UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For fiscal year ended DECEMBER 31, 2001

                                     OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ________ to ________

                         Commission file number 1-13340

                       Mid Atlantic Medical Services, Inc.
             (Exact name of registrant as specified in its charter)

                               Delaware 52-1481661
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)

                     4 Taft Court, Rockville, Maryland 20850
               (Address of principal executive offices) (Zip Code)

                                 (301) 294-5140
              (Registrant's telephone number, including area code)
                    Securities registered pursuant to Section
                               12(b) of the Act:
                              Name of Each Exchange
                     Title of Each Class on Which Registered
                    ------------------- ---------------------
                Common Stock, $0.01 par value The New York Stock
                            per share. Exchange, Inc.

        Securities registered pursuant to Section 12(g) of the Act: None.

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Sec.  229.405 of this chapter) is not contained  herein,  and
will not be contained,  to the best of the registrant's knowledge, in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
                                                                 [ ]

Aggregate  market  value  of  voting  and  non-voting   common  equity  held  by
non-affiliates computed by reference to the price at which the common equity was
sold,  or the average  bid and asked price of such common  equity as of March 4,
2002: Approximately $1,037 million.

                      APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
                 47,504,822 shares of common stock as of March 4, 2002






<PAGE>



                       DOCUMENTS INCORPORATED BY REFERENCE

The Proxy  Statement for the  Registrant's  annual meeting of shareholders to be
held on April 23, 2002 is  incorporated  by reference into Part III of this Form
10-K.

                                                                 2

<PAGE>



                               FORM 10-K

                                 INDEX

ITEM NO.   DISCLOSURE REQUIRED                                    PAGE

                                 PART I

Item 1     Business ..............................................   4
Item 2     Properties ............................................  14
Item 3     Legal Proceedings .....................................  14
Item 4     Submission of Matters to a Vote of Security Holders ...  14

                                 PART II

Item 5     Market for Registrant's Common Equity and Related
             Stockholder Matters ................................   15
Item 6     Selected Financial Data ..............................   16
Item 7     Management's Discussion and Analysis of Financial
             Condition and Results of Operations ................   17
Item 7A    Quantitative and Qualitative Disclosures About
             Market Risk ........................................   26
Item 8     Financial Statements and Supplementary Data ..........   27
Item 9     Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure ................   50

                                 PART III

Item 10    Directors and Executive Officers of the Registrant ...   51
Item 11    Executive Compensation ...............................   51
Item 12    Security Ownership of Certain Beneficial Owners
             and Management .....................................   51
Item 13    Certain Relationships and Related Transactions .......   51

                                 PART IV
Item 14    Exhibits, Financial Statement Schedules
             and Reports on Form 8-K ............................   52










                                                                 3

<PAGE>



                                     PART I

ITEM 1. BUSINESS

Mid Atlantic Medical Services, Inc. is a holding company for subsidiaries active
in managed health care and other life and health insurance  related  activities.
Mid Atlantic  Medical  Services,  Inc. and its  subsidiaries  (the  "Company" or
"MAMSI")  offer a broad  range of  managed  health  care  coverage  and  related
ancillary insurance and other products and deliver these services through health
maintenance  organizations  ("HMOs"), a preferred provider organization ("PPO"),
and a life and health insurance company.  MAMSI owns a home health care company,
a pharmaceutical services company and a hospice company. The Company also owns a
collections  company and  maintains  a  partnership  interest  in an  outpatient
surgery center.

GENERAL DEVELOPMENT OF BUSINESS

MAMSI was  incorporated in Delaware in 1986 to serve as a holding company for MD
- Individual Practice Association,  Inc. ("M.D. IPA") and Physicians Health Plan
of  Maryland,  Inc.  ("PHP-  MD").  MAMSI made an exchange  offer for all of the
issued and outstanding shares of common stock of M.D. IPA and PHP-MD in 1987.

M.D. IPA, a Federally qualified HMO, was organized as a non-stock corporation in
1979. M.D. IPA operated as a non-profit  organization until 1985 when it amended
its articles of incorporation and was reorganized into a stock corporation.

PHP-MD, an individual practice association ("IPA"), was organized as a non-stock
corporation in 1979 to provide  physician and other medical services to M.D. IPA
enrollees.  PHP-MD  operated  as a non-stock  organization  until it amended its
articles of incorporation and was reorganized into a stock corporation in 1984.

MANAGED HEALTH ORGANIZATIONS

MAMSI's primary  business is providing health care coverage through its HMOs and
its life and health insurance  company.  During 2001, MAMSI offered HMO coverage
through three licensed HMO  subsidiaries  - M.D. IPA,  Optimum  Choice,  Inc.(R)
("OCI"),  and Optimum Choice of the Carolinas,  Inc. ("OCCI")  (hereinafter M.D.
IPA,  OCI and OCCI  will be  collectively  referred  to as the  "HMOs" or "MAMSI
HMOs").  MAMSI offers life, health,  dental and short-term  disability insurance
through MAMSI Life and Health Insurance Company ("MLH").

M.D. IPA became a licensed HMO in Maryland in 1981, in Virginia in 1985,  and in
the  District  of Columbia  in 1996.  M.D.  IPA's  present  service  area (which
includes all geographic areas in which the HMO received  regulatory  approval to
cover health care services) includes the entire state of Maryland,  the District
of Columbia  and most  counties  and cities in Virginia  including  the Northern
Virginia,  Richmond/Tidewater  and Roanoke areas ("HMO Service Area").  M.D. IPA
serves  governmental  entities such as the U.S.  Office of Personnel  Management
under  the  Federal  Employees  Health  Benefits  Program,   State  of  Maryland
employees, and most recently D.C. Government employees.

OCI, a  non-Federally  qualified HMO, became a licensed HMO in Maryland in 1988,
in Virginia in 1990,  in Delaware in 1993,  in West  Virginia in 1994 and in the
District of Columbia in 1996. OCI serves small as well as large employers. OCI's
present  commercial  service area includes the entire  states of Maryland,  West
Virginia and Delaware, the District of Columbia, and most counties and cities in
Virginia.

OCCI, a non-Federally  qualified HMO, became a licensed HMO in North Carolina in
1995 and South Carolina in 1996. OCCI services small and large employers. OCCI's
present  service  area  includes  certain  areas of  North  Carolina  and  South
Carolina. OCCI has yet to market its products in South Carolina.


                                                                 4

<PAGE>



MLH, a life and  health  insurance  company,  is  licensed  in 31 states and the
District of Columbia and actively markets in the states in which the Company has
licensed  HMOs,   including  Maryland,   Virginia,   West  Virginia,   Delaware,
Pennsylvania  and North Carolina.  MLH sells group health  insurance,  including
indemnity,  PPO,  and  point of  service  health  products  to large  and  small
employers and  individuals.  MLH also sells dental insurance and group term life
insurance as well as short-term disability insurance.

GENERAL

HMOs  typically  arrange for the  provision of  comprehensive  medical  services
(including  physician  and  hospital  care) to  enrollees  for a fixed,  prepaid
premium.  Enrollees  generally  receive  care from  participating  Primary  Care
Physicians  ("PCPs")  who,  when  required,  refer  enrollees  to  participating
specialists  and  hospitals.  HMOs require  enrollees  to utilize  participating
physicians and other participating health care practitioners.

The goal of an HMO is to encourage the efficient, effective, and appropriate use
of health care services.  This includes monitoring physician services,  hospital
admissions  and  lengths  of  stay  and  maximizing  the   appropriate   use  of
non-hospital based medical services.

The  Company's  HMO  network of  physicians  and health  care  practitioners  is
organized as an Individual Practice  Association  ("IPA").  Under the IPA model,
the HMO contracts with a broadly  dispersed  group of physicians and health care
practitioners  to provide  medical  services to enrollees in the physicians' own
offices and in  hospitals;  the  physicians  and health care  practitioners  are
generally paid on a capitated or a discounted fee for service basis.  Physicians
and health care  practitioners  may contract  directly with the HMO or through a
designated organization that, in turn, contracts with the HMO.

MAMSI'S HMO PRODUCTS

MAMSI's HMOs offer a range of benefit plans for  providing  health care coverage
to enrollees.  Generally, enrollees arrange for coverage through their employer.
However, in certain circumstances, group enrollees can convert their coverage to
an individual contract upon separation from their employer. Employers may or may
not renew their HMO agreements annually.  Moreover,  within each employer group,
the HMO may  experience  fluctuations  in enrollment  by  individual  enrollees.
MAMSI's HMOs also offer individual  coverage to the commercial market in some of
their service areas.

Under  traditional  HMO  coverage,  the  enrollee  selects  a PCP from the HMO's
network of physicians and health care practitioners. For benefits to be covered,
an enrollee must generally  coordinate care through the PCP. The enrollee pays a
copayment for all PCP and  specialist  office visits and may also be required to
pay a copayment for hospital admissions and emergency room services.

Except in emergencies,  and certain other limited circumstances,  enrollees must
coordinate care through their PCP which generally  utilizes those  participating
professional and  institutional  health care physicians and  practitioners  that
have contracted  with the IPA (see further  discussion  under "HMO  Arrangements
with Physician and Institutional Health Care Practitioners").

OCI and M.D. IPA, in conjunction with MLH, and OCCI also offer  point-of-service
coverage.  This coverage  allows  enrollees the flexibility of seeking care from
the PCP or  from  any  physician  of  their  choice  (point-of-service  option).
Whenever  care is provided  under the  point-of-service  option and the enrollee
visits a physician or health care practitioner  outside of the HMO network,  the
plan generally covers the lesser of 80% of the requested  charges or 100% of the
maximum  allowable  charges  for  the  service  provided.  The  enrollee  may be
responsible for the remainder of the charge.



                                                                 5

<PAGE>



Additionally,  MAMSI, through its subsidiaries,  offers hybrid products to large
employer groups. These products offer the ability to tailor employee health care
offerings by varying benefit designs, funding methods and insurance risk. Hybrid
products  generally  compete  in  the  so-called   "self-funded"  employer  plan
marketplace.  A typical  hybrid  product  combines the use of capitated  PCPs to
serve as care  coordinators and employer funding of specialist and institutional
claims  on an "as  paid"  basis.  For some  large  groups,  MAMSI,  through  its
subsidiaries,  OCI and MLH,  underwrites  the risk of loss on a specific  and/or
aggregate stop loss basis.

Under all coverage  options,  enrollees  receive the following  basic  benefits:
primary and specialist physician services;  hospital services such as diagnostic
tests, x-rays, nursing and maternity services;  outpatient diagnostic tests such
as laboratory  tests,  x-rays,  and allergy testing and  injections.  A pharmacy
benefit is provided under most coverage options.

MLH currently  underwrites the indemnity  coverage of the HMOs  point-of-service
plans,  except OCCI, in addition to offering  stand-alone  indemnity  (including
PPO) health and dental insurance, aggregate and specific stop loss insurance for
self-insured groups, and group life,  accidental death and short-term disability
policies.  In addition,  MLH provides an  administrative  services  only ("ASO")
product to the State of Maryland.  ASO business  consists of allowing  access to
MAMSI's network of physicians and health care  practitioners  and the processing
and payment of claims. MAMSI has no insurance risk on this product.

The Company's total health plan  membership  (managed care full risk and hybrid,
ASO  and  indemnity  health   insurance)  in  the  HMOs  and  MLH  increased  to
approximately 874,000 at December 31, 2001 from 772,000 at December 31, 2000, an
increase of 13.2 percent.

The following table sets forth information relevant to MAMSI's HMO and indemnity
health plans as of December 31, 2001:

Employer Groups Served              36,500
Population of Aggregate HMO
  Service Area                  21,000,000
HMO Service Area Penetration
  (All HMO's)                           23%
Primary Care Physicians              8,100
Specialist Physicians               24,400
Other Affiliated Health
  Care Practitioners                11,700
Hospitals and Outpatient
  Facilities                         2,600
Pharmacies                          21,300

A significant  portion of the Company's premium revenue is derived from Federal,
state and local government agencies. For the years ended December 31, 2001, 2000
and 1999,  approximately  10%, 8% and 8%,  respectively,  of premium revenue was
derived from Federal  government  agencies  which is included the All Others and
Risk segments (as described in Item 8 "Financial  Statements  and  Supplementary
Data", Note 14), and approximately 15%, 14% and 21%,  respectively,  was derived
from Maryland and Virginia state and local  government  agencies  located in the
Company's  service area which is included in the Risk  segment (as  described in
Item 8 "Financial Statements and Supplementary Data", Note 14).

PREFERRED PROVIDER ORGANIZATION ("PPO")

MAMSI offers access to its preferred  provider  network  through its  subsidiary
Alliance PPO,  LLC,  ("Alliance").  Effective  January 1, 2001,  MAMSI's  former
subsidiary Mid Atlantic  Psychiatric  Services,  Inc.  ("MAPSI") was merged into
Alliance.  MAPSI's  behavioral  health and substance abuse network  continues to
operate as a product offering under Alliance.


                                                                 6

<PAGE>



PPOs allow enrollees to receive care from a network of participating  physicians
and health care  practitioners  who agree to provide  services at  contractually
negotiated  rates in exchange for increased  patient volume.  A PPO is different
than an HMO in that PPOs  allow  participants  the choice of using  health  care
physicians and  practitioners  outside of the PPO network.  The enrollee usually
has a financial  incentive to seek  services from a  participating  physician or
health care  practitioner  and can avoid higher  out-of-pocket  expenses such as
co-payments, coinsurance or deductibles that are applied when an out-of- network
physician or health care practitioner is used.

Alliance  operates by being  incorporated  into an  employer's  current  benefit
program,  and  offers  access to  physician,  hospital  and  facility  services,
utilization  management  and  claims  screening  and  re-pricing.  The  employer
determines the level of the benefits, eligibility and any applicable co-payments
or deductibles.

Alliance does not assume any insurance risk from medical  utilization and is not
the  claims  payor.  The  payor can be a  self-funded  employer,  a third  party
administrator  (TPA), a Union Health  Benefits Trust Fund or a health  insurance
company.  In return for access to the PPO's network,  Alliance charges the payor
either a per  employee  rate or a  percentage  of the  savings of actual  claims
processed for the services  accessed.  Alliance provides access to substantially
the same network of physicians and health care practitioners as MAMSI HMOs.

Alliance is marketed  primarily to and through  insurance  companies,  insurance
brokers,  consultants,  third party administrators,  self-insured  employers and
union health and welfare trusts.  The advantages of this marketing  approach are
minimized  marketing  costs and maximized  market coverage  through  established
employer  relationships.  Alliance also works directly with employers and unions
that are self-insured and use direct marketing efforts.  Major competition comes
from other PPOs and insurance carriers.

As of December 31, 2001, Alliance had contracts with approximately 18,700 groups
that had access to the Company's  entire  network of physicians  and health care
practitioners,  including MAPSI's  behavioral health and substance abuse network
of over 4,500 psychiatrists,  psychologists, social workers and other affiliated
licensed behavioral health physicians and practitioners.

Alliance offers optional access to its behavioral health network,  MAPSI,  which
is  comprised  of  physicians  and health  care  practitioners  specializing  in
behavioral health and substance abuse care. In addition, Alliance contracts with
indemnity  insurers that want to offer groups a managed care  behavioral  health
product.  Alliance believes that it has a competitive  advantage with its unique
behavioral  health  screening  process  that offers the  employer the benefit of
enhanced coordinated treatment for employees as well as increased cost savings.

Alliance  products are most often marketed  jointly  however,  the purchaser may
purchase the MAPSI  product  only. A total of  approximately  958,000  lives are
covered under one or both of these PPO products as of December 31, 2001.

PPOs are not subject to HMO  regulations by virtue of their  business.  However,
PPOs are subject to certain  state  regulations  governing  the provision of PPO
services such as mandatory state registration. It is reasonably likely that PPOs
may be subject to increased regulatory oversight in the future.

OTHER PRODUCTS

In October, 1994, MAMSI acquired all of the outstanding stock of HomeCall,  Inc.
("HomeCall") and its wholly-owned subsidiary, FirstCall, Inc. ("FirstCall"), for
approximately  $10  million,  including  direct  expenses.  HomeCall  is a state
licensed,  Medicare  certified  home health agency.  The combined  operations of
HomeCall and FirstCall  include 17 branch  locations that serve virtually all of
Maryland, the District of Columbia,  Northern Virginia and the Panhandle area of
West Virginia. HomeCall achieved full accreditation from the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), following its survey of all
services in November,  1995. The Company  achieved  reaccreditation  in 1998 and
January, 2002.


                                                                 7

<PAGE>


Also during 1994, the Company formed a home infusion and a specialty  injectable
drug  distribution  services company,  HomeCall  Pharmaceutical  Services,  Inc.
("HCPS"),  which received its pharmacy license in 1994, its Federal license from
the Drug Enforcement  Agency in 1995, and JCAHO  accreditation in 1995 and 1998.
The Company achieved reaccreditation in January, 2002.

HomeCall,  FirstCall and HCPS provide  services  that are  generally  lower cost
alternatives to  institutional  treatment and care. The Company believes that it
can  provide  better  care to its  members  and  reduce  its  medical  costs  by
substituting,  where  medically  appropriate,  in- home  medical  treatment  for
treatment in an institutional setting.

Medical  services  provided by  HomeCall,  FirstCall  and HCPS  include  skilled
nursing,  advanced  nursing  in  support of  infusion  therapy,  maternal/infant
nursing,  physical,  speech  and  occupational  therapy,  medical  social  work,
nutrition  consultation  and home health care aides.  Services  provided by HCPS
include a comprehensive range of in-home drug infusion  therapies,  the delivery
of  infusion-ready  drugs for physician  office based infusion  therapy and some
hospice services.

In November, 1996, the Company started HomeCall Hospice Services, Inc. ("HHSI"),
which  received its  Maryland  state  license to operate a general  hospice care
program on December 3, 1996 and its Virginia  hospice  license on June 26, 1998.
Based in  Columbia,  Maryland,  HHSI  was  organized  to  address  the  needs of
terminally  ill  patients  and their  families.  The  hospice  program  provides
services  to  individuals  in the  comfort  of their  homes.  HHSI  underwent  a
voluntary  accreditation  review by JCAHO in November,  1998 and  received  full
accreditation. The Company achieved reaccreditation in January, 2002.

HHSI currently  serves the  Baltimore,  Washington,  D.C. and Northern  Virginia
metropolitan  areas. It is the goal of HHSI to extend its service  delivery area
to all  geographical  areas served by MAMSI.  The  addition of hospice  services
complements  MAMSI's other home care products by having a full range of services
available to its members.

In  addition  to  providing  in-home  medical  care  to the  Company's  members,
HomeCall, FirstCall, HHSI and HCPS continue to provide services to other payors,
including Medicare, insurance companies, other HMOs and individuals.

In January 2001, the Company established Alliance Recovery Services, LLC ("ARS")
as a collection  agency which provides  coordination of benefit services to TPAs
and insurance companies. ARS is licensed to do business in six states.

The Company also has an equity interest in an ambulatory  surgery center located
in Rockville,  Maryland.  The surgery  center  conducts  outpatient  surgery and
services to HMO enrollees and other patients.



                                                                 8

<PAGE>



A summary of MAMSI's membership enrollment in all product lines is as follows:

<TABLE>
<CAPTION>
                                MEMBERSHIP DATA AT DECEMBER 31
                               ---------------------------------
PRODUCT LINE                     2001        2000        1999
------------                   ---------------------------------
                                         (in thousands)
<S>                            <C>         <C>           <C>
Commercial HMO (1)               522.1        453.1        452.5
Hybrid HMO (2)                   122.4        103.4        100.4
Medicaid                             -            -         12.3
Indemnity                        220.6        206.2        189.5
ASO (3)                            8.9          9.3         11.0
                               -------      -------      -------
                                 874.0        772.0        765.7
PPO (4)                          958.4      1,019.3      1,024.0
                               -------      -------      -------
Total Membership               1,832.4      1,791.3      1,789.7
                               =======      =======      =======
</TABLE>

(1) Commercial HMO includes traditional HMO and point-of-service members.

(2) Hybrid  HMO  includes  any  business  that uses  MAMSI's  network  and PCPs,
utilization  management  services,  claims adjudication and payment services and
that has a self-funded  component.  Generally,  these products  include specific
and/or aggregate stop loss provisions.

(3) ASO  includes  administrative  services  only  business  without PCPs and no
assumption of insurance risk by any MAMSI affiliate.

(4) PPO includes all business  whereby  access is granted to MAMSI's  network of
physicians  and health care  practitioners.  MAMSI assumes no insurance risk and
does not provide claims payment services on this business.

HMO ARRANGEMENTS WITH PHYSICIAN AND INSTITUTIONAL HEALTH CARE PRACTITIONERS

M.D.  IPA and OCI  contract  with PHP-MD to provide  physician  and other health
practitioner  services to their enrollees.  The HMOs are ultimately  responsible
for  ensuring  that an  adequate  number of  physicians  and other  health  care
practitioners  are under  contract in order to provide  health care  services to
enrollees.

The Company contracts with primary care and specialist physicians,  dentists and
other  health  care  practitioners.  PCPs are paid  either a monthly  capitation
payment  for each  enrollee  who has  chosen  that PCP or a  discounted  fee for
service payment.  The capitation  payment varies according to the age and sex of
the enrollee and  according to the primary  care  designation  of the  physician
chosen by the  enrollee.  The  primary  care  designations  fall into one of two
types: (1) family and general practice,  pediatrics and internal  medicine,  and
(2) obstetrics and gynecology.

The  HMOs  have  contractual   arrangements  with  a  combined  total  of  2,600
facilities, consisting of 400 hospitals and 2,200 non-hospital facilities, as of
December 31, 2001.  These  facilities  are located in the  Company's HMO Service
Area. Contracts with facilities are renewable annually.

HMO ARRANGEMENTS FOR OTHER SERVICES

The HMOs also contract with a number of entities to arrange for the provision of
other  services,   i.e.   emergency  care,  home  health  care,   pharmaceutical
assistance, laboratory testing and dental.


                                                                 9

<PAGE>



QUALITY IMPROVEMENT AND OPERATIONS

MAMSI maintains a multi-disciplinary  approach to its Quality Improvement ("QI")
Program to ensure that its health  plan  members  have access to quality  health
care and services in an appropriate and cost-efficient manner.

MAMSI  recognizes  the  importance  of a QI Program to  determine  and  allocate
appropriate  resources  that will have the greatest  impact for members.  The QI
Program  is  designed  to meet  and  serve  the  needs  of  employers,  members,
physicians  and health  care  practitioners  as well as to  monitor  timeliness,
appropriateness and effectiveness of services via ongoing and systematic reviews
of key  indicators  and  aspects of care and  service.  The QI Program  conducts
member  satisfaction  surveys,  identifies  opportunities  for  improvements  in
providing care, adopts strategies to improve outcomes and monitors  improvements
to report progress.

MAMSI's  HMO and PPO  Network QI  Committees  operate  under the  direction  and
oversight of MAMSI's Board of Directors and include administrative, clinical and
health care  practitioner  representation.  Each  Committee  evaluates  numerous
quality  related  issues and outcomes  measuring  overall  services  provided to
enrollees.

In addition,  MAMSI utilizes  several quality review  mechanisms.  Physician and
health care practitioner applications are reviewed by a Credentials Committee in
order to determine  whether the  applicant  meets  MAMSI's  criteria,  including
appropriate training and experience.

MAMSI  maintains  a physician  review  process to  determine  whether the needed
levels of medical  service are being provided in a timely and efficient  manner.
The Company  conducts  medical  reviews to monitor the quality of care provided.
The Company also monitors  hospital and out- of-plan referrals issued by primary
care physicians.

In most situations,  prior  authorization must be obtained for elective hospital
admissions.   Failure  to  secure  prior  authorization  for  elective  hospital
admissions of enrollees may cause claims to be denied,  and in some  situations,
practitioners  may be  sanctioned.  Prior to  admission  for  elective  hospital
services, MAMSI applies certain medical criteria to authorize the admission.

After  admission  of an HMO  enrollee,  MAMSI  monitors  the course of  hospital
treatment  and  coordinates  discharge  planning with the physician and hospital
utilization  department.  The  clinical  care  coordination  staff  works with a
physician  during the course of treatment.  If the physician  needs to extend an
enrollee's  stay beyond the  expected  length of stay,  the  physician  provides
medical  justification  for the  necessity of such  proposed  action in order to
obtain specific approval.

The HMOs have  established  a grievance  procedure  to respond to  enrollee  and
practitioner  complaints.  Persons  covered  by HMOs are given a right to seek a
fast and fair review of adverse  utilization review decisions,  first internally
by a medical  director of the HMO and then in certain states,  by an independent
review  organization  or by a State  regulator.  Enrollees are encouraged to use
this procedure. There is a similar grievance procedure for physician complaints.

M.D. IPA  received  Excellent  Accreditation  from the  National  Committee  for
Quality Assurance  ("NCQA") for its commercial HMO and POS products in September
2000. OCI received an Excellent  Accreditation  from NCQA for its commercial HMO
and POS products in September 2001.

The Company's  home health care,  home infusion,  and home hospice  subsidiaries
underwent  voluntary  reaccreditation  review by JCAHO in November,  1998.  Full
accreditation  status was awarded as a result of this  process.  Reaccreditation
was achieved in January, 2002.

                                                                 10

<PAGE>



COMPETITION AND MARKETING STRATEGY

The  health  care  industry  is  characterized  by  intense  competition.  MAMSI
recognizes the possibility that other entities with greater  resources may enter
into  competition  with  MAMSI  in the  future  by  either  entering  its HMO or
indemnity service area or by designing alternative health care delivery systems.
HMOs  compete not only with other HMOs and managed care  organizations,  such as
physician and health care practitioner  sponsored  organizations,  but also with
insurance companies that offer indemnity insurance products.

MAMSI's  HMOs  compete  with a  significant  number  of  HMOs or  other  prepaid
alternative  health  care  delivery  systems  that have a  presence  in  MAMSI's
significant  service  areas  (Maryland,  Virginia,  the District of Columbia and
North  Carolina).  The following  table sets forth MAMSI's best estimate of 2001
enrollment of HMOs operating in its significant  service areas.  This table does
not include  indemnity  members of any of the listed companies  including MAMSI.
Certain companies listed have significant non-HMO membership.

<TABLE>
<CAPTION>
                                                              Approximate
                                                                 Number
Insurer/HMO                                                    of Members
-------------                                                 ------------
<S>                                                           <C>
Mid Atlantic Medical Services, Inc.............                  645,000
AETNA..........................................                  637,000
Kaiser Permanente Health Plan .................                  543,000
United Healthcare .............................                  501,000
CareFirst BlueCross BlueShield of Maryland**...                  441,000
Trigon ........................................                  339,000
Cigna Healthcare...............................                  309,000
Partners Healthplan of North Carolina..........                  298,000
Optima ........................................                  211,000
Blue Cross/Blue Shield of North Carolina.......                  105,000

</TABLE>
Source:  The InterStudy  Competitive  Edge - 11.1,  except for MAMSI  membership
which is as of December 31, 2001.

** - Includes  FreeState  Health Plan,  Inc.,  Delmarva  Health  Plan,  Inc. and
PHN-HMO, Inc. membership.

MAMSI's  HMOs compete  with other HMOs and  insurance  companies on the basis of
price, network and range of services offered to enrollees.  PHP-MD competes with
the same entities and with other IPAs for physician  services.  PHP-MD  believes
that its capitation payments to PCPs and the discounted fee for service payments
to specialists are competitive  with other HMOs. MAMSI believes that the freedom
IPA-model  HMOs offer  their  enrollees  in  choosing  from a greater  number of
physicians  constitutes a competitive  advantage over group or staff model HMOs.
The ability to retain and attract enrollees will depend, in part, on how present
enrollees  assess  their  benefit  packages,  quality  of  service,  network  of
physicians and health care practitioners,  rates and the HMOs' responsiveness to
enrollee needs.

MAMSI subsidiaries employed  approximately 350 full-time individuals who provide
marketing  services for the Company's  products as of December 31, 2001. MAMSI's
marketing strategy includes  identifying and contacting employers in its Service
Area. In addition,  the Company  employs  prospecting,  telemarketing,  employer
group consultation, referrals by consultants, and in the small group market, the
use of a minimum number of selected brokers to acquire new accounts. Since 1994,
the  Company's  strategy in the small group market has been to market  primarily
through its  internal  sales  force,  with less usage of  independent  insurance
producers.  In North  Carolina,  however,  the  Company is  marketing  primarily
through selected independent insurance producers.

                                                                 11

<PAGE>



RISK MANAGEMENT

The  Company  maintains  professional,   directors  and  officers,   errors  and
omissions, general liability and property insurance coverage in amounts believed
to be  adequate.  The  Company  requires  participating  hospitals  to  maintain
professional  liability coverage and physicians to have malpractice insurance. A
professional  liability  insurance  policy  provides  coverage in the event that
legal  action is taken  against  any entity as a result of  medical  malpractice
committed by a physician.

In addition,  MAMSI's HMOs reduce the financial impact of catastrophic losses by
maintaining  reinsurance  coverage for hospital costs.  The reinsurer for health
claims  indemnifies  either  90% of the  approved  per diem or fixed  charge per
procedure,  or 80% of the eligible in and out of service area acute care medical
expenses in excess of $200,000 per enrollee per year. Transplant costs conducted
in an approved  facility are reimbursed at either 90% or 80% of eligible charges
and in non-approved facilities at 50% of eligible charges. The coverage provides
reimbursement  benefits for a lifetime maximum of $2,000,000 in eligible medical
costs with no more than  $1,000,000 in any given year. MLH reduces the financial
impact of life and accidental death claims by maintaining  reinsurance  coverage
for settlement costs. Reinsurance for life and accidental death claims generally
covers all  settlements  in excess of $50,000 per person,  subject to a $950,000
maximum  recovery  per  person  for life  claims  and  $1,000,000  per person on
accidental death claims.

GOVERNMENT REGULATION

MAMSI's  HMOs and MLH are  subject  to state  and,  in some  instances,  Federal
regulation.  Among the areas  regulated  are:  (i) premium  rate  setting;  (ii)
benefits provided; (iii) marketing;  (iv) physician and health care practitioner
contracts; (v) quality assurance and utilization review programs; (vi) adherence
to   confidentiality   and  medical  records   requirements;   (vii)  enrollment
requirements;  (viii) financial reserves and other fiscal solvency requirements;
(ix) appeals and grievances; and (x) claims adjudication processes.

Under  applicable  law,  HMOs  must  generally  provide  services  to  enrollees
substantially  on a fixed,  prepaid basis without regard to the actual degree of
utilization  of  services.  The  HMOs  generally  fix the  premiums  charged  to
employers  for a 12 month  period and revise the premium with each  renewal.  In
setting  premiums,  the HMOs forecast health care utilization rates based on the
relevant  demographics and also consider competitive  conditions and the average
number of enrollees in the employer group.  In addition to these  premiums,  HMO
enrollees also make co-payments to physicians and health care practitioners.

Although premiums established may vary from account to account through composite
rate  factors,  special  treatment of certain  broad  classes of  enrollees  and
projected claims experience,  Federal  regulations  generally prohibit Federally
qualified HMOs from traditional experience rating of accounts on a retrospective
basis.  Consistent  with the practices of other  Federally  qualified HMOs, M.D.
IPA, in some situations,  bases the premiums it charges employers in part on the
age, sex and geographic  location of the enrolled  employees.  M.D. IPA believes
that its premiums are  competitive  with other HMOs and health  insurers and its
health  coverage is a better value for members because of the range of physician
and hospital selection and other benefits provided.

With the exception of certain small group markets and other markets regulated by
Federal  and/or  state law, OCI and MLH use  underwriting  criteria as a part of
their risk management efforts. Underwriting is the process of analyzing the risk
of enrolling employer groups in order to establish an appropriate premium rate.


                                                                 12

<PAGE>



M.D. IPA contracts with the Office of Personnel Management ("OPM") to provide or
arrange health  services under the Federal  Employees  Health  Benefits  Program
("FEHBP"). The contract with OPM and applicable government regulations establish
premium rating  requirements for the FEHBP. The premiums  established  under the
OPM contract are subject to periodic  review and audit to determine if they were
established in compliance with the requirements  under the FEHBP. The results of
these audits could result in material adjustments. OPM's review of the Company's
premium rates has been  completed  for all years  through  1999. No  significant
modifications  resulted from the audit of the Company's 1999 rates.  OPM has not
yet reviewed 2001 or 2000.

MAMSI's HMOs must file periodic reports with, and are subject to periodic review
by  state  regulatory  authorities.  Although  MAMSI's  HMOs  are not  regulated
specifically as insurance companies, they must comply with certain provisions of
state  insurance  laws as well as other laws  specifically  enacted to  regulate
HMOs, such as minimum net worth and deposit requirements.

MLH is subject to  regulation  by the  department  of insurance in each state in
which it is licensed.  These regulations  subject MLH to extensive review of the
terms,  administration  and marketing of insurance  products offered and minimum
net worth  and  deposit  requirements.  In  addition,  MLH is  required  to file
periodic reports and is subject to periodic audits and continuing oversight. The
offering  of  certain  new  insurance  products  may  require  the  approval  of
regulatory agencies.

The Company's home health care  subsidiaries  are regulated  principally in four
areas:  home health care licensing;  certification  for participation in private
insurance and government reimbursement programs;  employee licensor and training
requirements;  and Federal occupational safety guidelines.  The Company believes
that  it is  in  compliance  with  all  applicable  regulations,  which  include
possessing  the  required  Certificates  of Need in all  locations in which such
certificates are required.  Additionally, the Company's pharmacy businesses have
obtained the necessary licenses and permits to operate.

MAMSI's  customers include employee health benefit plans subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"). To the extent that the Company
has  discretionary  authority in the operation of these plans, the Company could
be considered a plan fiduciary  under ERISA.  Plan  fiduciaries  are barred from
engaging in various prohibited  transactions,  including self-dealing.  They are
also required to conduct the operations of employee benefits plans in accordance
with each plan's terms.

INVESTMENTS

The  majority  of the  Company's  investments  are held by its  state  regulated
subsidiaries to satisfy capital, surplus and deposit requirements of the HMO and
insurance laws of the various  states in which the Company is licensed.  HMO and
insurance laws generally protect consumers of insurance products with one of the
principal  focuses being on financial  solvency of the companies that underwrite
insurance risk.  These laws and regulations  limit the types of investments that
can be made by the regulated entities with appropriate  investments being deemed
"admitted  assets." Admitted assets are those assets that can be used to fulfill
capital  and surplus  requirements.  The  Company's  current  investment  policy
generally  prohibits  investments  that would be  "non-admitted"  for  statutory
reporting  purposes.  The Company has no  investments  in  derivative  financial
instruments and has no current intention of owning such investments.

EMPLOYEES

As of December 31, 2001, the Company had a total of 3,148  employees,  including
2,801  full-  time  and  347  part-time  employees.  MAMSI's  home  health  care
subsidiary  employed 577 of these employees (374 on a full-time basis and 203 on
a part-time basis).  None of the Company's employees are covered by a collective
bargaining  agreement and the Company has notexperienced any work stoppage since
its inception.

                                                                 13

<PAGE>



TRADEMARKS

The  Company  has  federally  registered  the right to use the  trademark  names
"Optimum Choice, Inc." and "MAMSI".

SEGMENT INFORMATION

Segment   information   is  included  in  Item  8  "Financial   Statements   and
Supplementary Data" on pages 46 thru 47.

ITEM 2. PROPERTIES

The Company owns eight office buildings, one of which is sublet. These buildings
are located in Rockville and Frederick, Maryland and total approximately 453,000
square feet of office and warehouse space. The Company's headquarters is located
at 4 Taft Court, Rockville, Maryland 20850.

In addition,  the Company  leases  approximately  171,000  square feet of office
space in  various  locations  within  its  service  areas to  support  sales and
administrative operations.

ITEM 3. LEGAL PROCEEDINGS

In September  2000, the Company and other HMOs operating in Maryland were served
with similar class action suits  challenging  the  constitutionality  of the law
which allows the Company to subrogate against insurance companies. The Company's
action was filed in the Circuit  Court for  Montgomery  County,  Maryland  which
recently  ruled in another case which is now on appeal to the Maryland  Court of
Appeals that the subrogation law was  constitutional.  The Company believes that
its operations  with respect to the law are valid.  However,  the Company is not
able to predict, at this time, the ultimate outcome of this action.

On August 30, 2001, the Company filed a Demand for Arbitration with the American
Arbitration  Association  against  Merck-Medco  Managed Care,  LLC ("Merck") and
related  entities  seeking an order  relating to the  parties'  Integrated  Drug
Program Master Agreement (the  "Agreement").  The Company asserts that Merck has
reneged on its  obligations  under the Agreement,  the aggregate  amount of such
obligations  totaling  approximately  $49 million for fiscal year ended 2000. On
October 8, 2001,  Merck and related  entities  filed an Answer and  Counterclaim
alleging breach of contract and requesting monetary relief. On October 19, 2001,
the Company  filed an Answer to the  Counterclaim  denying all  allegations  and
revising its request for relief to $44.8 million.  The Company believes that the
dispute  will be  resolved  in its favor.  If the matter is not  resolved in the
Company's  favor,  the  effect  could be  material  to the  Company's  financial
statements. See Note 1 to the financial statements included in Item 8 for a more
complete description of the case.

The Company is involved in other  various  legal  actions  arising in the normal
course of  business,  some of which seek  substantial  monetary  damages.  After
review, including consultation with legal counsel,  management believes that any
ultimate liability that could arise from these other actions will not materially
effect the Company's consolidated financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters  submitted for  shareholder  vote in the fourth quarter of
2001.





                                                                 14

<PAGE>



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's  common stock is currently  listed on The New York Stock Exchange,
Inc.  ("NYSE") under the trading symbol MME. The following  table sets forth for
the  indicated  periods the high and low reported  closing  prices of the common
stock as furnished by the NYSE.
<TABLE>
<CAPTION>

                                     2001                     2000
                              -----------------        -----------------
                               HIGH        LOW          HIGH        LOW
                              -----------------        -----------------
<S>                          <C>        <C>           <C>       <C>
First Quarter                 $20.30     $14.94        $10.13     $ 7.63
Second Quarter                 21.08      15.34         13.75       9.00
Third Quarter                  23.05      17.63         16.13      12.63
Fourth Quarter                 22.96      16.70         21.25      15.44
</TABLE>

The Company has never paid any cash  dividends on its common stock and presently
anticipates  that no cash dividends will be declared in the foreseeable  future.
Any dividends  will depend on future  earnings,  the financial  condition of the
Company and regulatory  requirements.  See Note 12 to the Consolidated Financial
Statements.

On July 11, 2001, the Company's Stock  Compensation Trust ("SCT") purchased from
the Company  2,000,000 shares of the Company's common stock at a price of $18.25
per share for $20,000 in cash and  $36,480,000  in the form of a note payable to
the Company.  The sale was exempt under  Section 4(2) of the  Securities  Act of
1933, as amended, ("1933 Act"). The SCT is used to meet grant obligations of the
Company's  stock option  plans,  and the shares  issuable upon exercise of these
options are registered under the 1933 Act.

As of March 4, 2002 there were  approximately  665 stockholders of record of the
Company's common stock.


                                                                 15

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                              2001          2000          1999          1998          1997
                                           ----------    ----------    ----------    ----------    ----------
                                           (in thousands except share amounts, key ratios and operating data)

<S>                                        <C>           <C>           <C>           <C>           <C>
SELECTED INCOME STATEMENT DATA

Revenue                                    $1,807,735    $1,484,479    $1,317,316    $1,187,901    $1,111,653
Expense                                     1,723,393     1,427,721     1,277,486     1,175,665     1,090,213
Income before income taxes                     84,342        56,758        39,830        12,236        21,440
Net income                                     57,195        39,406        26,322         9,045        14,489
Earnings per common share
Basic                                           $1.48         $1.04         $0.64         $0.20          $.31
Diluted                                         $1.41         $1.00         $0.64         $0.20          $.31
Weighted Average Shares
  Basic                                    38,672,147    38,052,746    41,225,327    45,407,006    46,273,484
  Diluted                                  40,502,086    39,341,037    41,266,604    45,473,995    46,885,666
Dividends                                       ---           ---           ---           ---           ---

SELECTED BALANCE SHEET DATA (AT DECEMBER 31)

Working capital                            $  192,848    $  153,539    $  118,995    $  123,138    $  128,065
Total assets                                  594,213       467,023       388,584       362,775       345,959
Long-term debt                                      -             -             -            14            74
Stockholders' equity                          281,471       225,990       186,821       191,218       208,307
Cash dividends per common share (1)             ---           ---           ---           ---           ---
KEY RATIOS
Medical care ratio                               85.4%         86.5%         87.9%         88.8%         89.4%
Administrative expense ratio                     11.7%         12.1%         11.6%         11.3%         11.7%
Net income margin                                 3.2%          2.7%          2.0%          0.8%          1.3%
OPERATING DATA
Annualized hospital days per
  1,000 enrollees:
All products and health services (3)              250           244           238           265           297
HMO only (2)                                      196           192           191           191           192
Medicare (3)                                        -             -             -         2,425         2,566
Medicaid (3)                                        -             -           496           375           552
Annualized hospital admissions per
  1,000 enrollees (3)                              64            63            61            72            78
HMO, hybrid, ASO and indemnity
  health enrollees at year end                874,000       772,000       766,000       731,000       682,000
PPO enrollees at year end                     958,000     1,019,000     1,024,000     1,060,000     1,006,000
</TABLE>

Notes

1.   MAMSI has not declared or paid cash dividends on its common stock.

2.   Days are presented  exclusive of skilled nursing,  neonatal  intensive care
     and psychiatric inpatient care.

3.   Days include acute and non-acute,  skilled nursing, neonatal intensive care
     and  psychiatric  inpatient  care.  The  Company  ceased  participation  in
     Medicare in 1999 and Medicaid in 2000.


                                                                 16

<PAGE>



ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING INFORMATION

All forward-looking  information  contained in this Management's  Discussion and
Analysis  of  Financial   Condition  and  Results  of  Operations  is  based  on
management's   current  knowledge  of  factors,  all  with  inherent  risks  and
uncertainties,  affecting  MAMSI's  business.  MAMSI's actual results may differ
materially if these assumptions prove invalid.  Significant risk factors,  while
not all-inclusive, are:

1. The  possibility of increasing  price  competition  in the Company's  service
area.

2.  The effect on the Company due to a weaker economy.

3. The effect on the Company due to the recent acts of terrorism  and any future
attacks.

4. The possibility  that the Company is not able to increase its market share at
the anticipated premium rates.

5. The possibility of increased  litigation,  legislation or regulation (such as
the numerous  class action  lawsuits that have been filed  against  managed care
companies and the pending  initiatives to increase health care  regulation) that
might increase regulatory oversight which, in turn, would have the potential for
increased costs.

6. The  inability  to predict and control  medical  expenses due to:
     -  Increased   utilization  by  the  Company's   membership.
     -  Increased  practitioner  and  pharmaceutical  costs.
     - Federal or state  mandates that increase  benefits or limit the Company's
oversight ability.
     - Existing disputes under risk-sharing arrangements,  the Company's ability
to maintain and renew these  arrangements,  and any future  disputes  under such
arrangements.

7. The  possibility  that the  Company is not able to  negotiate  new or renewal
contracts  with  appropriate   physicians,   other  health  care  practitioners,
hospitals and facilities.

The list of significant risk factors is not intended to be exhaustive. There may
be other risk  factors  that would  preclude  the  Company  from  realizing  the
predictions  made in the  forward-looking  statements.  While  the  Company  may
periodically  update this  discussion  of risk  factors,  the  Company  does not
undertake  to update  any  forward-looking  statement  that may be made by or on
behalf of the Company prior to its next required  filing with the Securities and
Exchange Commission.

DISCUSSION OF MAMSI's BUSINESS AND IMPORTANT ACCOUNTING MATTERS

MAMSI,  through its 100% owned  subsidiary  companies,  is  predominately in the
business of selling various forms of health insurance.  In 2001, 96% of revenues
were earned from the sale of health insurance products,  mostly to employers who
purchase health insurance for their employees. Since premium rates are generally
fixed for a one year period, it is critical to the Company's continued financial
success  that its  prices  are set at levels  that will at least  cover the next
policy year's medical costs for members plus administrative costs to pay claims,
provide member services, pay taxes, and cover other related costs.

This means that we have to  carefully  evaluate  data and  estimate  both future
utilization of medical services by our members and the cost of those services so
that we can set premiums at adequate  levels.  This is the single most important
factor in our business.  Very simply,  if our medical  expenses are greater than
our premiums, we lose money.


                                                                 17

<PAGE>



While  MAMSI's  business  is  somewhat  complex  from  an  insurance  regulatory
standpoint,   its   consolidated   balance   sheet  and  income   statement  are
straightforward  and  the  accounting  policies  and  procedures  that we use to
produce  them are  reasonable  and  appropriate.  MAMSI does not own any special
purpose entities, does not have any complex or extraordinarily risky investments
nor does it have any off balance sheet financing  arrangements.  In fact,  MAMSI
has almost no debt outstanding.  The buildings that the Company owns and uses in
its operations do not even have  mortgages;  they are owned free and clear.  The
Company's  funds are held in cash or  invested  in money  market  accounts,  tax
exempt  securities  and  other  debt  securities.  All of the  bonds we own have
investment ratings of "A" or better.

Certain  of  our  accounting  policies  are  extremely  important  to  the  fair
presentation of our results and financial position.

We  think  that  the  single  most  important  accounting  issue  we have is the
recording,  at the end of each reporting  period,  of an adequate  liability and
corresponding  expense  for  medical  services  that have been  provided  to our
members but for which we have not yet received a bill.  This lag between date of
service  and  date of  billing  is  normal  in the  insurance  business  and the
liability for these claims is called  "liability for incurred,  but not reported
claims" ("IBNR").  The IBNR liability is included with medical claims payable in
our balance sheet.

The determination of the Company's IBNR is a fairly complex process. The Company
employs its own actuary to aid in its  determination.  The primary method we use
to estimate IBNR is consistent from period to period and uses historical  claims
data to develop the historical relationship of how many claims dollars have been
reported in any given month to what was received in total,  once all claims were
received.  This relationship  gives us an indication of how much medical expense
has been incurred in months for which we have not yet received all claims. While
we use a  consistent  method  in  developing  our  IBNR  estimate,  considerable
judgment is required.  To the extent that we over or under  estimate our IBNR at
the end of any reporting period, the adjustment is included in the next period's
results.

Another  important  accounting  policy  relates to our risk  sharing  contracts.
Certain of the Company's larger vendors offer various forms of "risk-sharing" or
"guarantees"  as a  part  of  their  contractual  relationship  with  us.  These
arrangements  are  not  significant  in  relation  to  the  Company's  financial
statements with one exception;  the Company's risk-sharing  arrangement with its
Pharmacy  Benefits  Manager  ("PBM").  The  Company's  PBM  is  responsible  for
providing  administrative and technical support as well as providing the ability
to process pharmacy transactions on a real time basis. The Company's current PBM
is Merck-Medco  Managed Care, LLC ("Merck").  As a part of its contract with us,
Merck agreed to a pharmacy  cost  guarantee  related to fiscal year 2000. We are
recording  the amount due under this  guarantee  over the contract term of three
years,  which  commenced  January  2000.  The total  value of the  guarantee  we
estimated for financial statement purposes is approximately $41 million of which
approximately  $28 million has been  recorded in our  financial  statements as a
reduction  of medical  expense  over the first two years of the  contract.  This
amount is also reported in the balance  sheets as a reduction of medical  claims
payable.  A dispute  between  Merck and the  Company  has arisen  over this cost
guarantee  which is in binding  arbitration.  While the Company  believes it has
complied  with the terms of its  contract  with  Merck,  and that its  financial
statements  are fairly  stated,  if the dispute is not resolved in the Company's
favor,  all or part of the $28 million might have to be  written-off  and future
amounts  not yet  recognized  might  never  be  recognized.  This in turn  could
increase the Company's  future medical expense more than currently  anticipated,
which  would  effect  the  Company's  overall  profitability.  See Note 1 to the
financial statements.

Another accounting policy that is very important to the fair presentation of our
financial results is the proper valuation of the Company's accounts  receivable.
The Company  bills the majority of its health  insurance  customers on a monthly
basis.  The premium bill is  typically  sent out 15 days in advance of the month
being  billed  for, so that the Company can receive the cash at the start of the
month  for which the  insurance  is being  provided.  The vast  majority  of our


                                                                 18

<PAGE>



customers pay in a timely fashion but some do not. After some communication,  we
generally receive payment but we do not always collect what we are due. This can
happen for a variety of reasons such as customers having financial difficulties,
disputes  regarding  the amount of the bill or a  customer  failing to notify us
that they have obtained other health  insurance.  To properly value the accounts
receivable  at its net  realizable  value we must  determine  an  allowance  for
doubtful accounts.

The  allowance  for  doubtful  accounts  reduces  the gross  amount of  accounts
receivable that are recorded, based on the bills sent, to the net amount that we
actually think we will receive.  The allowance also reduces  premium  revenue by
the same  amount.  To  determine  how much to record as a reduction of the gross
accounts  receivable,  we  prepare  an  accounts  receivable  aging.  This aging
segments the total accounts receivable balance by category as to when it was due
to the Company.  This allows us to evaluate how old our accounts receivable are.
We then prepare an evaluation based on historical collection percentages applied
to various categories of accounts. We also identify individual accounts that are
unlikely  to  pay  due  to  financial   or  other   problems  and  analyze  them
individually.  The aforementioned  analyses are then summarized and an allowance
is developed and recorded.  The Company applies this methodology on a consistent
basis from period to period.

GENERAL

During the three year period ended  December 31, 2001,  the Company  experienced
growth in membership.  While membership in certain  products  continues to grow,
other  products have  decreased  when compared to 2000. The Company has achieved
its  overall  size by  continually  expanding  its product  lines which  include
point-of-service,  small  group,  indemnity  health,  hybrid  products and group
term-life  and through  expansion  into new  geographic  markets.  Premium rates
during  this time have  increased,  yet  remain at  competitive  levels  for the
Company's marketplace.  During 2001, the Company's consolidated operating margin
showed  improvement over 2000. The Company achieved 2001's results,  in part, by
implementing  product price increases and reducing or eliminating  membership in
products or effectively  terminating groups that had the potential for continued
unprofitability.  The  Company  anticipates  that it will  continue  to increase
premium  rates  during  2002.   This  is  a   forward-looking   statement.   See
"Forward-Looking Information" above for a description of those risk factors.

The Company generally receives a fixed premium amount per member per month while
the majority of medical  expenses are  variable  and  significantly  affected by
spontaneous member utilization. Even with managed care controls, unusual medical
conditions  can occur,  such as an outbreak of influenza or a higher than normal
incidence of high cost cases (such as premature births,  complex  surgeries,  or
rare diseases).  As a result, the Company's  quarterly results can be materially
affected and irregular.  However,  over the longer business  cycle,  the Company
believes that its managed care control  systems,  underwriting  procedures (when
allowed) and network of physicians and health care  practitioners  should result
in continued profitability.

Due to continued  concern about privacy,  the  accountability of health insurers
and HMOs, and the cost and availability of health care coverage, legislation has
been  considered  and is likely to be further  considered  by the United  States
Congress and the legislatures of the states in which the Company operates or may
seek to operate.

In 1997,  the "Health  Insurance  Portability  and  Accountability  Act of 1996,
Public Law 104- 191", commonly called "HIPAA" was enacted. This bill established
certain  requirements for insurers,  health maintenance  organizations and ERISA
plans  regarding  eligibility  rules  for  health  care  coverage.  The law also
included  Administration  Simplification  provisions to regulate and standardize
information  exchanges and  establish  standards for the privacy and security of
individually identifiable health information.

The four key areas of  Administration  Simplification  are: 1) Transactions  and
Code Sets, 2) Unique Identifiers, 3) Security, and 4) Privacy. HHS has published


                                                                 19

<PAGE>



final  regulations on  Transactions  and Code Sets and Privacy and expects final
regulations for Unique  Identifiers and Security in 2002. These rules will apply
to insurers,  health  maintenance  organizations,  providers and ERISA plans and
will effect the business operations of these entities.

MLH,  MAMSI's  HMOs  and  HomeCall  are  in the  process  of  assessing  current
procedures and developing plans to comply with the Administration Simplification
provisions of HIPAA. The Company believes it has sufficient  internal  resources
to address those issues related to HIPAA compliance. If internal resources prove
to be insufficient, the Company will engage outside resources. The statements in
this  paragraph  regarding  the  future  effects  of HIPAA  are  forward-looking
statements. See "Forward-Looking Information" for a description of risk factors.
MAMSI has two (2) years plus two (2) months from the effective date of the final
regulations to comply.

State  legislatures  and the U.S.  Congress  continue  to  debate  and  consider
legislation  to amend civil tort law so as to expand  "enterprise  liability" to
insurers,  HMOs and ERISA plans as well as other health care reform initiatives.
Neither Congress nor any state  legislature in the Company's  service area, with
the exception of North Carolina, has enacted laws that would expand an insurer's
or HMO's liability in tort action.

States in the  Company's  service area have enacted laws  regarding the internal
and external review of adverse  utilization review decisions.  Under these laws,
persons  covered by insurers or HMOs (subject to state  regulation)  are given a
right to seek a fast and fair review of these  decisions,  first internally by a
medical  director and then  externally  by an  independent  review  organization
and/or a state regulator.  Maryland, the District of Columbia,  Virginia,  North
Carolina, West Virginia and Pennsylvania have enacted such laws.

State  legislatures are considering a variety of proposals to increase access to
health care  coverage.  This includes  expanding the  eligibility  rules for the
Medicaid  Program  and tax  credits  for the  purchase  of group  or  individual
insurance.

The Company expects that continued  legislative  scrutiny of health insurers and
HMOs may lead to additional  legislative  initiatives.  The Company is unable to
predict the ultimate impact of any federal or state  restructuring of the health
care  delivery or  financing  systems,  but such  changes  could have a material
adverse impact on the operations and financial condition of the Company.


                                                                 20

<PAGE>



-----------------------------------------------------------------------------
THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------

RESULTS OF OPERATIONS

The  Company's  consolidated  net income for the year ended  December  31,  2001
increased to $57,195,000  from $39,406,000 for the year ended December 31, 2000.
Diluted  earnings per share increased from $1.00 in year ended December 31, 2000
to $1.41 for the year ended  December  31,  2001.  The  increase  in earnings is
attributable  to an  increase in premiums  per  member,  a reduction  in medical
expenses as a percentage of health premium revenue ("medical care ratio"), and a
reduction  in   administrative   expenses  as  a  percentage  of  total  revenue
("administrative  expense  ratio").  The Company has priced its health  products
competitively  in order to increase its membership  base and thereby enhance its
strategic  position in its market  place.  The Company  currently has one of the
largest  HMO and  managed  care  enrollments  and also the  largest  network  of
contract  providers  of medical  care in its service  area (which  includes  the
entire states of Maryland and Delaware, the District of Columbia,  most counties
and cities in Virginia and certain areas of West  Virginia,  North  Carolina and
Pennsylvania).

Revenue for the year ended  December  31, 2001  increased  approximately  $323.3
million or 21.8  percent  over the year ended  December 31, 2000. A 10.0 percent
increase in net average HMO and indemnity  enrollment resulted in an increase of
approximately  $142.0  million in health  premium  revenue while an 11.8 percent
increase in average  monthly  premium per  enrollee,  combined for all products,
resulted in a $184.0  million  increase in health  premium  revenue.  Management
believes that  commercial  health  premiums should continue to increase over the
next  twelve  months  as  the  Company  continues  to  increase  its  commercial
membership  and as new and renewing  groups are charged higher premium rates due
to  legislatively  mandated  benefit  enhancements  and general price  increases
initiated   by  the  Company.   This  is  a   forward-looking   statement.   See
"Forward-Looking  Information"  for a  description  of the risk factors that may
affect health premiums per member.

The Company has implemented  increased  premium rates across  essentially all of
its commercial products. As the Company's contracts are generally for a one year
period, increased pricing generally cannot be initiated until a contract reaches
its renewal date.  Therefore,  price  increases are not  implemented  across the
Company's  membership  at  the  same  time.  Overall,  commercial  premium  rate
increases  are  expected  to  continue  in 2002 in the  range of 11.5% to 12.0%.
Management believes that these rate increases may have the effect of slowing the
Company's future membership growth. In addition,  management reevaluated premium
reimbursement rates with regard to its Medicaid program.  Effective May 1, 2000,
the Company  transferred  its membership in the Virginia  Medicaid  Program to a
non-affiliated  carrier.  Therefore,  as of May 1, 2000,  the Company  ended its
participation in any government entitlement health insurance program.

The  Company's  future  membership  growth  depends on several  factors  such as
relative premium prices and product availability,  future increases or decreases
in the Company's service area and increased competition in the Company's service
area.

The Company's home health  operations  contributed  $22.7 million in revenue for
the year ended  December  31, 2001 as compared  with $26.3  million for the year
ended  December  31,  2000  reflecting  a  decrease  in  services   provided  to
non-affiliated companies and a write-off of uncollectible accounts receivable in
the amount of  approximately  $1.5 million.  Fee and other revenue  decreased to
$21.2  million for the year ended  December 31, 2001 from $21.8  million for the
year  ended  December  31,  2000.  Life  and  short-term   disability   products
contributed  $8.1  million in revenue  for the year ended  December  31, 2001 as
compared with $8.0 million for the year ended December 31, 2000.

The medical care ratio decreased to 85.4 percent for the year ended December 31,
2001 as compared to 86.5 percent for the year ended  December 31, 2000. On a per


                                                                 21

<PAGE>



member per month basis, medical expenses increased 10.5 percent. The decrease in
the medical care ratio is due to increased  premiums  per member  combined  with
continuing efforts by the Company to implement product specific cost containment
controls,  continued activity in specialized subrogation areas and claims review
for dual health  coverage.  The ongoing  initiatives  should help to control the
Company's  medical  care  ratio.  The  medical  expense  trend is expected to be
between  10.7% and 11.5% for 2002.  The  statements  in this  paragraph  and the
preceding  paragraphs  regarding  future  utilization  rates,  cost  containment
initiatives,  total  medical  costs  and trend and  future  increases  in health
premiums  per  member  are  forward-looking   statements.  See  "Forward-Looking
Information"  above for a  description  of risk factors that may affect  medical
expenses per member and the medical care ratio.

The administrative  expense ratio decreased from 12.1 percent for the year ended
December  31,  2000 to 11.7  percent  for the  year  ended  December  31,  2001.
Management believes that the administrative  expense ratio will be approximately
11.5% in 2002.  Management's  expectation  concerning the administrative expense
ratio  is a  forward-looking  statement.  The  administrative  expense  ratio is
affected by changes in health  premiums and other  revenues,  development of the
Company's  expansion  areas and  increased  administrative  activity  related to
business volume.

Investment  income  increased from $13.5 million for the year ended December 31,
2000 to $14.8 million for the year ended  December 31, 2001  primarily due to an
increase in the amount of investments.

The effective tax rate  increased  from 30.6 percent for the year ended December
31, 2000 to 32.2 percent for the year ended  December 31, 2001  primarily due to
the benefit from certain one-time tax credits that were recognized in 2000.

The net margin rate  increased  from 2.7 percent for the year ended December 31,
2000 to 3.2 percent  for the year ended  December  31,  2001.  This  increase is
consistent with the factors described above.

-----------------------------------------------------------------------------
THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------

RESULTS OF OPERATIONS

The  Company's  consolidated  net income for the year ended  December  31,  2000
increased to $39,406,000  from $26,322,000 for the year ended December 31, 1999.
Diluted  earnings per share  increased from $.64 in year ended December 31, 1999
to $1.00 for the year ended  December  31,  2000.  The  increase  in earnings is
attributable  to an increase in premiums per member,  a reduction in the medical
care ratio, offset somewhat by an increase in administrative expense.

Revenue for the year ended  December  31, 2000  increased  approximately  $167.2
million or 12.7  percent  over the year ended  December  31, 1999. A 2.2 percent
increase in net average HMO and indemnity  enrollment resulted in an increase of
approximately  $27.1  million in health  premium  revenue  while a 10.5  percent
increase in average  monthly  premium per  enrollee,  combined for all products,
resulted in a $134.7 million increase in health premium revenue.

The Company's home health  operations  contributed  $26.3 million in revenue for
the year ended  December  31, 2000 as compared  with $23.6  million for the year
ended  December  31,  1999  reflecting  an  increase  in  services  provided  to
non-affiliated  companies.  Fee and other revenue increased to $21.8 million for
the year ended  December 31, 2000 from $21.4 million for the year ended December
31, 1999. Life and short-term  disability  products  contributed $8.0 million in
revenue for the year ended  December 31, 2000 as compared  with $8.2 million for
the year ended December 31, 1999.


                                                                 22

<PAGE>



The medical care ratio decreased to 86.5 percent for the year ended December 31,
2000 as compared to 87.9 percent for the year ended  December 31, 1999. On a per
member per month basis,  medical expenses increased 8.8 percent. The decrease in
the medical care ratio is due to a combination of factors  including  continuing
efforts by the Company to implement product specific cost containment  controls,
continued  activity in specialized  subrogation areas and claims review for dual
health coverage, the Company's withdrawal from state Medicaid programs, and also
increased premiums per member.

The administrative  expense ratio increased from 11.6 percent for the year ended
December  31, 1999 to 12.1 percent for the year ended  December  31,  2000.  The
administrative expense ratio is affected by changes in health premiums and other
revenues,   development   of  the  Company's   expansion   areas  and  increased
administrative activity related to business volume.

Investment  income  increased  $2.4 million  primarily due to an increase in the
amount of investments.

The effective tax rate  decreased  from 33.9 percent for the year ended December
31, 1999 to 30.6 percent for the year ended  December 31, 2000  primarily due to
the increase in tax exempt income,  the  restructuring of certain  operations to
increase tax efficiency and the benefit from certain one-time tax credits.

The net margin rate  increased  from 2.0 percent for the year ended December 31,
1999 to 2.7 percent  for the year ended  December  31,  2000.  This  increase is
consistent with the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  business  is not  capital  intensive  and  the  majority  of the
Company's  expenses are payments to  physicians  and health care  practitioners,
which  generally  vary in  direct  proportion  to the  health  premium  revenues
received by the Company.  Although medical utilization rates vary by season, the
payments for such expenses lag behind cash inflow from  premiums  because of the
lag in provider billing procedures. In the past, the Company's cash requirements
have been met  principally  from operating cash flow and it is anticipated  that
this source, coupled with the Company's operating line-of-credit,  will continue
to be sufficient to meet the Company's cash requirements in the future.

The Company's  cash and investment  securities  increased from $275.2 million at
December 31, 2000 to $372.8  million at December 31, 2001,  primarily due to the
timing of medical expense payments which traditionally lag behind the receipt of
increased premiums per member,  cash received from the exercise of stock options
and net  income  offset by the  effect of  treasury  stock  purchases.  Accounts
receivable  increased  from $90.0 million at December 31, 2000 to $105.3 million
at December 31,  2001,  principally  due to the timing of customer  payments and
increases in membership.  Prepaid  expenses,  advances and other  increased from
$26.4  million at December 31, 2000 to $27.2 million at December 31, 2001 due to
an increase in working  capital  advances  paid to  Maryland  hospitals  and the
prepayment of insurance  policies which cover the Company's  assets and business
operations, offset by the decrease in income tax amounts paid in advance.

Net property and equipment  increased from $47.2 million at December 31, 2000 to
$57.3 million at December 31, 2001  primarily  due to build-out  and  renovation
costs  associated  with the  purchase of  facilities,  for use in the  Company's
operations, in late October 2001.

Medical  claims  payable  increased  from $178.7 million at December 31, 2000 to
$212.0 million at December 31, 2001,  primarily due to increased  membership and
an increase in medical expenses per member.  Deferred premium revenue  increased
from $18.5  million at December  31, 2000 to $37.7  million at December 31, 2001
due to a change  in  contract  period  with the FEHBP  and an  increase  in cash
payments received in advance of the premium coverage period.


                                                                 23

<PAGE>



Additional paid-in capital increased from $296.3 million at December 31, 2000 to
$349.6  million at December 31, 2001 due to an additional  2.0 million shares of
the  Company's  stock  being  placed into the SCT, as well as an increase in the
market value of the shares of the Company's stock held in the SCT.

The value of the SCT  increased  from  $198.5  million at  December  31, 2000 to
$204.7  million at December  31, 2001 due to the increase in the market value of
the  shares of the  Company's  stock  held in the SCT,  and the  purchase  of an
additional 2.0 million  shares of the Company's  stock being placed into the SCT
offset by the  exercise of  employee  stock  options.  For  financial  reporting
purposes,  the SCT is  consolidated  with MAMSI.  The fair  market  value of the
shares held by the SCT is shown as a reduction  to  stockholders'  equity in the
Company's  consolidated  balance sheets.  All  transactions  between the SCT and
MAMSI are eliminated.  The difference  between the cost and fair value of common
stock held in the SCT is included in the  consolidated  financial  statements as
additional paid-in capital.

Treasury  stock  increased  from $135.6  million at December  31, 2000 to $185.1
million at December 31, 2001 due to the purchase of 2,717,900  additional shares
by the Company at a total cost of $49,472,000.

The Company  currently has access to total revolving credit  facilities of $29.0
million which are subject to annual renewal and collateral requirements, and are
used to provide short-term capital resources for routine cash flow fluctuations.
At December  31,  2001,  the  Company's  investment  security  balances  used as
collateral,  which are parent company only  investments,  fell below the minimum
collateral  requirements  thereby reducing the credit line availability to $24.3
million. In addition, at December 31, 2001, approximately $3.7 million was drawn
against these facilities,  and approximately  $444,000 in letters of credit were
outstanding.  While no amounts have been drawn  against these letters of credit,
they reduce the Company's credit line availability.



                                                                 24

<PAGE>



Following is a schedule of the  short-term  capital  resources  available to the
Company (in thousands):

<TABLE>
<CAPTION>
                                                          December 31,    December 31,
                                                             2001             2000
                                                         ------------     ------------
<S>                                                      <C>              <C>
Cash and cash equivalents                                $      4,510     $      5,047
Investment securities                                         368,327          270,127
Working capital advances to Maryland hospitals                 19,686           17,008
                                                          -----------      -----------
Total available liquid assets                                 392,523          292,182
Credit line availability                                       20,184           13,900
                                                          -----------      -----------
Total short-term capital resources                       $    412,707     $    306,082
                                                          ===========      ===========
</TABLE>

The Company  believes that cash generated from operations along with its current
liquidity and borrowing  capabilities  are adequate for both current and planned
expanded operations.

The Company's major business  operations are principally  conducted  through its
HMOs and its  insurance  company.  HMOs and  insurance  companies are subject to
state  regulations  that,  among other things,  may require  those  companies to
maintain  certain  levels of equity and risk based  capital,  and  restrict  the
amount of  dividends  and other  distributions  that may be paid to their parent
corporation  (See  Note  12 to the  Consolidated  Financial  Statements).  As of
December 31, 2001, those subsidiaries of the Company were in compliance with all
minimum capital and exceeded all risk based capital requirements.

During the year ended December 31, 2001,  the Company  repurchased an additional
2,717,900  shares of its common  stock for a total cost of  approximately  $49.5
million.   On  December  31,  2001,   approximately  $19.3  million  of  unspent
authorization  was  available for future  purchases.  During  January 2002,  the
Company  repurchased an additional 59,200 shares of its common stock for a total
cost of approximately $1.4 million. On February 14, 2002, the Board of Directors
authorized a $30 million stock  repurchase  program to begin  immediately.  This
authorization  was in addition  to the $17.9  million of unspent  funds  carried
forward from the September 2001 authorization.

MARKET RISK

The  Company is exposed  to market  risk  through  its  investment  in fixed and
variable rate debt securities that are interest rate sensitive. The Company does
not use derivative financial instruments.  The Company places its investments in
instruments  that  meet high  credit  quality  standards,  as  specified  in the
Company's  investment  policy  guidelines;  the policy also limits the amount of
credit exposure to any one issue, issuer, or type of instrument.  A hypothetical
ten  percent  change  in market  interest  rates  over the next  year  would not
materially impact the Company's financial position or cash flow. The Company has
no significant  market risk with regard to liabilities  and does not use special
purpose entities.  Debt securities (most of which are exempt from Federal taxes)
at December 31, 2001 mature according to their  contractual terms as follows (in
thousands):







                                                                 25

<PAGE>

<TABLE>
<CAPTION>
                                                                                           There-                 Fair Value
Assets                             2002       2003       2004        2005       2006       after        Total      12/31/01
------                          --------     ------    -------     -------    -------     -------     --------     --------
<S>                             <C>         <C>        <C>         <C>        <C>        <C>          <C>          <C>
Available-for-Sale Securities   $152,058    $28,931    $11,049     $15,716    $27,047    $122,007     $356,808     $360,860

Average Interest Rate              4.13%      4.49%      4.22%       4.51%      4.56%       4.49%

Held-to-Maturity                $  5,793    $ 2,428    $ 1,535     $   861    $ 1,909    $  5,164     $ 17,690     $ 18,031

Average Interest Rate              5.64%      4.29%      5.37%       5.78%      6.23%       6.14%
</TABLE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information  required by Item 305 of Regulation S-K is contained in Item 7 -
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations".






                                                                 26

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA             PAGE
                                                                 ----

Consolidated Balance Sheets as of December 31, 2001 and 2000.....  28

Consolidated Statements of Operations for the years ended
  December 31, 2001, 2000 and 1999...............................  29

Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2001, 2000 and 1999...........  30

Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999...............................  31

Notes to Consolidated Financial Statements.......................  32

Report of Ernst & Young LLP Independent Auditors.................  49

Selected Quarterly Financial Data for Fiscal Years 2001 and
 2000 (Unaudited)................................................  50

                                                                 27

<PAGE>



                                     Mid Atlantic Medical Services, Inc.
                                        Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                     December 31,
(in thousands except share amounts)                                              2001          2000
                                                                               --------      --------
<S>                                                                            <C>           <C>
ASSETS
Current assets
  Cash and cash equivalents                                                    $  4,510      $  5,047
  Investment securities                                                         368,327       270,127
  Accounts receivable, net                                                      105,343        89,954
  Prepaid expenses, advances and other                                           27,194        26,420
  Deferred income taxes                                                             216           850
                                                                               --------      --------
Total current assets                                                            505,590       392,398

Property and equipment, net                                                      57,329        47,222
Statutory deposits                                                               17,690        14,597
Other assets                                                                      9,385         9,793
Deferred income taxes                                                             4,219         3,013
                                                                               --------      --------
    Total assets                                                               $594,213      $467,023
                                                                               ========      ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Short-term borrowings                                                        $  3,681      $  3,000
  Accounts payable                                                               49,397        37,841
  Medical claims payable, net                                                   212,010       178,685
  Income taxes payable                                                            1,315             -
  Deferred premium revenue                                                       37,698        18,494
  Deferred income taxes                                                           8,641           839
                                                                               --------      --------
Total current liabilities                                                       312,742       238,859
Deferred income taxes                                                                 -         2,174
                                                                               --------      --------
    Total liabilities                                                           312,742       241,033

Stockholders' equity
Common stock, $0.01 par,  100,000,000  shares authorized,  63,772,502 issued and
 47,884,422   outstanding  at  December  31,  2001  and  61,772,502  issued  and
 48,602,322 outstanding at December 31, 2000                                        637           617
Additional paid-in capital                                                      349,595       296,347
Stock compensation trust (common stock held in trust),
  9,019,450 shares outstanding at December 31, 2001;
  10,019,756 shares outstanding at December 31, 2000                           (204,742)     (198,516)
Treasury stock, 15,888,080 shares at December 31, 2001;
  13,170,180 shares at December 31, 2000                                       (185,110)     (135,638)
Accumulated other comprehensive income                                            2,528         1,812
Retained earnings                                                               318,563       261,368
                                                                               --------      --------
    Total stockholders' equity                                                  281,471       225,990
                                                                               --------      --------
    Total liabilities and stockholders' equity                                 $594,213      $467,023
                                                                               ========      ========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                                                 28

<PAGE>



                                    Mid Atlantic Medical Services, Inc.
                                   Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
(in thousands except per share amounts)                                2001          2000           1999
                                                                   ----------     ----------     ----------
<S>                                                                <C>            <C>            <C>
Revenue
  Health premium                                                   $1,740,938     $1,414,847     $1,253,063
  Fee and other                                                        21,244         21,811         21,352
  Life and short-term disability premium                                8,066          8,034          8,175
  Home health services                                                 22,715         26,304         23,630
  Investment                                                           14,772         13,483         11,096
                                                                   ----------     ----------     ----------
Total revenue                                                       1,807,735      1,484,479      1,317,316
                                                                   ----------     ----------     ----------
Expense
  Medical expense
    Referral and ancillary care                                       722,711        582,775        510,114
    Hospitalization, net of coordination of benefits                  455,267        373,349        336,002
    Primary care                                                       80,408         77,616         83,558
    Prescription drugs                                                227,760        189,388        170,745
    Reinsurance premiums, net                                           1,084            144            539
                                                                   ----------     ----------     ----------
                                                                    1,487,230      1,223,272      1,100,958
                                                                   ----------     ----------     ----------
  Life and short-term disability claims                                 3,589          3,108          4,033
                                                                   ----------     ----------     ----------
  Home health patient services                                         21,950         21,514         19,412
                                                                   ----------     ----------     ----------
  Administrative expense
    Salaries and benefits                                             138,425        114,561         99,682
    Promotion and advertising                                           4,668          5,246          4,311
    Professional services                                               9,212          8,029          6,070
    Licenses and taxes                                                 13,191         11,586          8,538
    Facilities, maintenance and supplies                               31,693         28,707         26,848
    Other (including interest expense of $742, $1,045 and $532)        13,435         11,698          7,634
                                                                   ----------     ----------     ----------
                                                                      210,624        179,827        153,083
                                                                   ----------     ----------     ----------
Total expense                                                       1,723,393      1,427,721      1,277,486
                                                                   ----------     ----------     ----------
Income before income taxes                                             84,342         56,758         39,830
Income tax expense                                                    (27,147)       (17,352)       (13,508)
                                                                   ----------     ----------     ----------
Net income                                                         $   57,195     $   39,406     $   26,322
                                                                   ==========     ==========     ==========

Basic earnings per common share                                    $     1.48     $     1.04     $      .64
                                                                   ==========     ==========     ==========

Diluted earnings per common share                                  $     1.41     $     1.00     $      .64
                                                                   ==========     ==========     ==========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                                                 29

<PAGE>



                       Mid Atlantic Medical Services, Inc.
           Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
                                                                                          Accumulated
                                                  Additional       Stock                     Other
                                        Common     Paid-In     Compensation   Treasury   Comprehensive  Retained
(in thousands except share amounts)     Stock      Capital        Trust        Stock      Income/(Loss) Earnings    Total
                                        ------    ----------   ------------  ---------   -------------  --------   --------
<S>                                     <C>        <C>         <C>           <C>           <C>          <C>        <C>
Balance, December 31, 1998              $  567     $138,247    $ (68,926)    $ (75,623)    $ 1,313      $195,640   $191,218
Exercise of stock options for
  13,100 shares released from the
  Stock Compensation Trust                             (105)         187                                                 82
Stock option tax benefit                                 19                                                              19
Purchase of 3,000,000 shares of MAMSI
  common stock to be held in the
  Stock Compensation Trust                  30       31,751      (31,781)                                                 -
Adjustment to market value for shares
  held in Stock Compensation Trust                  (17,305)      17,305                                                  -
Repurchase of 3,194,940 shares of
  MAMSI common stock                                                           (28,494)                             (28,494)
Comprehensive Income:                                                                                              --------
Net Income                                                                                                26,322     26,322
Other comprehensive loss,
 net of tax benefit of $(1,522)                                                              (2,326)                 (2,326)
                                        ------     --------    ---------     ---------     --------     --------   --------
Total Comprehensive Income                                                                                           23,996
                                                                                                                   --------
Balance, December 31, 1999                 597      152,607      (83,215)     (104,117)      (1,013)     221,962    186,821
Exercise of stock options for
  1,991,094 shares released from the
  Stock Compensation Trust                           (3,443)      28,373                                             24,930
Stock option tax benefit                              3,529                                                           3,529
Purchase of 2,000,000 shares of MAMSI
  common stock to be held in the
  Stock Compensation Trust                  20       28,730      (28,750)                                                 -
Adjustment to market value for shares
  held in Stock Compensation Trust                  114,924     (114,924)                                                 -
Repurchase of 2,836,900 shares of
  MAMSI common stock                                                           (31,521)                             (31,521)
Comprehensive Income:                                                                                              --------
Net Income                                                                                                39,406     39,406
Other comprehensive income,
 net of tax of $1,638                                                                         2,825                   2,825
                                        ------     --------    ---------     ---------     --------     --------   --------
Total Comprehensive Income                                                                                           42,231
                                                                                                                   --------
Balance, December 31, 2000                 617      296,347     (198,516)     (135,638)       1,812      261,368    225,990
Exercise of stock options for
  3,000,306 shares released from the
  Stock Compensation Trust                           (2,695)      42,753                                             40,058
Stock option tax benefit                              6,984                                                           6,984
Purchase of 2,000,000 shares of MAMSI
  common stock to be held in the
  Stock Compensation Trust                  20       36,480      (36,500)                                                 -
Adjustment to market value for shares
  held in Stock Compensation Trust                   12,479      (12,479)                                                 -
Repurchase of 2,717,900 shares of
  MAMSI common stock                                                           (49,472)                             (49,472)
Comprehensive Income:                                                                                              --------
Net Income                                                                                                57,195     57,195
Other comprehensive income,
 net of tax of $386                                                                             716                     716
                                        ------     --------    ---------     ---------     --------     --------   --------
Total Comprehensive Income                                                                                           57,911
                                                                                                                   --------
Balance, December 31, 2001              $ 637      $349,595    $(204,742)    $(185,110)    $  2,528     $318,563   $281,471
                                        ======     ========    =========     =========     ========     ========   ========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                                            30

<PAGE>



                                        Mid Atlantic Medical Services, Inc.
                                       Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  Year  Ended  December  31,
(in thousands)                                                                2001           2000           1999
                                                                            --------       --------       --------
<S>                                                                         <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                                                $ 57,195       $ 39,406       $ 26,322
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization                                               11,008         10,263         10,249
  Provision for bad debts                                                        510            692            292
  Provision for deferred income taxes                                            947         (5,280)         2,415
  (Gain) loss on sale and disposal of assets                                      (1)           356             49
  Stock option tax benefit                                                     6,984          3,529             19
  Increase in accounts receivable                                            (15,899)        (7,023)        (4,657)
  (Increase) decrease in prepaid expenses, advances and other                 (3,441)         2,159           (332)
  Increase in accounts payable                                                 7,705         15,861          2,909
  Increase in income taxes payable                                             5,038              -              -
  Increase in medical claims payable, net                                     33,325         24,282         25,138
  Increase (decrease) in deferred premium revenue                             19,204          1,545           (218)
                                                                            --------       --------       --------
Total adjustments                                                             71,898         46,384         35,864
                                                                            --------       --------       --------
          Net cash provided by operating activities                          129,093         85,790         62,186
                                                                            --------       --------       --------
Cash flows used in investing activities:
  Purchases of investment securities                                        (513,466)      (428,185)      (355,996)
  Sales and maturities of investment securities                              416,368        365,043        325,117
  Purchases of property and equipment                                        (20,237)       (13,297)        (8,147)
  Purchases of statutory deposits                                             (5,563)        (3,394)        (1,476)
  Maturities of statutory deposits                                             2,421          2,782          1,125
  Purchases of other assets                                                     (580)          (631)        (2,598)
  Proceeds from sale of assets                                                   160            377            486
                                                                            --------       --------       --------
          Net cash used in investing activities                             (120,897)       (77,305)       (41,489)
                                                                            --------       --------       --------
Cash flows used in financing activities:
  Principal payments on notes payable                                              -            (14)           (60)
  Increase (decrease) in short-term borrowings                                   681           (558)         1,713
  Exercise of stock options                                                   40,058         24,930             82
  Purchase of treasury stock                                                 (49,472)       (31,521)       (28,494)
                                                                            --------       --------       --------
          Net cash used in financing activities                               (8,733)        (7,163)       (26,759)
                                                                            --------       --------       --------
Net (decrease) increase in cash and cash equivalents                            (537)         1,322         (6,062)
Cash and cash equivalents at beginning of year                                 5,047          3,725          9,787
                                                                            --------       --------       --------
Cash and cash equivalents at end of year                                    $  4,510       $  5,047       $  3,725
                                                                            ========       ========       ========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>



                                                                 31

<PAGE>



                       Mid Atlantic Medical Services, Inc.
                   Notes to Consolidated Financial Statements


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Mid  Atlantic  Medical  Services,  Inc.  ("MAMSI")  is a holding  company  whose
subsidiaries  are  active  in  managed  health  care and other  life and  health
insurance  related  activities.  MAMSI's  principal  markets  currently  include
Maryland,  Virginia, the District of Columbia,  Delaware,  West Virginia,  North
Carolina and Pennsylvania.  MAMSI and its subsidiaries (collectively referred to
as the  "Company")  have  developed  a broad  range of managed  health  care and
related ancillary products and deliver these services through health maintenance
organizations  ("HMOs"), a preferred provider  organization  ("PPO"), a life and
health insurance company, home health care and home infusion services companies,
a hospice  company,  a collections  company and part  ownership in an outpatient
surgery center.

MAMSI delivers managed health care services  principally through HMOs. The HMOs,
MD-   Individual   Practice    Association,    Inc.   ("M.D.   IPA"),    Optimum
Choice,Inc.(R)("OCI"),  and  Optimum  Choice  of the  Carolinas,  Inc.  ("OCCI")
arrange for health care services to be provided to an enrolled  population for a
predetermined,  prepaid  fee,  regardless  of the  extent or nature of  services
provided to the enrollees.  The HMOs offer a full complement of health benefits,
including  physician,  hospital and prescription drug services.  Optimum Choice,
Inc. of  Pennsylvania  ("OCIPA")  ceased all operations in  Pennsylvania  during
2000.

The following are other significant wholly-owned subsidiaries of MAMSI:

Physicians Health Plan of Maryland,  Inc.  ("PHP-MD") is an individual  practice
association ("IPA") that provides physician services to certain of the Company's
HMOs.

Alliance PPO, LLC ("Alliance") provides a delivery network of physicians (called
a preferred  provider  organization)  to employers  and  insurance  companies in
association  with  various  health  plans,  and  provides  psychiatric  services
principally to third party payors or self- insured employer groups.

MAMSI Life and Health Insurance  Company ("MLH") develops and markets  indemnity
health  products  and group life,  accidental  death and  short-term  disability
insurance.

HomeCall,  Inc.,  FirstCall,  Inc. and HomeCall  Pharmaceutical  Services,  Inc.
("HCPS") provide in-home medical care including  skilled  nursing,  infusion and
therapy to MAMSI's HMO members and other payors.

HomeCall Hospice  Services,  Inc.  ("HHSI")  provides services to terminally ill
patients and their families.

Beginning in January 2001,  Alliance  Recovery  Services,  LLC ("ARS")  provides
coordination of benefit collection services to TPAs and insurance companies.

The significant  accounting  policies followed by MAMSI and its subsidiaries are
described below.

PRINCIPLES OF CONSOLIDATION

The  consolidated  financial  statements  include the  accounts of MAMSI and its
subsidiaries.  All significant  intercompany balances and transactions have been
eliminated in consolidation.





                                                                 32

<PAGE>



MAJOR CUSTOMERS

A significant  portion of the Company's premium revenue is derived from federal,
state  and local  government  agencies,  including  governmental  employees  and
Medicaid and Medicare  recipients.  For the years ended December 31, 2001,  2000
and 1999,  approximately  10%, 8% and 8%,  respectively,  of premium revenue was
derived from federal government agencies which is included in the All Others and
Commercial Risk segments (as described in Note 14), and  approximately  15%, 14%
and 21%,  respectively,  was derived from Maryland and Virginia  state and local
government  agencies  which is  included  in the  Commercial  Risk  segment  (as
described in Note 14).

CASH EQUIVALENTS

Floating rate municipal  putable bonds,  which possess an insignificant  risk of
loss from changes in interest rates and are held less than three months from the
date of purchase, are classified as cash equivalents.

INVESTMENT SECURITIES

Investment  securities,  consisting  principally of municipal bonds and tax-free
bond funds are classified as available-for-sale. These securities are carried at
fair market value plus accrued  interest and any unrealized gains and losses are
reported in other comprehensive income, net of the related tax effect. Gains and
losses are  reported in  earnings  when  realized.  Gains and losses on sales of
securities are computed using the specific identification method.

PROPERTY AND EQUIPMENT

Property  and  equipment  is  stated  at  cost  less  accumulated  depreciation.
Depreciation  is provided on a  straight-line  basis over the  estimated  useful
lives of the property and equipment.  Leasehold  improvements are amortized on a
straight-line  basis over the lesser of the life of the  improvement or the term
of the related lease.

STATUTORY DEPOSITS

Statutory deposits, consisting principally of municipal bonds and treasury notes
held in custodial  accounts by state  regulatory  agencies,  are  classified  as
held-to-maturity. These securities are stated at amortized cost.

GOODWILL

The excess of cost over the fair value of net assets of the acquired  company in
the 1994 purchase  transaction  is recorded as goodwill and is classified in the
consolidated  balance  sheets as an other  asset.  Goodwill  is  amortized  on a
straight-line basis over 15 years.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("Statement No. 142"), which establishes  standards for financial accounting and
reporting  for  intangible  assets at  acquisition  and for  goodwill  and other
intangible assets subsequent to their acquisition.  Statement No. 142 is applied
to existing goodwill and intangible  assets for fiscal years beginning  December
15, 2001. The Company  anticipates  adopting this Statement  January 1, 2002, at
which time  amortization of the remaining book value of goodwill will cease. The
Company does not expect the  adoption of Statement  No. 142 will have a material
impact on its consolidated financial statements.





                                                                 33

<PAGE>



HEALTH PREMIUM

Amounts  charged for health care services are  recognized as premium  revenue in
the month for which enrollees are entitled to receive care.  Included in premium
revenue are amounts due from  customers  that  utilize the  Company's  capitated
primary  care  physician  network,  its care  coordination  services  and  other
services  related  to  health  management  and who  self-fund,  generally  up to
specified limits, certain elements of medical costs, such as hospitalization and
specialist  physicians.  Premium  revenue  received  in advance is  recorded  as
deferred premium revenue.

FEE AND OTHER

Amounts charged to third party payors solely for use of the Company's network of
physicians and health care practitioners and its discounted fee-for-service rate
structure are  recognized  as fee revenue.  Amounts  charged for  administrative
services  only   arrangements,   entailing  only  claims  payment  services  and
utilization of the provider network without utilization of the Company's primary
care physician network and care coordination services, and for which the Company
bears no insurance risk, are recognized as fee revenue.

HOME HEALTH SERVICES

Amounts  charged to  patients,  third  party  payors and others for home  health
services  are  recorded  at net  realizable  amounts,  including  an estimate of
potential retroactive adjustments under cost reimbursement agreements with third
party payors.

MEDICAL EXPENSE

Medical  expense  consists  principally of medical claims and capitation  costs.
Medical claims include  payments to be made on claims reported as of the balance
sheet date and  estimates  of health care  services  incurred  but not  reported
("IBNR") to the Company as of the balance sheet date. IBNR is estimated using an
expense forecasting model that is based on historical claims incurrence patterns
modified to consider current trends in enrollment,  member utilization patterns,
timeliness of claims  submissions  and other  factors.  This  estimate  includes
medical  costs  to  be  incurred   beyond  the  premium  paying  date  that  are
contractually required.

Capitation  costs  represent  monthly fixed fees to  participating  primary care
physicians  and other  health care  practitioners  as  retainers  for  providing
continuing medical care.

Medical claims reversals result from the determination that the Company has paid
claims in excess of contractually obligated amounts.  Amounts recognized through
specific  identification  are  recorded  at  their  net  realizable  value  as a
reduction of medical expense in the consolidated statements of operations and as
an increase in accounts receivable in the consolidated balance sheets.

The Company has entered into certain long-term vendor  contracts,  some of which
include incentives or cost guarantees designed to provide savings to the Company
over several years. The Company typically  accounts for the benefit derived from
these  incentives or guarantees  ratably over the contract period as a reduction
to medical expense. Because of the complexity of the Company's product offerings
as well as obligations imposed under the contracts, and the timing of settlement
of  various  contractual  periods,  disputes  may  arise  as to  the  degree  of
satisfaction  of the  various  contractual  obligations  which  could  result in
material adjustments to the Company's financial  statements.  In the case of one
of these  contracts,  a dispute with the Company's  pharmacy  benefits  manager,
Merck, has arisen involving  approximately $41 million related to the settlement
of a cost  guarantee  for the year 2000.  If the dispute is not  resolved in the
Company's favor, it could be material to the Company's financial statements. The
Company is recording the amount due under the cost guarantee over the three year


                                                                 34

<PAGE>



term of the contract which  commenced in January 2000.  From  inception  through
December 31, 2001, the Company has recognized  approximately  $28 million of the
$41 million guarantee for financial statement purposes as a reduction of medical
expense and medical  claims  payable.  On August 30, 2001,  the Company  filed a
Demand for  Arbitration  against Merck  asserting  that Merck has reneged on its
obligations under the agreement.  The Company believes that it has complied with
its  contractual  obligations,  that its financial  statements are fairly stated
with  regard  to the  aforementioned  contracts  and  that the  dispute  will be
resolved in the Company's favor. See Note 11.

The  Company  believes  that its claims  reserves  are  adequate  to satisfy its
ultimate  claims  liabilities;  however,  the liability as established  may vary
significantly from actual claims amounts,  either negatively or positively,  and
as adjustments are deemed  necessary,  they are included in current  operations.
Establishment of claims estimates is an inherently uncertain process;  there can
be no certainty that currently established reserves will prove adequate to cover
actual ultimate expenses.  Subsequent actual experience could result in reserves
being  too high or too low which  could  positively  or  negatively  impact  the
Company's earnings in future periods.

COORDINATION OF BENEFITS

Coordination of benefits ("COB") results from the determination that the Company
has paid for  medical  claims  expenses  for  which an  enrollee  has  duplicate
coverage and for which another insurer is primarily  liable. In the consolidated
statements of operations,  such identified amounts are classified as a reduction
of hospitalization expense and, in the consolidated balance sheets, such amounts
are classified as a reduction of medical claims payable.

INCOME TAXES

The income tax provision  includes Federal and state income taxes both currently
payable and deferred because of differences  between financial reporting and tax
bases of assets  and  liabilities.  Deferred  tax  assets  and  liabilities  are
measured  using the  enacted  tax rates and laws that will be in effect when the
differences are expected to reverse.

EARNINGS PER COMMON SHARE

Basic  earnings  per common  share are based upon the  weighted  average  shares
outstanding.  Outstanding  stock options are treated as common stock equivalents
for  purposes  of  computing  diluted  earnings  per share.  Shares  held in the
Company's  Stock  Compensation  Trust  (see  Note  10)  are  excluded  from  the
calculation of basic and diluted earnings per share.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash  equivalents - The carrying  amount  reported in the  consolidated
balance sheets approximates fair value.

Investment securities - Fair values are based on quoted market prices.

Statutory deposits - Fair values are based on quoted market prices.

Short-term borrowings - The carrying amount reported in the consolidated balance
sheets approximates fair value.






                                                                 35

<PAGE>



ESTIMATES

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Such estimates and assumptions could change in the future as
more  information  becomes  known,  which could impact the amounts  reported and
disclosed herein.

STOCK OPTION PLANS

As permitted  by Financial  Accounting  Standards  No. 123, the Company  follows
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB 25") and related  interpretations  in accounting for its stock
option plans. Under APB 25, because the exercise price of the Company's employee
stock  options  equals the market value of the  underlying  stock on the date of
grant, no compensation expense is recognized.

RECLASSIFICATIONS

Certain  balances in the 2000 financial  statements  have been  reclassified  to
conform with the 2001 presentation.

NOTE 2 - INVESTMENTS

Investments   are  classified   into  two  categories   (available-for-sale   or
held-to-maturity)  and  are  valued  based  upon  this  designation.  Securities
classified as available-for-sale,  which include debt and equity securities that
the Company does not have the positive intent to hold to maturity, are marked to
market  with  the  resulting   unrealized   gain  or  loss  reflected  in  other
comprehensive income. Securities classified as held-to-maturity,  which are debt
securities  that the Company has both the positive intent and ability to hold to
maturity,  are carried at amortized  cost. The Company  classifies its statutory
deposits as  held-to-maturity  with no effect on the recorded  value.  All other
investments are classified as available-for- sale. Management re-evaluates these
designations  annually.  During  1999,  statutory  deposit  investments  with an
amortized cost of $1,166,000 were released by the state regulatory  agencies and
transferred to the Company's  investment  securities  portfolio.  The unrealized
loss at the date of the transfer was  $21,000.  There were no such  transfers in
2001 and 2000.























                                                                 36

<PAGE>



The following is a summary of available-for-sale and held-to-maturity securities
at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                       -----------------------------------------------------
                                                                                2001
                                                       -----------------------------------------------------
                                                                        Gross         Gross        Estimated
(in thousands)                                                       Unrealized     Unrealized       Fair
                                                          Cost          Gains         Losses         Value
                                                       -----------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury securities and obligations of
  U.S. government agencies                             $  2,152       $   120        $     -        $  2,272
Obligations of states and political subdivisions        206,691         5,115          1,183         210,623
Municipal bond funds                                    145,010             -              -         145,010
Accrued interest                                          2,955             -              -           2,955
                                                       --------       -------        -------        --------
Debt securities                                         356,808         5,235          1,183         360,860
Equity securities                                         7,630           891          1,054           7,467
                                                       --------       -------        -------        --------

Investment securities                                  $364,438       $ 6,126        $ 2,237        $368,327
                                                       ========       =======        =======        ========

HELD-TO-MATURITY SECURITIES
U.S. Treasury securities and obligations
 of U.S. government agencies                           $  7,908       $   226        $     1        $  8,133
Obligations of states and political subdivisions          9,532           116              -           9,648
Other investments                                           250             -              -             250
                                                       --------       -------        -------        --------

Statutory deposits                                     $ 17,690       $   342        $     1        $ 18,031
                                                       ========       =======        =======        ========
</TABLE>

<TABLE>
<CAPTION>
                                                       -----------------------------------------------------
                                                                                2000
                                                       -----------------------------------------------------
                                                                        Gross         Gross        Estimated
(in thousands)                                                       Unrealized     Unrealized       Fair
                                                          Cost          Gains         Losses         Value
                                                       -----------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury securities and obligations of
  U.S. government agencies                             $  2,159       $   113        $     -        $  2,272
Obligations of states and political subdivisions        142,499         3,100             23         145,576
Municipal bond funds                                    113,465             -             84         113,381
Accrued interest                                          2,101             -              -           2,101
                                                       --------       -------        -------        --------
Debt securities                                         260,224         3,213            107         263,330
Equity securities                                         7,116             1            320           6,797
                                                       --------       -------        -------        --------

Investment securities                                  $267,340       $ 3,214        $   427        $270,127
                                                       ========       =======        =======        ========
HELD-TO-MATURITY SECURITIES
U.S. Treasury securities and obligations
 of U.S. government agencies                           $  3,160       $   204       $      -       $   3,364
Obligations of states and political subdivisions         10,583            44              -          10,627
Other investments                                           854             -              -             854
                                                       --------       -------        -------        --------

Statutory deposits                                     $ 14,597       $   248        $     -        $ 14,845
                                                       ========       =======        =======        ========
</TABLE>






                                                                 37

<PAGE>



For the  years  ended  December  31,  2001,  2000 and  1999,  marketable  equity
available-for-sale securities with a fair value at the date of sale of $900,000,
$317,000 and  $2,524,000,  respectively,  were sold. The gross realized gains on
such sales totaled $18,000,  $71,000 and $50,000,  and the gross realized losses
totaled $17,000,  $-0- and $75,000 for each of the respective periods.  Realized
gains and losses are included in investment  income.  Other sales and maturities
of investment  securities consisted principally of redemptions on municipal bond
funds.

The  amortized  cost and  estimated  fair  value of debt and  marketable  equity
securities  at December  31, 2001,  by  contractual  maturity,  are shown below.
Actual maturities may differ from contractual  maturities because the issuers of
the  securities  may have the right to  prepay  obligations  without  prepayment
penalties.

<TABLE>
<CAPTION>
                                                -------------------------
                                                                Estimated
                                                                  Fair
(in thousands)                                     Cost           Value
                                                -------------------------
<S>                                             <C>              <C>
AVAILABLE-FOR-SALE
Due in one year or less                         $152,058         $152,174
Due after one year through five years             82,743           85,801
Due after five years through ten years           105,319          106,568
Due after ten years                               16,688           16,317
                                                --------         --------
Debt securities                                  356,808          360,860
Equity securities                                  7,630            7,467
                                                --------         --------
                                                $364,438         $368,327
                                                ========         ========
HELD-TO-MATURITY
Due in one year or less                         $  5,793         $  5,798
Due after one year through five years              6,733            6,982
Due after five years through ten years             5,164            5,251
Due after ten years                                    -                -
                                                --------         --------
                                                $ 17,690         $ 18,031
                                                ========         ========
</TABLE>

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable consists of the following at December 31:

<TABLE>
<CAPTION>
                                                -------------------------
(in thousands)                                    2001             2000
                                                -------------------------
<S>                                             <C>              <C>
Premium and fee accounts                        $ 84,969         $ 67,893
Home health service accounts                       8,141           10,454
Medical recoverables                               5,165            6,969
Other                                             13,715           10,775
Less: allowance for doubtful accounts             (6,647)          (6,137)
                                                --------         --------
                                                $105,343         $ 89,954
                                                ========         ========
</TABLE>

Medical  recoverables  consist of refunds identified on paid claims. This amount
has  been  recorded  as a  reduction  of  medical  expense  in the  consolidated
statements of operations. Other receivables consist primarily of amounts due for
reinsurance recoveries, pharmacy rebates, interest accrued on statutory deposits
and  amounts  related  to  contractual   arrangements  with  laboratory  service
providers.


                                                                 38

<PAGE>



NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
                                                ------------------------
(in thousands)                                     2001           2000
                                                ------------------------
<S>                                             <C>              <C>
Land, buildings and improvements                $ 44,416         $35,207
Computer equipment and software                   42,345          36,477
Office furniture and equipment                    26,138          22,786
Leasehold improvements                             3,856           2,144
                                                --------         -------
                                                 116,755          96,614
Less: accumulated depreciation and
  amortization                                   (59,426)        (49,392)
                                                --------          -------
                                                $ 57,329         $47,222
                                                ========         =======
</TABLE>


NOTE 5 - NOTES PAYABLE

The Company has access to total  revolving  credit  facilities  of $29  million,
which are subject to annual renewal and collateral requirements, and are used to
provide  short-term  capital  resources for routine cash flow  fluctuations.  At
December  31,  2001,  the  Company's   investment   security  balances  used  as
collateral,  which are parent company only  investments,  fell below the minimum
collateral  requirements  thereby reducing the credit line availability to $24.3
million. Borrowings bear interest at a rate based on the Federal Funds rate plus
..75% - 1.65% and are secured by certain cash balances and investment securities.
At December 31, 2001,  approximately  $3.7 million was outstanding on one of the
lines-of-credit  at an  interest  rate of 3.42% and  approximately  $444,000  in
letters-of-credit were outstanding, although no amounts had been drawn.

Interest  expense paid in cash on  borrowings  and on claims paid  subsequent to
state  mandated   deadlines  during  2001,  2000  and  1999  was   approximately
$1,267,000, $444,000 and $523,000, respectively.

NOTE 6 - REINSURANCE

M.D.  IPA,  OCI,  OCCI and MLH  maintain  reinsurance  coverage  to provide  for
reimbursement  of claims in excess of certain  limits.  The reinsurer for health
claims  indemnifies  either  90% of the  approved  per diem or fixed  charge per
procedure,  or 80% of the eligible in and out of service area acute care medical
expenses in excess of $200,000 per enrollee per year. Transplant costs conducted
in an approved  facility are reimbursed at either 90% or 80% of eligible charges
and in non-approved facilities at 50% of eligible charges. The coverage provides
reimbursement  benefits for a lifetime maximum of $2,000,000 in eligible medical
costs with no more than  $1,000,000  in a given year.  Reinsurance  for life and
accidental  death claims  generally  covers all settlements in excess of $50,000
per person subject to a $950,000 maximum recovery per person for life claims and
$1,000,000 per person on accidental death claims. Reinsurance recoveries for the
years ended  December 31,  2001,  2000 and 1999 were  approximately  $2,319,000,
$2,044,000  and  $1,566,000,  respectively.  In the  consolidated  statements of
operations, reinsurance premiums are shown net of the related recoveries.

NOTE 7 - INCOME TAXES

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax liabilities and assets are as follows as of December
31:

                                                                 39

<PAGE>



<TABLE>
<CAPTION>
                                                --------------------------
(in thousands)                                    2001              2000
                                                --------------------------
<S>                                             <C>                <C>
Deferred tax liabilities:
  Accelerated depreciation                      $ 1,071            $ 1,344
  Receivable valuation adjustments                    9              1,734
  Vendor guarantee revenue                       10,739                  -
  Unrealized investment gains                     1,361                975
                                                -------            -------
Total deferred tax liabilities                   13,180              4,053
                                                -------            -------
Deferred tax assets:
  Accrued medical expenses                        1,559              1,486
  Premium revenue adjustments                     2,639              1,140
  State net operating losses                      4,144              3,802
  Accrued pension expenses                        3,864              1,845
  Accrued vacation                                  400                217
  Other                                             146                164
                                                -------            -------
Total deferred tax assets                        12,752              8,654
Valuation allowance for deferred tax assets      (3,778)            (3,751)
                                                -------            -------
Net deferred tax assets                           8,974              4,903
                                                -------            -------
                                                $(4,206)           $   850
                                                =======            =======
Included in the consolidated balance sheets:
  Current assets - deferred income taxes        $   216            $   850
  Non-current assets - deferred income taxes      4,219              3,013
  Current liabilities - deferred income taxes    (8,641)              (839)
  Non-current liabilities - deferred
    income taxes                                      -             (2,174)
                                                -------            -------
  Net deferred tax (liability) asset            $(4,206)           $   850
                                                =======            =======
</TABLE>

Significant  components  of the  provision  for  income  taxes  attributable  to
continuing operations are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                ---------------------------------------
(in thousands)                                     2001            2000          1999
                                                ---------------------------------------
<S>                                             <C>            <C>            <C>
Current:
  Federal                                       $  25,579      $  22,041      $  10,536
  State                                               621            591            557
                                                ---------      ---------      ---------
  Total current                                    26,200         22,632         11,093
                                                ---------      ---------      ---------
Deferred:
  Federal                                           1,771         (5,019)         2,623
  State                                              (824)          (261)          (208)
                                                ---------      ---------      ---------
  Total deferred                                      947         (5,280)         2,415
                                                ---------      ---------      ---------
                                                $  27,147      $  17,352      $  13,508
                                                =========      =========      =========
</TABLE>










                                                                 40

<PAGE>



The Company's tax provision  differs from the statutory  rate for Federal income
taxes for the years ended December 31 as follows:

<TABLE>
<CAPTION>
                                                -------------------------------------
(in thousands)                                     2001          2000          1999
                                                -------------------------------------
<S>                                             <C>            <C>            <C>

Statutory rate (35%)                            $29,520        $19,866        $13,940
Tax-exempt interest                              (2,870)        (2,067)        (1,421)
State income taxes, net of Federal benefit           22           (436)          (163)
Increase in valuation allowance for
  deferred tax assets                                27            706            765
Other non-deductible items                          529            574            566
Tax credits                                        (191)          (664)           (16)
Other, net                                          110           (627)          (163)
                                                -------        -------        -------
                                                $27,147        $17,352        $13,508
                                                =======        =======        =======
</TABLE>

Total tax deposits made by the Company in 2001, 2000 and 1999 were approximately
$11,750,000, $19,255,000 and $10,027,000, respectively.

At December 31, 2001, the Company has state net operating loss  carryforwards of
$97,014,000  that expire in various  years  beginning  in 2006.  The losses were
generated by certain operating subsidiaries of the Company, in the normal course
of their business.

The  Company  records a  valuation  allowance  for  deferred  tax assets when in
management's judgment that it is more likely than not that all or a portion of a
deferred  tax asset will not be  realized.  At December  31, 2001 and 2000,  the
Company  recorded a  valuation  allowance  related to state net  operating  loss
carryforwards.

NOTE 8 - RELATED PARTIES

For the years ended  December 31, 2001,  2000 and 1999,  certain  members of the
Boards  of  Directors  of  MAMSI  and  affiliated   corporations  who  are  also
participating   physicians  provided  medical  services  to  enrollees  totaling
$5,414,000,   $4,954,000  and   $1,790,000,   respectively,   which   represents
approximately .7%, .8% and .3% in 2001, 2000 and 1999, respectively, of payments
to all physicians.  Board members are remunerated at the same contractual  level
as all other  participating  physicians  and are selected by enrollees to render
medical   services  under  the  same  guidelines  as  all  other   participating
physicians.

NOTE 9 - EMPLOYEE BENEFITS PLANS

PENSION PLANS

The  Company  has a  defined  contribution  401(k)  savings  plan  covering  all
full-time  employees.  Employees  are allowed to  contribute  up to 23% of their
pretax earnings annually up to a maximum contribution of $10,500 and the Company
makes a matching  contribution of 50% on the first 4% of  contributions  made by
employees.  Only Company  contributions may be invested in MAMSI stock. Employee
contributions  can be  invested  in a variety of mutual  funds.  Employees  vest
immediately  in the  employee  contributions  and ratably over five years in the
Company contributions. During 2001, 2000 and 1999, the Company's contribution to
the 401(k) plan aggregated $1,202,000, $1,264,000 and $1,056,000, respectively.






                                                                 41

<PAGE>



Pursuant to the  employment  contracts  entered into by the Company with certain
key  executives,  effective in 2000,  each executive is entitled to supplemental
retirement  income  benefits  based upon years of service  and  attained  salary
levels. The Company is accruing for the liability under these contracts based on
an estimated  present value  calculation of the future benefits  payable to each
executive.  Expense  recognized  related  to this  benefit  was  $5,783,000  and
$2,866,000 for the years ended December 31, 2001 and 2000, respectively.

STOCK OPTION PLANS

The  Company  follows  APB 25  under  which  no  compensation  expense  has been
recognized in  connection  with its stock option  plans.  Pro forma  information
regarding  net income and earnings per share are required by Statement  123, and
has been  determined  as if the Company had  accounted  for its  employee  stock
options under the fair value method of that statement.  The fair value for these
options was estimated at the date of grant using a Black-Scholes  option pricing
model with the following  weighted average  assumptions for 2001, 2000 and 1999,
respectively:  risk-free  interest  rates of 4.8%,  6.6%,  and 5.2%;  volatility
factors of the expected market price of the Company's  common stock of .65, .65,
and .59 and a weighted  average life of the options of three years.  The Company
anticipates that it will declare no dividends.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the option's  vesting  period.  The  Company's  pro
forma information follows (in thousands except per share amounts):
                                                 2001         2000        1999
                                                -------      ------      ------
Pro forma net income                            $49,997     $34,020     $19,856
Pro forma basic earnings per share                 1.29         .90         .48
Pro forma diluted earnings per share               1.23         .86         .48

In years 1990 through  1996,  and years 1998 through 2001,  MAMSI  implemented a
non-qualified  stock option plan  whereby  options for the purchase of shares of
common stock may be granted to directors, officers and employees of the Company.
Unexpired authorized shares under the plans total 10,000,000.  Options under the
plans generally vest over a three-year period and are exercisable at 100% of the
fair market  value per share on the date the options  are  granted.  The Company
accounts  for  these  stock  option  grants  in  accordance  with  APB 25,  and,
accordingly,  recognizes no compensation  expense for these stock option grants.
Transactions relating to the plans are summarized as follows:
















                                                                 42

<PAGE>



<TABLE>
<CAPTION>
                                              2001                       2000                       1999
                                     -----------------------    -----------------------    -----------------------
<S>                                  <C>            <C>         <C>            <C>         <C>            <C>
                                                    Weighted                   Weighted                   Weighted
                                                    Average                    Average                    Average
                                        2001        Exercise       2000        Exercise       1999        Exercise
                                       Shares        Price        Shares        Price        Shares        Price
                                     ---------      --------    ---------      --------    ---------      --------

Outstanding, January 1               7,978,037      $11.59      9,524,599      $13.35      7,913,124      $ 14.98
Granted                              2,526,290      $16.46      3,100,763      $ 9.53      2,541,630      $  9.32
Exercised                           (3,000,306)     $13.35     (1,991,094)     $12.52        (13,100)     $  6.21
Forfeited                             (355,258)     $14.02     (2,656,231)     $14.76       (917,055)     $ 16.37
                                     ---------                  ---------                  ---------
Outstanding, December 31             7,148,763      $12.45      7,978,037      $11.59      9,524,599      $ 13.35
                                     =========                  =========                  =========
Available for grant, end of year     1,251,180                  1,554,976                  1,581,308
Exercisable, end of year             3,977,323                  4,474,207                  5,910,801
Option price range for exercised
  shares                             $5.06-$20.63               $5.06-$17.13               $5.06-$7.88
Option price range at end of year    $5.00-$23.05               $5.00-$21.00               $5.00-$20.00
Weighted average fair value of
  options granted during year           $7.61                      $4.10                      $3.85
</TABLE>

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                                         OPTIONS EXERCISABLE
-----------------------------------------------------------------------------     --------------------------------
                        Outstanding     Weighted Average                          Exercisable
      Range of             as of           Remaining         Weighted Average        as of        Weighted Average
   Exercise Prices      12/31/2001      Contractual Life      Exercise Price      12/31/2001       Exercise Price
-------------------     -----------     ----------------     ----------------     -----------     ----------------
<S>                     <C>                  <C>                <C>               <C>                <C>
$ 0.00   -  $  5.00           150             1.7               $ 5.00                  150          $ 5.00
$ 5.01   -  $ 10.00     3,245,289             2.9               $ 8.76            1,990,215          $ 8.61
$10.01   -  $ 15.00       993,073             1.6               $12.62              869,266          $12.63
$15.01   -  $ 20.00     2,872,096             3.6               $16.46            1,111,252          $16.53
$20.01   -  $ 25.00        38,155             4.3               $21.24                6,440          $20.67
                        ---------                                                 ---------
                        7,148,763             3.0               $12.45            3,977,323          $11.72
                        =========                                                 =========
</TABLE>

INCENTIVE COMPENSATION PLAN

The Company has an incentive  compensation plan whereby managers receive bonuses
based upon the annual  operating  results of the Company.  During 2001, 2000 and
1999, incentive  compensation expense was approximately  $9,000,000,  $6,956,000
and $4,200,000, respectively, which was paid to employees in February 2002, 2001
and 2000, respectively.

NOTE 10 - COMMON STOCK

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                -----------------------------------------
                                                    2001           2000           1999
                                                -----------------------------------------
<S>                                             <C>            <C>            <C>
Numerator:
  Net income                                    $57,195,000    $39,406,000    $26,322,000

Denominator:
  Denominator for basic earnings per share
    - weighted average shares                    38,672,147     38,052,746     41,225,327
  Dilutive securities - employee stock options    1,829,939      1,288,291         41,277
  Denominator for diluted earnings per share
    - adjusted weighted average shares           40,502,086     39,341,037     41,266,604
</TABLE>

                                                            43

<PAGE>



On  August  26,  1996,  the  Company  established  the  MAMSI  SCT to  fund  its
obligations  arising from its various stock compensation  plans. MAMSI initially
funded the SCT with 9,130,000  shares of newly issued MAMSI stock.  In exchange,
the SCT delivered a promissory  note to MAMSI for  approximately  $129.9 million
which  represented the purchase price of the shares.  Amounts owed by the SCT to
MAMSI are repaid by cash received by the SCT or will be forgiven by MAMSI, which
will result in the SCT releasing  shares to satisfy MAMSI  obligations for stock
compensation.

During 2001, the SCT purchased an additional  2,000,000 of the Company's  common
stock for  approximately  $36.5 million.  The existing  promissory note has been
modified to reflect these purchases.

For financial reporting  purposes,  the SCT is consolidated with MAMSI. The fair
market  value  of  the  shares  held  by the  SCT is  shown  as a  reduction  to
stockholders'   equity  in  the  Company's   consolidated  balance  sheets.  All
transactions  between the SCT and MAMSI are eliminated.  The difference  between
the cost and fair  value of  common  stock  held in the SCT is  included  in the
consolidated financial statements as additional paid-in capital.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

The  Company  leases  certain  equipment  and  office  space  under the terms of
non-cancelable  operating leases that expire at various dates through 2006. Rent
expense relating to these operating leases approximated  $4,393,000,  $3,470,000
and $3,429,000 in 2001, 2000 and 1999, respectively.

Future minimum lease  commitments under  non-cancelable  operating leases are as
follows for the years ended December 31 (in thousands):

Year                    Amount
----                   -------
2002                   $ 3,395
2003                     2,303
2004                     3,168
2005                     1,822
2006                     1,016
                       -------
                       $11,704
                       =======

M.D. IPA  contracts  with OPM to provide or arrange  health  services  under the
FEHBP.  The contract with OPM and applicable  government  regulations  establish
premium rating  requirements for the FEHBP. The premiums  established  under the
OPM contract are subject to periodic review and audit to determine, if they were
established in compliance with the community rating and other requirements under
the program.  OPM typically  audits plans once every five or six years, and each
audit covers the prior five or six year period.  While the government's  initial
on-site  audits are  usually  followed  by a  post-audit  briefing  as well as a
preliminary  audit  report in which the  government  indicates  its  preliminary
results,  final  resolution  and  settlement of the audits can take two to three
years.  The results of these audits could result in material  adjustments to the
Company's financial statements. The Company has been audited through 1999. There
were no significant findings related to 1999.

On August 30, 2001, the Company filed a Demand for Arbitration with the American
Arbitration  Association  against  Merck and related  entities  seeking an order
relating  to  the  parties'   Integrated  Drug  Program  Master  Agreement  (the
"Agreement").  The Company  asserts  that Merck has  reneged on its  obligations
under  the  Agreement,   the  aggregate  amount  of  such  obligations  totaling
approximately  $49 million for fiscal year ended 2000. On October 8, 2001, Merck
and  related  entities  filed an  Answer  and  Counterclaim  alleging  breach of
contract and requesting  monetary relief. On October 19, 2001, the Company filed
an Answer to the  Counterclaim  denying all allegations and revising its request
for relief to $44.8  million  which  includes  the $41.0  million  recorded  for


                                                                 44

<PAGE>



financial  statement  purposes and additional amounts the Company believes it is
entitled to under the Agreement.  The Company  believes that the dispute will be
resolved in its favor. If the matter is not resolved in the Company's favor, the
effect could be material to the Company's financial statements. See Note 1.

The Company is involved in various legal actions arising in the normal course of
business,  some of  which  seek  substantial  monetary  damages.  After  review,
including  consultation  with legal  counsel,  management  believes any ultimate
liability that could arise from these other actions will not  materially  effect
the Company's consolidated financial position or results of operations.

NOTE 12 - STATUTORY REQUIREMENTS

M.D. IPA, OCI, OCCI and OCIPA are subject to insurance department regulations in
the states in which they are  licensed.  MLH is subject to insurance  department
regulations in Maryland, its state of domicile.

Minimum  required  statutory  net worth  and  actual  statutory  net worth as of
December 31 are as follows:
<TABLE>
<CAPTION>
                              2001                              2000
                   ---------------------------       --------------------------
                     Minimum          Actual           Minimum         Actual
                   ----------     ------------       ----------     -----------
<S>                <C>            <C>                <C>            <C>
M.D. IPA           $3,000,000     $ 40,500,000       $3,000,000     $42,600,000
OCI                 3,000,000       59,800,000        3,000,000      67,700,000
MLH                 1,125,000      108,280,000          500,000      80,000,000
OCCI                2,500,000        7,100,000        2,500,000       3,600,000
OCIPA               1,500,000        2,100,000        1,500,000       2,100,000
</TABLE>

M.D. IPA, OCI,  OCCI,  OCIPA and MLH were in  compliance  with state  depository
rules at December  31, 2001 and 2000.  OCCI was in  compliance  with its working
capital  requirement  of $1.6 million at December 31, 2001 and 2000.  M.D.  IPA,
OCI, OCCI, OCIPA and MLH exceeded the highest risk-based capital requirements at
December  31,  2001  and  2000.  These  MAMSI  subsidiaries  must  notify  state
regulators  before  the  payment  of any  dividends  to MAMSI  and,  in  certain
circumstances, must receive positive affirmation prior to such payment.

The National  Association  of  Insurance  Commissioners  revised the  Accounting
Practices and Procedures  Manual in a process referred to as  Codification.  The
revised manual became effective January 1, 2001. The domiciliary  states of M.D.
IPA, OCI, OCCI, OCIPA and MLH have adopted the provisions of the revised manual.
The revised manual has changed, to some extent,  prescribed statutory accounting
practices  that  M.D.  IPA,  OCI,  OCCI,  OCIPA  and  MLH use to  prepare  their
statutory-basis  financial statements.  The impact of these changes to MAMSI and
its insurance subsidiaries' statutory-basis capital and surplus as of January 1,
2001 was not significant.

NOTE 13 - RISK CONCENTRATIONS

Financial  instruments  that  potentially  subject  the  Company to credit  risk
consist  primarily of  investments  in marketable  securities  (including  money
market funds, floating rate municipal putable bonds, intermediate term municipal
bonds, and common stocks) and premiums  receivable.  The Company receives advice
through or assigns direct management of investment in securities to professional
investment  managers  selected for their  expertise in various  markets,  within
guidelines established by the Board of Directors. These guidelines include broad
diversification  of  investments.  Concentrations  of credit  risk and  business
volume with respect to commercial  premiums receivable are generally limited due
to the large number of employer groups  comprising the Company's  customer base.
As of December 31, 2001,  approximately  20% of premium and home health  service
receivables  were due from federal  government  agencies.  The Company  performs
ongoing  credit   evaluations  of  customers  and  generally  does  not  require
collateral.


                                                                 45

<PAGE>




NOTE 14 - REPORTABLE SEGMENTS

DESCRIPTION  OF THE TYPES OF PRODUCTS  AND SERVICES  FROM WHICH EACH  REPORTABLE
SEGMENT DERIVES ITS REVENUES

The Company has two reportable segments:  Commercial risk products and Preferred
Provider Organizations ("PPO"). Commercial risk products include traditional HMO
and point-of-service  health care plans as well as hybrid products.  Traditional
products  provide for the provision of  comprehensive  medical care to enrollees
for a fixed,  prepaid premium regardless of the amount of care provided.  Hybrid
products offer the ability to tailor  employee  health care offerings by varying
benefit designs,  funding methods and insurance risk. These products combine the
use of capitated  physicians to serve as care coordinators,  employer funding of
specialist  and  institutional  claims  on  an  "as  paid"  basis  with  MAMSI's
underwriting  of risk on a specific  and/or  aggregate  stop loss  basis.  MAMSI
offers access to its preferred  provider  network of physicians to employers and
insurance  companies  in  association  with  various  health  plans.  PPOs allow
enrollees to receive care from a network of participating  physicians and health
care  practitioners  who agree to provide services at  contractually  negotiated
rates in exchange for increased  patient volume. A PPO does not assume insurance
risk from medical utilization and it is not the claims payor.

MEASUREMENT OF SEGMENT PROFIT OR LOSS

The Company  evaluates  performance  and allocates  resources based on profit or
loss  from  operations  before  income  taxes,  not  including  income  from the
Company's  investment  portfolio.  The  accounting  policies  of the  reportable
segments  are  the  same  as  those  described  in the  summary  of  significant
accounting policies.

Management  does not allocate  assets in the  measurement  of segment  profit or
loss;  therefore,  jointly  used  assets  are not  allocated  to the  reportable
segments.



























                                                                 46

<PAGE>



FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS

The  Company's  reportable  segments  are  business  units that offer  different
products.  The reportable  segments are each managed  separately  because of the
range of benefit plans offered for providing health care coverage to enrollees.

<TABLE>
<CAPTION>

REPORTABLE SEGMENTS
(in thousands)
                                                       ----------------------------------------------------
                                                       Commercial
                                                          Risk        PPO        All Others      Totals
                                                       ----------------------------------------------------
<S>                                                    <C>            <C>          <C>           <C>
Year ended December 31, 2001:
Revenue from external customers                        $1,740,938     $21,244      $30,781       $1,792,963

Segment pretax profit (loss)                               60,448      10,622       (1,057)          70,013

                                                       ----------------------------------------------------
                                                       Commercial
                                                          Risk        PPO        All Others      Totals
                                                       ----------------------------------------------------
Year ended December 31, 2000:
Revenue from external customers                        $1,404,910     $21,811      $44,275       $1,470,996

Segment pretax profit                                      30,773      10,906        2,135           43,814

                                                       ----------------------------------------------------
                                                       Commercial
                                                          Risk        PPO        All Others      Totals
                                                       ----------------------------------------------------
Year ended December 31, 1999:

Revenue from external customers                        $1,206,340     $21,352      $ 78,528      $1,306,220

Segment pretax profit (loss)                               20,086      11,103        (2,011)         29,178

</TABLE>

The  sources  of  revenue  included  in the All  Others  category  are  composed
primarily of Medicaid and miscellaneous.  The Company ended its participation in
Medicaid in 2000. All revenue is generated within the United States.

<TABLE>
<CAPTION>
                                                                --------------------------------------------
(in thousands)                                                     2001              2000             1999
                                                                --------------------------------------------
<S>                                                             <C>              <C>              <C>
Revenues

Total external revenues for reportable segments                 $1,762,182       $1,426,721       $1,227,692

Other revenues                                                      30,781           44,275           78,528

Investment revenue not allocated                                    14,772           13,483           11,096
                                                                ----------       ----------       ----------
     Total consolidated revenues                                $1,807,735       $1,484,479       $1,317,316
                                                                ==========       ==========       ==========

Pretax Profit

Total profit from reportable segments                           $   71,070       $   41,679       $   31,189

Other (loss) profit                                                 (1,057)           2,135           (2,011)

Net investment income not allocated                                 14,329           12,944           10,652
                                                                ----------       ----------       ----------
     Total consolidated pretax profit                           $   84,342       $   56,758       $   39,830
                                                                ==========       ==========       ==========
</TABLE>


                                                                 47

<PAGE>



NOTE 15 - COMPREHENSIVE INCOME

Changes  in  accumulated  other  comprehensive  income  related  to  changes  in
unrealized gains (losses) on securities, net-of-tax, were as follows:

<TABLE>
<CAPTION>
                                                                -----------------------------------------
(in thousands)                                                    2001             2000             1999
                                                                -----------------------------------------
<S>                                                             <C>              <C>              <C>
Unrealized holding gains (losses) arising
 during period                                                  $   722          $ 2,887          $(2,341)

Less: Reclassification adjustment for
  net gains (losses) included in net income                           6               62              (15)
                                                                -------          -------          -------

Net unrealized gains (losses) recognized in
 other comprehensive income (loss)                              $   716          $ 2,825          $(2,326)
                                                                =======          =======          =======
</TABLE>








                                                                 48

<PAGE>



                         Report of Independent Auditors


Board of Directors and Stockholders
Mid Atlantic Medical Services, Inc.


We have audited the  accompanying  consolidated  balance  sheets of Mid Atlantic
Medical  Services,  Inc. and  subsidiaries as of December 31, 2001 and 2000, and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 2001. Our audits also included the financial  statement  schedule  listed in
the  Index at Item  14(a).  These  financial  statements  and  schedule  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We have  conducted our audits in accordance  with auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of Mid
Atlantic Medical Services,  Inc. and subsidiaries at December 31, 2001 and 2000,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 2001,  in  conformity  with
accounting  principles  generally  accepted in the United  States.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the financial  statements  taken as a whole,  presents fairly in all material
respects the information set forth therein.


                                          /s/ Ernst & Young LLP
                                          ----------------------
                                          Ernst & Young LLP



McLean, Virginia
February 11, 2002

                                                                 49

<PAGE>



SELECTED QUARTERLY FINANCIAL DATA FOR FISCAL YEARS 2001 AND 2000

<TABLE>
<CAPTION>
                                    2001       2001       2001       2001       2000       2000       2000       2000
                                    First     Second      Third     Fourth      First     Second      Third     Fourth
                                   Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                   --------   --------   --------   --------   --------   --------   --------   --------
                                                             (in thousands except share amounts)
                                                                           (unaudited)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>

Revenue                            $424,661   $450,475   $459,667   $472,932   $360,113   $368,339   $371,428   $384,599
Expense                             405,342    432,656    437,049    448,346    347,050    357,169    356,779    366,723

Income before income taxes           19,319     17,819     22,618     24,586     13,063     11,170     14,649     17,876
Net income                           12,882     11,986     15,036     17,291      8,602      7,313     10,974     12,517

Basic earnings per share                .34        .31        .38        .45        .22        .19        .29        .33
Diluted earnings per share              .32        .30        .36        .43        .22        .19        .28        .31

</TABLE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.



                                                                 50

<PAGE>



                                    Part III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required  by  this  item is  incorporated  by  reference  from
"Directors and Executive  Officers"  section of the Proxy  Statement for MAMSI's
annual meeting of shareholders to be held on April 23, 2002.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required  by  this  item is  incorporated  by  reference  from
"Directors  and Executive  Officers -- Directors'  Compensation"  and "Executive
Management  Compensation"  sections of the Proxy  Statement  for MAMSI's  annual
meeting of shareholders to be held on April 23, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by this item is incorporated by reference from "Stock
Owned  by  Management"  and  "Principal  Stockholders"  sections  of  the  Proxy
Statement for MAMSI's  annual  meeting of  shareholders  to be held on April 23,
2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by  this  item is  incorporated  by  reference  from
"Executive  Management  Compensation" section of the Proxy Statement for MAMSI's
annual meeting of shareholders to be held on April 23, 2002.

                                                                 51

<PAGE>



                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                        PAGE
                                                                  ----
Consolidated Balance Sheets as of December 31, 2001 and 2000 ...    28
Consolidated Statements of Operations for the years ended
  December 31, 2001, 2000 and 1999 .............................    29
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2001, 2000 and 1999 .........    30
Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999 .............................    31
Notes to Consolidated Financial Statements .....................    32
Report of Ernst & Young LLP Independent Auditors ...............    49

(a)(2) and (d)
INDEX TO FINANCIAL STATEMENT SCHEDULE                             PAGE
                                                                  ----
II - Valuation and Qualifying Accounts as of December 31,
       2001, 2000 and 1999 .....................................    53

All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange  Commission are omitted  because they
are not required under the related instructions or are inapplicable.

                                                                 52

<PAGE>



                       Mid Atlantic Medical Services, Inc.
                  Schedule II - Valuation and Qualifying Accounts
                              (in thousands)
<TABLE>
<CAPTION>
                                    Additions
                Balance at     ------------------------------
                Beginning        Charged to      Charged to                      Balance
                    of              Costs          Other        Deductions-       at End
Description       Period        and Expenses      Accounts      Write-Offs      of Period
-----------     ----------     -------------     ----------     -----------     ---------
<S>             <C>            <C>               <C>            <C>             <C>

DEDUCTED FROM ASSET ACCOUNTS:

YEAR ENDED DECEMBER 31, 1999

Allowance for doubtful accounts - accounts receivable

                $  5,214       $    461          $   (230)(1)   $               $ 5,445
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  2,290       $    765          $              $               $ 3,055
                ========       ========          ========       ========        =======

YEAR ENDED DECEMBER 31, 2000

Allowance for doubtful accounts - accounts receivable

                $  5,445       $    335          $    357 (1)   $               $ 6,137
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  3,055       $    706          $              $     10        $ 3,751
                ========       ========          ========       ========        =======

YEAR ENDED DECEMBER 31, 2001

Allowance for doubtful accounts - accounts receivable

                $  6,137       $    152          $    358 (1)   $               $ 6,647
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  3,751       $     27          $              $               $ 3,778
                ========       ========          ========       ========        =======

</TABLE>

(1) The changes to the allowance were charged to revenue.



                                                                 53

<PAGE>



(a)(3)
EXHIBITS

See the Exhibit Index on pages 57-59 of this Form 10-K.

(b)
REPORTS ON FORM 8-K

None.

                                                                 54

<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


      MID ATLANTIC MEDICAL SERVICES, INC. ("MAMSI")
      (Registrant)

      By: /s/ Mark D. Groban, M.D.                3/26/2002
         --------------------------------------------------
         Mark D. Groban, M.D.                          Date
         Chairman of the Board and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


      By: /s/ Howard M. Arnold                    3/26/2002
         --------------------------------------------------
         Howard M. Arnold                             Date
         Director

      By: /s/ Thomas P. Barbera                   3/26/2002
         --------------------------------------------------
         Thomas P. Barbera                           Date
         Vice Chairman of the Board, President, Chief Executive Officer
         and Director

      By: /s/ Francis C. Bruno, M.D.              3/26/2002
         --------------------------------------------------
         Francis C. Bruno, M.D.                       Date
         Director

      By: /s/ Raymond H. Cypess, D.V.M., Ph.D.    3/26/2002
         --------------------------------------------------
         Raymond H. Cypess, D.V.M., Ph.D.             Date
         Director

      By: /s/ John W. Dillon                      3/26/2002
         --------------------------------------------------
         John W. Dillon                               Date
         Director

      By: /s/ Robert E. Foss                      3/26/2002
         --------------------------------------------------
         Robert E. Foss                               Date
         Senior Executive Vice President and Chief Financial Officer
         and Director
         (Principal Financial Officer)

      By: /s/ Mark D. Groban, M.D.                3/26/2002
         --------------------------------------------------
         Mark D. Groban, M.D.                         Date
         Chairman of the Board and Director
         (Principal Executive Officer)

      By: /s/ Christopher E. Mackail              3/26/2002
         --------------------------------------------------
         Christopher E. Mackail                       Date
         Senior Vice President, Controller and Chief Accounting Officer
         (Principal Accounting Officer)

      By: /s/ John P. Mamana, M.D.                3/26/2002
         --------------------------------------------------
         John P. Mamana, M.D.                         Date
         Director




                                                                 55

<PAGE>



      By: /s/ Edward J. Muhl                      3/26/2002
         --------------------------------------------------
         Edward J. Muhl                               Date
         Director

      By: /s/ Janet L. Norwood                    3/26/2002
         --------------------------------------------------
         Janet L. Norwood, Ph.D.                      Date
         Director

      By: /s/ John A. Paganelli                   3/26/2002
         --------------------------------------------------
         John A. Paganelli                            Date
         Director

      By: /s/                                     3/26/2002
         --------------------------------------------------
         Ivan R. Sabel, CPO                           Date
         Director

      By: /s/ James A. Wild                       3/26/2002
         --------------------------------------------------
         James A. Wild                                Date
         Director



                                                                 56

<PAGE>



(a)(3), (b) and(C)List of Exhibits.

<TABLE>
<CAPTION>
                                  EXHIBIT INDEX
                                                                             Location of Exhibit
Exhibit                                                                        in Sequential
Number     Description of Document                                             Numbering System
-------    -----------------------                                           -------------------
<S>        <C>
 3.1       Copy of Certificate of Incorporation of MAMSI dated
           October 7, 1986..........................................................(1)
 3.2       Copy of Certificate of Amendment of MAMSI Certificate of
           Incorporation dated April 23, 1990.......................................(4)
 3.3       Amended and Restated By-laws of MAMSI as of February 15, 2000............
 3.4       Copy of Certificate of Amendment of MAMSI Certificate of
           Incorporation dated June 2, 1994.........................................(4)
10.41      Copy of Agreement between M.D. IPA and Surgical Care Affiliates, Inc.,
           dated April 22, 1985.....................................................(4)
10.60      1993 Non-Qualified Stock Option Plan.....................................(11)
10.61      1993 Non-Qualified Stock Option Letter Sent to Key Employees.............(11)
10.67      1994 Non-Qualified Stock Option Plan.....................................(3)
10.68      1994 Non-Qualified Stock Option Letter sent to Key Employees.............(3)
10.72      List of States in which MAMSI Life is Licensed to Operate................(3)
10.74      1995 Non-Qualified Stock Option Plan.....................................(4)
10.75      1995 Non-Qualified Stock Option Plan letter sent to Key Employees........(4)
10.76      Agreement between OCI and the Commonwealth of Virginia governing the
           Medical Assistance Program ("Medicaid") dated May 27, 1994...............(4)
10.79      1996 Non-Qualified Stock Option Plan.....................................(5)
10.80      Form of Agreement between MAMSI and Employees Granting Options
           under the 1996 Non-Qualified Stock Option Plan...........................(5)
10.81      Form of Agreement between MAMSI and George T. Jochum Granting Options
           under the 1996 Non-Qualified Stock Option Plan...........................(5)
10.82      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 1996 Non-Qualified Stock Option Plan...................(5)
10         Amended and Restated Compensation Trust Agreement dated
           December 20, 1996........................................................(7)
10.1       Amended and Restated Common Stock Purchase Agreement dated
           December 20, 1996........................................................(7)
10.2       Replacement Promissory Note dated December 20, 1996......................(7)
10.83      1997 Management Bonus Program............................................(8)
10.84      Form of Non-Qualified Stock Option Agreement for Options Granted
           under 1991, 1992, 1993, 1994 and 1995 Non-Qualified Stock Option Plan....(9)
10.85      Agreement of Purchase of Real Property by Mid-Atlantic
           Medical Services, Inc....................................................(10)
10.86      1997 Amendment to Employment Agreement between George T. Jochum
           and the Company..........................................................(11)
10.87      1998 Non-Qualified Stock Option Plan.....................................(11)
10.88      1998 Senior Management Bonus Plan........................................(11)
10.89      1998 Management Bonus Plan...............................................(11)
10.90      Amendment to 1994 Non-Qualified Stock Option Plan........................(11)
10.91      Amendment to 1995 Non-Qualified Stock Option Plan........................(11)
10.92      Amendment to 1996 Non-Qualified Stock Option Plan........................(11)
10.93      1999 Employment Agreement Between George T. Jochum and the Company.......(11)
10.94      Form of Agreement between MAMSI and Employees Granting Options
           under the 1998 Non-Qualified Stock Option Plan...........................(12)
10.95      Form of Agreement between MAMSI and George T. Jochum Granting Options
           under the 1998 Non-Qualified Stock Option Plan...........................(12)
10.96      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 1998 Non-Qualified Stock Option Plan...................(12)
10.97      Memorandum to Employees and Form for Election Of Exchange
           and Repricing of Stock Options...........................................(12)
10.98      Agreement of Purchase and Sale of Real Estate............................(13)
10.981     1999 Non-Qualified Stock Option Plan.....................................(14)
10.982     1999 Senior Management Bonus Plan........................................(14)
10.983     1999 Management Bonus Plan...............................................(14)
10.984     Amended and Restated Stock Compensation Trust Agreement
           dated January 11, 1999...................................................(14)
10.985     Common Stock Purchase Agreement dated January 11, 1999...................(14)
10.986     Allonge to Replacement Promissory Note dated January 11, 1999............(14)
10.987     Employment Agreement between the Company and Mark D. Groban..............(14)
10.988     Employment Agreement between the Company and Thomas P. Barbera...........(14)
10.989     Employment Agreement between the Company and Robert E. Foss..............(14)
10.990     Form of Executive Employment Agreement between the Company
           and Executive Staff......................................................(14)


                                                                 57

<PAGE>



10.991     Form of Agreement between MAMSI and Employees Granting Options
           under the 1999 Non-Qualified Stock Option Plan...........................(14)
10.992     Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 1999 Non-Qualified Stock Option Plan...................(14)
10.993     Employment Agreement between the Company and Mark D. Groban..............(15)
10.994     Employment Agreement between the Company and Thomas P. Barbera...........(15)
10.995     First Amendment to Employment Agreement between the Company
           and Mark D. Groban.......................................................(16)
10.996     First Amendment to Employment Agreement between the Company
           and Thomas P. Barbera....................................................(16)
10.997     First Amendment to Employment Agreement between the Company
           and Robert E. Foss.......................................................(16)
10.998     Amended and Restated Stock Compensation Trust Agreement
           dated August 20, 1999....................................................(16)
10.999     Common Stock Purchase Agreement dated August 20, 1999....................(16)
10.21      Allonge to Replacement Promissory Note dated
           August 20, 1999..........................................................(16)
10.22      2000 Non-Qualified Stock Option Plan.....................................(17)
10.23      2000 Senior Management Bonus Plan........................................(17)
10.24      2000 Key Management Bonus Plan...........................................(17)
10.25      Plan for Deferral of Directors Fees......................................(17)
10.26      Form of Agreement between MAMSI and Employees Granting Options
           Under the 2000 Non-Qualified Stock Option Plan...........................(17)
10.27      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options Under the 2000 Non-Qualified Stock Option Plan...................(17)
10.28      Form of Agreement between MAMSI and Directors Electing
           to Defer Director Fees...................................................(17)
10.29      Amended and Restated Stock Compensation Trust
           Agreement dated August 4, 2000...........................................(18)
10.30      Common Stock Purchase Agreement dated
           August 4, 2000...........................................................(18)
10.31      Allonge to Replace Promissory Note dated
           August 4, 2000...........................................................(18)
10.32      2001 Non-Qualified Stock Option Plan.....................................(19)
10.33      Form of Agreement between MAMSI and Employees Granting Options
           Under the 2001 Non-Qualified Stock Option Plan...........................(19)
10.34      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 2001 Non-Qualified Stock Option Plan...................(19)
10.35      Employment Agreement between the Company and Mark D. Groban..............(19)
10.36      Employment Agreement between the Company and Thomas P. Barbera...........(19)
10.37      Employment Agreement between the Company and Robert E. Foss..............(19)
10.38      Employment Agreement between the Company and Sharon C. Pavlos............(19)
10.39      Common Stock Purchase Agreement dated
           July 11, 2001............................................................(20)
10.40      Allonge to Replacement Promissory Note dated
           July 11, 2001............................................................(20)
10.42      2002 Non-Qualified Stock Option Plan.....................................
10.43      Form of Agreement between MAMSI and Employees Granting Options
           under the 2002 Non-Qualified Stock Option Plan...........................
10.44      Form of Agreement between MAMSI and Non-Employee Directors
           Granting Options under the 2002 Non-Qualified Stock Option Plan..........
21         Subsidiaries of the Company..............................................
23         Consent of Independent Auditors..........................................
</TABLE>

(1) Incorporated by reference to exhibits filed with the Company's  Registration
Statement filed under the Securities Act of 1933 on Form S-4  (Registration  No.
33-9803).

(2)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 1993.

(3) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1993.

(4) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1994.

(5)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report filed under the  Securities  Exchange Act on Form 10-Q for the  quarterly
period ended March 31, 1995.

                                                                 58

<PAGE>


(6) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1995.

(7)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report  filed under the  Securities  Exchange Act of 1934 on Form 10-Q/A for the
quarterly period ended September 30, 1996.

(8) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1996.

(9)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended March 31, 1997.

(10)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended June 30, 1997.

(11)  Incorporated  by reference  to exhibits  filed with the  Company's  Annual
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-K for the
fiscal year ended December 31, 1997.

(12)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended March 31, 1998.

(13)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 1998.

(14)  Incorporated  by reference  to exhibits  filed with the  Company's  Annual
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-K for the
fiscal year ended December 31, 1998.

(15)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended June 30, 1999.

(16)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 1999.

(17)  Incorporated  by reference  to exhibits  filed with the  Company's  Annual
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-K for the
fiscal year ended December 31, 1999.

(18)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 2000.

(19)  Incorporated  by reference  to exhibits  filed with the  Company's  Annual
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-K for the
fiscal year ended December 31, 2000.

(20)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 2001.



                                                                 59