<PAGE>  1
                                 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 [FEE REQUIRED]
                      For fiscal year ended DECEMBER 31, 1996

                                          OR

     [ ] TRANSITION  REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                      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  stock held  by non-affiliates  of the
     Registrant as of February 28, 1997:  Approximately $593 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.


            54,677,862 shares of common stock as of February 28, 1997

                        DOCUMENTS INCORPORATED BY REFERENCE
     The Proxy  Statement for the Registrant's annual  meeting of shareholders
     to be held on April 29,  1997 is incorporated by reference into  Part III
     of this Form 10-K.


     <PAGE>  2
                                    FORM 10-K

                                      INDEX

     ITEM NO.   DISCLOSURE REQUIRED                                    PAGE

                                      PART I

     Item 1     Business ..............................................   3
     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 Operation .................   17
     Item 8     Financial Statements and Supplementary Data ..........   23
     Item 9     Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure ................   44

                                      PART III

     Item 10    Directors and Executive Officers of the Registrant ...   45
     Item 11    Executive Compensation ...............................   45
     Item 12    Security Ownership of Certain Beneficial Owners
                  and Management .....................................   45
     Item 13    Certain Relationships and Related Transactions .......   45

                                      PART IV
     Item 14    Exhibits, Financial Statement Schedules
                  and Reports on Form 8-K ............................   46


     <PAGE> 3
                                      PART I

     ITEM 1. BUSINESS

     Mid  Atlantic Medical Services, Inc.  ("MAMSI") is a  holding company for
     subsidiaries  active in  managed health  care and  other life  and health
     insurance  related   activities.     MAMSI  and  its   subsidiaries  (the
     "Company")  have developed  a  broad range  of  managed health  care  and
     related  ancillary products  and  deliver these  services through  health
     maintenance  organizations  ("HMOs"),  preferred  provider  organizations
     ("PPOs"), a life and health  insurance company and home health care, home
     infusion  services and  mail order prescription  companies.   The Company
     also has 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  nonstock
     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
     nonstock  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.

     HEALTH MAINTENANCE ORGANIZATIONS

     MAMSI's primary business is  the delivery of managed health  care through
     its HMOs.   MAMSI currently offers HMO coverage through four licensed HMO
     subsidiaries  - M.D. IPA, Optimum Choice, Inc. ("OCI"), Optimum Choice of
     the  Carolinas, Inc.  ("OCCI") and  Optimum Choice, Inc.  of Pennsylvania
     ("OCIPA").


     M.D. IPA  became a licensed HMO  in Maryland in  1981 and in  Virginia in
     1985.  M.D.  IPA's present  service area (which  includes all  geographic
     areas  where the HMO has  received regulatory approval  to provide 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").  In
     addition  to  serving  governmental  entities   such  as  the  Office  of
     Personnel Management of  the United States  Government under the  Federal
     Employees Health  Benefit Plan, M.D.  IPA generally provides  coverage to
     the larger commercial group market.

     OCI, a non-Federally qualified HMO,  became a licensed HMO in Maryland in
     1988, in Virginia in 1990,  in Delaware in 1993  and in West Virginia  in
     1994.  OCI generally  operates within the small business  market segment,
     which  is comprised  of  employers with  50 or  fewer employees  and also
     covers  Medicaid  and  Medicare  recipients.   OCI's  present  commercial


     service area includes  the entire  states of Maryland  and Delaware,  the
     District of Columbia, most  counties and cities in Virginia,  and certain
     areas  of West Virginia.   For the  Medicare Program, OCI  is licensed in
     Northern Virginia, Maryland, Delaware and the District of Columbia.

     OCCI,  a  non-Federally qualified  HMO, became  a  licensed HMO  in North
     Carolina in 1995 and  South Carolina in 1996.  OCCI  operates in both the
     small and large  group commercial  market.  OCCI's  present service  area
     includes certain areas of North Carolina and South Carolina.

     OCIPA,  a  non-Federally   qualified  HMO,  became  a   licensed  HMO  in
     Pennsylvania in 1996.  OCIPA  operates in both the small and  large group
     commercial market.   OCIPA's present service area  includes five counties
     in south-central Pennsylvania.


     <PAGE> 4

     GENERAL

     HMOs provide or arrange  for the provision of comprehensive  medical care
     (including  physician  and  hospital  care)  to enrollees  for  a  fixed,
     prepaid premium regardless  of the  amount of care  provided.   Enrollees
     generally  receive  care  from  participating   primary  care  physicians
     ("PCPs") who,  as required, refer enrollees  to participating specialists
     and  hospitals.     HMOs   require  patients  to   utilize  participating
     physicians  and other  participating health  care providers.  This allows
     HMOs  to negotiate favorable rates  and control utilization  to a greater
     extent than  traditional health insurers, while  monitoring and enhancing
     the quality of care provided to enrollees.

     The  goal of  an HMO is  to combine  quality health  care with management
     controls designed  to encourage efficient  and economical  use of  health
     care  services.   Such  controls include  monitoring physician  services,
     hospital admissions and lengths  of stay and maximizing  the use of  non-
     hospital  based medical  services.   Because  an  HMO generally  receives
     fixed monthly premiums from  its enrollees regardless of the  health care
     services provided, an HMO has an incentive to maintain the  health of its
     enrollees,    while   carefully    monitoring   expenses    through   the
     implementation   of  various  cost   control  strategies   and  effective
     management.

     MAMSI's  HMO provider  network is  organized as  an IPA.   Under  the IPA
     model, the HMO  contracts with a broadly dispersed group of physicians to
     provide  medical services to enrollees in the physicians' own offices and
     in  hospitals; the  physicians are  generally paid  on a  capitated or  a
     negotiated fee-for-service basis.   Physicians 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 to
     enrollees.    Generally, enrollees  arrange  for  coverage through  their
     employer.   However,  group enrollees  can convert  their coverage  to an
     individual contract upon  separation from  their employer.   There is  no
     assurance  that HMO agreements with employers will be renewed annually or
     that,  within   each  employer  group,   the  HMO  will   not  experience
     disenrollment  by   individual  enrollees.    MAMSI's   HMOs  also  offer
     individual coverage to the commercial, Medicaid and Medicare markets.

     Under  traditional  HMO coverage,  the enrollee  selects  a PCP  from the
     HMO's provider network.  All medical  care provided to the enrollee  must
     be authorized  and coordinated by the PCP.   Generally, 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, enrollees  are generally  required to
     utilize  only those participating  professional and  institutional health
     care  providers that have contracted with the IPA (see further discussion
     under "HMO Arrangements with Physician and Institutional Providers").

     MAMSI's  HMOs,  in  cooperation  with  MAMSI Life  and  Health  Insurance
     Company  ("MAMSI Life"), a wholly  owned subsidiary of  MAMSI, also offer
     point-of-service coverage  (the "preferred  plan"), which is  marketed to
     appeal to the following customers:


       1. Individuals who  will not consider a closed  delivery system.  These
     individuals prefer the flexibility of  the traditional indemnity plan but
     are also seeking a lower-cost alternative such as an HMO.

       2. Small to mid-sized employers who  are looking to limit the number of
     health care  plan  options.   In this  case,  the HMO  would seek  to  be
     offered as an exclusive health care provider.

     In the preferred  plan, enrollees have  the choice 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 provider outside  of the HMO network, MAMSI Life, which
     underwrites this indemnity  benefit, generally covers  the lesser of  80%
     of  the bill  or 100%  of  the established  fee maximum  for  the service
     provided.  The enrollee is responsible for the remainder of the charge.

     Additionally,  MAMSI 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 MAMSI hybrid product  combines the
     use of capitated


     <PAGE> 5

     PCPs  to  serve  as  gatekeepers,  employer  funding  of  specialist  and
     institutional  claims on an "as  paid" basis and  MAMSI's underwriting of
     risk of loss on a specific and/or aggregate stop loss basis.

     OCI offers HMO  coverage to  recipients of Title  XIX Medical  Assistance
     ("Medicaid") in certain states.   The Medicaid plan operates in  a manner
     similar  to  the traditional  HMO plan.  The  participating states  pay a
     monthly  premium based upon  the age, sex and  geographic location of the
     recipients for  which OCI  provides comprehensive  medical coverage.   At
     December  31,  1996, MAMSI's  Medicaid  service  area includes  Maryland,
     certain  areas of Virginia, six counties in West Virginia and Mecklenburg
     County, North Carolina.

     Effective  January  1,  1997, OCI  withdrew  from  the  mandated Medicaid
     Program in the  Tidewater area  of Virginia which  reduced the  Company's
     membership  by  approximately  26,000  members.   Additionally,  OCI  has
     informed the State of Maryland that it will not be a participant in  that
     State's new mandated  program.   It is currently  anticipated that  OCI's
     current  Maryland Medicaid  membership  of approximately  38,000 will  be
     reassigned to other  managed care organizations  beginning in July,  1997
     and that all of OCI Medicaid membership  in the State of Maryland will be
     gone by December 31, 1997.

     Under  all  coverage  options,  enrollees  receive  the  following  basic
     benefits:   primary and specialist physician  services; hospital services
     such  as  diagnostic  tests,   x-rays,  drugs,  medication,  nursing  and
     maternity  services;   outpatient  diagnostic  tests  such as  laboratory
     tests, x-rays, and allergy testing and injections.

     OCI  also offers  health  coverage to  Title  XVIII Medicare  recipients.
     Under  a  contractual arrangement  with  the  United  States Health  Care
     Financing Administration  ("HCFA"), OCI receives a  monthly premium based
     upon age, sex,  county of residence and  enrollment status for  which OCI
     provides   comprehensive   medical   coverage   to   those   individuals.
     Currently,  approximately only 4% -  5% of the  approximately one million
     Medicare  recipients in  MAMSI's  Medicare service  area (which  includes
     Delaware,  the  District  of   Columbia,  several  counties  in  Northern
     Virginia, and  most of the State  of Maryland) are  covered through MAMSI
     or other HMOs.   In 1996, OCI informed HCFA that it  wished to reduce the
     size  of  its Medicare  service  area.   Effective  January  1, 1997,  59
     counties and cities  were eliminated  from OCI's  Medicare service  area.
     This  reduction  in  service  area  reduces  its  Medicare  membership by
     approximately 5,000 members.

     The  Company's total health plan (managed care fully budgeted and hybrid,
     ASO  and indemnity  health insurance)  membership in  the HMOs  and MAMSI
     Life grew to approximately  745,000 at December 31, 1996 from  658,000 at
     December 31, 1995, an increase of 13%.

     The  following table sets forth  information relevant to  MAMSI's HMO and
     indemnity health plans as of December 31, 1996:

     Employer Groups Served              30,600
     Population of Aggregate HMO
       Service Area                  32,000,000
     Service Area Penetration               2.3%
     Primary Care Physicians              4,900
     Specialist Physicians               12,800


     Other Affiliated Health
       Care Providers                     6,600
     Hospitals and Outpatient
       Facilities                         1,200
     Pharmacies                           6,700

     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,  1996,  1995  and  1994,  approximately  11%,  7%  and  9%,
     respectively,  of premium  revenue  was derived  from Federal  government
     agencies, and approximately 26%, 21%  and 18%, respectively, was  derived
     from state  and  local  government  agencies  located  in  the  Company's
     service area.



     HMO ARRANGEMENTS WITH PHYSICIAN AND INSTITUTIONAL PROVIDERS

     M.D. IPA  and OCI contract with  PHP-MD to provide physician  services to
     their  enrollees while OCCI (North Carolina and South Carolina) and OCIPA
     (Pennsylvania)  contract   directly  with   providers.    The   HMOs  are
     ultimately


     <PAGE> 6

     responsible  for ensuring that an adequate number of physicians and other
     health care providers are maintained in order to service enrollees.

     The  Company  contracts   with  many  different  kinds   of  health  care
     providers,  including primary  care and specialist  physicians, dentists,
     social  workers,  psychologists,  physical  therapists  and  podiatrists.
     PCPs  are paid  a monthly capitation  payment for  each enrollee  who has
     chosen that  PCP.  This  capitation payment varies  according to the  age
     and sex of the enrollee and  according to the primary care designation of
     the provider  chosen by the enrollee.   The primary  care designations on
     which premiums  are based fall  into one  of two types:   (1)  family and
     general practice,  pediatrics and  internal medicine, and  (2) obstetrics
     and gynecology.

     PCPs  may receive, in addition to capitation payments, fees for specified
     procedures  and an  annual  payment that  is  based on  a Quality  Review
     Reconciliation.    This payment  generally does  not  exceed 3%  of their
     annual   capitation  payments.      The   reconciliation  evaluates   the
     physician's practice  performance  as  well as  quality  issues  such  as
     grievance  rates from  members,  sanctions by  a  MAMSI HMO,  and  member
     transfer  rate.    As part  of  the  Quality  Review Reconciliation,  the
     Company  provides  a  quarterly report  to  each  PCP  that compares  the
     physician's  practice  performance  based  on  outpatient  and  inpatient
     expenses  to those  of  his/her peers  and  allows the  PCP  not only  to
     monitor  the   number  of  referrals  consistent   with  quality  medical
     standards,  but also to evaluate  the most cost-effective consultants and
     facilities within each specialty area.

     Prior  to  July, 1,  1995,  specialist providers  and  participating non-
     physician  providers were  compensated  on  a discounted  fee-for-service
     basis.   This  compensation was  limited to  an established  maximum rate
     that reflected the  amount that  similar providers of  a similar  service
     would typically charge.   Effective  July 1, 1995,  the Company  modified
     the  method  used  to  compensate  providers  and  adopted  the  Medicare
     Resource   Based   Relative   Value   Scale   methodology   of   provider
     reimbursement.   This methodology, which applies  generally to specialist
     health  claims,  has  resulted  in  the  lowering  of some  reimbursement
     levels,  mainly  those  having  to  do  with  office  and  hospital-based
     procedures, while increasing payments  for many evaluation and management
     tasks.   Management believes that this  change will allow the  Company to
     continue to be competitive within its marketplace.

     The HMOs have  contractual arrangements  with a combined  total of  1,200
     facilities,   consisting  of   200  hospitals   and   1,000  non-hospital
     facilities, as  of December 31,  1996.  These  facilities are  located in
     the  Company's HMO Service Area.  Contracts with facilities are renewable
     annually.  These  hospitals have provided  assurance that, if  discharged
     enrollees require transfer to  another facility, they will transfer  such
     enrollees to participating providers.

     HMO ARRANGEMENTS FOR OTHER SERVICES

     The HMOs have  contracted with a  number of entities  to arrange for  the
     provision of other services:

     EMERGENCY  CARE  -  Enrollees may  receive  urgent  care  services as  an
     alternative to  hospital emergency  room  treatment.   Enrollees can  use
     local  urgent care centers and  any hospital emergency  room in emergency


     situations.

     HOME HEALTH  CARE - A  number of  medical care providers  are engaged  to
     provide  health  care services  (such  as  nursing, pediatric,  neonatal,
     orthopedic,   psychiatric,   geriatric,  dialysis   treatments,  physical
     therapy,  speech  therapy and  respiratory therapy)  at  the home  of the
     enrollee.     MAMSI's  home   health  care  subsidiary,   HomeCall,  Inc.
     ("HomeCall"), provides  these services  throughout much of  the Company's
     service area.

     PHARMACEUTICAL   ASSISTANCE  -   The   Company   has  arrangements   with
     participating  pharmacies so that an enrollee is only responsible for the
     deductibles  and/or   copayments  that  are  indicated  on   his  or  her
     enrollment  card.     The  Company's  pharmaceutical   company,  HomeCall
     Pharmaceutical Services,  Inc. provides home infusion,  delivery of drugs
     to  physician offices and mail order prescription services to its members
     and other payors.

     LABORATORY TESTING -  The Company  has an arrangement  with a  laboratory
     that  conducts much  of the  laboratory work  required by  HMO providers.
     Enrollees  in MAMSI's PPO are  similarly referred to  this laboratory for
     testing.


     <PAGE> 7

     DENTAL - In addition to a  dental indemnity product available from  MAMSI
     Life and  subcontracted  capitated arrangements  with a  dental HMO,  the
     Company has an  arrangement with  an association of  dentists to  provide
     discounted dental services through a dental PPO.

     QUALITY ASSESSMENT/IMPROVEMENT AND COST CONTAINMENT

     MAMSI   conducts   a   multidisciplinary   approach   to    its   Quality
     Assessment/Quality   Improvement   ("QA/QI")   Program,   utilizing   the
     resources of all  of its subsidiaries to ensure  the provision of quality
     health care  and services  to its  HMO enrollees  in an  appropriate  and
     cost-efficient manner.

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

     MAMSI's QA/QI  Committee, which  operates under the  auspices of  MAMSI's
     Board  of  Directors,  includes  administrative,  clinical  and  provider
     representation.  The Committee  evaluates numerous quality related issues
     and outcomes measuring overall services provided to enrollees.

     In  addition, MAMSI  utilizes  several cost  control  and quality  review
     mechanisms.    Provider  applications   are  reviewed  by  a  Credentials
     Committee  in  order to  determine  whether the  applicant  meets MAMSI's
     application criteria, including Board Certification or eligibility.

     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 the  hospital and
     out-of-plan referrals issued by primary care providers.

     In  most  situations,  prior  authorization  must  be obtained  for  non-
     emergency  hospital admissions.   Failure  to secure  prior authorization
     for  non-emergency hospital admissions  of enrollees may  cause claims to
     be  denied, and  in  some  situations,  provider  sanctions.    Prior  to
     admission  for non-emergency  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 in  the  hope of
     preventing unneeded use of  medical resources.  Although  the Utilization
     Management  staff  is  not  permitted  to  interfere  with  a physician's
     medical  judgment regarding  the  course of  treatment, if  the physician
     decides  to  extend  an  enrollee's  stay  beyond  that  authorized,  the
     physician must  provide medical justification  for the necessity  of such
     proposed action and obtain specific approval.

     As  required  by  Federal and  state  law, the  HMOs  have  established a
     grievance  procedure  to respond  to  enrollee  and provider  complaints.


     Enrollees are encouraged  to use this procedure before proceeding further
     with  a  complaint.   Once this  procedure  is exhausted,  any unresolved
     complaint  or grievance may be settled by binding arbitration rather than
     through  the  courts.    There  is  a  similar  grievance  procedure  for
     physician complaints.

     In  1993,  MAMSI invited  the  National Committee  for  Quality Assurance
     ("NCQA"), a  private, non-profit organization, to  evaluate the Company's
     methodologies   in  an  effort  to  receive  NCQA  accreditation.    NCQA
     accreditation is a  voluntary process.  The Company did  not meet certain
     of NCQA's  criteria and, therefore,  did not receive  NCQA accreditation.
     MAMSI  believes that it  has adopted methodologies  and programs designed
     to respond to  concerns and questions raised  in NCQA's assessment.   The
     Company  currently believes that, based  on its success  with large group
     sales  since the  denial of  accreditation, the  failure to  receive NCQA
     accreditation  has not had a  significant adverse effect  on its business
     or financial  condition to date  although certain  large group  customers
     have  frozen their enrollment  in MAMSI until  accreditation is obtained.
     The  Company believes  that increasing  public  awareness of  the various
     accreditation  processes  will  potentially   cause  them  to  have  more
     significance in the purchase and enrollment decisions which could be


     <PAGE> 8

     detrimental  to the Company if  NCQA accreditation is not  obtained.  The
     Company  has been reviewed again  for accreditation in  December of 1996.
     Although the Company believes  that the likelihood of NCQA  accreditation
     is good, there can  be no assurance  that accreditation will be  received
     or that MAMSI will  not experience disenrollment if accreditation  is not
     ultimately received.   The Company  has implemented the  Health Plan  and
     Employer  Data and Information Set ("HEDIS") 2.5, which represents a core
     set of performance measures developed by NCQA to serve the  employer as a
     purchaser.

     The Company's  home health care and home  infusion subsidiaries underwent
     voluntary accreditation  review by the Joint  Commission on Accreditation
     of Healthcare  Organizations ("JCAHO")  during 1995.   Full accreditation
     status was awarded as a result of this process.

     COMPETITION AND MARKETING STRATEGY

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

     MAMSI's  HMOs  compete  with  approximately  25  HMOs  or  other  prepaid
     alternative  health  care delivery  systems that  have  a presence  in at
     least one  of  the cities  or  counties in  MAMSI's  service area.    The
     following  table sets forth MAMSI's  best estimate of  the HMO enrollment
     in 1996 of  HMOs operating in its HMO Service Area.   Certain of the HMOs
     are part of  a larger entity  and the enrollees estimated  herein include
     only those in MAMSI's HMO Service Area.

     <TABLE>
     <CAPTION>
                                                                             Approximate
                                                                                Number
     HMO                                             Plan Type              of Enrollees
     -------------                                   ---------              ------------
     <S>                                             <C>                    <C>
     Mid Atlantic Medical Services, Inc.* ..........     IPA                   640,000
     Kaiser Permanente Health Care Program .........   Group                   502,000
     NYLCARE of the Mid Atlantic....................     IPA                   298,000
     FreeState Health Plan** .......................     IPA                   234,000
     Prudential Healthcare..........................     IPA                   230,000
     Aetna/U.S. Healthcare..........................     IPA                   135,000
     Healthkeepers of Virginia***...................     IPA                   126,000
     Optima Health Plan.............................     IPA                   115,000
     George Washington University Health Plan ......   Group                    90,000
     United Healthcare of the Mid Atlantic .........     IPA                    76,000
     Southern Health Services (Coventry Corp.) .....     IPA                    58,000
     Capital Care****...............................     IPA                    55,000
     CIGNA Health Plan of Virginia .................     IPA                    48,000
     Sentara Health Plan ...........................   Staff                    48,000
     Other HMOs (11) ............................... Various                   317,000
     </TABLE>

     * - Includes individuals covered by the Company's HMOs only.


     ** - This company is owned by Blue Cross/Blue Shield of Maryland.

     *** - This company is owned by Blue Cross/Blue Shield of Virginia.

     **** -  This company is owned  by Blue Cross/Blue Shield  of the National
     Capital Area.

     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
     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,  provider network, rates and
     the HMOs' responsiveness to enrollee needs.


     <PAGE> 9

     MAMSI  subsidiaries employed approximately  580 full-time individuals who
     provided  marketing  services  for its  HMOs  as  of  December 31,  1996.
     MAMSI's marketing strategy includes identifying and contacting  employers
     with  more than 50 employees  in its HMO Service Area.   In addition, the
     Company  employs prospecting, telemarketing, employer group consultation,
     referrals by consultants, and the use of  selected brokers to acquire new
     accounts.  Since 1994,  the Company's strategy has included  reducing the
     use  of  brokers for  new business  while  increasing its  internal sales
     force.    New members  acquired by  the  Company's dedicated  sales force
     accounted for 88%  of total new members in 1996.

     RISK MANAGEMENT

     With  the exceptions  of the  large  group market  and the  certain small
     group  markets, OCI  uses underwriting  criteria as  a  part of  its risk
     management  efforts.  Underwriting is  the process of  analyzing the risk
     of  enrolling  employer  groups in  order  to  establish  an  appropriate
     premium  rate.   Utilizing  underwriting  criteria,  OCI  seeks to  avoid
     contracting with employers that are  likely to experience an  actuarially
     higher than expected  need for medical  care.  OCI's use  of underwriting
     techniques  is restricted  in  certain situations  by  state small  group
     reform   legislation   (see   further   discussion    under   "Government
     Regulation").

     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 indemnifies  80% of  the eligible in  and out  of service  area
     medical expenses  in excess  of $200,000  per enrollee per  year up  to a
     lifetime maximum of $2,000,000 in eligible medical costs.

     Through June 30, 1996, PHP-MD generally  placed 5% to 15% of the payments
     due to  participating  physicians in  a Claims  Reserve Risk  Pool.   The
     Claims   Reserve   Risk  Pool   constitutes   a   financial  risk-sharing
     arrangement among the participating physicians and PHP-MD.   Amounts held
     in the Claims Reserve  Risk Pool may be distributed from time  to time by
     PHP-MD  to participating physicians if, in the judgment of PHP-MD's Board
     of  Directors,  PHP-MD's financial  condition permits  such distribution.
     Effective July 1, 1996,  Maryland regulations eliminated the use  of such
     risk pools  by HMOs, therefore,  commencing on that date  the majority of
     PHP-MD payments to physicians  are not reduced.   Amounts placed in  such
     risk  pools, in jurisdictions where  it is still  permitted, are expected
     to be minor.   The following table sets  forth information regarding  the
     portion  of  the  amount  in  the  Claims  Reserve  Risk  Pool  that  was
     distributed to participating physicians in each calendar year.



                           Percentage
                          Distributed
     Year                 to Providers


     ----                 ------------
     1990                     16
     1991                      5
     1992                      4
     1993                     59
     1994                     58
     1995                      4
     1996                      0


     GOVERNMENT REGULATION

     MAMSI's  HMOs  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) provider  contracts; (v)
     quality  assurance and  utilization  review programs;  (vi) adherence  to
     confidentiality  and  medical   records  requirements;  (vii)  enrollment
     requirements;  and (viii)  financial reserves  and other  fiscal solvency
     requirements.


     <PAGE> 10

     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  Company generally  fixes the
     premiums  charged to  employers for  a 12  month  period and  revises the
     premium  with each renewal.   In setting premiums,  the Company forecasts
     health  care  utilization rates  based on  the relevant  demographics and
     also  considers   competitive  conditions  and  the   average  number  of
     enrollees  in the  employer  group.    In  addition  to  these  premiums,
     enrollees also make copayments to providers as required.

     Although premiums established  may vary from  account to account  through
     composite  rate factors and special treatment of certain broad classes of
     enrollees, 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.

     M.D. IPA contracts  with the  Office of Personnel  Management ("OPM")  to
     provide or  arrange health services  under the  Federal Employees  Health
     Benefit  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  community rating and  other requirements  under the
     program.

     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.

     MAMSI Life, the Company's insurance subsidiary, is domiciled in  Maryland
     and is licensed in  over 30 states.  MAMSI Life  is subject to regulation
     by  the department of  insurance in each  state in which  it is licensed.
     These  regulations subject MAMSI Life  to extensive review  of the terms,
     administration and  marketing of  insurance products offered  and minimum
     net worth and deposit requirements.   In addition, MAMSI Life 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  operations are regulated  principally in
     four areas:  home health  care licensing; certification for participation
     in private  insurance  and government  reimbursement  programs;  employee
     licensure  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  infusion  and   mail  order
     prescription businesses have obtained  the necessary licenses and permits
     to operate as a full service pharmacy.


     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  benefit plans in accordance with  each plan's
     terms.

     Due  to the continued  escalation of health care  costs and the inability
     of many individuals  to obtain health care  insurance, numerous proposals
     relating to health care  reform have been made, and  additional proposals
     may be introduced, in the United  States Congress and the legislatures of
     the states in which the Company operates or may seek to operate.

     Recently,  the "Health  Insurance Portability  and Accountability  Act of
     1996,  Public Law  104-191", commonly  called the  Kennedy-Kassebaum Bill
     for its primary  sponsors, was  enacted.  This  bill establishes  certain
     Federal requirements for  large group, small group, and individual health
     benefit plans,  and applies  not only  to insurers and  HMOs but  also to
     ERISA plans.


     <PAGE> 11

     Kennedy-Kassebaum  is  intended  to   make  coverage  more  portable  and
     available  by limiting  pre-existing  condition  requirements;  providing
     special  enrollment periods  for  employees who  lose  other coverage  or
     whose  family status  changes; prohibiting  group plans  from  denying an
     individual  coverage  or   charging  a  higher   premium  based  on   the
     individual's  health  status or  history;  and  by guaranteeing  coverage
     availability  and  renewability in  certain  circumstances  in the  small
     group  and individual  markets.   Kennedy-Kassebaum  also allows  for the
     establishment of  Medical Savings  Accounts; increases the  penalties for
     health  care  fraud and  abuse; and  calls  for standardized  health care
     information in order to reduce administrative costs.

     The effect  of Kennedy-Kassebaum will differ from state to state.  In the
     group  market,  state  laws remain  in  effect  unless  they prevent  the
     application  of the  new  federal  requirements, and  in  the  individual
     market, state law will govern  if the Health and Human Services Secretary
     determines that it  provides an "acceptable alternative mechanism" to the
     federal requirement.   This means  that in those  states, like  Maryland,
     where state reforms have  already been enacted, the legislation  may have
     little,  if any,  effect in  the small  group market,  but may  have some
     effect in  the individual market.   In other states,  the legislation may
     have a greater effect.   State legislatures and regulators  are currently
     trying to understand the requirements and implications of the law.

     Most of  the provision of  Kennedy-Kassebaum will take effect  on July 1,
     1997,  but  some,  like the  provisions  pertaining  to  Medical  Savings
     Accounts,   take   effect  earlier   and   others,   like  administrative
     simplification, take effect later.

     In  recent years, state legislatures  in the Company's  service area have
     been  active  in health  care reform  legislation  targeted at  the small
     group market, i.e., usually for groups of 2 to 50  employees.  This small
     group reform is  now in place in  Maryland, Virginia, Delaware  and North
     Carolina, but  not in  Pennsylvania, Washington, D.C.  or West  Virginia.
     Although  different  in many  of the  details,  this type  of legislation
     generally  requires all HMOs and insurers that offer small group coverage
     to accept all  small employers  who apply for  coverage and to  guarantee
     coverage to  their employees seeking coverage regardless  of their health
     status.    The legislation  also requires  renewal  of these  small group
     employer  plans,  limits   rate  renewal  increases,   mandates  adjusted
     community   rating  and  eliminates  pre-existing  condition  limitations
     either entirely or within a short period of time, usually six months.

     The Company believes that  the current political environment in  which it
     operates will  result in  continued legislative  scrutiny of  health care
     reform and may lead  to additional legislative initiatives.   The Company
     is unable to predict the ultimate impact upon the Company  of any Federal
     or  state  restructuring  of the  health  care  delivery  or health  care
     financing  systems, but such changes could have a material adverse impact
     on the operations and financial condition of the Company.

     The  District  of  Columbia, which  has  not  previously regulated  HMOs,
     enacted  legislation effective  July  1, 1997,  providing for  regulatory
     oversight  similar to  that  currently provided  by  other states.    The
     Company does  not  anticipate  any significant  negative  impact  on  its
     operations because of  the new  regulatory oversight in  the District  of
     Columbia.


     PREFERRED PROVIDER ORGANIZATIONS

     MAMSI offers PPO coverage  through two subsidiaries:  Alliance  PPO, Inc.
     ("Alliance") and Mid Atlantic Psychiatric Services, Inc. ("MAPSI").

     PPOs allow  enrollees to  receive care  from participating  physicians at
     contractually  negotiated rates.  A PPO is  different from an HMO in that
     a  PPO does not  assume any financial  risk from  medical utilization nor
     does it  process claims payments to  providers.  All medical  charges are
     paid directly by  the payor, which can be either  a self-funded employer,
     a health  benefits trust  fund or another  health insurance company.   In
     return for  access to the PPO's network, the PPO charges the payor either
     a  per employee  rate or  a percentage  of the  savings of  actual claims
     processed  for the  services accessed.   MAMSI's  PPOs provide  access to
     substantially the same provider network as MAMSI's HMOs.

     A PPO operates by  being incorporated into an employer's  current benefit
     program, and offers some or  all of the following:  access  to physician,
     hospital  and  facility  services;  utilization  management  and  quality
     assurance; and claims  screening and repricing.   The employer determines
     the level of the benefits and any applicable copayments.


     <PAGE> 12

     Alliance  is marketed  primarily through  insurance companies,  insurance
     brokers, consultants, third  party administrators ("TPAs"),  self-insured
     employers and union trusts.   The advantages of a TPA  marketing approach
     are  minimized  marketing costs  and  maximized  market coverage  through
     established TPA-employer  relationships.   Alliance  also works  directly
     with  employers  and  unions  that  are  self-insured  and   uses  direct
     marketing  efforts.   The  major competition  comes  from other  PPOs and
     individual insurance  carriers.    At  December 31,  1996,  Alliance  had
     contracts with  approximately 19,800 employer  groups that had  access to
     the entire IPA provider network.

     The MAPSI PPO  is comprised  of providers specializing  in mental  health
     and  substance abuse  care.   MAPSI's products  are marketed  directly to
     TPAs,  self-insured groups,  brokers,  indemnity plans,  union funds  and
     consultants.   In addition, MAPSI contracts  with indemnity insurers that
     want  to offer  groups  a  managed care  mental  health  product.   MAPSI
     believes it has  a competitive  advantage with its  unique mental  health
     screening  process  that offers  the  employer  the  benefit of  enhanced
     coordinated  treatment for employees  as well as  increased cost savings.
     MAPSI's major  competitors include CMG Health, Inc.,  Green Spring Mental
     Health and MCC Inc.   At December 31, 1996, MAPSI had  a provider network
     of approximately 3,000 psychiatrists, psychologists, social  workers, and
     other affiliated licensed mental health providers.

     Alliance  and MAPSI are most  often marketed jointly  and the prospective
     purchaser usually also  purchases the  MAPSI PPO if  the Alliance PPO  is
     purchased.  The total number of lives covered under one or  both of these
     PPO products as of December 31, 1996 was approximately 935,000.

     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
     possible  that PPOs may be  subject to increased  regulatory oversight in
     the future.

     OTHER PRODUCTS

     MAMSI Life  currently  underwrites the  indemnity coverage  of the  HMO's
     preferred plans  in addition to offering stand-alone indemnity 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, in 1995 MAMSI Life began providing an
     administrative  services only ("ASO")  product to the  State of Maryland.
     ASO business  consists of  allowing access  to MAMSI's provider  network,
     without  gatekeeper PCPs,  and  the payment  of  claims.   MAMSI  has  no
     insurance risk  on this product.  MAMSI Life  holds insurance licenses in
     over  30  jurisdictions including  Maryland,  Virginia,  the District  of
     Columbia,   West Virginia, Delaware and  North Carolina.  MAMSI Life also
     became licensed in Pennsylvania in 1995.

     On October  7, 1994,  MAMSI  acquired all  of  the outstanding  stock  of
     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  16 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  of  Accreditation  of


     Healthcare Organizations ("JCAHO"), following  its survey of all services
     in November, 1995.

     Also  during  the  fourth quarter  of  1994, the  Company  formed  a home
     infusion  services   company,  HomeCall  Pharmaceutical   Services,  Inc.
     ("HCPS"), which received  its pharmacy  license in 1994  and its  Federal
     license from the Drug Enforcement Agency in 1995.

     HomeCall,  FirstCall and HCPS  provide services that  are generally lower
     cost  alternatives  to institutional  treatment  and care.    The Company
     believes that it  will 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,  high-tech  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


     <PAGE> 13

     therapy,  mail order pharmacy (as  described below) and  some hospice (as
     described below).

     In April, 1996,  HCPS started  a mail-order pharmacy,  HomeCall Mail  Rx,
     which  received its  pharmacy license  and its  Federal license  in 1996.
     HomeCall Mail  Rx fills and  delivers prescription  oral medications  via
     common  carrier  to  patients  in  their  homes.    Approximately  10,000
     prescriptions are filled each month.

     In  November, 1996, the  Company started HomeCall  Hospice Services, Inc.
     ("Hospice"),  which  received its  Maryland  state license  to  operate a
     general hospice  care program on  December 3, 1996.   Based  in Columbia,
     Maryland,  Hospice was organized to  address the needs  of terminally ill
     patients  and their families.  This hospice program will provide services
     to individuals in the comfort of their homes.

     Hospice currently serves the  Baltimore and Washington, D.C. metropolitan
     areas.  It is the goal of  Hospice 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 and HCPS  will continue to provide services  to other
     payors, including insurance companies, other HMOs and individuals.

     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.

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

     <TABLE>
     <CAPTION>
                                     MEMBERSHIP DATA AT DECEMBER 31
                                    ---------------------------------
     PRODUCT LINE                     1994        1995        1996
     ------------                   ---------------------------------
                                              (in thousands)
     <S>                            <C>         <C>         <C>
     Commercial HMO (1)               393.2       430.1       430.8
     Hybrid HMO (2)                    82.5        94.5       106.7
     Medicaid                          28.0        91.0        82.5
     Medicare                            .3         6.0        14.4
     Indemnity                          4.0        23.6        99.2
     ASO (3)                             --        13.2        11.0
                                    -------     -------     --------
                                      508.0       658.4       744.6
     PPO (4)                          698.0       825.0       935.0
                                    -------     -------     --------
     Total Membership               1,206.0     1,483.4     1,679.6
                                    =======     =======     ========
     </TABLE>

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


     (2)  Hybrid HMO  includes  any business  that  uses MAMSI's  network  and
     gatekeeper  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
     gatekeeper  PCPs and  no  assumption  of  insurance  risk  by  any  MAMSI
     affiliate.

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

     INVESTMENTS

     The  majority  of  the  Company's  investments  are  held  by  its  state
     regulated  subsidiaries  to  provide  capital  for   those  subsidiaries'
     operations  and 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 company's underwriting  insurance risk.   These laws and
     regulations limit the types


     <PAGE> 14

     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,  1996, the  Company had a  total of  2,661 employees,
     including  2,094 full-time  and 567  part-time employees.    MAMSI's home
     health  care subsidiaries employed 764 of these employees (351 on a full-
     time  basis  and 434  on  a  part-time basis).    None  of the  Company's
     employees  are  covered  by a  collective  bargaining  agreement and  the
     Company has not experienced any  work stoppage since its inception.   The
     Company believes that it has a good relationship with its employees.

     ITEM 2. PROPERTIES

     To  accommodate the Company's rapid growth, the Company has purchased six
     office  buildings since  1988.    These  buildings  are  all  located  in
     Rockville,  Maryland  and  total  approximately 244,000  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 203,000  square feet  of
     office  space and approximately 5,200  square feet of  warehouse space in
     various  locations   within  its  service  areas  to  support  sales  and
     administrative operations.

     ITEM 3. LEGAL PROCEEDINGS

     During  the fourth quarter of 1996, two  shareholders of MAMSI, who own a
     total of 800  shares, filed a lawsuit in the  Circuit Court of Montgomery
     County  Maryland against MAMSI  and its  Chairman, alleging  that, during
     the period  February 29 through August  14, 1996, MAMSI  and its Chairman
     fraudulently  or negligently  misrepresented  certain matters  concerning
     the Company's  anticipated performance  for the  year ended  December 31,
     1996.    The  plaintiffs   seek  unspecified  compensatory  and  punitive
     damages, pre- and post-judgement interest, attorneys' fees and  costs, on
     behalf of themselves and a  class of persons who purchased MAMSI's common
     stock between  February 29 and August  14, 1996.  MAMSI  and its Chairman
     have filed  a Motion to Dismiss  the Complaint in its  entirety, which is
     currently pending before the Court.   The Company is not able  to predict
     the probability of a  favorable outcome or the amount of  potential loss,
     in the event of an unfavorable outcome.  MAMSI believes that even  if the
     motion to  dismiss is denied, it  has meritorious defenses  to the claims
     raised in the complaint and intends to defend the action vigorously.

     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   affect  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 1996.


     <PAGE> 15

                                     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  ("NYSE") under the trading symbol MME. The following table sets
     forth for the indicated periods the high and low reported  sale prices of
     the common stock as furnished by the NYSE.

                                          1996                     1995
                                    HIGH        LOW          HIGH        LOW
                                   -----------------        -----------------
     First Quarter                 $24.38     $20.38        $26.13     $19.75
     Second Quarter                 24.00      14.25         25.00      16.63
     Third Quarter                  14.75      11.75         21.00      17.13
     Fourth Quarter                 13.38      10.13         25.13      17.50

     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.

     As of February  28, 1997,  there were approximately  795 stockholders  of
     record of the Company's common stock.


     <PAGE> 16

     ITEM 6. SELECTED FINANCIAL DATA
     <TABLE>
     <CAPTION>
                                                                       Year Ended December 31,
                                              1996           1995           1994           1993           1992
                                              ----           ----           ----           ----           ----
                                                                 (in thousands except share amounts)
     <S>                                      <C>           <C>            <C>            <C>            <C>
     SELECTED INCOME STATEMENT DATA

     Revenue                                  $1,133,742     $  954,907    $   749,898      $  648,225    $   582,489
     Expense                                   1,138,677        858,567        663,343         605,779        561,176
     Income (loss) before income taxes and cumulative
       effect of accounting change                (4,935)        96,340         86,555          42,446         21,313
     Income (loss) before cumulative effect
       of accounting change                       (2,768)        61,124         54,530          25,496         13,460
     Net income (loss)                            (2,768)        61,124         54,530          24,833         13,460
     Earnings per common and common
       equivalent share (1):

     Income (loss) before cumulative effect of
         accounting change                          (.06)          1.28           1.15            0.57            0.31
     Net income (loss)                              (.06)          1.28           1.15            0.55            0.31
     Weighted average common and
       common equivalent shares
       outstanding (1)                        46,988,229     47,908,379     47,370,211      45,109,230      43,067,144
     SELECTED BALANCE SHEET DATA (AT DECEMBER 31)
     Working capital                             118,870        153,668         91,983          39,758           9,722
     Total assets                                334,719        354,182        268,522         189,561         130,356
     Long-term debt                                  134            194          5,331           5,763           6,416
     Stockholders' equity                        184,400        217,216        141,326          71,963          40,389
     Cash dividends per common share (2)             ---            ---            ---             ---             ---
     KEY RATIOS
     Medical loss ratio                             92.4%          81.9%          80.8%           86.3%           89.9%
     Administrative expense ratio                   10.7%          10.5%           9.4%            8.3%            7.4%
     Net income margin                              (.2%)           6.4%           7.3%            3.9%            2.3%
     OPERATING DATA
     Annualized hospital days per
       1,000 enrollees:
     All products and health services                331            313            312             321             326
     HMO only (3)                                    203            222            238             251             281
     Medicare                                      2,698          2,531            ---             ---             ---
     Medicaid                                        454            405            466             ---             ---
     Annualized hospital admissions per
       1,000 enrollees                                77             80             76              69              71
     HMO, hybrid, ASO and indemnity
       health enrollees at year end              745,000        658,000        508,000         440,000         448,000
     PPO enrollees at year end                   935,000        825,000        698,000         510,000         327,000
     Participating providers at year end          24,300         21,077         16,950          15,500          11,900
     </TABLE>

     Notes

     1. Earnings (loss)  per common share are computed  after giving effect to
     dilutive stock options.  All per share amounts and weighted average
     common and common  equivalent shares  have been adjusted  to reflect  all
     stock dividends on a retroactive basis. See Note 12 to the
     consolidated financial statements.


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

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


     <PAGE> 17

     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 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
     market place.

     2.   The possibility  of state  or Federal  budget related  mandates that
     reduce premiums for Medicaid or Medicare recipients.

     3.  The potential for increased medical expenses due to:
         - Increased utilization by the Company's membership.
         - Inflation of costs in the provider community.
         - Federal or state mandates that increase benefits.

     4.   The possibility that the  Company is not able  to expand its service
     territory  as planned  due  to  regulatory  delays  and/or  inability  to
     contract with appropriate providers.

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

     GENERAL

     During the  three year  period ended  December 31,  1996, MAMSI  and  its
     subsidiaries (the "Company") have experienced  substantial revenue growth
     due to  increased HMO and PPO  membership.  The Company  has achieved its
     membership growth  by expanding its  product line, which  includes point-
     of-service, small group, indemnity  health, hybrid products, Medicaid and
     Medicare  products and  through  expansion into  new geographic  markets.
     Premium  rates  during this  time have  remained  at or  near competitive
     levels for the Company's  marketplace.  Prior to 1996,  operating margins
     remained  positive  due   to  the  control   of  medical  expenses   and,
     accordingly,  profits and  earnings  per share  have  increased.   During
     1996,  due  to  increasing  medical utilization  and  continued  downward
     competitive  pressures  on  premium  rates,  the  Company's  consolidated
     operating  margin  turned  slightly  negative.    The  Company  currently
     anticipates that there  will be  increases in premium  rates during  1997
     and that  the Company's operating  margins will again be  positive.  This
     is  a  forward-looking  statement,  and the  Company's  actual  operating
     margins  may differ  from management's  current expectation  due  to risk
     factors which may affect either the Company's  revenues or expenses.  See
     "Forward-Looking  Information"  above for  a  description  of these  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 effected
     and  irregular.   However, over  the longer  business cycle,  the Company
     believes that  its managed care control  systems, underwriting procedures
     (when  allowed)  and  network  of  providers  will  result  in  continued
     profitability.

     Due to the continued  escalation of health care  costs and the  inability
     of many individuals  to obtain health care insurance,  numerous proposals
     relating to health care  reform have been made, and  additional proposals
     may be  introduced, in the United States Congress and the legislatures of
     the states in which the Company operates or may seek to operate.

     Recently,  the "Health  Insurance Portability  and Accountability  Act of
     1996,  Public Law  104-191", commonly  called the  Kennedy-Kassebaum Bill
     for its primary  sponsors, was  enacted.  This  bill establishes  certain
     Federal requirements for large group, small group, and  individual health
     benefit plans,  and applies not  only to  insurers and HMOs  but also  to
     ERISA plans.

     Kennedy-Kassebaum  is  intended  to   make  coverage  more  portable  and
     available  by limiting  pre-existing  condition  requirements;  providing
     special  enrollment periods  for  employees who  lose  other coverage  or
     whose  family status  changes; prohibiting  group plans  from  denying an
     individual


     <PAGE> 18

     coverage  or charging a higher  premium based on  the individual's health
     status  or  history;  and   by  guaranteeing  coverage  availability  and
     renewability in certain circumstances  in the small group and  individual
     markets.  Kennedy-Kassebaum also allows  for the establishment of Medical
     Savings  Accounts;  increases the  penalties  for health  care  fraud and
     abuse; and calls  for standardized  health care information  in order  to
     reduce administrative costs.

     The effect of Kennedy-Kassebaum will differ  from state to state.  In the
     group  market,  state  laws remain  in  effect  unless  they prevent  the
     application  of  the new  federal  requirements,  and in  the  individual
     market, state law will govern if the Health  and Human Services Secretary
     determines that it provides an  "acceptable alternative mechanism" to the
     federal  requirement.   This means  that in  those states  like Maryland,
     where state reforms have  already been enacted, the legislation  may have
     little,  if any,  effect in  the small  group market,  but may  have some
     effect on the individual  market.  In other  states, the legislation  may
     have a greater effect.   State legislatures and regulators  are hurriedly
     trying to understand the requirements and implications of the law.

     Most of the  provisions of Kennedy-Kassebaum will take  effect on July 1,
     1997,  but  some,  like  the  provisions pertaining  to  Medical  Savings
     Accounts,   take   effect   earlier   and   some,   like   administrative
     simplification, take effect later.

     In  recent years, state legislatures  in the Company's  service area have
     been  active  in health  care reform  legislation  targeted at  the small
     group market, i.e.,  usually for groups of 2 to 50 employees.  This small
     group reform  is now in place  in Maryland, Virginia, Delaware  and North
     Carolina,  but not  in Pennsylvania,  Washington, D.C. or  West Virginia.
     Although  different  in many  of the  details,  this type  of legislation
     generally  requires all HMOs and insurers that offer small group coverage
     to accept all  small employers who  apply for  coverage and to  guarantee
     coverage to their  employees seeking coverage regardless of  their health
     status.    The legislation  also requires  renewal  of these  small group
     employer   plans,  limits  rate   renewal  increases,  mandates  adjusted
     community  rating  and  eliminates  pre-existing   condition  limitations
     either entirely or within a short period of time, usually six months.

     The Company believes that  the current political environment in  which it
     operates will result  in continued  legislative scrutiny  of health  care
     reform and may lead  to additional legislative initiatives.   The Company
     is unable  to predict the ultimate impact upon the Company of any Federal
     or  state  restructuring  of the  health  care  delivery  or health  care
     financing  systems, but such changes could have a material adverse impact
     on the operations and financial condition of the Company.

     The  District  of  Columbia,  which has  not  previously  regulated HMOs,
     enacted  legislation  effective July  1,  1997  providing for  regulatory
     oversight  similar to  that  currently provided  by  other states.    The
     Company  does not  anticipate  any  significant negative  impact  on  its
     operations because of  the new  regulatory oversight in  the District  of
     Columbia.

     ------------------------------------------------------------------------
     --THE  YEAR ENDED DECEMBER 31,  1996 COMPARED TO THE  YEAR ENDED DECEMBER
     31, 1995
     ------------------------------------------------------------------------


     --
     RESULTS OF OPERATIONS

     Consolidated  net  income (loss)  of  the  Company was  $(2,768,000)  and
     $61,124,000  in 1996  and 1995,  respectively.   Net earnings  (loss) per
     share was $(.06) in 1996 as compared  to $1.28 in 1995.  The reduction in
     earnings  is  primarily attributable  to  a significant  increase  in the
     medical  loss  ratio for  commercial products,  continuing losses  in the
     Company's  Medicare  product  and   lower  earnings  from  the  Company's
     Medicaid products.  The  medical loss ratio increased principally  due to
     increased  member  utilization.    The  Company  has  priced  its  health
     products competitively  in  order to  increase  its membership  base  and
     thereby enhance its strategic  position in its marketplace.   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,  1996  increased approximately
     $178.8 million or 18.7 percent over the year ended December  31, 1995.  A
     19 percent increase in net average HMO and indemnity enrollment resulted


     <PAGE> 19

     in  an increase of approximately $171.5 million in health premium revenue
     while  the  average  monthly  premium  per  enrollee,  combined  for  all
     products,  remained approximately  the  same.   Management believes  that
     commercial health  premiums should increase  over the next  twelve months
     as  new and  renewing  groups are  charged  higher premium  rates due  to
     legislatively   mandated  benefit   enhancements   and  general   pricing
     increases  initiated by the  Company.  Medicare  premiums should increase
     due to the  Company initiated  reduction in certain  lower rate  Medicare
     service areas and  the January  1 increase in  overall Medicare  premiums
     paid  by the  government.   This  is  a forward-looking  statement.   See
     "Forward-Looking  Information"  above  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 which  began to take effect in July, 1996.
     As  the  Company's  contracts  are  generally  for  a  one  year  period,
     increased pricing  cannot  be  initiated  until a  contract  reaches  its
     renewal  date.   Therefore,  price increases  cannot  be made  across the
     Company's  membership  at  the  same  time.    Additionally, the  Company
     received  an  approximate  2.5  percent  premium  rate  increase  in  its
     Virginia  Medicaid program and an  approximate 4 percent  increase in its
     Maryland  Medicaid program,  both  effective July  1,  1996.   Management
     believes  that the commercial premium rate increases will have the effect
     of slowing down  the Company's  future membership growth.   In  addition,
     management  reevaluated premium  reimbursement rates  with regard  to its
     Medicare  and Medicaid  participation and  reduced or  eliminated certain
     service  areas.  Specifically, effective January 1, 1997, 59 counties and
     cities  were eliminated from the  Company's Medicare service  area.  Also
     effective  January 1,  1997, the  Company no  longer participates  in the
     mandated portion of the  Virginia Medicaid program which serves  Medicaid
     eligibles in the  Tidewater area of  Virginia.  In addition,  the Company
     has  withdrawn from  the  Maryland Medicaid  program  due to  changes  to
     premium and benefit  levels and other requirements  made by the  State of
     Maryland  after it obtained an  1115 waiver and became  a mandated state.
     As  the Company  is the  largest  provider of  managed  care Medicaid  in
     Maryland,  the Company will continue to provide services in 1997 until an
     orderly  transition can be accomplished.  The Company will be compensated
     during the transition  period at a rate higher  than the mandated program
     allows but lower  than historical  reimbursement.  In  1996, the  Company
     became licensed to  serve portions  of the Medicaid  populations in  West
     Virginia  and  North Carolina.  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,  increased competition in the Company's service area and changes in
     state mandated enrollment in  Medicaid HMO programs in which  the Company
     participates.   Enrollment may  also decrease  if the  Company determines
     that  premium  reimbursement  rates  related to  certain  state  Medicaid
     programs  and the Medicare program  are inadequate which  might cause the
     Company to voluntarily withdraw from participation.

     Service  revenue  from  non-MAMSI   affiliated  entities  earned  by  the
     Company's  home health  care  subsidiaries contributed  $20.5 million  in
     revenue in 1996 as compared to $18.9 million for 1995.   This increase is
     the  result  of  increasing   business  volume  for  these  subsidiaries,
     particularly in the  home infusion area,  which is  largely offset by  an
     increasing relative percentage  of business conducted  for MAMSI HMO  and
     indemnity  members which  is eliminated  in consolidation.   Revenue from
     life and short-term disability products  contributed $3.2 million in 1996


     as compared to $.9 million in 1995.

     During the  second quarter of  1996, the Company  received a  letter from
     the Health  Care Financing Administration ("HCFA")  proposing a marketing
     sanction in connection with  the administration of its Medicare  product,
     asserting   that  the   Company  did   not  comply   with   certain  HCFA
     requirements.  The Company contested  the assertions made by HCFA and was
     informed  early  in November,  1996 that,  after reviewing  the Company's
     response  to  the allegations,  HCFA will  not  pursue the  imposition of
     sanctions as proposed in their initial letter.

     In 1993,  MAMSI  invited the  National  Committee for  Quality  Assurance
     ("NCQA"), a  private, non-profit organization, to  evaluate the Company's
     methodologies  in   an  effort  to  receive  NCQA  accreditation.    NCQA
     accreditation is  a voluntary process.  The Company  did not meet certain
     of NCQA's criteria  and, therefore, did  not receive NCQA  accreditation.
     MAMSI believes  that it has  adopted methodologies and  programs designed
     to respond  to concerns and questions  raised in NCQA's  assessment.  The
     Company  currently believes that, based  on its success  with large group
     sales  since the  denial of  accreditation, the  failure to  receive NCQA
     accreditation  has not had a  significant adverse effect  on its business
     or


     <PAGE> 20

     financial condition to date although  certain large group customers  have
     frozen  their enrollment in MAMSI  until accreditation is  obtained.  The
     Company  believes  that  increasing   public  awareness  of  the  various
     accreditation  processes  will  potentially   cause  them  to  have  more
     significance in  the purchase  and enrollment  decisions which  could  be
     detrimental to the Company  if NCQA accreditation is  not obtained.   The
     Company  has been reviewed again  for accreditation in  December of 1996.
     Although  the Company believes that  the likelihood of NCQA accreditation
     is good, there  can be no  assurance that accreditation will  be received
     or that MAMSI will  not experience disenrollment if accreditation  is not
     ultimately received.   The Company  has implemented the  Health Plan  and
     Employer Data and Information  Set ("HEDIS") 2.5 which represents  a core
     set of  performance measures developed by NCQA to serve the employer as a
     purchaser.

     Medical  expenses as  a  percentage of  health premium  revenue ("medical
     loss ratio")  increased  to 92.4  percent  in 1996  as  compared to  81.9
     percent for 1995  and, on a per member per  month basis, medical expenses
     increased   12.8  percent.    This  significant  increase  is  due  to  a
     combination of  factors including  lower commercial premiums  charged due
     to  competitive forces,  higher than  expected utilization  by commercial
     members,  cost  increases  due  to legislatively  mandated  benefits  and
     extremely  high  medical  expenses  related  to  the  Company's  Medicare
     enrollment.  The medical cost factor of total medical costs may stabilize
     or  only increase  slightly from the  current level over  the next twelve
     months  due to  continuing efforts  by the  Company to  implement product
     specific  cost  containment controls,  expanded  activity  in specialized
     subrogation  areas  and  claims  review  for  dual  health coverage,  the
     adoption  of regionalized  and product specific  fee maximums  for health
     services,  and the  identification  and possible  termination of  certain
     providers  and   specialists  from  the  delivery   network  following  a
     continuing, intensified peer review  analysis.  Additionally, the Company
     has  greatly expanded  its  initial health  assessments  of new  Medicare
     members after they  have enrolled  and also increased  its Medicare  case
     management personnel.   The Company has also reduced  the service area in
     which it offers its Medicare risk  plan.  This reduction in service area,
     effective January  1,  1997,  primarily targets  those  areas  where  the
     current Medicare  reimbursement is insufficient to  support the Company's
     participation. These  initiatives should help  to control and  reduce the
     cost  of high  cost cases which  are driving  the excessive  medical loss
     ratio  in the Medicare line of business.   The overall medical loss ratio
     is expected  to stabilize and decrease slowly from the current level over
     the   next  twelve  months  due  to  the  combined  effects  of  expanded
     utilization  and case  management  efforts,  continuing cost  containment
     efforts, increases  in health  premiums, and  the continuing  analysis of
     expansion  area and product line  profitability.  The  statements in this
     paragraph   regarding  future   utilization   rates,   cost   containment
     initiatives, total  medical costs 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 loss ratio.

     The  administrative expense ratio for  1996 increased to  10.7 percent as
     compared to  10.5 percent for  1995.  This  increase is due  primarily to
     increased  salaries and expenses  in certain administrative  areas of the
     Company,   including  utilization   management   and   customer   service
     departments,  as well as additional sales expenses in new expansion areas
     in 1996. Management  believes that the administrative  expense ratio will


     exceed  the  current level  over  the  next  year  due to  the  continued
     expansion  of utilization  management  and other  personnel. Management's
     expectations  concerning the  administrative expense  ratio are  forward-
     looking statements.    The administrative  expense ratio  is affected  by
     changes  in health  premiums  per member,  development  of the  Company's
     expansion  areas   and  increased  administrative  activity   related  to
     business volume.

     Investment income increased $2.4  million or 20 percent primarily  due to
     an  increase of  $1.5 million  in realized gains  on sales  of marketable
     equity securities.

     Deferred tax  assets are recognized for  deductible temporary differences
     that,  in management's opinion, are  more likely than not  to be realized
     in  the current or  future periods.   The Company's history  of operating
     revenue and income  growth, and expectation  of future operating  income,
     provides  strong positive evidence that these deferred tax assets will be
     realized.   A  valuation allowance  has been  recorded for  net operating
     loss carry  forwards  generated  by  certain subsidiaries  that  are  not
     deductible  on a consolidated tax return.  Management intends to continue
     to  monitor the realizability  of deferred tax assets  in light of future
     circumstances and assess the reasonableness of the valuation allowance.


     <PAGE> 21

     The net  margin rate decreased from  6.4 percent in 1995  to (.2) percent
     in  1996.  This decrease is primarily  due to the increase in the medical
     loss ratio.

     ------------------------------------------------------------------------
     --THE YEAR ENDED DECEMBER  31, 1995 COMPARED TO  THE YEAR ENDED  DECEMBER
     31, 1994
     ------------------------------------------------------------------------
     --

     RESULTS OF OPERATIONS

     Consolidated net  income of the  Company was $61,124,000  and $54,530,000
     in 1995 and 1994, respectively, an increase of 12 percent.   Earnings per
     share  increased 11  percent from  $1.15 in  1994 to  $1.28 in  1995. The
     increase  in  earnings  is  primarily  attributable  to  an  increase  in
     membership,  increased  investment income  from higher  invested balances
     and realized  gains,  and a  reduction in  per member  per month  medical
     expenses  (principally  due to  a reduction  in  the return  of physician
     withhold), partially offset by  a reduction in premiums per  enrollee and
     an increase  in administrative expenses  principally due to  additions to
     the  Company's  internal  sales  force,  expansion  into  new  geographic
     territories  and the operations of the home health care subsidiaries that
     were purchased in late 1994.

     Revenue  in 1995  increased  27 percent  to  $954.9 million  from  $749.9
     million in 1994.  A 27 percent increase in net average  HMO and indemnity
     enrollment  resulted in an  increase of  approximately $197.2  million in
     health  premium revenue and a 2 percent  decrease in average premiums per
     HMO   and  indemnity   enrollee   reduced  health   premium  revenue   by
     approximately $18.2 million.   Health premiums per  enrollee declined due
     to  the combined effects of an increasing relative percentage of Virginia
     Medicaid  HMO members with lower per enrollee revenues and the volatility
     of  revenues from  groups  with alternative  funding arrangements  (i.e.,
     revenues  vary in a  more direct way  with medical expense)  coupled with
     management's plan to price its commercial products competitively.

     Medical  expenses  as a  percentage  of  premium revenue  ("medical  loss
     ratio") increased to 81.9 percent in  1995 as compared to 80.8 percent in
     1994, principally due to a decrease in average premiums  per enrollee and
     also higher than anticipated  medical expenses in the  Company's Medicare
     risk  product.    On  a  per member  per  month  basis,  medical expenses
     declined  approximately  .6  percent  over  the  same  period  due  to  a
     reduction in the  return of physician withhold,  the effect of  which was
     mostly offset by higher member  utilization, particularly in the Medicare
     product.

     Administrative  expenses  as  a  percentage of  revenue  ("administrative
     expense ratio")  increased to  10.5 percent  in 1995  as compared  to 9.4
     percent in  1994.   Administrative expenses  increased 42  percent,  from
     $70.5 million in  1994 to $100.3 million  in 1995.   The increase in  the
     administrative  expense ratio  is primarily  attributable to  expenses of
     the  Company's home  health care  subsidiaries,  which were  purchased in
     late 1994,  the Company's  territorial expansion into  additional service
     areas within  currently served states as  well as into the  new states of
     North  Carolina,   South  Carolina,   and  Pennsylvania,  the   continued
     implementation of its plan  to significantly increase its employee  sales
     force and the higher  costs of administering the Medicaid  product, which


     became a more significant line of business for the Company in 1995.

     Effective  January 1, 1994,  the Company  adopted Statement  of Financial
     Accounting  Standards No.  115,  "Accounting for  Certain Investments  in
     Debt and Equity  Securities" ("Statement  No. 115").   Statement No.  115
     requires that  investments in all  debt securities and  equity securities
     with  readily determinable  fair  values be  classified into  categories,
     which then  establish the appropriate  accounting treatment.   At January
     1,  1995,  the  Company's  entire  short-term  investment  portfolio  was
     classified as  available-for-sale and,  as a  result, the net  unrealized
     gain associated with  these securities of  $1.1 million, net of  tax, was
     recorded as  a separate component of  stockholders' equity.   Also on the
     same   date,  the   Company's  statutory   deposits,  which   consist  of
     investments  held in  custodial  accounts by  state regulatory  agencies,
     were  classified as held-to-maturity and  will continue to  be carried at
     amortized cost.

     The net margin rate decreased from 7.3 percent  in 1994 to 6.4 percent in
     1995.   This decrease is primarily due  to lower premium rates on certain
     products and increased administrative expense.


     <PAGE> 22

     LIQUIDITY AND CAPITAL RESOURCES

     The Company's business is  not capital intensive and the majority  of the
     Company's  expenses   are  payments  to  health   care  providers,  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  be  sufficient in  the
     future.

     The  Company's  cash and  short-term  investments  decreased from  $215.6
     million at  December 31,  1995 to  $155.4 million  at December 31,  1996,
     primarily  due to  purchases of  MAMSI common  stock under  the Company's
     stock  repurchase  program,   the  Company's  1996   net  loss  and   the
     acceleration  of claims  payments.   Accounts  receivable increased  from
     $61.3 million  at December  31,  1995 to  $77.0 million  at December  31,
     1996.   This $15.7 million increase  is primarily due to  the increase in
     membership  during  1996 combined  with a  lower  than normal  balance in
     receivables at  December 31,  1995 due  to a  higher relative  volume  of
     payments made by employer groups during the last month of the year.

     Prepaid expenses, advances  and other current assets increased  from $9.0
     million  at December  31, 1995  to $32.3  million  at December  31, 1996,
     principally  due  to  estimated  tax   refunds  for  net  operating  loss
     carrybacks available for certain  MAMSI subsidiaries and other reductions
     in estimated  tax liabilities related to  the net loss for  the year plus
     certain  other  tax deductions  not related  to  book income.   Statutory
     deposits  decreased from  $10.5  million at  December  31, 1995  to  $9.1
     million  at December  31, 1996  due to  the release  by  state regulatory
     authorities of certain  deposits related  to an affiliated  HMO that  was
     merged into M.D. IPA in 1993.

     Short-term investments are marked  to market at the end of  every quarter
     and the  resulting unrealized  gain or  loss is  reflected in the  ending
     stockholders'  equity  balance.    Accordingly,  stockholders'  equity at
     December  31, 1996 reflects  an unrealized  gain of  $.3 million,  net of
     tax,  on the Company's short-term investments primarily due to the impact
     of falling  interest rates  on  the market  value of  the Company's  debt
     securities.

     Medical  claims payable  increased from  $108.5  million at  December 31,
     1995  to $118.6 million at  December 31, 1996 primarily  due to increased
     membership, increased member utilization and related claims accruals.

     Additional paid-in capital increased  from $40.4 million at December  31,
     1995  to $173.3  million at  December 31,  1996, principally  due  to the
     establishment  of a  stock compensation  trust.   This trust  is used  to
     provide shares  of  the Company s  stock to  meet its  stock option  plan
     obligations.   Amounts recorded for  treasury stock increased  in 1996 by
     approximately $41.2 million  due to stock  purchases under the  Company's
     stock repurchase program.

     The  Company currently has access to total revolving credit facilities of
     $24.0  million, which is used to provide short-term capital resources for
     routine  cash flow  fluctuations.   At December  31,  1996, approximately


     $2.2 million was drawn against these facilities.

     Following  is a schedule of the short-term capital resources available to
     the Company:

                                                                 December 31
     (in thousands)                                         1996          1995
                                                            ------------------

     Cash and cash equivalents                           $   4,065    $  10,874
     Short-term investments                                151,359      204,734
     Working capital advances to Maryland
       hospitals                                             6,432        4,053
                                                          --------    ---------
     Total available liquid assets                         161,856      219,661
     Credit line availability                               21,802        7,880
                                                          --------    ---------
     Total short-term capital resources                  $ 183,658    $ 227,541
                                                         =========    =========


     <PAGE> 23

     Certain MAMSI  subsidiaries  that  are subject  to  regulation  by  state
     insurance departments 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  Company does  not
     perceive  these  requirements  to be  a  significant  restriction  on the
     subsidiaries'  ability to pay appropriate future  dividends to the parent
     company.

     The  Company does not anticipate  any adverse impact  on future liquidity
     due   to  medical   malpractice  issues   because  the   Company  carries
     substantial professional liability insurance.

     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.  Certain  capital expenditures
     will  be made  over  the  next year  to  enhance  the Company's  computer
     systems,  to establish  additional sales  offices  and to  make necessary
     improvements to existing administrative offices.

     ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


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

     Consolidated Balance Sheets as of December 31, 1996 and 1995.....  24

     Consolidated Statements of Operations for the years ended
       December 31, 1996, 1995 and 1994...............................  25

     Consolidated Statements of Changes in Stockholders' Equity
       for the years ended December 31, 1996, 1995 and 1994...........  26

     Consolidated Statements of Cash Flows for the years ended
       December 31, 1996, 1995 and 1994...............................  27

     Notes to Consolidated Financial Statements.......................  28

     Report of Ernst & Young LLP Independent Auditors.................  42

     Selected Quarterly Financial Data for Fiscal Years 1996 and
       1995 (Unaudited)...............................................  43


     <PAGE> 24

                               Mid Atlantic Medical Services, Inc.
                                  Consolidated Balance Sheets
     <TABLE>
     <CAPTION>
                                                                                          December 31,
     (in thousands except share amounts)                                               1996         1995
                                                                                    ----------    ---------
     <S>                                                                            <C>           <C>
     ASSETS
     Current assets
       Cash and cash equivalents                                                    $   4,065    $ 10,874
       Short-term investments (Note 2)                                                151,359     204,734
       Accounts receivable, net (Note 3)                                               77,042      61,263
       Prepaid expenses, advances and other                                            32,323       8,974
       Deferred income taxes (Note 8)                                                   4,033       4,379
                                                                                     --------    --------
     Total current assets                                                             268,822     290,224

     Property and equipment, net (Note 4)                                              45,210      38,704
     Statutory deposits (Note 2)                                                        9,125      10,543
     Other assets                                                                      10,261      11,373
     Deferred income taxes (Note 8)                                                     1,301       3,338
                                                                                    ---------    --------
         Total assets                                                               $ 334,719    $354,182
                                                                                    =========    ========
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Currrent liabilities
       Notes payable (Note 5)                                                       $      60    $    210
       Short-term borrowings (Note 5)                                                   1,973       1,651
       Accounts payable                                                                18,755      15,075
       Medical claims payable, net (Note 6)                                           118,649     108,490
       Deferred premium revenue                                                        10,479      10,125
       Deferred income taxes (Note 8)                                                      36       1,005
                                                                                     --------    --------
     Total current liabilities                                                        149,952     136,556
     Notes payable (Note 5)                                                               134         194
     Deferred income taxes (Note 8)                                                       233         216
                                                                                     --------    --------
         Total liabilities                                                            150,319     136,966

     Stockholders' equity (Notes 11, 12 and 14)
     Common stock, $0.01 par, 100,000,000 shares authorized,
       56,772,502 issued and 54,677,862 outstanding at
       December 31, 1996; 46,631,327 issued and 46,585,387
       outstanding at December 31, 1995                                                   567         466
     Additional paid-in capital                                                       173,325      40,374
     Stock compensation trust (common stock held in trust)                           (120,652)
     Treasury stock, 2,094,640 shares at December 31, 1996; 45,940
       shares at December 31, 1995                                                    (41,211)        (33)
     Unrealized gains and losses on investments, net of tax
       of $174 and $1,004 (Note 2)                                                        265       1,535
     Retained earnings                                                                172,106     174,874
                                                                                     --------    --------
         Total stockholders' equity                                                   184,400     217,216
                                                                                     --------    --------
         Total liabilities and stockholders' equity                                 $ 334,719    $354,182
                                                                                     ========    ========
     </TABLE>


     The  accompanying  notes  are an  integral  part  of  these  consolidated
     financial statements.


     <PAGE> 25

                               Mid Atlantic Medical Services, Inc.
                              Consolidated Statements of Operations

     <TABLE>
     <CAPTION>
                                                                          Year Ended December 31,
     (in thousands except share amounts)                               1996         1995         1994
                                                                    -----------   ----------   ----------
     <S>                                                            <C>           <C>          <C>
     Revenue
       Health premium                                               $ 1,079,223   $  907,694   $  728,743
       Fee and other                                                     16,376       15,334        9,760
       Life and short-term disability premium                             3,240          961
       Home health services                                              20,519       18,910       4,745
       Investment                                                        14,384       12,008       6,650
                                                                      ---------    ---------   ---------
     Total revenue                                                    1,133,742      954,907     749,898
                                                                      ---------    ---------   ---------
     Expense
       Medical expense
         Referral and ancillary care (Notes 9 and 10)                   432,487      320,412     271,042
         Hospitalization, net of coordination of benefits               349,445      247,870     191,902
         Primary care (Notes 9 and 10)                                  100,692       93,320      70,960
         Prescription drugs                                             115,544       80,438      56,246
         Reinsurance premiums, net (Note 7)                                (600)       1,587      (1,160
                                                                      ---------    ---------    --------
                                                                        997,568      743,627     588,990
                                                                      ---------    ---------    --------
     Life and short-term disability claims                                2,314          934
                                                                      ---------    ---------    --------
     Home health patient services                                        17,141       13,684       3,817
                                                                      ---------    ---------    --------
     Administrative expense
       Salaries and benefits                                             76,627       62,706      42,740
       Promotion and advertising                                          4,182        3,246       4,504
       Facilities, maintenance and supplies                              23,398       19,134      11,990
       Professional services                                              5,837        3,717       2,701
       Other (including interest expense of $691, $1,010 and $1,208)     11,610       11,519       8,601
                                                                      ---------     --------    --------
                                                                        121,654      100,322      70,536
                                                                      ---------     --------    --------
     Total expense                                                    1,138,677      858,567     663,343
                                                                      ---------     --------    --------
     Income  (loss) before income taxes                                  (4,935)      96,340      86,555
     Income tax benefit (expense) (Note 8)                                2,167      (35,216)    (32,025)
                                                                     ----------    ---------    ---------
     Net income (loss)                                              $    (2,768)  $   61,124   $   54,530
                                                                     ==========    =========    =========
     Earnings (loss) per common and
       common equivalent share (Notes 11 and 12):
     Net income (loss)                                              $     (.06)   $     1.28   $     1.15
                                                                     =========     =========    =========
     Weighted average common and
        common equivalent shares outstanding (Note 12)              46,988,229    47,908,379   47,370,211
                                                                    ==========    ==========   ==========
     </TABLE>
     The  accompanying  notes are  an  integral  part  of  these  consolidated
     financial statements.


     <PAGE> 26

                               Mid Atlantic Medical Services, Inc.
                  Consolidated Statements of Changes in Stockholders' Equity

     <TABLE>
     <CAPTION>
                                                           Additional       Stock                Unrealized
                                             Common         Paid-In      Compensation   Treasury   Gains and   Retained
     (in thousands except share amounts)     Stock          Capital         Trust         Stock     (Losses)   Earnings     Total
                                            ---------      ---------     ------------   ---------  ---------  ---------   --------
     <S>                                    <C>           <C>           <C>            <C>        <C>         <C>         <C>
                                            ---------      ---------     ------------   ---------  ---------  ---------   --------

     Balance, December 31, 1993              $   220       $  12,553                    $    (30)             $ 59,220   $ 71,963

     Adjustment to beginning balance
       for change in accounting
       method, net of tax of $718
         (Note 2)                                                                                  $  1,099                 1,099
     Exercise of stock options for
       1,520,975 shares of MAMSI
       common stock                               10           6,127                                                        6,137
     Stock option tax benefit                                 10,973                                                       10,973
     100% stock dividend                         226            (226)
     Change in unrealized gains
       and (losses), net of tax
       of $2,208                                                                                      (3,377)              (3,377)
     Other                                                         4                          (3)                               1
     Net Income                                                                                                  54,530    54,530
                                            ---------      ---------     ------------   ----------   --------    -------   -------
     Balance, December 31, 1994                  456          29,431                          (33)    (2,278)    113,750   141,326

     Exercise of stock options for
       967,800 shares of MAMSI
       common stock                               10           4,533                                                        4,543

     Change in unrealized gains
       and (losses), net of tax of $2,494                                                              3,813                3,813
     Net Income                                                                                                  61,124    61,124
                                           ----------      ---------     -----------    ----------  -------    -------    -------
     Balance, December 31, 1995                  466          40,374                         (33)     1,535    174,874    217,216

     Exercise of stock options for
       1,011,175 shares of MAMSI
       common stock                               10           5,682                                                        5,692
     Stock option tax benefit                                  6,162                                                        6,162
     Establishment of Stock
       Compensation Trust for
       9,130,000 shares of MAMSI
       common stock                               91         130,011      $ (130,102)
     Exercise of stock options
       for 109,300 shares released from
       the Stock Compensation Trust                           (1,011)          1,557                                         546
     Adjustment to market value
       for shares held in Stock
       Compensation Trust                                     (7,893)          7,893
     Repurchase of 2,048,700 shares of
       MAMSI common stock                                                                (41,178)                        (41,178)
     Change in unrealized gains


       and (losses), net of tax
       of $830                                                                                      (1,270)               (1,270)
     Net loss                                                                                                  (2,768)    (2,768)
                                           ---------      ---------       ---------    --------     ------    -------     -------
     Balance, December 31, 1996           $      567     $  173,325      $ (120,652)  $ (41,211)   $   265   $172,106    $184,400
                                           =========      =========       =========    ========     ======    =======     =======
     </TABLE>
     The  accompanying  notes  are  an  integral  part  of  these consolidated
     financial statements.


     <PAGE> 27

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

     <TABLE>
     <CAPTION>
                                                                                       Year  Ended  December  31,
     (in thousands)                                                                 1996          1995          1994
                                                                                 ---------      ---------      ---------
     <S>                                                                        <C>             <C>            <C>
     Cash flows from operating activities:
       Net income (loss)                                                        $   (2,768)     $   61,124     $   54,530
     Adjustments to reconcile net income (loss) to net cash provided by
       (used in) operating activities:
       Depreciation and amortization                                                  7,874          6,026          4,225
       Provision for bad debts                                                        1,728             47            370
       Provision for deferred income taxes                                            2,261          4,971         (2,435)
       Loss on sale and disposal of assets                                               13             78          1,126
       Changes in operating assets and liabilities, net of effects
         of acquisition of subsidiary:
          Increase in accounts receivable                                           (17,507)       (24,279)        (6,575)
          Decrease (increase) in prepaid expenses, advances and other               (23,349)        (3,231)           726
          Increase (decrease) in accounts payable                                     3,680         (2,490)         5,016
          (Decrease) in income taxes payable                                                        (2,589)          (465)
          Increase (decrease) in medical claims payable, net                         10,159         23,476         (2,346)
          Increase (decrease) in deferred premium revenue                               354         (3,219)         4,936
                                                                                  ---------      ---------      ---------
     Total adjustments                                                              (14,787)        (1,210)         4,578
                                                                                  ---------      ---------      ---------
               Net cash provided by (used in) operating activities                  (17,555)        59,914         59,108
                                                                                  ---------      ---------      ---------
     Cash flows provided by (used in) investing activities:
       Purchases of short-term investments                                         (338,943)      (426,601)      (220,410)
       Sales of short-term investments                                              392,219        365,076        184,826
       Purchases of property and equipment                                          (13,469)       (10,027)        (8,317)
       Acquisition of subsidiary                                                                                   (9,958)
       Purchases of statutory deposits                                               (2,407)        (1,405)        (5,219)
       Maturities of statutory deposits                                               1,824            739             23
       Purchases of other assets                                                       (247)          (725)        (1,997)
       Proceeds from sale of assets                                                     435            946          1,392
                                                                                 ----------      ----------     ---------
               Net cash provided by (used in) investing activities                   39,412        (71,997)       (59,660)
                                                                                 ----------      ----------     ---------
     Cash flows provided by (used in) financing activities:
       Proceeds from notes payable                                                                     300            200
       Principal payments on notes payable                                             (210)        (5,953)          (677)
       Increase in short-term borrowings                                                322            603
       Exercise of stock options                                                      6,238          4,543          6,137
       Stock option tax benefit                                                       6,162          6,410         10,973
       Purchase of treasury stock                                                   (41,178)
                                                                                   ---------     ----------     ---------
               Net cash provided by (used in) financing activities                  (28,666)         5,903         16,633
                                                                                   ---------     ----------     ---------
     Net increase (decrease) in cash and cash equivalents                            (6,809)        (6,180)        16,081
     Cash and cash equivalents at beginning of year                                  10,874         17,054            973
                                                                                  ---------      ---------      ---------
     Cash and cash equivalents at end of year                                     $   4,065      $  10,874      $  17,054
                                                                                   =========      =========     =========
     </TABLE>


     The  accompanying  notes  are an  integral  part  of  these  consolidated
     financial statements.


     <PAGE> 28

                        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"),  preferred
     provider  organizations ("PPOs"),  a life  and health  insurance company,
     home  health  care  and  home  infusion  services  companies,  a  hospice
     company,  a  mail order  pharmacy, 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. ("OCI"), Optimum Choice of the Carolinas, Inc. ("OCCI") and
     Optimum Choice,  Inc. of Pennsylvania  ("OCIPA") 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.

     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,   Inc.  ("Alliance")   provides  a  delivery   network  of
     physicians (called  a preferred  provider organization) to  employers and
     insurance companies in association with various health plans.

     Mid Atlantic  Psychiatric Services, Inc.  ("MAPSI") provides  psychiatric
     services to third party payors or self-insured employer groups.

     MAMSI  Life and  Health Insurance  Company   ("MAMSI Life")  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.    In
     addition,  HCPS  provides mail-order  pharmacy  services  to MAMSI's  HMO
     members and other payors.

     HomeCall  Hospice   Services,  Inc.   ("Hospice")  began   operations  in
     December, 1996  and  provides services  to  terminally ill  patients  and
     their families.

     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  have  been
     eliminated in consolidation.

     MAJOR CUSTOMERS

     The  Company's operations are conducted  within one business  segment.  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,  1996,  1995  and  1994,  approximately  11%,  7%  and  9%,
     respectively,  of premium  revenue  was derived  from federal  government
     agencies, and  approximately 26%, 21% and 18%,  respectively, was derived
     from state and local government agencies.

     CASH EQUIVALENTS

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


     <PAGE> 29

     SHORT-TERM INVESTMENTS

     Short-term  investments,  consisting  principally  of  marketable  equity
     securities, 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
     as  a separate component of stockholders' equity,  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.

     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  medical
     utilization  management 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
     provider network  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  utilization management  services and  under
     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
     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.
     The 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
     physicians  and  other  medical  providers  as  retainers  for  providing
     continuing medical care.


     <PAGE> 30

     The  Company believes  that  its IBNR  claims  reserves are  adequate  to
     satisfy its  ultimate claims liabilities; however, the  IBNR liability as
     established  may  vary significantly  from  actual  claims amounts,  both
     negatively or positively,  and as such adjustments  are deemed necessary,
     they  are included in current  operations.  Establishment  of IBNR claims
     estimates  is an  inherently  uncertain  process  and  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 (LOSS) PER COMMON SHARE

     Earnings (loss) per common and  common equivalent share is based upon the
     weighted  average   number  of   common  and  common   equivalent  shares
     outstanding.   Shares held in the Company's Stock Compensation Trust (see
     Note 12) are excluded  from weighted average shares outstanding.   Common
     equivalent shares result  from the assumed exercise  of outstanding stock
     options  that have  a dilutive  effect when  applying the  treasury stock
     method.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     Statement of  Financial Accounting  Standards No. 107,  "Disclosure about
     Fair  Value of  Financial  Instruments" ("Statement  No. 107"),  requires
     disclosure  of  fair  value   information  about  financial  instruments,
     whether  or  not  recognized  in  the  balance  sheet,  for  which it  is
     practicable to estimate that  value.  Statement No. 107  excludes certain
     financial   instruments  and   all  nonfinancial  instruments   from  its
     disclosure  requirements.   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.

     Short-term investments - 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.

     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

     The Company  has elected  to follow 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,


     <PAGE> 31

     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 1995 financial statements have been reclassified
     to conform to the 1996 presentation.

     NOTE 2 - INVESTMENTS

     Effective  January 1,  1994, the  Company adopted Statement  of Financial
     Accounting  Standards No.  115,  "Accounting for  Certain Investments  in
     Debt  and  Equity  Securities"   ("Statement  No.  115").     Under  this
     statement,  securities  are classified  into  categories  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 stockholders' equity.
     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.  During 1996, statutory deposit
     investments with an amortized  cost of $2,001,000 were released  by state
     regulatory  agencies   and  transferred  to   the  Company's   short-term
     investment portfolio.   The unrealized  gain at the date  of transfer was
     $28,000.

     On  January 1, 1994, the Company classified its short-term investments as
     available-for-sale.   As  a result, the  Company recorded  net unrealized
     gains  of  $1.1  million,  net  of  tax,  as  a  separate  component   of
     stockholders  equity.  In addition,  the Company classified its statutory
     deposits  as held  to  maturity with  no  effect on  the recorded  value.
     Management re-evaluates these designations annually.

     The  following is  a summary  of available-for-sale  and held-to-maturity
     securities at December 31, 1996:

     <TABLE>
     <CAPTION>
                                                        -------------------------------------------------------
                                                                          Gross         Gross        Estimated
     (in thousands)                                                    Unrealized     Unrealized        Fair
                                                           Cost           Gains         Losses         Value
                                                        -------------------------------------------------------
     <S>                                                <C>            <C>            <C>            <C>
     AVAILABLE-FOR-SALE SECURITIES
     Obligations of states and political subdivisions   $  98,115      $    885       $    107      $  98,893
     Municipal bond funds                                   8,201                                       8,201
     Other debt securities                                  1,478            57                         1,535
     Accrued interest                                       1,031                                       1,031
                                                         --------      --------       ---------      --------
     Debt securities                                      108,825           942            107        109,660
     Equity securities                                     39,183         1,555          1,671         39,067
     Mutual funds                                           2,911           142            421          2,632
                                                         --------      --------       ---------      --------

     Short-term investments                             $ 150,919      $  2,639       $  2,199      $ 151,359
                                                         ========      ========       ========       ========


     HELD-TO-MATURITY SECURITIES
     U.S. Treasury securities and obligations
       of U.S. government agencies                      $   6,224      $    100       $     15      $   6,309
     Obligations of states and political subdivisions       2,003           121              3          2,121
     Other investments                                        898                                         898
                                                         --------      --------        --------      --------
     Statutory deposits                                 $   9,125     $     221       $     18      $   9,328
                                                         ========      ========        ========      ========
     </TABLE>


     <PAGE> 32

     The  following is  a summary  of available-for-sale  and held-to-maturity
     securities at December 31, 1995:

     <TABLE>
     <CAPTION>
                                                        ------------------------------------------------------
                                                                         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                     $       20                                   $      20
     Obligations of states and political subdivisions      98,681      $  1,306       $     30         99,957
     Municipal bond funds                                  68,204                                      68,204
     Other debt securities                                  2,587            94                         2,681
     Accrued interest                                       1,163                                       1,163
                                                         --------       -------       --------       --------
     Debt securities                                      170,655         1,400             30        172,025
     Equity securities                                     27,343         2,270          1,112         28,501
     Mutual funds                                           4,197            11                         4,208
                                                         --------       -------      ---------       --------

     Short-term investments                            $  202,195      $  3,681     $    1,142      $ 204,734
                                                         ========       =======      =========       ========
     HELD-TO-MATURITY SECURITIES
     U.S. Treasury securities and obligations
       of U.S. government agencies                     $    5,542      $    167     $        1      $   5,708
     Obligations of states and political subdivisions       4,103           181                         4,284
     Other investments                                        898                                         898
                                                         --------       -------       --------       --------
     Statutory deposits                                $   10,543      $    348      $       1      $  10,890
                                                         ========       =======       ========       ========

     </TABLE>

     For  the  years  ended December  31,  1996  and  1995, marketable  equity
     available-for-sale securities with a  fair value at the  date of sale  of
     $53,037,000  and  $30,676,000,  respectively,   were  sold.    The  gross
     realized gains on such  sales totaled $8,971,000 and $5,943,000,  and the
     gross realized losses totaled  $3,072,000 and $1,149,000 for each  of the
     respective  periods.     Realized  gains  and  losses  are   included  in
     investment  income.   Other  sales  of  short-term investments  consisted
     principally of redemptions from municipal bond funds.

     The  amortized cost  and  estimated fair  value  of debt  and  marketable
     equity securities  at December  31,  1996, 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.


     <PAGE> 33

     <TABLE>
     <CAPTION>
                                                     ------------------------
     -
                                                                   Estimated
                                                                      Fair
     (in thousands)                                     Cost         Value
                                                     ------------------------
     -
     <S>                                             <C>            <C>
     AVAILABLE-FOR-SALE
     Due in one year  or less                              $   16,747       $
     16,762
     Due after one year  through five years                    46,687
     47,091
     Due after five  years through ten years                   26,221
     26,492
     Due after  ten years                                       19,170
     19,315
                                                      ---------       --------
     -
     Debt securities                                            108,825
     109,660
     Equity securities                                          39,183
     39,067
     Mutual funds                                               2,911
     2,632
                                                      ---------       --------
     -
                                                     $     150,919           $
     151,359
                                                      =========
     =========
     HELD-TO-MATURITY
     Due in  one year or less                            $      908      $
     908
     Due after one  year through five years                    3,778
     3,829
     Due  after five years through  ten years                  3,005
     3,035
     Due after ten years                                        1,434
     1,556
                                                      ---------       --------
     -
                                                     $       9,125        $
     9,328
                                                      =========
     =========
     </TABLE>



     NOTE 3 - ACCOUNTS RECEIVABLE

     Accounts receivable consists of the following at December 31:

     <TABLE>
     <CAPTION>


                                                     ------------------------
     -
     (in thousands)                                     1996           1995
                                                     ------------------------
     -
     <S>                                             <C>            <C>
     Premium and fee accounts                              $  58,756        $
     43,737
     Home health service accounts                             2,677
     2,869
     Medical recoverables                                     11,707
     10,419
     Other                                                     9,268
     7,876
     Less: allowance for  doubtful accounts                  (5,366)
     (3,638)
                                                      ---------       --------
     -
                                                     $    77,042           $
     61,263
                                                      =========
     =========
     </TABLE>

     Medical recoverables consist  of refunds identified  on paid claims  that
     will be collected  in the following year.  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 and pharmacy rebates.


     <PAGE> 34

     NOTE 4 - PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at December 31:

     <TABLE>
     <CAPTION>
                                                     -------------------------
     (in thousands)                                     1996           1995
                                                     -------------------------
     <S>                                             <C>            <C>
     Land, buildings and improvements                $  20,906      $  20,004
     Computer equipment and software                    30,151         21,823
     Office furniture and equipment                     15,566         11,673
     Leasehold improvements                                495            295
                                                      ---------      ---------
                                                        67,118         53,795
     Less: accumulated depreciation and
       amortization                                    (21,908)       (15,091)
                                                      ---------      ---------
                                                     $  45,210      $  38,704
                                                      =========      =========
     </TABLE>


     NOTE 5 - NOTES PAYABLE

     Notes payable consists of the following at December 31:

     <TABLE>
     <CAPTION>
                                                     -------------------------
     (in thousands)                                     1996           1995
                                                     -------------------------
     <S>                                             <C>            <C>
     Equipment term loan secured by certain
       computer equipment with interest due at
       9.8%.  Principal is paid in equal monthly
       installments with interest until maturity
       in March 1996                                                $      150
     Other notes payable                             $     194             254
     Current portion                                       (60)           (210)
                                                      ---------      ---------
     Noncurrent portion                              $     134      $      194
                                                      =========      =========
     </TABLE>

     On September 1, 1995, the Company paid off in full,  from available cash,
     its mortgage note payable amounting to approximately $5.0 million.

     The  noncurrent portion of  notes at December  31, 1996  mature in future
     years as follows (in thousands):

       1998                       $60
       1999                        60
       2000                        14

     The  Company  has access  to  total  line-of-credit and  letter-of-credit
     facilities  of  $24  million,  which   are  subject  to  annual  renewal.


     Borrowings bear interest at a rate based on either the  bank's prime rate
     or  the Federal  Funds rate  plus .75%  and are  secured by  certain cash
     balances   and   short-term  investments.      At   December  31,   1996,
     approximately  $1.97  million was  outstanding  on one  of  the lines-of-
     credit  at an  interest  rate of  7.91%  and approximately  $225,000  was
     outstanding in letters-of-credit.

     Interest   expense  paid  in  cash   during  1996,  1995   and  1994  was
     approximately $688,000, $1,541,000 and $708,000, respectively.


     <PAGE> 35

     NOTE 6 - MEDICAL CLAIMS PAYABLE

     Medical claims payable consists of the following at December 31:

     <TABLE>
     <CAPTION>
                                                     -------------------------
     (in thousands)                                     1996           1995
                                                     -------------------------
     <S>                                             <C>            <C>
     Medical claims payable                          $ 123,163       $ 112,362
     Coordination of benefits recoverable               (4,514)        (3,872)
                                                      ---------      ---------
                                                     $ 118,649      $  108,490
                                                      =========      =========
     </TABLE>


     NOTE 7 - REINSURANCE

     M.D. IPA, OCI, OCCI,  OCIPA and MAMSI Life maintain  reinsurance coverage
     to  provide  for reimbursement  of claims  in  excess of  certain limits.
     Reinsurance  for health claims generally covers 80% of all hospital costs
     in excess  of a  deductible amount  per enrollee per  year (subject  to a
     $2,000,000 maximum  lifetime reinsurance  limit per person)  but excludes
     coverage of  costs in excess of  certain per diem rates.   The deductible
     per  enrollee was raised from  $100,000 to $200,000  effective October 1,
     1994.   Reinsurance for life and accidental death claims generally covers
     all  settlements in excess of $50,000 per  person subject to a $1,000,000
     maximum  recovery per person.  Reinsurance recoveries for the years ended
     December  31,  1996,  1995  and    1994  were  approximately  $2,288,000,
     $128,000 and  $3,029,000, respectively.   In the  consolidated statements
     of  operations,  reinsurance  premiums  are  shown  net  of  the  related
     recoveries.


     NOTE 8 - INCOME TAXES

     At  December 31, 1996, the  Company has net  operating loss carryforwards
     of  approximately $1.3  million for  income tax  purposes that  expire in
     various years beginning in the year 2002.  Approximately $1.2 million  of
     these carryforwards relate to HomeCall, Inc. operations prior  to MAMSI's
     acquisition.  The Company's  ability to utilize these net  operating loss
     carryforwards is limited.


     <PAGE> 36

     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:

     <TABLE>
     <CAPTION>
                                                     --------------------------
     (in thousands)                                     1996            1995
                                                     --------------------------
     <S>                                             <C>            <C>
     Deferred tax liabilities:
       Accelerated depreciation                      $   3,558      $    2,597
       Unrealized investment gains                         174           1,004
                                                      ---------      ---------
     Total deferred tax liabilities                      3,732           3,601
                                                      ---------      ---------
     Deferred tax assets:
       Accrued medical expenses                          4,510           6,040
       Premium revenue adjustments                         725             710
       Allowance recapture                               1,753           1,229
       Accrued pension expenses                          1,405           1,199
       Other                                             1,166           1,047
                                                      ---------      ---------
     Total deferred tax assets                           9,559          10,225
     Valuation allowance for deferred tax assets          (762)           (128)
                                                      ---------      ---------
     Net deferred tax assets                             8,797          10,097
                                                      ---------      ---------
                                                     $   5,065      $    6,496
                                                      =========      =========
     Included in the consolidated balance sheets:

       Current assets - deferred income taxes        $   4,033      $    4,379
       Non-current assets - deferred income taxes        1,301           3,338
       Current liabilities - deferred income taxes         (36)         (1,005)
       Non-current liabilities - deferred
         income taxes                                     (233)           (216)
                                                      ---------      ---------
       Net deferred tax assets                       $   5,065     $     6,496
                                                      =========      =========
     </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)                                      1996           1995           1994
                                                     ----------------------------------------
     <S>                                             <C>            <C>            <C>
     Current:
       Federal                                       $   (4,239)     $   32,217     $  22,924
       State                                               (189)          5,844         3,861
                                                      ---------       ---------      --------
       Total current                                     (4,428)         38,061        26,785
                                                      ---------       ---------      --------


     Deferred:
       Federal                                            1,828         (2,207)         4,286
       State                                                433           (638)           954
                                                      ---------       ---------      --------
       Total deferred                                     2,261         (2,845)         5,240
                                                      ---------       ---------      --------
                                                     $   (2,167)     $  35,216      $  32,025
                                                      =========       =========      ========
     </TABLE>


     <PAGE> 37

     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)                                     1996            1995           1994
                                                     ----------------------------------------
     <S>                                             <C>            <C>            <C>
     Statutory rate (35%)                            $  (1,727)     $   33,719     $   30,294
     Tax-exempt interest                                (1,912)         (1,872)        (1,171)
     State income taxes, net of Federal benefit           (254)          3,399          3,062
     Increase (decrease) in valuation allowance for
       deferred tax assets                                 634             (11)          (244)
     Other non-deductible items                            785             754            251
     Other, net                                            307            (773)          (167)
                                                      ---------      ---------      ---------
                                                     $  (2,167)     $   35,216     $   32,025
                                                      =========      =========      =========
     </TABLE>

     Total  tax deposits  made by  the  Company in  1996, 1995  and  1994 were
     approximately $10,320,000, $27,266,000 and $25,191,000, respectively.

     NOTE 9 - RISK POOL WITHHOLDINGS

     Prior to July  1, 1996, contracts  with participating physicians  allowed
     for  withholdings  generally ranging  from 5%  to  15% from  primary care
     physicians  and participating  specialists  on  capitation  and  fee-for-
     service  payments.    The  withheld  amounts  ultimately  paid  back   to
     providers is generally  less than  the total amount  withheld.   Withheld
     liabilities  and related  medical expenses  were reduced  by $14,535,000,
     $22,802,000  and  $8,719,000 in  1996,  1995 and  1994,  respectively, to
     reflect amounts not returned to providers.   Commencing July 1, 1996, the
     Company,  pursuant to  state law  changes, discontinued  withholding from
     payments in substantially all areas of operations.

     NOTE 10 - RELATED PARTIES

     For the years ended December 31,  1996, 1995 and 1994, certain members of
     the  Boards of  Directors of  MAMSI and  subsidiary corporations  who are
     also  participating  physicians provided  medical  services  to enrollees
     totaling  $8,406,000,  $9,699,000  and  $6,450,000,  respectively,  which
     represents approximately 2% in  all years 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 11 - EMPLOYEE BENEFIT 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 10% of
     their  pre-tax  earnings  annually  and  the  Company  makes  a  matching
     contribution of 50% on the first  4% of contributions made by  employees.
     Employees  vest immediately  in  the employee  contributions and  ratably
     over  six years  in the  Company  contributions.   During 1996,  1995 and


     1994, the Company's  contribution to the 401(k) plan aggregated $540,000,
     $433,000 and $231,000, respectively.

     Effective  December   31,  1994,   the  Company  discontinued   its  non-
     contributory defined  benefit pension plan (the "Plan").  Benefits earned
     under the  Plan, which  covered substantially  all employees,  were fully
     vested  at that  date.   The  obligation  to provide  these benefits  was
     satisfied as of December 31,  1995 through a combination of  purchases of
     annuity contracts,  transfers of vested funds  into the  401(k)  plan and
     cash  withdrawals.  The  Company recognized a gain  on the curtailment of
     the defined benefit pension plan of approximately $345,000.

     The net pension cost for the Plan was approximately $1,095,000 in 1994.

     In  accordance  with  a  personal  service  contract  negotiated  by  the
     Company, its Chairman is entitled to  supplemental pension benefits based
     upon years of  service and  attained salary levels.   Expense  recognized
     related to this plan was  $818,000, $1,682,000 and $844,000 for the years
     ended December 31, 1996, 1995 and 1994, respectively.


     <PAGE> 38

     STOCK OPTION PLANS

     In  October  1995,  the   Financial  Accounting  Standards  Board  issued
     Statement  of Financial  Accounting  Standards No.  123, "Accounting  for
     Stock-Based  Compensation" ("Statement  123").  Statement  123 prescribes
     accounting  and  reporting standards  for  all  stock based  compensation
     plans.  Statement  123 requires that  the company either  adopt the  fair
     value  method of  accounting for  its stock option  plans or  continue to
     apply the  existing accounting rules  but provide supplemental  pro forma
     disclosures  as  if the  new rules  had  been adopted.   The  Company has
     elected to follow  the existing  rules and  make the  required pro  forma
     disclosures  in its  1996  consolidated financial  statements.   Although
     Statement 123 first  became effective in 1996,  it requires that the  pro
     forma disclosures include  the effects  of all awards  granted in  fiscal
     years  beginning  after December  15, 1994,  the  majority of  which were
     issued under the Company's 1995 and 1996 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 1996 and  1995, respectively:
     risk-free  interest rates  of 6.3%  and 6.7%;  volatility factors  of the
     expected  market price of the Company's common stock of .47 and .53 and a
     weighted  average  life   of  the  options  of  3  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 effect  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  share
     amounts):
                                                      1996            1995
     Pro forma net income (loss)                   $ (8,409)         $58,670
     Pro forma earnings (loss) per share              ( .18)            1.23

     The effects of applying  Statement 123 as  computed above are not  likely
     to be representative of the  pro forma effects on reported net  income in
     future  years as the  above only  considers options  granted in  1995 and
     1996.

     In each year 1990  through 1996, 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.
     Shares  authorized under the plans  total 15,500,000.   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
     1990 - 1996 plans are summarized as follows:


     <PAGE> 39

     <TABLE>
     <CAPTION>
                                                          1996                       1995                            1994
                                                   -------------------       ----------------------         ----------------------
     <S>                                           <C>                       <C>                            <C>
                                                              Weighted                     Weighted                       Weighted
                                                              Average                      Average                        Average
                                                              Exercise                     Exercise                       Exercise
                                                   Shares       Price        Shares          Price           Shares         Price
                                                  ---------   --------      ---------      --------        ---------      ---------
     Outstanding, January 1                       7,400,405   $  14.94      6,425,465      $ 12.51         5,834,650      $   4.82
     Granted                                      3,122,371   $  17.72      2,270,100      $ 18.22         2,301,270      $  26.18
     Exercised                                   (1,120,475)  $   5.57       (967,800)     $  4.69        (1,520,975)     $   4.03
     Forfeited                                     (538,280)  $  20.67       (327,360)     $ 19.92          (189,480)     $   8.47
                                                 -----------                ----------     -------        -----------
     Outstanding, December 31                     8,864,021   $  17.02      7,400,405      $ 14.94         6,425,465      $  12.51
                                                 ===========                =========                      =========
     Available for grant, end of year             1,494,829                 1,081,670                         24,410
     Exercisable, end of year                     4,107,450                 3,281,405                      2,293,375
     Option price range for exercised shares     $2.58-$22.38
     Option price range at end of year           $3.29-$28.50
     Weighted average fair value of
       options granted during year                  $7.32


     </TABLE>



     <TABLE>
     <CAPTION>                                                    Weighted
                                                                   Average        Weighted      Number        Weighted
                                                    Number        Remaining        Average    Exercisable     Average
       Range  of                                  Outstanding    Contractual      Exercise         at         Exercise
     Exercise Prices                              at 12/31/96       Life            Price      12/31/96         Price
     ----------------                             -----------    -----------      --------    -----------     ---------
     <S>                                          <C>            <C>              <C>         <C>             <C>
       $2.58- $5.00                                   638,550        0.6          $   3.52        638,550     $    3.52
       $5.00-$10.00                                 1,349,250        1.5          $   5.84      1,349,250     $    5.84
      $10.00-$15.00                                   565,950        4.4          $  12.56         76,650     $   13.42
      $15.00-$20.00                                 4,048,421        3.9          $  18.54        638,800     $   17.74
      $20.00-$25.00                                   580,630        3.6          $  22.45        268,520     $   22.51
      $25.00-$28.50                                 1,681,220        2.3          $  27.06      1,135,680     $   27.06
                                                    ---------                                   ---------
                                                    8,864,021                                   4,107,450
                                                    =========                                   =========

     </TABLE>


     <PAGE> 40

     The Company has an  incentive compensation plan whereby officers  and key
     employees  receive bonuses based upon the annual operating results of the
     Company.  Incentive compensation  expense was approximately $3,162,000 in
     1994.   No  management bonus was  earned in 1995  or 1996.   In addition,
     certain  individuals receive a cash  bonus based upon  the achievement of
     certain measurable  criteria other than  the annual operating  results of
     the Company.  These bonus amounts are not significant.

     NOTE 12 - COMMON STOCK

     On April 17, 1995, the stockholders of MAMSI approved an  increase in the
     number  of  authorized  shares   of  common  stock  from  60,000,000   to
     100,000,000.

     On June 15, 1994, the Board  of Directors declared a 100% stock dividend.
     The stock dividend was paid  on August 5, 1994 to shareholders  of record
     on July 5, 1994.

     All  references in  the consolidated  financial statements  to per  share
     amounts, number  of  shares,  and  weighted  average  common  and  common
     equivalent shares have been adjusted  to reflect the stock dividends on a
     retroactive basis.

     On  August 26, 1996, the Company established the MAMSI Stock Compensation
     Trust  ("SCT") to  fund its  obligations arising  from its  various stock
     compensation plans.   MAMSI funded the SCT with 9,130,000 shares of newly
     issued MAMSI  stock.   In exchange,  the SCT  has delivered  a promissory
     note to  MAMSI  for approximately  $129.9  million which  represents  the
     purchase price of the shares.   Amounts owed by the SCT to MAMSI  will be
     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.

     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
     sheet.  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.   At December 31, 1996, the SCT held 9,020,700 shares of
     common stock at a fair market value of approximately $120.7 million.

     Shares  held by  the  SCT  are  excluded  from  weighted  average  shares
     outstanding  used in  the  computation  of  income  or  loss  per  common
     equivalent share.

     NOTE 13 - COMMITMENTS AND CONTINGENCIES

     The Company leases certain equipment  and office space under the terms of
     noncancellable  operating leases  that  expire at  various dates  through
     2000.   Rent  expense  relating to  these  operating leases  approximated
     $3,316,000,   $2,593,000   and  $984,000   in   1996,   1995  and   1994,
     respectively.

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

     1997                  $    3,321


     1998                       2,513
     1999                       1,387
     2000                         403
     2001                         301
                            ---------
                           $    7,925
                            =========

     During the fourth quarter of  1996, two shareholders of MAMSI, who  own a
     total  of 800 shares, filed a lawsuit  in the Circuit Court of Montgomery
     County Maryland  against MAMSI  and its  Chairman, alleging  that, during
     the period  February 29 through August  14, 1996, MAMSI  and its Chairman
     fraudulently  or  negligently misrepresented  certain  matters concerning
     the  Company's anticipated  performance for  the year ended  December 31,
     1996.    The  plaintiffs   seek  unspecified  compensatory  and  punitive
     damages, pre- and post-judgement interest, attorneys'  fees and costs, on
     behalf of themselves  and a class of persons who purchased MAMSI's common
     stock between  February 29 and August  14, 1996.  MAMSI  and its Chairman
     have filed  a Motion to Dismiss  the Complaint in its  entirety, which is
     currently pending before  the Court.  The Company is  not able to predict
     the probability of a favorable outcome or the amount of potential loss,


     <PAGE> 41

     in the event of an unfavorable outcome.  MAMSI believes that  even if the
     motion to dismiss  is denied, it has  meritorious defenses to the  claims
     raised in the complaint and intends to defend the action vigorously.

     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 any  ultimate liability that  could arise from  these
     other  actions  will not  materially  affect  the Company's  consolidated
     financial position or results of operations.

     NOTE 14 - STATUTORY REQUIREMENTS

     M.D.  IPA,  OCI,  OCCI and  OCIPA  are  subject  to insurance  department
     regulations in  the states in  which they are  licensed.  The  state with
     the highest  requirement obligated M.D.  IPA and  OCI to each  maintain a
     statutory net worth  of $3.0 million  at December 31,  1996 and 1995;  at
     December 31, 1996 and December 31,  1995, OCCI was required to maintain a
     statutory  net worth of  $1.0 million.   At December 31,  1996, OCIPA was
     required  to  maintain  a  statutory  net worth  of  $1.5  million.   The
     statutory  net worth  of  M.D. IPA  was  approximately $27.2  million  at
     December 31, 1996.   The  statutory net  worth of  OCI was  approximately
     $43.1 million at December  31, 1996.  The statutory net worth of OCCI was
     approximately  $2.7  million at  December 31,  1996.   The  statutory net
     worth of OCIPA was approximately $2.6 million at December 31, 1996.

     MAMSI Life  is subject to  insurance department regulations  in Maryland,
     its state  of domicile.   At December 31, 1996  and 1995, MAMSI  Life was
     obligated  to maintain  statutory  capital and  surplus  funds   of  $3.8
     million.  The statutory capital and surplus funds of MAMSI Life  totalled
     approximately $16.4 million at December 31, 1996.

     M.D. IPA, OCI,  OCCI, OCIPA and MAMSI Life were  in compliance with state
     depository rules  at December 31, 1996 and 1995.  In addition, MAMSI Life
     was  in compliance  with the  applicable risk-based  capital requirements
     for life  and health insurance  companies at December 31,  1996 and 1995.
     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.

     NOTE 15 - 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  short-term   investments  in  marketable  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, 1996,
     approximately  12% 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.


     <PAGE> 42

                  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, 1996
     and 1995, 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,  1996.   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 generally  accepted
     auditing standards.   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,  1996  and 1995,  and  the  consolidated  results of  their
     operations  and  their cash  flows for  each  of the  three years  in the
     period ended December  31, 1996,  in conformity  with generally  accepted
     accounting  principles.   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.

     As  discussed in  Note 2  to the  consolidated financial  statements, the
     Company  changed its method of accounting for certain investments in debt
     and equity securities in 1994.

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

     Washington, D.C.
     February 27, 1997


     <PAGE> 43

     SELECTED QUARTERLY FINANCIAL DATA FOR FISCAL YEARS 1996 AND 1995 (1)

     <TABLE>
     <CAPTION>
                                         1996      1996      1996      1996      1995      1995      1995      1995
                                         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                            $271,558  $281,455  $287,960  $292,769  $220,988  $235,408  $243,104  $255,407
     Expense                             252,528   292,204   295,170   298,775   193,724   213,368   219,912   231,563

     Income (loss) before income taxes    19,030   (10,749)   (7,210)   (6,006)   27,264    22,040    23,192    23,844
     Net income (loss)                    11,869    (6,537)   (4,711)   (3,389)   16,918    13,825    14,399    15,982

     Earnings (loss) per common and common
       equivalent share (2):
       Net income (loss)                     .25      (.14)     (.10)     (.07)     0.36      0.29      0.30      0.33

     </TABLE>

     Notes

     1. Certain quarterly revenue  and expense amounts are different  from the
     amounts  originally   reported  due  to  reclassifications  necessary  to
     conform to the current presentation.

     2. Earnings (loss) per common  share are computed after giving effect  to
     dilutive  stock  options.   All per  share  amounts and  weighted average
     common and common  equivalent shares  have been adjusted  to reflect  all
     stock dividends  on a retroactive basis.  See Note 12 to the consolidated
     financial statements.


     <PAGE> 44

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

     None.


     <PAGE> 45

                                    Part III

     ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required  by this  item is incorporated  by reference  to
     "Directors and  Executive Officers" in  the Proxy  Statement for  MAMSI's
     annual meeting of shareholders to be held on April 29, 1997.

     ITEM 11. EXECUTIVE COMPENSATION

     The information required  by this  item is incorporated  by reference  to
     "Directors   and  Executive  Officers  --  Directors'  Compensation"  and
     "Executive Management  Compensation" in  the Proxy Statement  for MAMSI's
     annual meeting of shareholders to be held on April 29, 1997.

     ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required  by this  item is incorporated  by reference  to
     "Stock  Owned by Management"  and "Principal  Stockholders" in  the Proxy
     Statement for  MAMSI's annual meeting of shareholders to be held on April
     29, 1997.

     ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required  by this  item is incorporated  by reference  to
     "Executive Management  Compensation" in  the Proxy Statement  for MAMSI's
     annual meeting of shareholders to be held on April 29, 1997.


     <PAGE> 46
                                         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, 1996 and 1995 ...    24
     Consolidated Statements of Operations for the years ended
       December 31, 1996, 1995 and 1994 .............................    25
     Consolidated Statements of Changes in Stockholders' Equity
       for the years ended December 31, 1996, 1995 and 1994 .........    26
     Consolidated Statements of Cash Flows for the years ended
       December 31, 1996, 1995 and 1994 .............................    27
     Notes to Consolidated Financial Statements .....................    28
     Report of Ernst & Young LLP Independent Auditors ...............    42

     (a)(2) and (d)
     INDEX TO FINANCIAL STATEMENT SCHEDULE                             PAGE
                                                                       ----
     II - Valuation and Qualifying Accounts as of December 31,
            1996, 1995 and 1994 .....................................    47

     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.


     <PAGE> 47

                               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, 1994
     Allowance for doubtful accounts - accounts receivable
                     $   3,066      $      39         $     486(2)   $               $   3,591
                      ========       ========          ========       ========        ========

     Valuation allowance - deferred tax assets
                     $    383                          $             $     244       $     139
                      ========       ========          ========       ========        ========

     YEAR ENDED DECEMBER 31, 1995
     Allowance for doubtful accounts - accounts receivable
                     $   3,591      $      25         $      22(1)   $               $   3,638
                      ========       ========          ========       ========        ========

     Valuation allowance - deferred tax assets
                     $     139                        $               $     11       $     128
                      ========       ========          ========       ========        ========

     YEAR ENDED DECEMBER 31, 1996
     Allowance for doubtful accounts - accounts receivable
                   $   3,638      $                   $   1,756(1)   $     (28)      $   5,366
                    ========       ========            ========       ========        ========

     Valuation allowance - deferred tax assets
                   $     128      $                   $     634      $               $     762
                    ========       ========            ========       ========        ========
     </TABLE>

     (1) The additions to the allowance were charged to premium revenue.

     (2)  Total additions  includes $155,000,  which represents  the allowance
     established by an acquired company immediately prior to the  acquisition.
     The remaining additions were charged to premium revenue.


     <PAGE> 48

     (a)(3)
     EXHIBITS

     See the Exhibit Index on pages 45-46 of this Form 10-K.

     (b)
     REPORTS ON FORM 8-K

     None.


     <PAGE> 49

                                     SIGNATURES

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


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

           By: /s/ George T. Jochum                      3/28/97
              --------------------------------------------------
              George T. Jochum                              Date
              Chairman, Chief Executive Officer, President, and Director

     Pursuant to  the requirements of the  Exchange Act, 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/ Thomas P. Barbera                     3/28/97
              --------------------------------------------------
              Thomas P. Barbera                           Date
              Vice Chairman, Executive Vice President and
              Director

           By: /s/ Francis C. Bruno, M.D.                3/28/97
              ---------------------------------------------------
              Francis C. Bruno, M.D.                       Date
              Director

           By: /s/ John H. Cook, III, M.D.               3/28/97
              --------------------------------------------------
              John H. Cook, III, M.D.                       Date
              Director

          By:  /s/ Stanley M. Dahlman, Ph.D.             3/28/97
              --------------------------------------------------
              Stanley M. Dahlman, Ph.D.                    Date
              Director

           By: /s/ Peter L. Flaherty, Jr., M.D.          3/28/97
              --------------------------------------------------
              Peter L. Flaherty, Jr., M.D.                  Date
              Director

           By: /s/ Robert E. Foss                        3/28/97
              --------------------------------------------------
              Robert E. Foss                                Date
              Executive Vice President and Chief Financial Officer
              (Principal Financial Officer)

           By: /s/ Walter Girardin                       3/28/97
              --------------------------------------------------
              Walter Girardin                               Date
              Director

           By: /s/ Mark D. Groban, M.D.                  3/28/97


              --------------------------------------------------
              Mark D. Groban, M.D.                          Date
              Assistant Medical Director for Mental Health Services
              and Director

           By: /s/ Donald R. Hammett                     3/28/97
              --------------------------------------------------
              Donald R. Hammett                             Date
              Director

           By: /s/ George T. Jochum                      3/28/97
              --------------------------------------------------
              George T. Jochum                              Date
              Chairman, Chief Executive Officer, President and Director
              (Principal Executive Officer)

           By: /s/ Creighton R. Schneck                  3/28/97
              --------------------------------------------------
              Creighton R. Schneck                          Date
              Director


     <PAGE> 50

           By: /s/ Mary E. Shocklee                      3/28/97
              --------------------------------------------------
              Mary E. Shocklee                              Date
              Vice President, Controller and Chief Accounting Officer
              (Principal Accounting Officer)

           By: /s/ Stanley F. Smith, R.Ph.               3/28/97
              --------------------------------------------------
              Stanley F. Smith, R.Ph.                       Date
              Director

           By: /s/ Alfred Talamantes                     3/28/97
              --------------------------------------------------
              Alfred Talamantes                             Date
              Executive Vice President,
              Chief Operating Officer and Director

           By: /s/ James A. Wild                         3/28/97
              --------------------------------------------------
              James A. Wild                                 Date
              Director


     <PAGE> 51

    (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.......................................(5)
     3.3       Amended and Restated By-laws of MAMSI as of May 6, 1996..................(7)
     3.4       Copy of Certificate of Amendment of MAMSI Certificate of
               Incorporation dated June 2, 1994.........................................(5)
    10.5       Copy of Agreement between M.D. IPA and the United States
               Secretary of Health and Human Services dated December 20, 1985...........(1)
    10.7       Promissory Note signed by Thomas P. Barbera dated November 9, 1993.......(5)
    10.20      Copy of Amendments to Agreement between M.D. IPA and the United
               States Secretary of Health and Human Services dated December 24, 1987....(4)
    10.26      1990 Non-Qualified Stock Option Plan.....................................(5)
    10.27      Copy of 1990 Non-Qualified Stock Option Letter sent to Key Employees.....(5)
    10.32      Copy of Contract between George T. Jochum and M.D. IPA for the period
               January 1, 1991 through January 1, 1994..................................(5)
    10.35      1991 Non-Qualified Stock Option Plan.....................................(5)
    10.36      Copy of 1991 Non-Qualified Stock Option Letter sent to Key Employees.....(5)
    10.41      Copy of Agreement between M.D. IPA and Surgical Care Affiliates, Inc.,
               dated April 22, 1985.....................................................(5)
    10.44      1992 Non-Qualified Stock Option Plan.....................................(5)
    10.45      Copy of 1992 Non-Qualified Stock Option Letter sent to Key Employees.....(5)
    10.48      Equipment Term Loan Agreement with Signet Bank dated March 25, 1991......(5)
    10.50      Amendment to Revolving Loan Agreement with Signet Bank dated
               June 19, 1991............................................................(5)
    10.53      Amendments to the Stock Option Plans effective May 15, 1991..............(5)
    10.54      Summary Plan Description of the Employees Cash or Deferred Profit
               Sharing (401k) Plan dated October, 1991..................................(5)
    10.55      Defined Benefit Plan Agreement with the Principal Financial Group which
               was approved September 12, 1991..........................................(5)
    10.57      Mortgage and Loan Agreement with Aid Association for Lutherans dated
               October 4, 1990..........................................................(5)
    10.60      1993 Non-Qualified Stock Option Plan.....................................(2)
    10.61      1993 Non-Qualified Stock Option Letter Sent to Key Employees.............(2)
    10.62      1992 Amendment to Employment Agreement Between George T. Jochum and
               the Company..............................................................(2)
    10.63      Agreement to Purchase MAMSI Life and Health Insurance Company, as
               amended..................................................................(2)
    10.65      Agreement to Purchase 2301 Research Boulevard dated September 30, 1993...(3)
    10.66      1994 Management Bonus Program............................................(4)
    10.67      1994 Non-Qualified Stock Option Plan.....................................(4)
    10.68      1994 Non-Qualified Stock Option Letter sent to Key Employees.............(4)
    10.69      Revolving Loan Agreement with Signet Bank dated September 30, 1993.......(4)
    10.71      Agreement between OCI and the State of Maryland governing the Medical


               Assistance Program ("Medicaid") dated August 5, 1993.....................(4)
    10.72      List of States in which MAMSI Life is Licensed to Operate................(4)
    10.73      1995 Management Bonus Program............................................(5)
    10.74      1995 Non-Qualified Stock Option Plan.....................................(5)
    10.75      1995 Non-Qualified Stock Option Plan letter sent to Key Employees........(5)
    10.76      Agreement between OCI and the Commonwealth of Virginia governing the
               Medical Assistance Program ("Medicaid") dated May 27, 1994...............(5)
    10.77      1995 Amendment to Employment Agreement between George T. Jochum and
               the Company..............................................................(6)
    10.78      1996 Management Bonus Program............................................(6)
    10.79      1996 Non-Qualified Stock Option Plan.....................................(6)
    10.80      Form of Agreement between MAMSI and Employees Granting Options
               under the 1996 Non-Qualified Stock Option Plan...........................(6)


    <PAGE> 52

    10.81      Form of Agreement between MAMSI and George T. Jochum Granting Options
               under the 1996 Non-Qualified Stock Option Plan...........................(6)
    10.82      Form of Agreement between MAMSI and Non-Employee Directors Granting
               Options under the 1996 Non-Qualified Stock Option Plan...................(6)
    10         Amended and Restated Compensation Trust Agreement dated
               December 20, 1996........................................................(8)
    10.1       Amended and Restated Common Stock Purchase Agreement dated
               December 20, 1996........................................................(8)
    10.2       Replacement Promissory Note dated December 20, 1996......................(8)
    10.83      1997 Management Bonus Program............................................
    21         Subsidiares of the Company...............................................
    23         Consent of Independent Auditors..........................................
    27         Financial Data Schedule..................................................
    </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  Annual Report  filed under  the
    Securities Exchange  Act of  1934 on  Form 10-K  for
    the fiscal year ended December 31, 1992.

    (3)   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.

    (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, 1993.

    (5)   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.

    (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  on  Form  10-Q  for   the
    Quarterly Period Ended March 31, 1996.

    (8)   Incorporated  by reference  to exhibits  filed
    with the  Company's Quarterly Report filed under the
    Securities  Exchange  Act on  Form  10-Q/A  for  the
    Quarterly Period Ended September 31, 1996.