or abuse has occurred, the Contractor shall report the incident to the
prime contractor, who shall proceed in accordance with the AHCCCS Health Plans
and Program Contractors Policy for Prevention, Detection and Reporting of Fraud
and Abuse Incidents involving potential member eligibility fraud should be
reported to AHCCCSA, Office of Program Integrity, Member Fraud Unit. All other
incidents of potential fraud should be reported to AHCCCSA, Office of the
Director, Office of Program Integrity. (See AHCCCS Rule R9-22-511.)


                                      A-5            Acute Care Renewal (CYE 02)
                                                                        Draft #3

<PAGE>



ATTACHMENT B                                           Contract/RFP No. YH8-0001
================================================================================

                    ATTACHMENT B: MINIMUM NETWORK STANDARDS

                         (By Geographic Service Area)

INSTRUCTIONS:

Contractors shall have in place an adequate network of providers capable of
meeting contract requirements. The information that follows describes the
minimum network requirements by Geographic Service Area (GSA). In some GSA's
there are required service sites located outside of the geographical boundary
of a GSA. The reason for this relates to practical access to care. In certain
instances, a member must travel a much greater distance to receive services
within their assigned GSA, if the member were not allowed to receive services
in an adjoining GSA or state.

Split zip codes occur in some counties. Split zip codes are those which
straddle two different counties. Enrollment for members residing in these zip
codes is based upon the county and GSA to which the entire zip code has been
assigned by AHCCCS. The Contractor shall be responsible for providing services
to members residing in the entire zip code that is assigned to the GSA for
which the Contractor has agreed to provide services. The split zip codes GSA
assignments are as follows:

     ZIP CODE  SPLIT BETWEEN            COUNTY ASSIGNED          ASSIGNED GSA
               THESE COUNTIES                 TO
     ------------------------------------------------------------------------
     85220     Pinal and Maricopa            Maricopa                 12
     85242     Pinal and Maricopa            Maricopa                 12
     85292     Gila and Pinal                Gila                      8
     85342     Yavapai and Maricopa          Maricopa                 12
     85358     Yavapai and Maricopa          Maricopa                 12
     85390     Yavapai and Maricopa          Maricopa                 12
     85643     Graham and Cochise            Cochise                  18
     85645     Pima and Santa Cruz           Santa Cruz               18
     85943     Apache and Navajo             Navajo                   16
     86336     Coconino and Yavapai          Yavapai                   6
     86351     Coconino and Yavapai          Coconino                  6
     86434     Mohave and Yavapai            Yavapai                   6

If outpatient specialty services (OB, family planning, and pediatrics) are not
included in the primary care provider contract, at least one subcontract is
required for each of these specialties in the service sites specified. General
surgeons must be available within 50 miles of service sites.

In Tucson (GSA 10) and Metropolitan Phoenix (GSA 12), the Contractor must
demonstrate its ability to provide PCP, dental and pharmacy services so that
members don't need to travel more than 5 miles from their residence.
Metropolitan Phoenix is defined on the Minimum Network Standard page specific
to GSA # 6.

                                                          Acute Care Renewal(02)

<PAGE>


ATTACHMENT B                                           Contract/RFP No. YH8-0001
================================================================================

At a minimum, the Contractor shall have a physician with admitting and
treatment privileges with each hospital in its network. Contractors in GSA 10
and/or GSA 12 must have at least one hospital contract in each service
district. This requirement is part of the Hospital Subcontracting and
Reimbursement Pilot Program, described more fully in Section D, Paragraph 35,
Hospital Reimbursement. A list of Phoenix and Tucson area hospitals are
included.

Provider categories required at various service delivery sites
included in the Service Area Minimum Network Standards are indicated as
follows:

          H  Hospitals
          P  Primary Care Providers (physicians, certified nurse practitioners
             and physician assistants)
          D  Dentists
          Ph Pharmacies


                                                          Acute Care Renewal(02)

<PAGE>


ATTACHMENT B                                           Contract/RFP No. YH8-0001
================================================================================

HOSPITALS IN PHOENIX METROPOLITAN AREA (By service district, by zip code)

DISTRICT 1
----------
85006     Good Samaritan Regional Medical Center
          Phoenix Children's Hospital
          St. Luke's Medical Center
85007     Phoenix Memorial Hospital
85008     Maricopa Medical Center
85013     St. Joseph's Hospital & Medical Center
85015     Phoenix Baptist Hospital & Medical Center
85020     John C. Lincoln Hospital -North Mountain
85027     John C. Lincoln Hospital -Deer Valley

DISTRICT 2
----------
85031     Maryvale Hospital Medical Center
85031     Paradise Valley Hospital
85306     Thunderbird Samaritan Medical Center
85308     Arrowhead Community Hospital & Medical Center
85351     Walter O. Boswell Memorial Hospital
85375     Del E. Webb Memorial Hospital
85054     Mayo Clinic Hospital

DISTRICT 3
----------
85201     Mesa General Hospital Medical Center
          Mesa Lutheran Hospital
85202     Desert Samaritan Medical Center
85206     Valley Lutheran Hospital
85224     Chandler Regional Hospital
85251     Scottsdale Healthcare- Osborn
85261     Scottsdale Healthcare- Shea
85281     Tempe St. Luke's Hospital


                                                          Acute Care Renewal(02)

<PAGE>



ATTACHMENT B                                           Contract/RFP No. YH8-0001
================================================================================

HOSPITALS IN TUCSON METROPOLITAN AREA (By service district, by zip code)

DISTRICT 1
----------
85719     University Medical Center
85741     Northwest Hospital
85745     Carondelet St. Mary's Hospital

DISTRICT 2
----------
85711     Carondelet St. Joseph's Hospital
85712     El Dorado Hospital Tucson Medical Center
85713     Kino Community Hospital


                                                          Acute Care Renewal(02)
[GRAPHIC OMITTED]

<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
COUNTIES: LA PAZ AND MOHAVE                       Geographic Service Area 4

Hospitals
---------
Bullhead City                                     [GRAPHIC OMITTED]
Kingman
Lake Havasu City
Parker
St. George, Utah                                                 + KINGMAN
                                                                   ---------
Primary Care Providers                                              H,P,D,Ph
----------------------
Blythe
Bullhead City
Colorado City/Hilldale/Knab, Utah            + BULLHEAD CITY
Kingman                                        -------------
Lake Havasu City                               H,P,D,Ph
Parker
St. George, Utah/Mesquite                        +LAKE HAVASU CITY
                                                   ----------------
Dentist                                            H,P,D,Ph
-------
Blythe
Bullhead City
Colorado City/Hilldale/Kanab, Utah
Kingman                                  + PARKER
Lake Havasu City                           --------
Parker St.                                 H,P,D,Ph
St. George, Utah/Mesquite


Pharmacies
----------
Blythe
Bullhead City
Kanab, Utah
Kingman
Lake Havasu City
Parker St.
St. George, Utah/Mesquite



H=Hospital     P=Primary Care Physician       D=Dentist          Ph=Pharmacy


S:Finlpmf/power point/Attachment B


<PAGE>



                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 2
COUNTY: YUMA


Hospitals
---------
Yuma

Primary Care Providers
----------------------
Yuma
Somerton
Wellton

Dentist
-------
Yuma

Pharmacies
----------                                   YUMA
Yuma                                      +  --------
                                             H,P,D,Ph


                                        + SOMERTON + WELLTON
                                          --------   -------
                                             P          P




H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy


S:Fin/pmf/power point/Attachment B




<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 6

COUNTIES: COCONINO AND YAVAPAI

Hospitals                                         [GRAPHIC OMITTED]
---------
Cottonwood                                                     + PAGE
Flagstaff                                                        ----
Kanab, Utah                                                      H,P,D,Ph
Kingman
Page
Payson                                                 + WILLIAMS
Phoenix Wickenburg                                       --------
Prescott                                                  P,D,Ph
Winslow
                                                                    + FLAGSTAFF
Primary Care Providers                                                ---------
----------------------                                                H,P,D,Ph
Camp Verde
Cottonwood                                                    + SEDONA
Flagstaff                                                       ------
Knab, Utah                                                       P,D,Ph
Kingman
Page                                                COTTONWOOD +
Payson                                              ----------
Phoenix/Wickenburg                                   H,P,D,Ph
Prescott
Prescott Valley                         PRESCOTT VALLEY +
Sedona                                  ---------------
Williams                                  P,D,Ph               + CAMP VERDE
Winslow                                                          ----------
                                             + PRESCOTT            P,D,Ph
                                               --------
                                               H,P,D,Ph

Dentist
-------
SAME AS PRIMARY CARE
PROVIDERS

Pharmacies
----------
SAME AS PRIMARY CARE
PROVIDERS


H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy


S:Fin/pmf/power point/Attachment B



<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 12


COUNTY: MARICOPA
                                                       [GRAPHIC OMITTED]
Hospital
--------
Metropolitan Phoenix*
  District 1                            WICKENBURG +
    Contract Required                   ----------
  District 2                             H,P,D,Ph
    Contract Required
  District 3
    Contract Required                                            + METRO PHOENIX
Wickenburg                                                         -------------
  Physician(s) w/admit and treatment                               H,P,D,Ph
  privileges required


Primary Care Providers
----------------------                                    +
Avondale/Goodyear/Litchfield            AVONDALE/GOODYEAR
  Park/Tolleson                         LITCHFIELD PARK/TOLLESON
Buckeye                                 ------------------------
Gila Bend                               P,D,Ph
Metropolitan Phoenix*                                  + BUCKEYE
Queen Creek                                              -------
Wickenburg                                                P,Ph


Dentist                                                + GILA BEND
-------                                                  ---------
Avondale/Buckeye/Goodyear/Litchfield                     P
  Park/Tolleson
Metropolitan Phoenix*
Wickenburg


Pharmacies
----------
Avondale/Goodyear/Litchfield
  Park/Tolleson
Buckeye
Metropolitan Phoenix*
Wickenburg

*For Purposes of this RFP, Metropolitan Phoenix encompasses the following:
Phoenix, Paradise Valley, Cave Creek/Carefree, Fountian Hills, Scottsdale,
Glendale, Sun City/Sun City West, Tempe, Mesa, Gilbert, Chandler, Apache
Junction, Peoria, El Mirage, Guadalupe, Surprise and Youngtown. Within this
area, distance standards must be met as specified in Attachment B.

H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy


S:Fin/pmf/power point/Attachment B


<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 10


COUNTY: PIMA                                      [GRAPHIC OMITTED]

Hospital
--------                                                              + CATALINA
Tucson                                                 MARANA +         --------
  District 1                                           ------           P,D,Ph
    Contract Required                                  P
  District 2
    Contract Required                             + AJO
Nogales                                             ---
  Physician(s) w/admit and treatment                P,D,Ph            TUCSON
   privileges required                                                ------
                                                                      H,P,D,Ph
Primary Care Providers
----------------------
Ajo
Catalina                                               GREEN VALLEY
Green Valley/Continental                               CONTINENTAL  +
Nogales                                                ------------
Oro Valley                                             P,D,Ph
Tucson

Dentist
-------
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

Pharmacies
----------
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy


S:Fin/pmf/power point/Attachment B


<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 8


COUNTIES: COCONINO AND YAVAPAI


Hospital                                                 [GRAPHIC OMITTED]
--------
Casa Grande                                            + PAYSON
Claypool                                                 ------
Mesa                                                     H,D,P,Ph
Payson
                                                                 + CLAYPOOL
Primary Care Providers                                             --------
----------------------                                             H,P,D,Ph
Apache Junction                                             MIAMI
Casa Grande                                                 ----- +
Coolidge/Florence                                           P,D,Ph
Eloy                                                   +
Globe/Miami/Claypool                           APACHE JCT
Kearney                                        ----------
Mammoth/San Manuel/Oracle                      P,D,Ph
Mesa
Payson
                                                       + FLORENCE     + KEARNY
Dentist                                                  --------       ------
-------                                                  P,D,Ph         P,D,Ph
Apache Junction
Casa Grande                                         + COOLIDGE
Coolidge/Florence                                     --------
Eloy                                                  P,D,Ph
Globe/Miami/Claypool                       + CASA GRANDE                MAMMOTH
KearneY                                      -----------                -------
Mammoth/San Manuel/Oracle                    H,P,D,Ph                   P,D,Ph
Mesa                                                                        +
Payson
                                             + ELOY    ORACLE +
                                               ----    ------
                                               P,D     P,D,Ph      + SAN MANUEL
                                                                     ----------
                                                                     P,D,Ph

Pharmacies
----------
Apache Junction
Casa Grande
Coolidge/Florence
Globe/Miami/Claypool
Kearney
Mammoth/San Manuel/Oracle
Mesa
Payson




H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy


S:Fin/pmF/power point/Attachment B


<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 16


COUNTIES: APACHE AND NAVAJO
                                                       [GRAPHIC OMITTED]


Hospital
--------
Gallup, NM
Showlow
Springerville
Winslow


Primary Care Providers
----------------------
Gallup, NM
Holbrook                                        + WINSLOW
Showlow/Pinetop/Lakeside                          --------
Snowflake/Taylor                                  H,P,D,Ph
Springerville/Eager
St. Johns                                         HOLBROOK +       ST. JOHNS +
Winslow                                           --------         --------
                                                  P,D,Ph           P,D,Ph

                                                  SNOWFLAKE/TAYLOR +
Dentist                                           ----------------
-------                                           P,D,Ph
Gallup, NM
Holbrook                                            SHOWLOW +
Showlow/Pinetop/Lakeside                            --------
Snowflake/Taylor                                    H,P,D,Ph    SPRINGERVILLE +
Springerville/Eager                                             -------------
St. Johns                                                       H,P,D,Ph
Winslow                                           PINETOP/LAKESIDE +
                                                  ----------------
                                                  P,D,Ph            EAGER
                                                                    -----  +
Pharmacies                                                          P,D,Ph
----------
Gallup, NM
Holbrook
Showlow/Pinetop/Lakeside
Snowflake/Taylor
Springerville/Eager
St. Johns
Winslow



H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy



S:Fin/pmf/power point/Attachment B


<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 14


COUNTIES: GRAHAM AND GREENLEE

                                                        [GRAPHIC OMITTED]
Hospital
--------
Safford


Primary Care Providers                                 MORENCI +
----------------------                                 -------      + CLIFTON
Morenci/Clifton                                        P,D,Ph         -------
Safford                                                               P,D,Ph


Dentist
-------
Morenci/Clifton
Safford
                                             THATCHER +
                                             --------            +
Pharmacies                                   Ph                    SAFFORD
----------                                                         -------
Morenci/Clifton                                                    H,P,D,Ph
Safford/Thatcher



H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy


S: Fin/pmf/power point/Attachment B




<PAGE>


                                                  Attachment B
                                                  Minimum Network Standards
                                                  Geographic Service Area 18


COUNTIES: COCHISE AND SANTA CRUZ


Hospital
--------
Benson
Bisbee
Douglas
Nogales
Sierra Vista
Tucson
Wilcox                                                            + WILLCOX
                                                                    --------
                                                                    H,P,D,Ph
Primary Care Providers
----------------------
Benson                                                 + BENSON
Bisbee                                                   ------
Douglas                                                  H,P,D,Ph
Nogales
Sierra Vista
Tucson
Wilcox

                                                       + SIERRA VISTA
Dentist                                                  ------------
-------                                                   H,P,D,Ph
Benson/Wilcox
Bisbee                                   NORALES         BISBEE +       DOUGLAS
Douglas                                  -------         ------         -------
Nogales                                + H,P,D,Ph        H,P,D,Ph     + H,P,D,Ph
Sierra Visas
Tucson


Pharmacies
----------
Benson
Bisbee
Douglas
Nogales
Sierra Vista
Tucson
Wilcox



H=Hospital     P=Primary Care Physician           D=Dentist      Ph=Pharmacy


S:Fin/pmf/power point/Attachment B


<PAGE>


ATTACHMENT F                                           Contract/RFP No. YH8-0001
================================================================================

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

The following table is a summary of the periodic reporting requirements for
AHCCCS acute care contractors and is subject to change at any time during the
term of the contract. The table is presented for convenience only and should
not be construed to limit the Contractor's responsibilities in any manner.
"Reporting Guide" refers to the Reporting Guide for Acute Health Care
Contractors with the Arizona Health Care Cost Containment System.

<TABLE>
                                                                                                   AHCCCS
REPORT                            WHEN DUE                      SOURCE/REFERENCE                   CONTACT:
---------------------------------------------------------------------------------------------------------------------
<S>                               <C>                           <C>                                <C>
Monthly Financial Report          45 days after the end of      Reporting Guide                    Financial
                                  the month, as applicable                                         Manager
---------------------------------------------------------------------------------------------------------------------
Quarterly Financial Report        60 days after the end of      Reporting Guide                    Financial
                                  each quarter                                                     Manager
---------------------------------------------------------------------------------------------------------------------
Draft Annual Audit Report         90 days after the end of      Reporting Guide                    Financial
                                  each fiscal year                                                 Manager
---------------------------------------------------------------------------------------------------------------------
Draft Management Letter           90 days after the end of      Reporting Guide                    Financial
                                  each fiscal year                                                 Manager
---------------------------------------------------------------------------------------------------------------------
Final Annual Audit Report         120 days after the end of     Reporting Guide                    Financial
                                  each fiscal year                                                 Manager
---------------------------------------------------------------------------------------------------------------------
Final Management Letter           120 days after the end of     Reporting Guide                    Financial
                                  each fiscal year                                                 Manager
---------------------------------------------------------------------------------------------------------------------
Accountant's Report on            120 days after the end of     Reporting Guide                    Financial
Compliance                        each fiscal year                                                 Manager
---------------------------------------------------------------------------------------------------------------------
Reconciliation - Annual           120 days after the end of     Reporting Guide                    Financial
Audit and Plan Year-to-           each fiscal year                                                 Manager
Date Financial Report
Information
---------------------------------------------------------------------------------------------------------------------
Financial Disclosure Report       120 days after the end of     Reporting Guide                    Financial
                                  each fiscal year                                                 Manager
---------------------------------------------------------------------------------------------------------------------
Annual Analysis of                120 days after the end of     Reporting Guide                    Financial
Profitability by Major Rate       each fiscal year                                                 Manager
Code (by County)
---------------------------------------------------------------------------------------------------------------------
PPC Lag Schedules                 120 days after the end of     Reporting Guide                    Financial
                                  each fiscal year                                                 Manager
---------------------------------------------------------------------------------------------------------------------
Physician Incentive Plan          Annually by October 1st       RFP, Section D, Paragraph 18       Financial
(PIP) reporting                   of each year                                                     Manager
---------------------------------------------------------------------------------------------------------------------
Quarterly FQHC Reports            60 days after the end of      RFP, Section D, paragraph 26       Financial
                                  each quarter                                                     Manager
---------------------------------------------------------------------------------------------------------------------
Provider Affiliation              10 business days after the    PMMIS Provider-to-Health           Health Plan
Transmission                      beginning of each quarter     Plan FTP submission and            Operations
                                                                processing                         Manager
---------------------------------------------------------------------------------------------------------------------
Corrected Pended                  Monthly, according to         Encounter Manual                   Encounter
Encounter Data                    established schedule                                             Administrator
---------------------------------------------------------------------------------------------------------------------
New Day Encounter Data            Monthly, according to         Encounter Manual                   Encounter
                                  established schedule                                             Administrator
---------------------------------------------------------------------------------------------------------------------
Medical Records for Data          90 days after the request     RFP, Section C, Paragraph 1        Data Validation
Validation                        received from                                                    Manager
                                  AHCCCSA
---------------------------------------------------------------------------------------------------------------------

                                                       F-1                                Acute Care Renewal (CYE 02)
                                                                                                             Draft #3



<PAGE>



ATTACHMENT F                                                                                Contract/RFP No. YH8-0001
=====================================================================================================================

---------------------------------------------------------------------------------------------------------------------
Quarterly Grievance and           45 days after the end of       RFP, Section D, Paragraph 63        Administrative
Appeals Report                    each quarter                                                       Assistant
---------------------------------------------------------------------------------------------------------------------
Comprehensive EPSDT               Annually on December 1         RFP, Section D, Paragraph 16        OMM MCH
Plan including Dental                                                                                Manager
---------------------------------------------------------------------------------------------------------------------
EPSDT Progress Report             15 days after the end of       AMPM, Chapter 400                   OMM MCH
including Dental - Quarterly      each quarter                                                       Manager
Update
---------------------------------------------------------------------------------------------------------------------
Quarterly Inpatient Hospital      15 days after the end of       State Medicaid Manual and           OMM CSM
Showing                           each quarter                   the AMPM, Chapter 1000              Administrator
---------------------------------------------------------------------------------------------------------------------
Quality Management/               Annually on November           AMPM, Chapter 900                   OMM Assistant
Utilization Management            15th                                                               Medical Director
Plan Evaluation and                                                                                  for Quality
Revision
---------------------------------------------------------------------------------------------------------------------
Monthly Pregnancy                 End of the month               AMPM, Chapter 400                   OMM MCH
Termination Report                following the pregnancy                                            Manager
                                  termination
---------------------------------------------------------------------------------------------------------------------
Maternity Care Plan               Annually on December           AMPM, Chapter 400                   OMM MCH
                                  1st                                                                Manager
---------------------------------------------------------------------------------------------------------------------
Semi-annual report of             30 days after the end of       AMPM, Chapter 400                   OMM MCH
number of pregnant women          the 2nd and 4th quarter                                            Manager
who are HIV/AIDS positive         of each contract year
---------------------------------------------------------------------------------------------------------------------
                                  Annually on November           AMPM, Chapter 900                   OMM Assistant
Quality Improvement               15th                                                               Medical Director
Project Proposal                                                                                     for Quality
(initial/baseline year of the
project)
---------------------------------------------------------------------------------------------------------------------
Quality Improvement               Annually on December           AMPM, Chapter 900                   OMM Assistant
Project Interim Report            15th                                                               Medical Director
(intervention/measurement                                                                            for Quality
year(s) of the project)
---------------------------------------------------------------------------------------------------------------------
Quality Improvement               Within 180 days of the         AMPM Chapter 900                    OMM Assistant
Project Final Report              end of the project, as                                             Medical Director
                                  defined in the project                                             for Quality
                                  proposal approved by
                                  AHCCCS OMM
---------------------------------------------------------------------------------------------------------------------
Provider Fraud/Abuse              Immediately following          AHCCCS Internal                     Office of
Report                            discovery                      Audit/Program Investigation         Program
                                                                 Policy for Prevention,              Integrity
                                                                 Detection and Reporting of          Manager
                                                                 Fraud and Abuse
---------------------------------------------------------------------------------------------------------------------
Eligible Person                   Immediately following          AHCCCS Internal                     Office of
Fraud/Abuse Report                discovery                      Audit/Program Investigation         Program
                                                                 Policy for Prevention,              Integrity
                                                                 Detection and Reporting of          Manager
                                                                 Fraud and Abuse
---------------------------------------------------------------------------------------------------------------------


                                                      F-2                                 Acute Care Renewal (CYE 02)
                                                                                                             Draft #3

<PAGE>


ATTACHMENT F                                                                                Contract/RFP No. YH8-0001
=====================================================================================================================

---------------------------------------------------------------------------------------------------------------------
Non-Transplant                    Annually, within 30 days       RFP, Section D, Paragraph 39        OMM CMS
Catastrophic Reinsurance          of the beginning of the                                            Reinsurance
covered Diseases                  contract year, enrollment                                          Manager
                                  to the plan, and when
                                  newly diagnosed.
---------------------------------------------------------------------------------------------------------------------





























                                                      F-3                                 Acute Care Renewal (CYE 02)
                                                                                                             Draft #3

</TABLE>

<PAGE>


ATTACHMENT G                                           Contract/RFP No. YH8-0001
================================================================================
ATTACHMENT G: AUTO-ASSIGNMENT ALGORITHM

Members who have the right to choose but do not exercise this right, are
assigned to contractors through an auto-assignment algorithm. The algorithm is
a mathematical formula used to distribute members to the various contractors in
a manner that is predictable and consistent with AHCCCSA goals.

The algorithm employs a data table and a formula to assign cases (a case may be
a member or a household of members) to contractors using the target percentages
developed. The algorithm data table consists of all the zip codes in the state,
all contractors serving each zip code area, and the target percentages by rate
code within each zip code.

The contractor farthest away from its target percentage within a zip code and
rate code, the largest negative difference, is assigned the next case for that
zip code. The equation used is:

          (t/T)-P=d

t =  The total members assigned to the zip code per rate code category for the
     contractor

T =  The total members assigned to the zip code per rate code category, all
     contractors combined

P =  The target percentage of members for the rate code for the contractor

d =  The difference

The algorithm is calculated after each assignment to give a new difference for
each contractor. When more than one contractor has the same difference, and
their differences are greater than all other contractors, the contractor with
the lowest Health Plan I.D. Number will be assigned the case.

All contractors, within a given geographic service area (GSA) and for each rate
code, will have a placement in the algorithm and will receive members
accordingly. A contractor with a more favorable target percentage in the
algorithm will receive proportionally more members. Conversely, a contractor
with a lower target percentage in the algorithm will receive proportionally
fewer members. The algorithm favors contractors with both lower final bids and
awarded rates. The algorithm also favors those contractors with programs that
score higher based on AHCCCSA's evaluation criteria.

Development of the Target Percentages

For the first year of the contract, the algorithm target percentages will be
developed using the methodology described below. However, for subsequent years,
AHCCCS reserves the right to change the algorithm methodology to assure
assignments are made in the best interest of the AHCCCS program and the state.

A contractor's placement in the algorithm is based upon the following three
factors which are weighted equally (i.e., 33.33%):

1.   The final capitation rate bid submitted by the contractor. Final bids that
     are below the bottom of the rate range will be assigned to the bottom of
     the rate range for development of the target percentages.

2.   The contractor's final awarded rate from AHCCCSA.

3.   The contractor's score on the Program component of the proposal.

Points will be assigned to each contractor by rate code by GSA. Based on the
rankings of the final bids submitted and the final awarded rates, each
contractor will be assigned a number of points for each of these two components
separately as follows:


                                      G-1



<PAGE>



ATTACHMENT G                                           Contract/RFP No. YH8-0001
================================================================================

<TABLE>
                                         TABLE FOR FACTORS #1 AND #2
-----------------------------------------------------------------------------------------------------------
   Number of                   2nd        3rd        4th        5th        6th          7th          8th
   Awards in      Lowest     Lowest     Lowest     Lowest     Lowest      Lowest      Lowest        Lowest
      GSA          Rate       Rate       Rate       Rate       Rate        Rate        Rate          Rate
===========================================================================================================
<S>    <C>          <C>        <C>      <C>        <C>        <C>          <C>        <C>           <C>
       2            60         40
-----------------------------------------------------------------------------------------------------------
       3            44         32         24
-----------------------------------------------------------------------------------------------------------
       4            35         28         22         15
-----------------------------------------------------------------------------------------------------------
       5            30         25         20         15         10
-----------------------------------------------------------------------------------------------------------
       6            26         23         19         15         11          6
-----------------------------------------------------------------------------------------------------------
       7            25         20         17         14         11          8             5
-----------------------------------------------------------------------------------------------------------
       8            25         17         15         13         11          8             6            5
-----------------------------------------------------------------------------------------------------------
</TABLE>

Contractors that have equal bids in a GSA for the same rate code will be given
an equal percentage of the points for all of the positions combined.

The third component of the calculation, program scores, will be assigned a
number of points based on where the contractor ranks among the scores. The
higher the score, the more points assigned. For this component, points will be
assigned as follows:


                                            TABLE FOR FACTOR #3

<TABLE>
-----------------------------------------------------------------------------------------------------------
   Number of      Highest       2nd        3rd       4th        5th         6th          7th          8th
   Awards in      Program     Highest    Highest   Highest    Highest     Highest      Highest      Highest
      GSA          Score       Score      Score     Score      Score       Score        Score        Score
-----------------------------------------------------------------------------------------------------------
<S>    <C>          <C>         <C>      <C>       <C>        <C>         <C>          <C>           <C>
       2            66          40
-----------------------------------------------------------------------------------------------------------
       3            44          32         24
-----------------------------------------------------------------------------------------------------------
       4            35          28         22         15
-----------------------------------------------------------------------------------------------------------
       5            30          25         20         15         10
-----------------------------------------------------------------------------------------------------------
       6            26          23         19         15         11          6
-----------------------------------------------------------------------------------------------------------
       7            25          20         17         14         11          8            5
-----------------------------------------------------------------------------------------------------------
       8            25          17         15         13         11          8            6             5
-----------------------------------------------------------------------------------------------------------
</TABLE>

Contractors that have equal program scores will be given an equal percentage of
the points for all of the positions combined.

The points awarded for the three components will be combined as follows to give
the target percentage for each contractor by GSA by rate code.

Final Bid Points + Awarded Bid Points + Program Score Points = TARGET PERCENTAGE
------------------------------------------------------------
                            300

Contractors that have equal bids in a GSA for the same rate code will be given
an equal percentage of the positions combined.


                                      G-2

<PAGE>


ATTACHMENT H                                           Contract/RFP No. YH8-0001
================================================================================

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS

The Contractor shall have in place a written grievance and request for hearing
policy for members and providers which defines and explains their rights
regarding any adverse action by the Contractor. The Contractor shall also
ensure compliance with the Members' Rights and Responsibilities Policy, as well
as R9-22-Article 13 and R9-31-Article 13. The written grievance and request
for hearing policy shall be in accordance with applicable federal and State
laws and AHCCCS rules and policies including, but not limited to R9-22-Article
8 and R9-31-Article 8. The grievance and request for hearing policy shall
include the following provisions:

a.   The grievance and request for hearing policy shall be provided to members
     at the time of enrollment with the Contractor.

b.   The grievance and request for hearing policy shall be provided to all
     subcontractors at the time of contract. For providers without a contract,
     the grievance and request for hearing policy may be mailed with a
     remittance advice, provided the remittance is sent within 45 days of
     receipt of a claim.

c.   The grievance and request for hearing policy must specify that all
     grievances, with the exception of those challenging claim denials, must be
     filed with the Contractor no later than 60 days from the date of the
     adverse action. Grievances challenging claim denials must be filed in
     writing with the Contractor no later that 12 months from the date of
     service, 12 months after the date of eligibility posting or within 60 days
     after the date of a timely claim submission, whichever is later.

d.   Specific individuals are appointed with authority to require corrective
     action and with requisite experience to administer the grievance and
     request for hearing policy.

e.   A log is maintained for all grievances and requests for hearing containing
     sufficient information to identify the Complainant, date of receipt,
     nature of the grievance and the date the grievance is resolved. Separate
     logs must be maintained for provider and member grievances

f.   Within five working days of receipt, the Complainant is informed by letter
     that the grievance has been received.

g.   All correspondence must be provided in a second language in accordance
     with the Member Information standards set forth in Section D, Paragraph 8.
     In addition, the Contractor must make arrangements to ensure that it
     complies with "cultural competency requirements."

h.   Each grievance and request for hearing is thoroughly investigated using
     the applicable statutory, regulatory, contractual and policy provisions,
     ensuring that facts are obtained from all parties.

i.   All documentation received and mailed by the Contractor during the
     grievance and request for hearing process is dated upon receipt.

j.   All grievances and requests for hearing are filed in a secure designated
     area and are retained for five years following the Contractor's decision,
     the Administration's decision, judicial appeal or close of the grievance,
     whichever is later.

k.   A copy of the Contractor's decision will be either hand-delivered or
     delivered by certified mail to all parties whose interest has been
     adversely affected by the decision. The decision shall be mailed to all
     other individuals by regular mail. The date of the decision shall be the
     date of personal delivery or, if mailed, the postmark date of the mailing.
     The decision must include and describe in detail, the following:

          1.   the nature of the grievance

          2.   the issues involved

          3.   the reasons supporting the Contractor's decision, explained in
               easy to understand terms for members, including references to
               applicable statute, rule, applicable contractual provisions,
               policy and procedure

          4.   the Complainant's right to request a hearing by filing the
               request for hearing to the Contractor no later than 30 days
               after the date of the Contractor's decision.

l.   If the Contractor's decision is appealed and a request for hearing is
     filed, the Contractor must ensure that all supporting documentation is
     received by the AHCCCSA, Office of Legal Assistance no later than five


                                       H-1           Acute Care Renewal (CYE 02)
                                                                        Draft #3

<PAGE>


ATTACHMENT H                                           Contract/RFP No. YH8-0001
================================================================================

working days from the date the Contractor receives the request for hearing or
from the date of the verbal or written request from AHCCCSA, Office of Legal
Assistance. The file sent by the Contractor must contain a cover letter that
includes:

     1.   Complainant's name

     2.   Complainant's AHCCCS ID number

     3.   Complainant's address

     4.   Complainant's phone number (if applicable)

     5.   date of receipt of grievance

     6.   summary of the Contractor's actions undertaken to resolve the
          grievance and basis of the determination

m. The following material shall be included in the file sent by the Contractor:

     1.   written request of the Complainant asking for the request for hearing

     2.   copies of the entire file which includes the investigations and/or
          medical records; and the Contractor's decision

     3.   other information relevant to the resolution of the grievance

n.   The Contractor may attempt to use alternative resolution procedures to
     resolve disputes presented to the Contractor verbally or in writing. If
     the Contractor elects to use an alternative resolution process, it must be
     administered and completed within 10 days from receipt of the dispute. If
     the matter is not resolved to the Complainant's satisfaction within the
     10-day time period, the dispute must then be adjudicated using the
     grievance and request for hearing standards referenced above. However, the
     Contractor must render the written decision no later than 30 days from the
     date of the initial filing of the grievance or dispute unless a longer
     period was agreed to by the parties involved.

o.   For all disputes where an alternative resolution is proposed, the
     Contractor must maintain a separate log, complying with the relevant
     paragraphs above.


                                       H-2           Acute Care Renewal (CYE 02)
                                                                        Draft #3

<PAGE>


ATTACHMENT I                                           Contract/RFP No. YH8-0001
================================================================================

ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed sanctions for noncompliance with encounter
submission requirements. AHCCCSA may also perform special reviews of encounter
data, such as comparing encounter reports to the Contractor's claims files. Any
findings of incomplete or inaccurate encounter data may result in the
imposition of sanctions or requirement of a corrective action plan.

Pended Encounter Corrections

The Contractor must resolve all pended encounters within 120 days of the
original processing date. Sanctions will be imposed according to the following
schedule for each encounter pended for more than 120 days unless the pend is
due to AHCCCSA error:

0 - 120 days  121 - 180 days   181 - 240 days    241 - 360 days   361 + days
No sanction   $ 5 per month    $ 10 per month    $ 15 per month   $ 20 per month

"AHCCCSA error" is defined as a pended encounter which (1) AHCCCSA acknowledges
to be the result of its own error, and (2) requires a change to the system
programming, an update to the database reference table, or further research by
AHCCCSA. AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA in writing that the resolution of a pended
encounter depends on AHCCCSA rather than the Contractor, AHCCCSA will respond
in writing within 30 days of receipt of such notification. The AHCCCSA response
will report the status of each pending encounter problem or issue in question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA reviews the
Contractor's notification and asks the Contractor to research the issue and
provide additional substantiating documentation, or if AHCCCSA disagrees with
the Contractor's claim of AHCCCSA error. If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error, the
Contractor may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor in writing of the
total number of sanctionable encounters pended more than 120 days.

Pended encounters shall not be deleted by the Contractor as a means of avoiding
sanctions for failure to correct encounters within 120 days. The Contractor
shall document deleted encounters and shall maintain a record of the deleted
CRNs with appropriate reasons indicated. The Contractor shall, upon request,
make this documentation available to AHCCCSA for review.

Encounter Validation Studies

Per CMS requirement, AHCCCSA will conduct encounter validation studies of the
Contractor's encounter submissions, and sanction the Contractor for
noncompliance with encounter submission requirements. The purpose of encounter
validation studies is to compare recorded utilization information from a
medical record or other source with the Contractor's submitted encounter data.
Any and all covered services may be validated as part of these studies.
Encounter validation studies will be conducted at least yearly.

The following reflects AHCCCSA's encounter validation study process and
sanction policy as of 10/1/97. AHCCCSA may revise study methodology, timelines,
and sanction amounts based on agency review or as a


                                       I-1           Acute Care Renewal (CYE 03)
                                                                        Draft #3


<PAGE>


ATTACHMENT I                                           Contract/RFP No. YH8-0001
================================================================================

result of consultations with CMS. The Contractor will be notified in writing of
any significant change in study methodology.

AHCCCSA will conduct two encounter validation studies. Study "A" examines
non-institutional services (form HCFA 1500 encounters), and Study "B" examines
institutional services (form UB-92 encounters).

AHCCCSA will notify the Contractor in writing of the sanction amounts and of
the selected data needed for encounter validation studies. The Contractor will
have 90 days to submit the requested data to AHCCCSA. In the case of medical
records requests, the Contractor's failure to provide AHCCCSA with the records
requested within 90 days may result in a sanction of $1,000 per missing medical
record. If AHCCCSA does not receive a sufficient number of medical records from
the Contractor to select a statistically valid sample for a study, the
Contractor may be sanctioned up to 5% of its annual capitation payment.

The criteria used in encounter validation studies may include timeliness,
correctness, and omission of encounters. These criteria are defined as follows:

Timeliness: The time elapsed between the date of service and the date that the
encounter is received at AHCCCS. All encounters must be received by AHCCCSA no
later than 240 days after the end of the month in which the service was
rendered, or the effective date of enrollment with the Contractor, whichever is
later. For all encounters for which timeliness is evaluated, a sanction per
encounter error extrapolated to the population of encounters may be assessed if
the encounter record is received by AHCCCSA more than 240 days after the date
determined above. It is anticipated that the sanction amount will be $1.00 per
error extrapolated to the population of encounters; however, sanction amounts
may be adjusted if AHCCCSA determines that encounter quality has changed, or if
CMS changes sanction requirements. The Contractor will be notified of the
sanction amount in effect for the studies at the time the studies begin.

Correctness: A correct encounter contains a complete and accurate description
of AHCCCS covered services provided to a member. A sanction per encounter error
extrapolated to the population of encounters may be assessed if the encounter
is incomplete or incorrectly coded. It is anticipated that the sanction amount
will be $1.00 per error extrapolated to the population of encounters; however,
sanction amounts may be adjusted if AHCCCSA determines that encounter quality
has changed, or if CMS changes sanction requirements. The Contractor will be
notified of the sanction amount in effect for the studies at the time the
studies begin.

Omission of data: An encounter not submitted to AHCCCSA or an encounter
inappropriately deleted from AHCCCSA's pending encounter file or historical
files in lieu of correction of such record. For Study "A" and for Study "B", a
sanction per encounter error extrapolated to the population of encounters may
be assessed for an omission. It is anticipated that the sanction amount will be
$5.00 per error extrapolated to the population of encounters for Study "A" and
$10.00 per error extrapolated to the population of encounters for Study "B";
however, sanction amounts may be adjusted if AHCCCSA determines that encounter
quality has changed, or if CMS changes sanction requirements. The Contractor
will be notified of the sanction amount in effect for the studies at the time
the studies begin.

For encounter validation studies, AHCCCSA will select all approved and pended
encounters to be studied no earlier than 240 days after the end of the month in
which the service was rendered. Once AHCCCSA has selected the Contractor's
encounters for encounter validation studies, subsequent encounter submissions
for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters, or may select
a sample. The sample size, or number of encounters to be reviewed, will be
determined using statistical methods in order to accurately estimate the
Contractor's error rates. Error rates will be calculated by dividing the number
of errors found by


                                       I-2           Acute Care Renewal (CYE 03)
                                                                        Draft #3

<PAGE>


ATTACHMENT I                                           Contract/RFP No. YH8-0001
================================================================================

the number of encounters reviewed. A 95% confidence interval will be used to
account for limitations caused by sampling. The confidence interval shows the
range within which the true error rate is estimated to be. If error rates are
based on a sample, the error rate used for sanction purposes will be the lower
limit of the confidence interval.

Encounter validation methodology and statistical formulas are provided in the
AHCCCS Encounter Data Validation Technical Document, which is available in the
Bidders Library. This document also provides examples, which illustrate how
AHCCCSA determines study sample sizes, error rates, confidence intervals, and
sanction amounts.

Written preliminary results of all encounter validation studies will be sent to
the Contractor for review and comment. The Contractor will have a maximum of 30
days to review results and provide AHCCCSA with additional documentation that
would affect the final calculation of error rates and sanctions. AHCCCSA will
examine the Contractor's documentation and may revise study results if
warranted. Written final results of the study will then be sent to the
Contractor and communicated to CMS, and any sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed by AHCCCSA
not more than 35 days after the Contractor receives final study results from
AHCCCSA. Challenges will be reviewed by AHCCCSA and a written decision will be
rendered no later than 60 days from the date of receipt of a timely challenge.
Sanctions shall not apply to encounter errors successfully challenged. A
challenge must be filed on a timely basis and a decision must be rendered by
AHCCCSA prior to filing a grievance and request for hearing pursuant to Article
8 of AHCCCS Rules. Sanction amounts will be deducted from the Contractor's
capitation payment.

Encounter Adjustments

Contractors are required to submit adjusted or voided encounters in the event
that claims are subsequently adjusted or denied after the initial encounter
submission. This includes adjustments for inaccuracies identified by fraud and
abuse audits or investigations conducted by AHCCCSA or the Contractor.
Contractors shall refer to the Encounter User's Manual for further instructions
regarding adjustments to encounters.


                                       I-3           Acute Care Renewal (CYE 03)
                                                                        Draft #3