Document:

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                                                                   EXHIBIT 10.26

                                CONTRACT BETWEEN
                   THE OFFICE OF MEDICAID POLICY AND PLANNING,
              THE OFFICE OF THE CHILDREN'S HEALTH INSURANCE PROGRAM
                                       AND
                    COORDINATED CARE CORPORATION INDIANA, INC

         This Contract is made and entered into by and between the State of
Indiana (hereinafter "State" or "State of Indiana"), through the Office of
Medicaid Policy and Planning and the Office of Children's Health Insurance
Program (hereinafter "the Offices"), of the Indiana Family and Social Services
Administration, 402 West Washington Street, W382, Indianapolis, Indiana, and
Coordinated Care Corporation Indiana, Inc., doing business as Managed Health
Services, 1099 North Meridian, Suite 400, Indianapolis, Indiana 46204,
(hereinafter "Contractor").

         WHEREAS, I.C. 12-15-30-1 and I.C. 12-17.6 authorize the Offices to
enter into contracts to assist in the administration of the Indiana Medicaid and
the Indiana Children's Health Insurance Program (CHIP), respectively;

         WHEREAS, the State of Indiana desires to contract for services to
arrange for and to administer a risk-based managed care program (RBMC) for
certain Hoosier Healthwise enrollees in Packages A, B and C as procured through
BAA 01-28;

         WHEREAS this Contract contains the payment rates under which the
Contractor shall be paid and that these rates have been determined to be
actuarially sound for risk contracts, in accordance with applicable law;

         WHEREAS, the Contractor is willing and able to perform the desired
services for Hoosier Healthwise Packages A, B and C;

         WHEREAS, the Family and Social Services Administration (FSSA) is
issuing new contract documents in lieu of renewal or amendment documents so that
FSSA may move its contract data into a single contract database. The original
contract was issued for the contract term starting January 1, 2001, through
December 31, 2002, and provided for a renewal clause, exercised at the option of
the State for two additional years. The State is hereby exercising this option
and renewing the contract.

         THEREFORE, the parties to this Contract agree that the terms and
conditions specified below will apply to services in connection with this
contract, and such terms and conditions are as follows:

                           I. TERM AND RENEWAL OPTION

         This Contract is effective from January 1, 2003 through December 31,
2004. In no event shall the term exceed December 31, 2004.

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                                 II. DEFINITIONS

         For the purposes of this contract, terms not defined herein shall be
  defined as they are in the documents incorporated in and attached to this
  document, subject to the order of precedence spelled out in Section V of this
  document.

  "Contract" means this document and all documents or standards incorporated
  herein, expressly including but not limited to the following documents
  appended hereto and listed in chronological order and to be given precedence
  as described in Section V of this document, entitled "Order of Precedence":

         Attachment 1 - BAA 01-28, released July 31, 2000;

         Attachment 2 - Original contract (effective January 1, 2001);

         Attachment 3 - First Amendment to the original contract
                        (effective April 1, 2002) and its associated
                        attachments; and

         Any other documents, standards, laws, rules or regulations incorporated
         by reference in the above materials, all of which are hereby
         incorporated by reference.

"Covered Services" means all services required to be arranged, administered,
managed or provided by or on behalf of the Contractor under this contract.

"Effective Date of Enrollment" means:

         o        The first day of the birth month of a newborn that is
                  determined by the Offices to be an enrolled member;

         o        The fifteenth day of the current month for a member who has,
                  between the twenty-sixth day of the previous month and the
                  tenth day of the current month, been determined by the Offices
                  to be an enrolled member; and,

         o        The first day of the following month for a member who has,
                  between the eleventh day and the twenty-fifth day of a month,
                  been determined by the Offices to be an enrolled member.

"Enrolled Member", or "Enrollee", means a Hoosier Healthwise-eligible member who
is listed by the Offices on the enrollment rosters to receive covered services
from the Contractor or its subcontractors, employees, agents, or providers, as
of the Effective Date of Enrollment, under this contract.

"Provider" means a physician, hospital, home health agency or any other
institution, or health or other professional person or entity, which
participates in the provision of services to an enrolled member under BAA 01-28,
whether as an independent contractor, a subcontractor, employee, or agent of the
Contractor.

"Broad Agency Announcement", or "BAA", means BAA 01-28 for providers of managed
care services, released July 31, 2000.

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                          III. DUTIES OF THE CONTRACTOR

A.       The Contractor agrees to assume financial risk for developing and
         managing a health care delivery system and for arranging or
         administering all Hoosier Healthwise covered services except, as set
         out in section 3.4.3 of the BAA, dental care, long-term institutional
         care, services provided as part of an individualized education plan
         (IEP) pursuant to the Individuals with Disabilities Education Act
         (IDEA) at 20 U.S.C. 1400 et seq., behavioral health, and hospice
         services, in exchange for a per-enrollee, per-month fixed fee, to
         certain enrollees in Hoosier Healthwise Packages A, B and C. Wards of
         the State, foster children and children receiving adoption assistance
         may enroll on a voluntary basis and will not be subject to
         auto-assignment into the Hoosier Healthwise program. The Contractor
         must, at a minimum, furnish covered services up to the limits specified
         by the Medicaid and CHIP programs. The Contractor may exceed these
         limits. However, in no instance may any covered service's limitations
         be more restrictive than those which exist in the Indiana Medicaid
         fee-for-service program for Packages A and B, and the Children's Health
         Insurance Program for Package C.

B.       The Contractor agrees to perform all duties and arrange and administer
         the provision of all services as set out herein and contained in the
         BAA as attached and the Contractor's responses to the BAA as attached,
         all of which are incorporated into this Contract by reference. In
         addition, the Contractor shall comply with all policies and procedures
         defined in any bulletin, manual, or handbook yet to be distributed by
         the State or its agents insofar as those policies and procedures
         provide further clarification and are no more restrictive than any
         policies and procedures contained in the BAA and any amendments to the
         BAA. The Contractor agrees to comply with all pertinent state and
         federal statutes and regulations in effect throughout the duration of
         this Contract and as they may be amended from time to time.

C.       The Contractor agrees that it will not discriminate against individuals
         eligible to be covered under this Contract on the basis of health
         status or need for health services; and the Contractor may not
         terminate an enrollee's enrollment, or act to encourage an enrollee to
         terminate his/her enrollment, because of an adverse change in the
         enrollee's health. The disenrollment function will be carried out by a
         State contractor who is independent of the Contractor; therefore, any
         request to terminate an enrollee's enrollment must be approved by the
         Offices.

D.       The Contractor agrees that no services or duties owed by the Contractor
         under this Contract will be performed or provided by any person or
         entity other than the Contractor, except as contained in written
         subcontracts or other legally binding agreements. Prior to entering
         into any such subcontract or other legally binding agreement, the
         Contractor shall, in each case, submit the proposed subcontract or
         other legally binding agreement to the Offices for prior review and
         approval. Prior review and approval of a subcontract or legally binding
         agreement shall not be unreasonably delayed by the Offices. The Offices
         shall, in appropriate cases and as requested by the Contractor,
         expedite the review and approval process. Under no circumstances shall

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         the Contractor be deemed to have breached its obligations under this
         Contract if such breach was a result of the Offices' failure to review
         and approve timely any proposed subcontract or other legally binding
         agreement. If the Offices disapprove any proposed subcontract or other
         legally binding agreement, the Offices shall state with reasonable
         particularity the basis for such disapproval. No subcontract into which
         the Contractor enters with respect to performance under this Contract
         shall in any way relieve the Contractor of any responsibility for the
         performance of duties under this Contract. All subcontracts and
         amendments thereto executed by the Contractor under this Contract must
         meet the following requirements; any existing subcontracts or legally
         binding agreements which fail to meet the following requirements shall
         be revised to include the requirements within ninety (90) days from the
         effective date of this Contract:

         1.       Be in writing and specify the functions of the subcontractor.

         2.       Be legally binding agreements.

         3.       Specify the amount, duration and scope of services to be
                  provided by the subcontractor.

         4.       Provide that the Offices may evaluate, through inspection or
                  other means, the quality, appropriateness, and timeliness of
                  services performed.

         5.       Provide for inspections of any records pertinent to the
                  contract by the Offices.

         6.       Require an adequate record system to be maintained for
                  recording services, charges, dates and all other commonly
                  accepted information elements for services rendered to
                  recipients under the contract.

         7.       Provide for the participation of the Contractor and
                  subcontractor in any internal and external quality assurance,
                  utilization review, peer review, and grievance procedures
                  established by the Contractor, in conjunction with the
                  Offices.

         8.       Provide that the subcontractor indemnify and hold harmless the
                  State of Indiana, its officers, and employees from all claims
                  and suits, including court costs, attorney's fees, and other
                  expenses, brought because of injuries or damage received or
                  sustained by any person, persons, or property that is caused
                  by any act or omission of the Contractor and/or the
                  subcontractors. The State shall not provide such
                  indemnification to the subcontractor.

         9.       Identify and incorporate the applicable terms of this Contract
                  and any incorporated documents. The subcontract shall provide
                  that the subcontractor agrees to perform duties under the
                  subcontract, as those duties pertain to enrollees, in
                  accordance with the applicable terms and conditions set out in
                  this Contract, any incorporated documents, and all applicable
                  state and federal laws, as amended.

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E.       The Contractor agrees that, during the term of this Contract, it shall
         maintain, with any innetwork provider rendering health care services
         under the BAA, provider service agreements which meet the following
         requirements:

         1.       Identify and incorporate the applicable terms of this Contract
                  and any incorporated documents. Under the terms of the
                  provider services agreement, the provider shall agree that the
                  applicable terms and conditions set out in this Contract, any
                  incorporated documents, and all applicable state and federal
                  laws, as amended, govern the duties and responsibilities of
                  the provider with regard to the provision of services to
                  enrollees.

         2.       Reference a written provider claim resolution procedure as set
                  out in section III.Q. below.

F.       The Contractor agrees that all laboratory testing sites providing
         services under this Contract must have a valid Clinical Laboratory
         Improvement Amendments (CLIA) certificate and comply with the CLIA
         regulations at 42 C.F.R. Part 493.

G.       The Contractor agrees that it shall:

         1.       Retain, at all times during the period of this Contract, a
                  valid Certificate of Authority under applicable State laws
                  issued by the State of Indiana Department of Insurance.

         2.       Ensure that, during the term of this Contract, each provider
                  rendering health care services under the BAA is authorized to
                  do so in accordance with the following:

                  a.       The provider must maintain a current Indiana Health
                           Coverage Programs (IHCP) provider agreement and must
                           be duly licensed in accordance with the appropriate
                           state licensing board and shall remain in good
                           standing with said board.

                  b.       If a provider is not authorized to provide such
                           services under a current IHCP provider agreement or
                           is no longer licensed by said board, the Contractor
                           is obligated to terminate its contractual
                           relationship authorizing or requiring such provider
                           to provide services under the BAA. The Contractor
                           must terminate its contractual relationship with the
                           provider as soon as the Contractor has knowledge of
                           the termination of the provider's license or the IHCP
                           provider agreement.

         3.       Comply with the specific requirements for Health Maintenance
                  Organizations (HMOs) eligible to receive Federal Financial
                  Participation (FFP) under Medicaid, as listed in the State
                  Organization and General Administration Chapter of the Health
                  Care Financing Administration (HCFA) Medicaid Manual. These
                  requirements include, but are not limited to the following:

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                  a.       The Contractor shall meet the definition of HMO as
                           specified in the Indiana State Medicaid Plan.

                  b.       Throughout the duration of this Contract, the
                           Contractor shall satisfy the Chicago Regional Office
                           of the Centers for Medicare and Medicaid Services
                           (hereinafter called CMS) that the Contractor is
                           compliant with the Federal requirements for
                           protection against insolvency pursuant to 42 CFR
                           434.20(c)(3) and 434.50(a), the requirement that the
                           Contractor shall continue to provide services to
                           Contractor enrollees until the end of the month in
                           which insolvency has occurred, and the requirement
                           that the Contractor shall continue to provide
                           inpatient services until the date of discharge for an
                           enrollee who is institutionalized when insolvency
                           occurs. The Contractor shall meet this requirement by
                           posting a performance bond pursuant to Section VII,
                           paragraph C, of this Contract, and satisfying the
                           statutory reserve requirements of the Indiana
                           Department of Insurance.

                  c.       The Contractor shall comply with, and shall exclude
                           from participation as either a provider or
                           subcontractor of the Contractor, any entity or person
                           that has been excluded under the authority of
                           Sections 1124A, 1128 or 1128A of the Social Security
                           Act or does not comply with the requirements of
                           Section 1128(b) of the Social Security Act.

                  d.       In the event that the CMS determines that the
                           Contractor has violated any of the provisions of 42
                           CFR 434.67(a), CMS may deny payment of FFP for new
                           enrollees of the HMO under 42 USC 1396b(m)(5)(B)(ii).
                           The Offices shall automatically deny State payment
                           for new enrollees whenever, and for so long as,
                           Federal payment for such enrollees has been denied.

H.       The Contractor shall submit proof, satisfactory to the Offices, of
         indemnification of the Contractor by the Contractor's parent
         corporation, if applicable, and by all of its subcontractors.

I.       The Contractor shall submit proof, satisfactory to the Offices, that
         all subcontractors will hold the State harmless from liability under
         the subcontract. This assurance in no way relieves the Contractor of
         any responsibilities under the BAA or this Contract.

K.       The Contractor shall establish and maintain a quality improvement
         program that meets the requirements of 42 CFR 434.34, as well as other
         specific requirements set forth in the BAA. The Offices and the CMS may
         evaluate, through inspection or other means, including but not limited
         to, the review of the quality assurance reports required under this
         Contract, and the quality, appropriateness, and timeliness of services
         performed under this Contract. The Contractor agrees to participate and
         cooperate, as directed by the Offices, in the annual external quality
         review of the services furnished by the Contractor.

         Annual HEDIS rates must be submitted in a manner and timeline
         established by the Office, including but not limited, to HEDIS rates
         that have been audited by a HEDIS-certified audit firm within 30 days
         of receiving their final audit report. The HEDIS rates which have

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         completed the certified audit may be submitted for 2003 HEDIS rates,
         but must be submitted for 2004 HEDIS rates and all other HEDIS rates in
         the future.

L.       In accordance with 42 CFR 434.28, the Contractor agrees that it and any
         of its subcontractors shall comply with the requirements, if
         applicable, of 42 CFR 489, Subpart I, relating to maintaining and
         distributing written policies and procedures respecting advance
         directives. The Contractor shall distribute policies and procedures to
         adult individuals during the enrollee enrollment process and whenever
         there are revisions to these policies and procedures. The Contractor
         shall make available for inspection, upon reasonable notice and request
         by the Offices, documentation concerning its written policies,
         procedures and distribution of such written procedures to enrollees.

M.       Pursuant to 42 C.F.R. 417.479(a), the Contractor agrees that no
         specific payment can be made directly or indirectly under a physician
         incentive plan to a physician or physician group as an inducement to
         reduce or limit medically necessary services furnished to an individual
         enrollee. The Contractor must disclose to the State the information on
         provider incentive plans listed in 42 C.F.R. 417.479(h)(1) and
         417.479(i) at the times indicated at 42 C.F.R. 434.70(a)(3), in order
         to determine whether the incentive plan meets the requirements of 42
         C.F.R. 417(d)-(g). The Contractor must provide the capitation data
         required under paragraph (h)(1)(vi) for the previous calendar year to
         the State by application/contract renewal of each year. The Contractor
         will provide the information on its physician incentive plan(s) listed
         in 42 C.F.R. 417.479(h)(3) to any enrollee upon request.

N.       The Contractor must not prohibit or restrict a health care professional
         from advising an enrollee about his/her health status, medical care, or
         treatment, regardless of whether benefits for such care are provided
         under this Contract, if the professional is acting within the lawful
         scope of practice. However, this provision does not require the
         Contractor to provide coverage of a counseling or referral service if
         the Contractor objects to the service on moral or religious grounds and
         makes available information on its policies to potential enrollees and
         enrollees within ninety (90) days after the date the Contractor adopts
         a change in policy regarding such counseling or referral service.

O.       In accordance with 42 U.S.C.ss. 1396u-2(b)(6), the Contractor agrees
         that an enrollee may not be held liable for the following:

         1.       Debts of the Contractor, or its subcontractors, in the event
                  of any organization's insolvency;

         2.       Services provided to the enrollee in the event the Contractor
                  fails to receive payment from the Offices for such services or
                  in the event a provider fails to receive payment from the
                  Contractor or Offices; or

         3.       Payments made to a provider in excess of the amount that would
                  be owed by the enrollee if the Contractor had directly
                  provided the services.

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P.       The Offices may from time to time request and the Contractor, and all
         of its subcontractors, agree that the Contractor, or its
         subcontractors, shall prepare and submit additional compilations and
         reports as requested by the Offices. Such requests will be limited to
         situations in which the desired data is considered essential and cannot
         be obtained through existing Contractor reports. The Contractor, and
         all of its subcontractors, agree that a response to the request shall
         be submitted within thirty (30) days from the date of the request, or
         by the Offices' requested completion date, whichever is earliest. The
         response shall include the additional compilations and reports as
         requested, or the status of the requested information and an expected
         completion date. When such requests pertain to legislative inquiries or
         expedited inquiries from the Office of the Governor, the additional
         compilations and reports shall be submitted by the Offices' requested
         completion date. Failure by the Contractor, or its subcontractors, to
         comply with response time frames shall be considered grounds for the
         Offices to pursue the provisions outlined in Section 3.16.5 of the BAA.
         In the event that delays in submissions are a consequence of a delay by
         the Offices or the Medicaid Fiscal Agent, the time frame for submission
         shall be extended by the length of time of the delay.

Q.       The Contractor shall establish a written claim resolution procedure
         applicable to both in-network and out-of-network providers which shall
         be distributed to all in-network providers and shall be available to
         out-of-network providers upon request. The Contractor shall negotiate
         the terms of a written claim resolution procedure with in-network
         providers individually; but if the Contractor and an in-network
         provider are unable to reach agreement on the terms of such procedure,
         the out-of-network provider claims resolution procedure approved by the
         Offices under this section shall govern the resolution of such
         in-network provider's claims with the Contractor.

         1.       A statement noting that providers objecting to determinations
                  involving their claims will be provided due process through
                  the Contractor's claim resolution procedure.

         2.       A description of both the informal and formal claim resolution
                  procedures that will be available to resolve a provider's
                  objection to a determination involving the provider's claim.

         3.       An informal claim resolution procedure which:

                  a.       shall be available for the resolution of claims
                           submitted to the Contractor by the provider within
                           120 days after the date on which services were
                           rendered;

                  b.       shall precede the formal claim resolution procedure;

                  c.       shall be used to resolve a provider's objection to a
                           determination by the Contractor involving the
                           provider's claim, including a provider's objection
                           to:

                           (1) any determination by the Contractor regarding
                           payment for a claim submitted by the provider,
                           including the amount of such payment; and

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                           (2) the Contractor's determination that a claim
                           submitted by the provider lacks sufficient supporting
                           information, records, or other materials;

                  d.       may, at the election of a provider, be utilized to
                           determine the payment due for a claim in the event
                           the Contractor fails, within thirty (30) days after
                           the provider submits the claim, to notify the
                           provider of:

                           (1) its determination regarding payment for the
                           provider's claim; or

                           (2) its determination that the provider's claim
                           lacked sufficient supporting information, records, or
                           other materials;

                  e.       shall be commenced by a provider submitting to the
                           Contractor:

                           (1) within sixty (60) days after the provider's
                           receipt of written notification of the Contractor's
                           determination regarding the provider's claim, the
                           provider's written objection to the Contractor's
                           determination and an explanation of the objection; or

                           (2) within sixty (60) days after the Contractor fails
                           to make a determination as described in subparagraph
                           (d), a written notice of the provider's election to
                           utilize the informal claims resolution procedure
                           under subparagraph (d) above;

                  f.       shall allow providers and the Contractor to make
                           verbal inquiries and to otherwise informally
                           undertake to resolve the matter submitted for
                           resolution by the provider.

         4.       In the event the matter submitted for informal resolution is
                  not resolved to the provider's satisfaction within thirty (30)
                  days after the provider commenced the informal claim
                  resolution procedure, the provider shall have sixty (60) days
                  from that point to submit to the Contractor written
                  notification of the provider's election to submit the matter
                  to the formal claim resolution procedure. The provider's
                  notice must specify the basis of the provider's dispute with
                  the Contractor. The Contractor's receipt of the provider's
                  written notice shall commence the formal claim resolution
                  procedure.

         5.       The formal claim resolution procedure shall be conducted by a
                  panel of one (1) or more individuals selected by the
                  Contractor. Each panel must be knowledgeable about the policy,
                  legal, and clinical issues involved in the matter that is the
                  subject of the formal claim resolution procedure. An
                  individual who has been involved in any previous consideration
                  of the matter by the Contractor may not serve on the panel.
                  The Contractor's medical director, or another licensed
                  physician designated by the medical director, shall serve as a
                  consultant to the panel in the event the matter involves a
                  question of medical necessity or medical appropriateness.

         6.       The panel shall consider all information and material
                  submitted to it by the provider that bears directly upon an
                  issue involved in the matter that is the subject of the formal

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                  claim resolution procedure. The panel shall allow the provider
                  an opportunity to appear in person before the panel, or to
                  communicate with the panel through appropriate other means if
                  the provider is unable to appear in person, and question the
                  panel in regard to issues involved in the matter. The provider
                  shall not be required to be represented by an attorney for
                  purposes of the formal claim review procedure.

         7.       Within forty-five (45) days after the commencement of the
                  formal claim resolution procedure, the panel shall deliver to
                  the provider the panel's written determination of the matter
                  before it. Such determination shall be the Contractor's final
                  position in regard to the matter. The written determination
                  shall include, as applicable, a detailed explanation of the
                  factual, legal, policy and clinical basis of the panel's
                  determination.

         8.       In the event the panel fails to deliver to the provider the
                  panel's written determination within forty-five (45) days
                  after the after the commencement of the formal claim
                  resolution procedure, such failure on the part of the panel
                  shall have the effect of a denial by the panel of the
                  provider's claim.

         9.       The panel's written determination shall include notice to the
                  provider of the provider's right, within sixty (60) days after
                  the provider's receipt of the panel's written determination,
                  to submit to binding arbitration the matter that was the
                  subject of the formal claim resolution procedure. The provider
                  shall also have the right to submit the matter to binding
                  arbitration if the panel has failed to deliver its written
                  determination to the provider within the required forty-five
                  (45) day period.

         10.      Any procedure involving binding arbitration must be conducted
                  in accordance with the rules and regulations of the American
                  Health Lawyers Association (AHLA), pursuant to the Uniform
                  Arbitration Act as adopted in the State of Indiana at I.C.
                  34-57-2, unless the provider and Contractor mutually agree to
                  some other binding resolution procedure. However, any
                  Contractor and provider that are subject to statutorily
                  imposed arbitration procedures for the resolution of these
                  claims shall be required to follow the statutorily imposed
                  arbitration procedures, but only to the extent those
                  procedures differ from, or are irreconcilable with, the rules
                  and regulations of the American Health Lawyers Association
                  (AHLA), pursuant to the Uniform Arbitration Act as adopted in
                  the State of Indiana at I.C. 34-57-2.

         11.      A provider may, within the requisite sixty (60) day time
                  period, include in a single arbitration proceeding matters
                  from multiple formal claim resolution procedures involving the
                  Contractor and the provider.

         12.      For claims disputed under Paragraph 3. c. (2) above:

                  a.       a claim that is finally determined through the
                           Contractor's claim resolution procedure (including
                           arbitration) not to lack sufficient supporting
                           documentation shall be processed by the Contractor
                           within thirty (30) days after such final

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                           determination. The processing of the claim and the
                           Contractor's determination involving the claim shall
                           be subject to Paragraph 3. c. and Paragraph 3. d. and
                           the Contractor's formal claim resolution procedure
                           and binding arbitration.

                  b.       a claim that is finally determined through the
                           Contractor's claim resolution procedure (including
                           arbitration) to lack sufficient supporting
                           documentation shall be processed by the Contractor
                           within thirty (30) days after the provider submits to
                           the Contractor the requisite supporting
                           documentation. The provider shall have thirty (30)
                           days after written notice of the final determination
                           establishing that the claim lacked sufficient
                           supporting documentation is received by the provider
                           to submit the requisite supporting documentation. The
                           processing of the claim and the Contractor's
                           determination involving the claim shall be subject to
                           Paragraph 3. c. and Paragraph 3. d. and the
                           Contractor's formal claim resolution procedure and
                           binding arbitration.

         13.      A Contractor may not include in its claim resolution
                  procedures elements that restrict or diminish the claim review
                  procedures, time periods or subject matter provided for in
                  paragraphs 1 through l2 above.

         14.      A Contractor shall maintain a log of all informally and
                  formally filed provider objections to determinations involving
                  claims. The logged information shall include the provider's
                  name, date of objection, nature of the objection, and
                  disposition. The Contractor shall submit quarterly reports to
                  the Offices regarding the number and type of provider
                  objections.

R.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.6.1.3 of the BAA is amended
         to require the Contractor to submit the "Mandatory RBMC Transition
         Report" (Attachment A) according the schedule set out in the "2002
         Hoosier Healthwise MCO Reporting Calendar for Mandatory RBMC Transition
         Report" (Attachment B), unless the MCO has received written
         notification from OMPP that the report, or certain data elements in the
         report, is/are no longer required or may be reported less frequently.
         Pursuant to the reporting calendar (Attachment B), the final submission
         shall be due on January 6, 2003.

S.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.6.3 of the BAA is amended to
         require the Contractor to obtain written approval of the State prior to
         closing its provider networks, which shall not be unreasonably withheld
         or delayed.

T.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Sections 3.6.6 and 3.6.7.3 of the BAA
         are amended to require the Contractor to maintain a monthly telephone
         abandonment rate equal to or less than five percent of calls received
         each by the member helpline and provider helpline. The parties agree
         that BAA Section 3.16 is amended to add a new section 3.16.8 to read as
         follows:

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<PAGE>

         Section 3.16.8 The MCO will comply with the call abandonment
         requirements for the member and provider helplines described in
         Sections 3.6.6. and 3.6.7.3 of this BAA. Because actual damages caused
         by non-compliance are not subject to exact determination, the State
         will assess the MCO, as liquidated damages and not as a penalty, (a)
         two hundred dollars ($200.00) for each business day the MCO fails to
         submit required documentation to provide evidence of compliance with
         this requirement, or (b) two thousand dollars ($2000.00) for each month
         the MCO fails to meet the requirement after 2 consecutive months of
         non-compliance on the member helpline or (c) two thousand dollars
         ($2000.00) for each month the MCO fails to meet the requirement after 2
         consecutive months of non-compliance on the provider helpline.

U.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.5.3 of the BAA is amended to
         allow OMPP to change, at OMPP's discretion, the frequency of the MCO
         Enrollment Rosters generated by OMPP's fiscal agent to once per month,
         upon reasonable and adequate prior written notice to the Contractor.

V.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.6.3 of the BAA is amended to
         require the Contractor to develop and adhere to a plan for identifying
         and serving people with special needs. The plan must satisfy any
         applicable federal requirements.

W.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, the Contractor agrees to provide OMPP
         with prior written notice at least ninety (90) days in advance of their
         inability to maintain a sufficient Primary Medical Provider (PMP)
         network in any of the counties where mandatory RBMC has been or will be
         implemented, including Marion, Allen, Elkhart, St. Joseph, Lake,
         Hamilton, and Vanderburgh Counties, such that the program would not be
         able to maintain the appropriate member choice of two (2) MCOs,
         pursuant to federal requirements.

X.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, the Contractor agrees that agreements
         with PMPs in mandatory counties shall comply with the following
         requirements:

         1.       Any PMP agreements entered into on or after April 1, 2002,
                  shall include a provision allowing the PMP to terminate the
                  agreement for any reason upon written notice to the
                  Contractor. The Contractor may require that the physician
                  provide said notice to the Contractor up to ninety (90) days
                  prior to termination.

         2.       Any PMP agreements entered into before April 1, 2002, in which
                  the initial term, as defined in the agreement, will expire on
                  or after June 30, 2002, will be amended by July 1, 2002, to
                  allow the PMP to terminate the agreement for any reason upon
                  written notice to the Contractor. The Contractor may require
                  that the physician provide said notice to the Contractor up to
                  ninety (90) days prior to termination. The Contractor agrees
                  to notify these PMPs, by April 30, 2002, that their agreements
                  will be amended and that they may terminate the agreement upon
                  ninety (90) days written notice.

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<PAGE>

         3.       Existing PMP agreements in which the initial term expired
                  before July 1, 2002, may be terminated by the PMP for any
                  reason upon one hundred twenty (120) days written notice to
                  the Contractor. The Contractor agrees to notify the PMPs whose
                  initial agreement term has expired that they may terminate the
                  agreement upon one hundred twenty (120) days written notice.
                  If an agreement described in this paragraph is amended for any
                  reason, the agreement shall include a provision allowing the
                  PMP to terminate the agreement for any reason upon written
                  notice to the Contractor. The Contractor may require that the
                  physician provide said notice to the Contractor up to ninety
                  (90) days prior to termination.

           //The remainder of this page is intentionally left blank.//

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<PAGE>

                                   IV. PAYMENT

A.       In consideration of the services to be performed by the Contractor, the
         Offices agree to pay the Contractor the following amounts per month per
         enrolled member as contained in the Offices' capitation payment listing
         based upon the capitation rates by category and benefit package as
         listed below:

<TABLE>
<CAPTION>
                    --------------------------------------------------------------------------------------
                                                    2003 CAPITATION RATES
                    ------------------------ -------------------------------- ----------------------------
                    CATEGORY                          PACKAGES A/B                     PACKAGE C
                    ======================== ================================ ============================
                    NORTH REGION
                    ======================== ================================ ============================
<S>                 <C>                      <C>                              <C>
                    Newborns                             $345.03                        $120.80
                    ------------------------ -------------------------------- ----------------------------
                    Preschool                            $73.77                         $77.43
                    ------------------------ -------------------------------- ----------------------------
                    Children                             $60.75                         $65.44
                    ------------------------ -------------------------------- ----------------------------
                    Adolescents                          $92.44                         $94.60
                    ------------------------ -------------------------------- ----------------------------
                    Adult Males                          $255.16
                    ------------------------ -------------------------------- ----------------------------
                    Adult Females                        $199.62
                    ------------------------ -------------------------------- ----------------------------
                    Deliveries                     $3,380.41/delivery             $3,393.54/delivery
                    ======================== ================================ ============================
                    CENTRAL REGION
                    ======================== ================================ ============================
                    Newborns                             $362.15                        $119.28
                    ------------------------ -------------------------------- ----------------------------
                    Preschool                            $77.43                         $76.45
                    ------------------------ -------------------------------- ----------------------------
                    Children                             $63.73                         $64.62
                    ------------------------ -------------------------------- ----------------------------
                    Adolescents                          $97.03                         $93.42
                    ------------------------ -------------------------------- ----------------------------
                    Adult Males                          $267.82
                    ------------------------ -------------------------------- ----------------------------
                    Adult Females                        $209.53
                    ------------------------ -------------------------------- ----------------------------
                    Deliveries                     $3,481.35/delivery             $3,491.61/delivery
                    ======================== ================================ ============================
                    SOUTH REGION
                    ======================== ================================ ============================
                    Newborns                             $348.38                        $116.83
                    ------------------------ -------------------------------- ----------------------------
                    Preschool                            $74.48                         $74.88
                    ------------------------ -------------------------------- ----------------------------
                    Children                             $61.31                         $63.29
                    ------------------------ -------------------------------- ----------------------------
                    Adolescents                          $93.34                         $91.49
                    ------------------------ -------------------------------- ----------------------------
                    Adult Males                          $257.64
                    ------------------------ -------------------------------- ----------------------------
                    Adult Females                        $201.56
                    ------------------------ -------------------------------- ----------------------------
                    Deliveries                     $3,544.51/delivery             $3,544.51/delivery
                    ------------------------ -------------------------------- ----------------------------
</TABLE>

B.       The actuarial basis for computing the rates set forth above is as
         follows: The capitation rates have been determined from historical
         Hoosier Healthwise claim experience for the PCCM enrollees. The
         historical experience has been adjusted to reflect anticipated trend in
         the Hoosier Healthwise program, cost containment initiatives, morbidity
         variations between the PCCM and RBMC enrollees, and anticipated managed
         care utilization adjustments. The Offices may rely on self-report RBMC
         experience to determine appropriate managed care utilization
         adjustments and other morbidity variation adjustments.

C.       The parties agree that the Offices have the option to adjust the
         capitation rates annually. In the event that the Offices adjust the
         fee-for-service (FFS) rates, the Offices may, in its sole discretion,
         further adjust the capitation rates in accordance with the FFS

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<PAGE>

         adjustment. If the Offices made such an adjustment, it shall apply only
         to the specific service component of the capitation rate that
         corresponds to the FFS adjustment. Any capitation rates adjusted due to
         a change in the FFS program may be further adjusted to ensure actuarial
         soundness. All adjustments are subject to federal regulations for risk
         contracts. Rates revised under this provision shall be implemented only
         after a contract amendment is executed and approved.

D.       All payment obligations of the Offices are subject to the encumbrance
         of monies and shall be paid to the Contractor on the first Wednesday
         after the fifteenth of the month.

E.       The capitation payment will be prospective, based upon the number of
         enrollees assigned to the Contractor as of the first of the month. The
         Offices will establish an administrative procedure to allow retroactive
         or other payment adjustments as necessary to implement this contract.

F.       The Contractor will be provided a capitation payment listing which
         includes a detailed listing of all enrollees for which the Contractor
         is receiving a capitation payment.

G.       It is understood and agreed upon by the parties that all obligations of
         the State of Indiana are contingent upon the availability and continued
         appropriation of State and Federal funds, and in no event shall the
         State of Indiana be liable for any payments in excess of available
         appropriated funds.

H.       When the Director of the State Budget Agency makes a written
         determination that funds are not appropriated or otherwise available to
         support continuation of performance of this Contract, the Contract
         shall be cancelled. A determination by the State Budget Director that
         funds are not appropriated or otherwise available to support
         continuation of performance shall be final and conclusive.

                             V. ORDER OF PRECEDENCE

Any inconsistency or ambiguity in this Contract shall be resolved by giving
precedence in the following order:

         1)       The express terms of this contract;

         2)       Attachment 1 - BAA 01-28, released July 31, 2000, and
                  Attachment 3 - First Amendment to the original contract,
                  effective April 1, 2002;

         3)       Attachment 2 - Contractor's response to the BAA;

         4)       Any other documents, standards, laws, rules or regulations
                  incorporated by reference in the above materials, all of which
                  are hereby incorporated by reference.

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<PAGE>

                                   VI. NOTICE

A.       Whenever notice is required to be given to the other party, it shall be
         made in writing and delivered to that party. Delivery shall be deemed
         to have occurred if a signed receipt is obtained when delivered by hand
         or according to the date on the return receipt if sent by certified
         mail, return receipt requested. Notices shall be addressed as follows:

<TABLE>
<S>     <C>                                                   <C>
         In case of notice to the Contractor:                 In case of notice to the Offices:

         Rita Johnson-Mills, President                        John Barth, Managed Care Director
         Managed Health Services                              Office of Medicaid Policy and Planning
         1099 North Meridian, Suite 400                       Family and Social Services Administration
         Indianapolis, IN  46204                              402 W. Washington St., IGCS W382, MS07
                                                              Indianapolis, Indiana 46204
</TABLE>

B.       Said notices shall become effective on the date of delivery or the date
         specified within the notice, whichever comes later. Either party may
         change its address for notification purposes by mailing a notice
         stating the change and setting forth the new address.

                          VII. MISCELLANEOUS PROVISIONS

A.       Entire Agreement. This Contract constitutes the entire agreement
         between the parties with respect to the subject matter; all prior
         agreements, representations, statements, negotiations, and undertakings
         are superseded hereby.

B.       Changes. Any changes to this Contract shall be by formal amendment of
         this Contract signed by all parties required by Indiana law.

C.       Termination. The Office may, without cause, cancel and terminate this
         Contract in whole or in part upon sixty (60) days' prior written
         notice. The Contractor will be reimbursed for services performed prior
         to the date of termination consistent with the terms of the Contract.
         The Office will not be liable for services performed after notice of
         termination, but before the date of termination, without written
         authorization from the Office. In no event will the Office be liable
         for services performed after the termination date.

         In the event that the Office requests that the Contractor perform any
         additional services associated with the transition or turnover of the
         contract, the Office agrees to pay reasonable costs for those
         additional services specifically requested by the Office. Any
         additional services and costs must receive prior approval in writing by
         the Office.

D.       Disputes. Should any disputes arise with respect to this Contract, the
         Contractor and the State of Indiana agree to act immediately to resolve
         any such disputes. Time is of the essence in the resolution of
         disputes.

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<PAGE>

         The Contractor agrees that, the existence of a dispute notwithstanding,
         it will continue without delay to carry out all of its responsibilities
         under this Contract which are not affected by the dispute. Should the
         Contractor fail to continue without delay to perform its
         responsibilities under this Contract in the accomplishment of all
         non-disputed work, any additional costs incurred by the Contractor or
         the State of Indiana as a result of such failure to proceed shall be
         borne by the Contractor, and the Contractor shall make no claim against
         the State of Indiana for such costs. If the Contractor and the State of
         Indiana cannot resolve a dispute within ten (10) working days following
         notification in writing by either party of the existence of said
         dispute, then the following procedure shall apply:

         1.       The parties agree to resolve such matters through submission
                  of their dispute to the Commissioner of the Indiana Department
                  of Administration who shall reduce a decision to writing and
                  mail or otherwise furnish a copy thereof to the Contractor and
                  the State of Indiana within ten (10) working days after
                  presentation of such dispute for decision. The Commissioner's
                  decision shall be final and conclusive unless either party
                  mails or otherwise furnishes to the Commissioner, within ten
                  (10) working days after receipt of the Commissioner's
                  decision, a written appeal. Within ten (10) working days of
                  receipt by the Commissioner of a written request for appeal,
                  the decision may be reconsidered. If no reconsideration is
                  provided within ten (10) working days the Contractor may
                  submit the dispute to an Indiana court of competent
                  jurisdiction.

         2.       The State of Indiana may withhold payments on disputed items
                  pending resolution of the dispute. The non-payment by the
                  State of Indiana to the Contractor of one or more invoices not
                  in dispute shall not constitute default, however, the
                  Contractor may bring suit to collect such monies without
                  following the disputes procedure contained herein.

E.       Debarment and Suspension. Contractor certifies, by entering into this
         agreement, that neither it nor its principals are presently debarred,
         suspended, proposed for debarment, declared ineligible, or voluntarily
         excluded from entering into this agreement by any federal agency or
         department, agency or political subdivision of the State of Indiana.
         The term "principal" for the purposes of this agreement is defined as
         an officer, director, owner, partner, key employee, or other person
         with primary management or supervisory responsibilities or a person who
         has a critical influence on or substantive control over the operations
         of the Contractor.

F.       Compliance with Laws. The Contractor agrees to comply with all
         applicable Federal, State, and local laws, rules, regulations, or
         ordinances, and all provisions required thereby to be included herein
         are hereby incorporated by reference. The enactment of any state or
         federal statute or the promulgation of regulations thereunder after
         execution of this Contract shall be reviewed by the State and the
         Contractor to determine whether the provisions of the Contract require
         formal modification.

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<PAGE>

G.       Indemnification. Contractor agrees to indemnify, defend, and hold
         harmless the State of Indiana and its agents, officers, and employees
         from all claims and suits including court costs, attorney's fees, and
         other expenses caused by any act or omission of the Contractor and/or
         its subcontractors, if any. The State shall not provide such
         indemnification to the Contractor.

H.       Nondiscrimination. Pursuant to IC 22-9-1-10 and the Civil Rights Act of
         1964, Contractor and its subcontractors shall not discriminate against
         any employee or applicant for employment in the performance of this
         contract. The Contractor shall not discriminate with respect to the
         hire, tenure, terms, conditions or privileges of employment or any
         matter directly or indirectly related to employment, because of race,
         color, religion, sex, disability, national origin or ancestry. Breach
         of this covenant may be regarded as a material breach of contract.
         Acceptance of this Contract also signifies compliance with applicable
         federal laws, regulations, and executive orders prohibiting
         discrimination in the provision of services based on race, color,
         national origin, age, sex, disability, or status as a veteran. The
         Contractor understands that the State is a recipient of federal funds.
         Pursuant to that understanding, the Contractor and its subcontractor,
         if any, agree that if the Contractor employs fifty (50) or more
         employees and does at least fifty-thousand dollars ($50,000.00) worth
         of business with the State and is not exempt, the Contractor will
         comply with the affirmative action reporting requirements of 41
         C.F.R.ss.60-1.7, if applicable. The Contractor shall comply with
         Section 202 of Executive Order 11246, as amended, 41 C.F.R.ss.60-250,
         and 41 C.F.R.ss.60-741, as amended, which are incorporated herein by
         specific reference. Breach of this covenant may be regarded as a
         material breach of contract.

I.       Confidentiality of State of Indiana Information. The Contractor
         understands and agrees that data, materials and information disclosed
         to the Contractor may contain confidential and protected data;
         therefore, the Contractor promises and assures that data, material, and
         information gathered, based upon or disclosed to the Contractor for the
         purpose of this Contract will not be disclosed to others or discussed
         with other parties without the prior written consent of the State of
         Indiana.

J.       Confidentiality of Data, Property Rights in Products, and Copyright
         Prohibition. The Contractor further agrees that all information, data,
         findings, recommendations, proposals, etc., by whatever name described
         and by whatever form therein, secured, developed, written, or produced
         by the Contractor in furtherance of this Contract shall be the property
         of the State of Indiana. The Contractor shall take such action as is
         necessary under law to preserve such property rights in and of the
         State of Indiana while such property is within the control and/or
         custody of the Contractor. By this Contract the Contractor specifically
         waives and/or releases to the State of Indiana any cognizable property
         right in the Contractor to copyright or patent such information, data,
         findings, recommendations, proposals, etc.

K.       Ownership of Documents and Materials. All documents, records, programs,
         data, film, tape, articles, memoranda, and other materials developed
         under this Contract shall be considered "work for hire" and the
         Contractor transfers any ownership claim to the State of Indiana and

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<PAGE>

         all such matters will be the property of the State of Indiana. Use of
         these materials, other than related to contract performance by the
         Contractor, without the prior written consent of the State of Indiana
         is prohibited. During the performance of the services specified herein,
         the Contractor shall be responsible for any loss or damage to these
         materials developed for or supplied by the State of Indiana and used to
         develop or assist in the services provided herein, while they are in
         the possession of the Contractor, and any loss or damage thereto shall
         be restored at the Contractor's expense. Full, immediate and
         unrestricted access to the work product of the Contractor during the
         term of this Contract shall be available to the State of Indiana. The
         Contractor will give to the State of Indiana, or the State of Indiana's
         designee, all records of other materials described in this section,
         after termination of the Contract and upon five (5) days notice of a
         request from the State of Indiana.

L.       Conveyance of Documents And Continuation of Existing Activity: Should
         the Contract for whatever reason, (i.e. completion of a contract with
         no renewal, or termination of service by either party), be discontinued
         and the activities as provided for in the Contract for services cease,
         the Contractor and any subcontractors employed by the terminating
         Contractor in the performance of the duties of the Contract shall
         promptly convey to the State of Indiana, copies of all vendor working
         papers, data collection forms, reports, charts, programs, cost records
         and all other material related to work performed on this Contract.

         The Contractor and the Office shall convene immediately upon
         notification of termination or non-renewal of the Contract to determine
         what work shall be suspended, what work shall be completed, and the
         time frame for completion and conveyance. The Office will then provide
         the Contractor with a written schedule of the completion and conveyance
         activities associated with termination. Documents/materials associated
         with suspended activities shall be conveyed by the Contractor to the
         State of Indiana upon five days' notice from the State of Indiana. Upon
         completion of those remaining activities noted on the written schedule,
         the Contractor shall also convey all documents and materials to the
         State of Indiana upon five days' notice from the State of Indiana.

M.       Independent Contractor. The Office and the Contractor acknowledge and
         agree that in the performance of this contract, the Contractor is an
         independent contractor and both parties will be acting in an individual
         capacity and not an as agents, employees, partners, joint venturers,
         officers, or associates of one another. The employees or agents of one
         party shall not be deemed or construed to be the employees or agents of
         the other party for any purposes whatsoever. Neither party will assume
         any liability for any injury (including death) to any persons, or
         damage to any property arising out of the acts or omissions of the
         agents, employees or subcontractors of the other party.

         The Contractor shall be responsible for providing all necessary
         unemployment and worker compensation insurance for the Contractor's
         employees.

N.       Work Standards. The Contractor agrees to execute its respective
         responsibilities by following and applying at all times the highest
         professional and technical guidelines and standards. If the State

MCO Renewel Contract           Page 19 of 27             Managed Health Services

<PAGE>

         becomes dissatisfied with the work product or the working relationship
         with those individuals assigned to work on this Contract, the State may
         request in writing the replacement of any or all such individuals and
         the Contractor shall grant such a request.

O.       Governing Laws. This Contract shall be construed in accordance with and
         governed by the laws of the State of Indiana and suit, if any, must be
         brought in the State of Indiana.

P.       Severability. The invalidity in whole or in part of any provision of
         this Contract shall not void or affect the validity of any other
         provision.

Q.       Waiver of Rights. No right conferred on either party under this
         Contract shall be deemed waived and no breach of this Contract deemed
         excused, unless such waiver or excuse shall be in writing and signed by
         the party claimed to have waived such right.

         Failure of the Office to enforce at any time any provision of this
         Contract shall not be construed as a waiver thereof. The remedies
         herein reserved shall be cumulative and additional to any other
         remedies in law or equity.

R.       Taxes. The State of Indiana is exempt from all State, Federal and local
         taxes. The State will not be responsible for any taxes levied on the
         Contractor as a result of this Contract.

S.       Force Majeure, Suspension and Termination. In the event either party is
         unable to perform any of its obligations under this Contract or to
         enjoy any of its benefits because of (or if failure to perform the
         service is caused by) natural disaster, actions or decrees of
         governmental bodies, or communication line failure not the fault of the
         affected party (hereinafter referred to as a "Force Majeure Event"),
         the party who has been so affected shall immediately give notice to the
         other party and shall take reasonable measures to resume performance.
         Upon receipt of such notice, all obligations under this Contract shall
         be immediately suspended. If the period of non-performance exceeds
         thirty (30) days from the receipt of notice of the Force Majeure Event,
         the party whose ability to perform has not been so affected may, by
         giving written notice, terminate this Contract.

T.       Assignment. The Contractor shall not assign or subcontract the whole or
         any part of this Contract without the State's prior written consent.
         The Contractor may assign its right to receive payments to such third
         parties as the Contractor may desire without the prior written consent
         of the State, provided that the Contractor gives written notice
         (including evidence of such assignment) to the State thirty (30) days
         in advance of any payment so assigned. The assignment shall cover all
         unpaid amounts under this Contract and shall not be made to more than
         one party.

U.       Successors and Assignees. The Contractor binds its successors,
         executors, assignees, and administrators, to all covenants of this
         Contract. Except as set forth above, the Contractor shall not assign,
         sublet, or transfer the Contractor's interest in this Contract without
         the prior written consent of the Office.

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<PAGE>

V.       Drug-Free Workplace Certification

         The Contractor hereby covenants and agrees to make a good faith effort
         to provide and maintain a drug-free workplace. Contractor will give
         written notice to the State within ten (10) days after receiving actual
         notice that the Contractor or an employee of the Contractor has been
         convicted of a criminal drug violation occurring in the contractor's
         workplace.

         False certification or violation of the certification may result in
         sanctions including, but not limited to, suspension of contract
         payments, termination of the contract or agreement and/or debarment of
         contracting opportunities with the State of Indiana for up to three (3)
         years.

         In addition to the provisions of the above paragraphs, if the total
         contract amount set forth in this agreement is in excess of $25,000.00,
         Contractor hereby further agrees that this agreement is expressly
         subject to the terms, conditions, and representations of the following
         certification:

         This certification is required by Executive Order No. 90-5, April 12,
         1990, issued by the Governor of Indiana. Pursuant to its delegated
         authority, the Indiana Department of Administration is requiring the
         inclusion of this certification in all contracts with and grants from
         the State of Indiana in excess of $25,000.00. No award of a contract
         shall be made, and no contract, purchase order or agreement, the total
         amount of which exceeds $25,000.00, shall be valid, unless and until
         this certification has been fully executed by the Contractor and made a
         part of the contract or agreement as part of the contract documents.

         The Contractor certifies and agrees that it will provide a drug-free
         workplace by:

         1.       Publishing and providing to all of its employees a statement
                  notifying employees that the unlawful manufacture,
                  distribution, dispensing, possession or use of a controlled
                  substance is prohibited in the Contractor's workplace and
                  specifying the actions that will be taken against employees
                  for violations of such prohibition;

         2.       Establishing a drug-free awareness program to inform employees
                  of (1) the dangers of drug abuse in the workplace; (2) the
                  Contractor's policy of maintaining a drug-free workplace; (3)
                  any available drug counseling, rehabilitation, and employee
                  assistance programs; and (4) the penalties that may be imposed
                  upon an employee for drug abuse violations occurring in the
                  workplace;

         3.       Notifying all employees in the statement required by
                  subparagraph (1) above that as a condition of continued
                  employment the employee will (A) abide by the terms of the
                  statement; and (B) notify the Contractor of any criminal drug
                  statute conviction for a violation occurring in the workplace
                  no later than five (5) days after such conviction;

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<PAGE>

         4.       Notifying in writing the State within ten (10) days after
                  receiving notice from an employee under subdivision (3)(B)
                  above, or otherwise receiving actual notice of such
                  conviction;

         5.       Within thirty (30) days after receiving notice under
                  subdivision (3)(B) above of a conviction, imposing the
                  following sanctions or remedial measures on any employee who
                  is convicted of drug abuse violations occurring in the
                  workplace: (1) take appropriate personnel action against the
                  employee, up to and including termination; or (2) require such
                  employee to satisfactorily participate in a drug abuse
                  assistance or rehabilitation program approved for such
                  purposes by a Federal, State or local health, law enforcement,
                  or other appropriate agency; and

         Making a good faith effort to maintain a drug-free workplace through
         the implementation of subparagraphs (1) through (5) above.

W.       Lobbying Activities. Pursuant to 31 U.S.C.ss.1352, and any regulations
         promulgated thereunder, the Contractor hereby assures and certifies
         that no federally appropriated funds have been paid, or will be paid,
         by or on behalf of the Contractor, to any person for influencing or
         attempting to influence an officer or employee of any agency, a member
         of Congress, an officer or employee of Congress, or an employee of a
         member of Congress, in connection with the awarding of any federal
         contract, the making of any federal grant, the making of any federal
         loan, the entering into of any cooperative contract, and the extension,
         continuation, renewal, amendment, or modification of any federal
         contract, grant, loan or cooperative contract. If any funds other than
         federally appropriated funds have been paid or will be paid to any
         person for influencing or attempting to influence an officer or
         employee of any agency, a member of Congress, an officer or employee of
         Congress, or an employee of a member of Congress in connection with
         this Contract, the Contractor shall complete and submit Standard
         Form-LLL, "Disclosure Form to Report Lobbying", in accordance with its
         instructions.

X.       Access to Records. The Contractor and any subcontractor shall maintain
         all books, documents, papers, accounting records, and any other
         evidence pertaining to the cost incurred under this agreement.
         Contractor and any subcontractors shall make such materials available
         at all reasonable times during the contract period and for three (3)
         years from the date of final payment under the Contract or until all
         pending matters are closed, whichever date is later, for inspection by
         the Office, or any other duly authorized representative of the State of
         Indiana or the Federal government. Copies thereof shall be furnished at
         no cost to the State if requested.

Y.       Environmental Standards. If the contract amount set forth in this
         Contract is in excess of $100,000, the Contractor shall comply with all
         applicable standards, orders, or requirements issued under section 306
         of the Clean Air Act (42 U.S.C. ss. 7606), section 508 of the Clean
         Water Act (33 U.S.C. ss. 1368), Executive Order 11738, and
         Environmental Protection Agency regulations (40 C.F.R. Part 32), which
         prohibit the use under non-exempt Federal contracts of facilities

MCO Renewel Contract           Page 22 of 27             Managed Health Services

<PAGE>

         included on the EPA List of Violating Facilities. The Contractor shall
         report any violations of this paragraph to the State of Indiana and to
         the United States Environmental Protection Agency Assistant
         Administrator for Enforcement.

Z.       Conflict of Interest

         1.       As used in this section:

                  "Immediate family" means the spouse and the unemancipated
                  children of an individual.

                  "Interested party" means:

                  a.       The individual executing this Contract;

                  b.       An individual who has an interest of three percent
                           (3%) or more of the Contractor if the Contractor is
                           not an individual; or

                  c.       Any member of the immediate family of an individual
                           specified under subdivision a or b.

                  "Department" means the Indiana Department of Administration.

                  "Commission" means the State Ethics Commission.

         2.       The Department may cancel this Contract without recourse by
                  the Contractor if any interested party is an employee of the
                  State of Indiana.

         3.       The Department will not exercise its right of cancellation
                  under section 2 above if the Contractor gives the Department
                  an opinion by the Commission indicating that the existence of
                  this Contract and the employment by the State of Indiana of
                  the interested party does not violate any statute or code
                  relating to ethical conduct of state employees. The Department
                  may take action, including cancellation of this Contract
                  consistent with an opinion of the Commission obtained under
                  this section.

         4.       The Contractor has an affirmative obligation under this
                  Contract to disclose to the Department when an interested
                  party is or becomes an employee of the State of Indiana. The
                  obligation under this section extends only to those facts
                  which the Contractor knows or reasonably could know.

AA.      Assurance of Compliance with Civil Rights Act of 1964, Section 504 of
         the Rehabilitation Act of 1973 and the Age Discrimination Act of 1975,
         the Americans with Disabilities Act of 1990 and Title IX of the
         Education Amendments of 1972: The Contractor agrees that it, and all of
         its subcontractors and providers, will comply with the following:

MCO Renewel Contract           Page 23 of 27             Managed Health Services

<PAGE>

         1.       Title VI of the Civil Rights Act of 1964 (Pub. L. 88-352), as
                  amended, and all requirements imposed by or pursuant to the
                  Regulation of the Department of Health and Human Services (45
                  C.F.R. Part 80), to the end that, in accordance with Title VI
                  of that Act and the Regulation, no person in the United States
                  shall on the ground of race, color, or national origin, be
                  excluded from participation in, be denied the benefits of, or
                  be otherwise subjected to discrimination under any program or
                  activity for which the Contractor receives Federal financial
                  assistance under this Contract.

         2.       Section 504 of the Rehabilitation Act of 1973 (Pub. L.
                  93-112), as amended, and all requirements imposed by or
                  pursuant to the Regulation of the Department of Health and
                  Human Services (45 C.F.R. Part 84), to the end that, in
                  accordance with Section 504 of that Act and the Regulation, no
                  otherwise qualified handicapped individual in the United
                  States shall, solely by reason of his/her handicap, be
                  excluded from participation in, be denied the benefits of, or
                  be subjected to discrimination under any program or activity
                  for which the Contractor receives Federal financial assistance
                  under this Contract.

         3.       The Age Discrimination Act of 1975 (Pub. L. 94-135), as
                  amended, and all requirements imposed by or pursuant to the
                  Regulation of the Department of Health and Human Services (45
                  C.F.R. Part 91), to the end that, in accordance with the Act
                  and the Regulation, no person in the United States shall, on
                  the basis of age, be denied the benefits of, be excluded from
                  participation in, or be subjected to discrimination under any
                  program or activity for which the Contractor receives Federal
                  financial assistance under this Contract.

         4.       The Americans with Disabilities Act of 1990 (Pub. L. 101-336),
                  as amended, and all requirements imposed by or pursuant to the
                  Regulation of the Department of Justice (28 C.F.R. 35.101 et
                  seq.), to the end that in accordance with the Act and
                  Regulation, no person in the United States with a disability
                  shall, on the basis of the disability, be excluded from
                  participation in, be denied the benefits of, or otherwise be
                  subjected to discrimination under any program or activity for
                  which the Contractor receives Federal financial assistance
                  under this Contract.

         5.       Title IX of the Education Amendments of 1972, as amended (20
                  U.S.C. ss.ss. 1681-1683, and 1685-1686), and all requirements
                  imposed by or pursuant to regulation, to the end that, in
                  accordance with the Amendments, no person in the United States
                  shall, on the basis of sex, be excluded from participation in,
                  be denied the benefits of, or otherwise be subjected to
                  discrimination under any program or activity for which the
                  Contractor receives Federal financial assistance under this
                  Contract.

         The Contractor agrees that compliance with this assurance constitutes a
         condition of continued receipt of Federal financial assistance, and
         that it is binding upon the Contractor, its successors, transferees and
         assignees for the period during which such assistance is provided. The
         Contractor further recognizes that the United States shall have the
         right to seek judicial enforcement of this assurance.

MCO Renewel Contract           Page 24 of 27             Managed Health Services

<PAGE>

BB.      Security and Privacy of Health Information. The Contractor agrees to
         comply with all requirements of the Health Insurance Portability and
         Accountability Act of 1996 (HIPAA in all activities related to this
         contract, to maintain compliance throughout the life of the contract,
         to operate any systems used to fulfill the requirements of this
         contract in full compliance with HIPAA and to take no action which
         adversely affects the State's HIPAA compliance.

         The parties acknowledge that the Department of Health and Human
         Services has issued the Final Rule, as amended from time to time on the
         Standards for Privacy of Individually Identifiable Health Information,
         as required by the Administrative Simplification Section of the Health
         Insurance Portability and Accountability Act of 1996 (HIPAA). To the
         extent required by the provisions of HIPAA and regulations promulgated
         thereunder, the Contractor assures that it will appropriately safeguard
         Protected Health Information (PHI), as defined by the regulations,
         which is made available to or obtained by the Contractor in the course
         of its work under the contract. The Contractor agrees to comply with
         applicable requirements of law relating to PHI with respect to any task
         or other activity it performs for the Office including, as required by
         the final regulations:

         1.       Not using or further disclosing PHI other than as permitted or
                  required by this Contract or by applicable law;

         2.       Using appropriate safeguards to prevent use or disclosure of
                  PHI other than as provided by this Contract or by applicable
                  law;

         3.       Reporting to the Office any use or disclosure by the
                  Contractor, its agent, employees, subcontractors or third
                  parties, of PHI obtained under this Contract in a manner not
                  provided for by this Contract or by applicable law of which
                  the Contractor becomes aware;

         4.       Ensuring that any subcontractors or agents to whom the
                  Contractor provides PHI received from, or created or received
                  by the Contractor on behalf of the Office agrees to the same
                  restrictions, conditions and obligations applicable to such
                  party regarding PHI;

         5.       Making the Contractor's internal practices, books and records
                  related to the use of disclosure of PHI received from, or
                  created or received by the Contractor on behalf of the Office
                  available to the Secretary of the United States Department of
                  Health and Human Services for purposes of determining the
                  Office's compliance with applicable law. The Contractor shall
                  immediately notify the Office upon receipt by the Contractor
                  of any such request, and shall provide the Office with copies
                  of any materials made available in response to such a request;

         6.       Making available the information required to provide an
                  accounting of disclosures pursuant to applicable law; and

         7.       At the termination of this Contract, returning or destroying
                  all PHI obtained under this Contract.

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<PAGE>

CC.      Substantial Performance. This Contract shall be deemed to be
         substantially performed only when fully performed according to its
         terms and conditions and any modification thereof.

DD.      Penalties/Interest/Attorney's Fees. The State will in good faith
         perform its required obligations hereunder and does not agree to pay
         any penalties, liquidated damages, interest, or attorney's fees, except
         as required by Indiana law, in part, IC 5-17-5, IC 34-54-8, and IC
         34-13-1.

EE.      Authority to Bind Contractor. Notwithstanding anything in the Contract
         to the contrary, the signatory for the Contractor represents that
         he/she has been duly authorized to execute contracts on behalf of the
         Contractor designated herein and has obtained all necessary or
         applicable approval from the home office of the Contractor, if
         applicable, to make this, the contract, fully binding upon the
         Contractor when his/her signature is affixed and is not subject to home
         office acceptance hereto when accepted by the State of Indiana.

FF.      Performance Bond. The Contractor agrees that a performance bond in the
         amount of five hundred thousand dollars ($500,000.00) will be
         maintained by the Indiana Department of Administration (IDOA). Said
         bond will be in the form of a cashier's check, a certified check, or a
         surety bond executed by a surety company authorized to do business in
         the State of Indiana as approved by the Insurance Department of State
         of Indiana. No other check or surety will be accepted. The performance
         bond shall be made payable to the IDOA and shall be effective for the
         duration of the contract and any extensions thereof. The State reserves
         the right to increase the performance bond amount if enrollment levels
         indicate the need for higher liquidated damages.

GG.      Non-Collusion and Acceptance. The undersigned attests, subject to the
         penalties for perjury, that he/she is the contracting party, or that
         he/she is the representative, agent, member or officer of the
         contracting party, that he/she has not, nor has any other member,
         employee, representative, agent, or officer of the firm, company,
         corporation, or partnership represented by him/her, directly or
         indirectly, to the best of his/her knowledge, entered into or offered
         to enter into any combination, collusion, or agreement to receive or
         pay, and that he/she has not received or paid, any sum of money or
         other consideration for the execution of this agreement other than that
         which appears upon the face of the agreement.

         /// The remainder of this page is left intentionally blank. ///

MCO Renewel Contract           Page 26 of 27             Managed Health Services

<PAGE>

IN WITNESS WHEREOF, Coordinated Care Corporation Indiana, Inc., and the State of
Indiana have, through duly authorized representatives, entered into this
agreement. The parties having read and understand the foregoing terms of the
Contract do by their respective signatures dated below hereby agree to the terms
thereof.

For the Contractor:                               For the State of Indiana:

/s/ Rita Johnson-Mills                            /s/ Melanie Bella
----------------------------                      ------------------------------
Rita Johnson-Mills, CEO                           Melanie Bella
Coordinated Care Corporation                      Assistant Secretary
  Indiana, Inc.                                   Office of Medicaid Policy &
                                                    Planning

Date:                                             Date:
     -------------------------                         -------------------------

                                                  /s/ Kathryn H. Moses
                                                  ------------------------------
                                                  Kathryn H. Moses, Director
                                                  Children's Health Insurance
                                                    Program

                                                  Date:
                                                       -------------------------

APPROVED:                                         APPROVED:

/s/ Marilyn Schultz                               /s/ David Perlini
------------------------------                    ------------------------------
Marilyn Schultz, Director                         David Perlini, Commissioner
State Budget Agency                               Department of Administration

Date:                                             Date:
      ------------------------                          ------------------------

APPROVED AS TO FORM AND LEGALITY

/s/ Stephen Carter
------------------------------
Stephen Carter
Attorney General of Indiana

Date:
      ------------------------

MCO Renewel Contract           Page 27 of 27             Managed Health Services<PAGE>
                                                                   EXHIBIT 10.27

                  CHILDREN'S HEALTH INSURANCE PROGRAM AGREEMENT
                FOR THE PROVISION OF HEALTH CARE SERVICES BETWEEN
               THE TEXAS HEALTH AND HUMAN SERVICES COMMISSION AND
                      TEXAS UNIVERSITIES HEALTH PLAN, INC.

<Table>
<S>     <C>                                                                                                            <C>
ARTICLE 1. INTRODUCTION ................................................................................................1

ARTICLE 2. BACKGROUND, INDUCEMENTS AND OBJECTIVES ......................................................................1
        SECTION 2.01 BACKGROUND ........................................................................................1
                (a) Federal legislative authorization ..................................................................1
                (b) State enabling legislation .........................................................................1
                (c) State child health plan ............................................................................1
                (d) Participation of the private sector ................................................................1
                (e) Procurement of comprehensive health plan coverage through health maintenance organizations
                (HMOs) .................................................................................................2
        SECTION 2.02 INDUCEMENTS .......................................................................................2
        SECTION 2.03 MISSION OBJECTIVES ................................................................................2
        SECTION 2.04 DESIRED BENEFITS ..................................................................................3
        SECTION 2.05 CONSTRUCTION OF AGREEMENT .........................................................................3
                (a) Scope of Article ...................................................................................3
                (b) Severability .......................................................................................3
                (c) Survival of terms ..................................................................................4
                (d) Headings ...........................................................................................4
                (e) Global drafting conventions ........................................................................4
        SECTION 2.06 TIME OF THE ESSENCE ...............................................................................4
        SECTION 2.07 NO IMPLIED AUTHORITY ..............................................................................4
        SECTION 2.08 LEGAL AUTHORITY ...................................................................................5
ARTICLE 3. DEFINITIONS .................................................................................................5

ARTICLE 4. GENERAL TERMS AND CONDITIONS ...............................................................................10
        SECTION 4.01 TERM OF THE AGREEMENT ............................................................................10
                (a) General provisions. ...............................................................................10
                (b) Initial Term ......................................................................................10
                (c) Optional extension of Agreement ...................................................................10
                (d) Modifications upon extension or renewal of Agreement ..............................................10
        SECTION 4.02 SCOPE OF WORK ....................................................................................10
        SECTION 4.03 AGREEMENT ELEMENTS ...............................................................................11
                (a) Agreement documentation ...........................................................................11
                (b) Order of documents ................................................................................11
                (c) Oral and written representations ..................................................................11
        SECTION 4.04 NOTICES ..........................................................................................11
        SECTION 4.05 FUNDING ..........................................................................................12
        SECTION 4.06 DELEGATION OF AUTHORITY ..........................................................................12
        SECTION 4.07 NO WAIVER OF SOVEREIGN IMMUNITY ..................................................................12
        SECTION 4.08 FORCE MAJEURE ....................................................................................12
        SECTION 4.09 HOLD HARMLESS ....................................................................................12
        SECTION 4.10 ASSIGNMENT .......................................................................................13
        SECTION 4.11 EVIDENCE OF FINANCIAL SOLVENCY ...................................................................13
        SECTION 4.12 MINIMUM NET WORTH ................................................................................13
        SECTION 4.13 PERFORMANCE AND FIDELITY BONDS ...................................................................13
        SECTION 4.14 INSURANCE. .......................................................................................13
        SECTION 4.15 REPROCUREMENT RIGHTS .............................................................................14
</Table>

                                       i
<PAGE>

<Table>
<S>     <C>                                                                                                            <C>
ARTICLE 5. CONTRACTOR PERSONNEL MANAGEMENT .............................................................................14
        SECTION 5.01 QUALIFICATIONS, RETENTION AND REPLACEMENT OF CONTRACTOR EMPLOYEES .................................14
        SECTION 5.02 KEY CONTRACTOR PERSONNEL ..........................................................................14
        SECTION 5.03 MEDICAL DIRECTOR ..................................................................................15
        SECTION 5.04 RESPONSIBILITY FOR CONTRACTOR PERSONNEL ...........................................................15
        SECTION 5.05 COOPERATION WITH HHSC OR STATE ADMINISTRATIVE AGENCIES ............................................15
                (a) Cooperation with HHSC contractors ..................................................................15
                (b) Cooperation with state and federal administrative agencies .........................................15
ARTICLE 6. GOVERNING LAW AND REGULATIONS ...............................................................................16
        SECTION 6.01 GOVERNING LAW AND VENUE ...........................................................................16
        SECTION 6.02 LAW AND REGULATIONS GOVERNING ADMINISTRATION OF THE AGREEMENT .....................................16
        SECTION 6.03 CONTRACTOR RESPONSIBILITY FOR COMPLIANCE WITH LAWS AND REGULATIONS ................................16
        SECTION 6.04 LAWS AND REGULATIONS GOVERNING PROCUREMENT OF THE SERVICES. .......................................16
        SECTION 6.05 IMMIGRATION REFORM AND CONTROL ACT OF 1986 ........................................................17
        SECTION 6.06 COMPLIANCE WITH STATE AND FEDERAL ANTI-DISCRIMINATION LAWS. .......................................17
        SECTION 6.07 ENVIRONMENTAL PROTECTION LAWS .....................................................................17
                (a) Pro-Children Act of 1994. ..........................................................................17
                (b) National Environmental Policy Act of 1969 ..........................................................18
                (c) Clean Air Act and Water Pollution Control Act regulations ..........................................18
                (d) State Clean Air Implementation Plan ................................................................18
                (e) Safe Drinking Water Act of 1974 ....................................................................18
ARTICLE 7. SERVICE LEVELS AND PERFORMANCE MEASUREMENT ..................................................................18
        SECTION 7.01 PERFORMANCE MEASUREMENT ...........................................................................18
        SECTION 7.02 MEASUREMENT AND MONITORING TOOLS ..................................................................19
        SECTION 7.03 CONTINUOUS IMPROVEMENT AND BEST PRACTICES .........................................................19
        SECTION 7.04 SYSTEMS DEVELOPMENT, MAINTENANCE AND OPERATION ....................................................19
                (a) General responsibilities ...........................................................................19
                (b) General management information system functions ....................................................19
                        (1) General data storage and handling requirements .............................................19
                        (2) Data override capability ...................................................................20
                        (3) HIPAA compliance ...........................................................................21
                        (4) Data security and confidentiality ..........................................................21
                        (5) Back-up. ...................................................................................21
                        (6) Disaster recovery ..........................................................................21
                (c) System-wide functions ..............................................................................22
                        (1) Enrollment and Eligibility Subsystem .......................................................22
                        (2) Provider Subsystem .........................................................................23
                        (3) Claims/Services Data Subsystem .............................................................24
                        (4) Financial Subsystem ........................................................................25
                        (5) Utilization/Quality Improvement Subsystem ..................................................26
                        (6) Report Subsystem ...........................................................................27
                        (7) Data Interface Subsystem ...................................................................28
                (d) Additions or changes to the requirements set out in this section ...................................29
ARTICLE 8. AMENDMENTS, MODIFICATIONS, AND CHANGE ORDERS ................................................................29
        SECTION 8.01 MODIFICATIONS. ....................................................................................29
                (a) Modifications resulting from changes in law or contract ............................................29
                (b) Modifications resulting from imposition of remedies ................................................29
                (c) Modifications upon renewal or extension of Agreement ...............................................29
SECTION 8.02 CHANGE ORDER PROCEDURES ...................................................................................30
                (a) Expectations and understandings ....................................................................30
                (b) Change order approval procedure ....................................................................30
                (c) Written approval required ..........................................................................30
SECTION 8.03 REQUIRED COMPLIANCE WITH MODIFICATION PROCEDURES ..........................................................31
</Table>

                                       ii
<PAGE>

<Table>
<S>     <C>                                                                                                            <C>
ARTICLE 9. AUDIT AND FINANCIAL COMPLIANCE ..............................................................................31
        SECTION 9.01 FINANCIAL RECORD RETENTION AND AUDIT ..............................................................31
        SECTION 9.02 OPERATION/PERFORMANCE AUDITS ......................................................................31
        SECTION 9.03 ACCESS TO RECORDS, BOOKS, AND DOCUMENTS ...........................................................31
ARTICLE 10. TERMS AND CONDITIONS OF PAYMENT ............................................................................32
        SECTION 10.01 MONTHLY PREMIUM PAYMENTS .........................................................................32
        SECTION 10.02 TIME AND MANNER OF PREMIUM PAYMENT ...............................................................32
        SECTION 10.03 DELIVERY SUPPLEMENTAL PAYMENT (DSP) ..............................................................33
        SECTION 10.04 PREMIUM RATES AFTER THE FIRST YEAR OF THE INITIAL TERM ...........................................34
                (a) Second year ........................................................................................34
                (b) Third year .........................................................................................34
        SECTION 10.05 ADJUSTMENTS TO PREMIUM PAYMENTS ..................................................................34
        SECTION 10.06 EXPERIENCE REBATE ................................................................................35
        SECTION 10.07 RESTRICTION ON ASSIGNMENT OF FEES ................................................................36
        SECTION 10.08 LIABILITY FOR TAXES ..............................................................................36
        SECTION 10.09 LIABILITY FOR EMPLOYMENT-RELATED CHARGES AND BENEFITS ............................................36
        SECTION 10.10 LIABILITY FOR OVERTIME COMPENSATION ..............................................................36
ARTICLE 11. CHIP ELIGIBILITY, ENROLLMENT, DISENROLLMENT, AND COST-SHARING ..............................................36
        SECTION 11.01 CHIP ELIGIBILITY .................................................................................36
                (a) Generally. .........................................................................................36
                (b) Continuous coverage for first twelve months ........................................................36
                (c) Pregnant Members and infants .......................................................................37
                (d) Span of coverage ...................................................................................37
        SECTION 11.02 ENROLLMENT .......................................................................................37
        SECTION 11.03 RE-ENROLLMENT ....................................................................................38
        SECTION 11.04 DISENROLLMENT DUE TO LOSS OF ELIGIBILITY .........................................................38
        SECTION 11.05 DISENROLLMENT BY CONTRACTOR ......................................................................39
        SECTION 11.06 COST-SHARING .....................................................................................39
ARTICLE 12. SCOPE OF CHIP COVERED SERVICES .............................................................................40
        SECTION 12.01 BASIC REQUIRED COVERED SERVICES ..................................................................40
        SECTION 12.02 DRUG FORMULARIES .................................................................................40
        SECTION 12.03 VALUE-ADDED SERVICES .............................................................................41
        SECTION 12.04 DENTAL SERVICES ..................................................................................41
        SECTION 12.05 CASE MANAGEMENT SERVICES FOR CHILDREN WITH COMPLEX SPECIAL HEALTH CARE NEEDS .....................41
                (a) Outreach and Informing .............................................................................42
                (b) Enhanced Care Coordination .........................................................................42
                (c) Community Referrals ................................................................................42
        SECTION 12.06 PRE-EXISTING CONDITIONS ..........................................................................42
        SECTION 12.07 COURT-ORDERED COMMITMENTS ........................................................................43
        SECTION 12.08 EARLY CHILDHOOD INTERVENTION (ECI) ...............................................................43
                (a) ECI Services. ......................................................................................43
                (b) Identification and Referral. .......................................................................43
                (c) Intervention .......................................................................................43
ARTICLE 13. MEMBER SERVICES ............................................................................................44
        SECTION 13.01 MEMBER EDUCATION .................................................................................44
        SECTION 13.02 MEMBER MATERIALS .................................................................................44
                (a) Member Handbook ....................................................................................44
                        (1) Exceptions to Section 11.1600(b) requirements ..............................................44
                        (2) Additional requirements ....................................................................45
                (b) Evidence of Coverage ...............................................................................45
                (c) Provider Directory .................................................................................45
</Table>

                                      iii
<PAGE>

<Table>
<S>     <C>                                                                                                             <C>

                (d) HHSC review of Member material .....................................................................46
                (e) Mailing of Member Material .........................................................................46
        SECTION 13.03 CHIP-SPECIFIC INTERNET WEBSITE ...................................................................46
        SECTION 13.04 MEMBER TELEPHONE HOTLINE .........................................................................46
        SECTION 13.05 NOTIFICATION OF PROVIDER TERMINATION .............................................................47
        SECTION 13.06 MEMBER COMPLAINT AND APPEALS PROCESS .............................................................47
        SECTION 13.07 MEMBER CULTURAL AND LINGUISTIC SERVICES ..........................................................47
                (a) Cultural Competency Plan ...........................................................................47
                (b) Linguistic, Interpreter Services, and Provision of Auxiliary Aids and Services .....................48
ARTICLE 14. MARKETING ..................................................................................................49
        SECTION 14.01 AIM OF MARKETING .................................................................................49
        SECTION 14.02 MARKETING GUIDELINES .............................................................................49
        SECTION 14.03 DISENROLLMENTS ...................................................................................50
        SECTION 14.04 MARKETING SCHEDULE ...............................................................................50
        SECTION 14.05 GENERAL PROVISIONS ...............................................................................50
        SECTION 14.06 REGULATION .......................................................................................50
ARTICLE 15. PROVIDER NETWORK REQUIREMENTS ..............................................................................51
        SECTION 15.01 PROVIDER SUBCONTRACTS ............................................................................51
                (a) Generally ..........................................................................................51
                (b) Subcontract terms ..................................................................................51
        SECTION 15.02 PROVIDER ACCESSIBILITY ...........................................................................52
        SECTION 15.03 PARTICULAR PROVIDERS .............................................................................53
                (a) Significant Traditional Providers ..................................................................53
                (b) Tribal clinics .....................................................................................53
                (c) Rural providers ....................................................................................53
        SECTION 15.04 GOOD-FAITH EFFORT ................................................................................54
        SECTION 15.05 PROVIDER TAX IDENTIFICATION NUMBERS ..............................................................54
        SECTION 15.06 PROVIDER HANDBOOK ................................................................................54
        SECTION 15.07 CLAIMS SUBMISSION AND PAYMENT ....................................................................55
ARTICLE 16. CONTINUOUS QUALITY IMPROVEMENT .............................................................................55
        SECTION 16.01 COMMITMENT TO QUALITY ............................................................................55
        SECTION 16.02 QUALITY IMPROVEMENT COMMITTEE ....................................................................55
        SECTION 16.03 QUALITY IMPROVEMENT PLAN (QIP) ...................................................................55
ARTICLE 17. REPORTING REQUIREMENTS .....................................................................................55
        SECTION 17.01 GENERALLY ........................................................................................55
        SECTION 17.02 FINANCIAL REPORTS ................................................................................55
        SECTION 17.03 ENCOUNTER DATA SPECIFICATIONS REPORT .............................................................56
        SECTION 17.04 UTILIZATION MANAGEMENT REPORTS ...................................................................56
                (a) HEDIS Reporting ....................................................................................56
                (b) Physical Health ....................................................................................56
                (c) Behavioral Health ..................................................................................56
        SECTION 17.05 FOCUSED STUDIES REPORTS ..........................................................................56
        SECTION 17.06 ANNUAL QUALITY IMPROVEMENT PLAN (QIP) SUMMARY REPORT .............................................57
        SECTION 17.07 HUB REPORTS ......................................................................................57
        SECTION 17.08 FRAUDULENT PRACTICES REPORT ......................................................................57
        FRAUD AND ABUSE COMPLIANCE PLAN ................................................................................57
                Model Compliance Plan ..................................................................................57
                Requirements for the CONTRACTOR's compliance plan ......................................................57
                Fraud and abuse training ...............................................................................57
        SECTION 17.09 PROVIDER NETWORK REPORTS .........................................................................58
                (a) PCPs and Specialists Report ........................................................................58
                (b) Provider Network Change Report .....................................................................58
</Table>

                                       iv
<PAGE>

<Table>
<S>     <C>                                                                                                             <C>
                (c) PCP Network and Capacity Report .....................................................................58
        SECTION 17.10 THIRD PARTY RECOVERY (TPR) REPORTS ................................................................58
        SECTION 17.11 ALL CLAIMS SUMMARY REPORT .........................................................................58
        SECTION 17.12 SUMMARY REPORT OF PROVIDER AND MEMBER COMPLAINTS ..................................................59
        SECTION 17.13 MONTHLY MEMBER HOTLINE STATUS REPORT ..............................................................59
        SECTION 17.14 PROVIDER HOTLINE PERFORMANCE REPORT ...............................................................59
        SECTION 17.15 AD HOC REPORTS. ...................................................................................59
ARTICLE 18. DISCLOSURE AND CONFIDENTIALITY OF INFORMATION ...............................................................59
        SECTION 18.01 CONFIDENTIALITY ...................................................................................59
        SECTION 18.02 REQUESTS FOR PUBLIC INFORMATION. ..................................................................59
        SECTION 18.03 PUBLICITY .........................................................................................60
        SECTION 18.04 MEMBER RECORDS ....................................................................................60
        SECTION 18.05 ACCESSIBILITY AND AVAILABILITY OF MEDICAL RECORDS. ................................................60
        SECTION 18.06 RECORDKEEPING .....................................................................................61
ARTICLE 19. NON-PROVIDER SUBCONTRACTING .................................................................................61
        SECTION 19.01 WRITTEN SUBCONTRACTS ..............................................................................61
        SECTION 19.02 APPLICATION OF FEDERAL LAW TO NON-PROVIDER SUBCONTRACTORS .........................................61
        SECTION 19.03 NO STATE LIABILITY FOR PAYMENT UNDER NON-PROVIDER SUBCONTRACTORS ..................................61
        SECTION 19.04 TERMINATION OF NON-PROVIDER SUBCONTRACTS ..........................................................62
        SECTION 19.05 FRAUD AND ABUSE INVESTIGATIONS ....................................................................62
ARTICLE 20. REMEDIES AND DISPUTES .......................................................................................62
        SECTION 20.01 UNDERSTANDING AND EXPECTATIONS ....................................................................62
        SECTION 20.02 ADMINISTRATIVE REMEDIES ...........................................................................62
                (a) CONTRACTOR responsibility for improvement ...........................................................62
                (b) Notification and interim response ...................................................................63
                (c) Notice and opportunity to cure ......................................................................63
                (d) Particular Events of Default ........................................................................64
                (e) Corrective Action Plan ..............................................................................64
                (f) Additional remedies .................................................................................64
                (g) Informal review of administrative remedies ..........................................................65
SECTION 20.03 LIQUIDATED DAMAGES ........................................................................................65
                (a) Failure to provide contracted services or support. ..................................................66
                        (1) Maximum damages .............................................................................66
                        (2) CONTRACTOR responsibility for associated costs ..............................................66
        SECTION 20.04 METHOD OF COLLECTION ..............................................................................66
        SECTION 20.05 MODIFICATION OF AGREEMENT IN THE EVENT OF REMEDIES ................................................66
        SECTION 20.06 TERMINATION OF AGREEMENT ..........................................................................66
        SECTION 20.07 TERMINATION BY MUTUAL AGREEMENT OF THE PARTIES ....................................................66
        SECTION 20.08 TERMINATION FOR CAUSE .............................................................................66
                (a) Assignment for the benefit of creditors, appointment of receiver, or inability to pay debts .........67
                (b) Judgment and execution ..............................................................................67
                (c) Failure to adhere to laws, rules, ordinances, or orders. ............................................67
                (d) Breach of confidentiality ...........................................................................67
                (e) Failure to maintain adequate personnel or resources .................................................67
                (f) Termination for insolvency ..........................................................................68
                (g) Termination for gifts and gratuities ................................................................68
        SECTION 20.09 TERMINATION FOR NON-APPROPRIATION OF FUNDS ........................................................68
        SECTION 20.10 TERMINATION IN THE EVENT OF HHSC'S FAILURE TO PAY .................................................69
        SECTION 20.11 TERMINATION FOR HHSC'S MATERIAL BREACH OF THIS AGREEMENT ..........................................69
                (a) Generally. ..........................................................................................69
                (b) Notice of default and opportunity to cure ...........................................................69
        SECTION 20.12 NOTICE OF TERMINATION .............................................................................69
        SECTION 20.13 EXTENSION OF TERMINATION EFFECTIVE DATE ...........................................................69
</Table>

                                       v
<PAGE>

<Table>
<S>     <C>                                                                                                          <C>
        SECTION 20.14 INJUNCTIVE RELIEF .............................................................................70
        SECTION 20.15 PAYMENT AND OTHER PROVISIONS AT AGREEMENT TERMINATION .........................................70
        SECTION 20.16 DISPUTE RESOLUTION ............................................................................71
                (a) General agreement of the Parties ................................................................71
                (b) Duty to negotiate in good faith .................................................................71
                (c) Claims for breach of Agreement ..................................................................71
        SECTION 20.17 LIABILITY OF CONTRACTOR .......................................................................72
ARTICLE 21. ASSURANCES AND CERTIFICATIONS ...........................................................................72
        SECTION 21.01 LOBBYING ......................................................................................72
        SECTION 21.02 DEBARMENT AND SUSPENSION ......................................................................73
        SECTION 21.03 CONFLICTS OF INTEREST .........................................................................73
                (a) Representation ..................................................................................73
                (b) General duty regarding conflicts of interest ....................................................73
                (c) Disclosure requirements .........................................................................73
        SECTION 21.04 CERTIFICATION REGARDING GOOD FAITH EFFORT .....................................................74
        SECTION 21.05 CHILD SUPPORT CERTIFICATION ...................................................................74
        SECTION 21.06 TEXAS CORPORATE FRANCHISE TAX CERTIFICATION ...................................................74
        SECTION 21.07 CERTIFICATION REGARDING STATUS OF LICENSE, CERTIFICATE, OR PERMIT .............................75
        SECTION 21.08 OUTSTANDING DEBTS AND JUDGMENTS ...............................................................75
        SECTION 21.09 UNAUTHORIZED ACTS .............................................................................75
        SECTION 21.10 LEGAL ACTION ..................................................................................75
ARTICLE 22. REPRESENTATIONS AND WARRANTIES ..........................................................................75
        SECTION 22.01 AUTHORIZATION .................................................................................76
        SECTION 22.02 ABILITY TO PERFORM ............................................................................76
        SECTION 22.03 WORKMANSHIP AND PERFORMANCE ...................................................................76
        SECTION 22.04 COMPLIANCE WITH LAWS ..........................................................................76
        SECTION 22.05 COMPLIANCE WITH AGREEMENT .....................................................................76
        SECTION 22.06 CONTINGENT FEE ARRANGEMENTS ...................................................................77
        SECTION 22.07 PROSELYTIZING .................................................................................77
        SECTION 22.08 YEAR 2000 PERFORMANCE WARRANTY ................................................................77
                (a) Terms of Warranty ...............................................................................77
                (b) Duration of warranty ............................................................................77
                (c) No limitation of rights or remedies .............................................................77
</Table>

                                       vi
<PAGE>

                             ARTICLE 1. INTRODUCTION

     THIS SERVICES AGREEMENT (the "Agreement") is entered into this 19th day of
January, 2000, between the HEALTH AND HUMAN SERVICES COMMISSION ("HHSC"), an
administrative agency within the executive department of the State of Texas and
having its principal office at 4900 North Lamar Boulevard, 4th Floor, Austin
Texas 78751, and Texas Universities Health Plan, Inc. ("CONTRACTOR"), a
corporation organized under the laws of the State of Texas, possessing a
certificate of authority issued by the Texas Department of Insurance to operate
as a health maintenance organization and having its principal office at 701
Brazos Street, Suite 950, Austin, Texas 78701.

     The Parties agree that the following terms and conditions apply to the
services to be provided by CONTRACTOR under this Agreement in consideration of
certain payments to be made by HHSC.

                 ARTICLE 2. BACKGROUND, INDUCEMENTS AND OBJECTIVES

     SECTION 2.01 BACKGROUND.

     (a) Federal legislative authorization.

     This Agreement is entered into in connection with the Texas Legislature's
decision to participate in the federally-authorized State Children's Health
Insurance Program ("CHIP"). CHIP is authorized under Title XXI of the federal
Social Security Act, 42 U.S.C. Sections 1397aa-1397jj. The CHIP program is an
optional joint state-federal program designed to provide affordable insurance to
low-income families with uninsured children.

     (b) State enabling legislation.

     Approximately 1.4 million children in Texas are uninsured. The costs, both
economic and social, to the State of Texas are immeasurable. In recognition of
this need, the 76th Texas Legislature authorized the state's participation in
the CHIP program. The enabling legislation, Senate Bill 445, is codified as
Chapter 62, Health & Safety Code. The principal objective of the state
legislation is to provide primary and preventative health care to low-income,
uninsured children of Texas, including children with special health care needs,
who are not served by or eligible for other state-assisted health insurance
programs.

     (c) State child health plan.

     Under chapter 62 of the Health and Safety Code, HHSC is directed to develop
and file with the federal government a state-designed health plan program that
ensures the state's eligibility for federal funding under Title XXI of the
Social Security Act. The federal government has approved the State's plan. HHSC
desires the participation of qualified organizations to assist with the
implementation of the plan in Texas.

     (d) Participation of the private sector.

     As expressed in section 62.055, Health & Safety Code, the Texas Legislature
intends that HHSC, in administering the state child health plan, maximize the
use of private resources, including nonprofit organizations. In fulfilling this
mandate, HHSC has solicited assistance with many aspects of the program,
including delivery of health plan coverage to CHIP-eligible children through
health maintenance organizations (HMOs).

                                  Page 1 of 78
<PAGE>

     (e) Procurement of comprehensive health plan coverage through health
         maintenance organizations (HMOs).

     HHSC solicited proposals for health care services to CHIP through a Request
for Proposals ("RFP") dated August 2, 1999. The procurement that is the subject
of this Agreement is undertaken as a "best value" procurement under to the terms
of Chapter 531, Texas Government Code, Chapter 62, Health & Safety Code, and
section 2155.144, Government Code. In response to the RFP, CONTRACTOR submitted
its Proposal, dated September 29, 1999 (the "Proposal"). Following review of
proposals, the evaluators appointed by HHSC recommended CONTRACTOR's Proposal as
a best value for the state in one or more of the coverage areas in the state.
HHSC desires to implement the terms of CONTRACTOR's Proposal, subject to the
terms and conditions of this Agreement.

     SECTION 2.02 INDUCEMENTS.

     In making the award of this Agreement, HHSC relies on CONTRACTOR's
assurances of the following:

          (1) CONTRACTOR is an established health maintenance organization that
          arranges for the provision of health care services;

          (2) CONTRACTOR has the skills, qualifications, expertise, financial
          resources and experience necessary to perform the services described
          in the Request For Proposals, CONTRACTOR's Proposal, and this
          Agreement in an efficient, cost-effective manner, with a high degree
          of quality and responsiveness, and has performed similar services for
          other public or private entities;

          (3) CONTRACTOR has thoroughly reviewed, analyzed and understood the
          Request for Proposals and has had the opportunity to review and
          understand the State's desire to create a new program to provide the
          health care services that are the subject of this Agreement to
          uninsured, low-income children, and the needs and requirements of the
          State as provided in the Agreement;

          (4) CONTRACTOR has had the opportunity to review and understand the
          State's stated objectives in entering into this Agreement and, based
          on such review and understanding, CONTRACTOR currently has the
          capability to perform in accordance with the terms and conditions of
          this Agreement;

          (5) CONTRACTOR also has reviewed and understands the risks associated
          with the CHIP program as described in the Request for Proposals,
          including the risk of non-appropriation of funds.

     Accordingly, on the basis of the terms and conditions of this Agreement,
HHSC desires to engage CONTRACTOR to perform the services described in this
Agreement under the terms and conditions set forth in this Agreement.

     SECTION 2.03 MISSION OBJECTIVES.

     CONTRACTOR acknowledges its understanding that HHSC's overall objective in
engaging CONTRACTOR pursuant to this Agreement is to arrange for the provision
of health care services to the CHIP-eligible population through qualified health
care providers. The health care services will be delivered in a highly efficient
and effective manner on behalf of HHSC, the state administrative agencies
operating portions of the CHIP program in Texas, and the members of the CHIP
program. In particular,

                                  Page 2 of 78
<PAGE>

CONTRACTOR acknowledges its understanding of HHSC's desire to achieve the
following primary Mission Objectives:

          (1) Provision of quality, accessible, and comprehensive health care
          services, as set out in the RFP, which are tailored to meet the health
          care needs of Texas children;

          (2) Responsiveness by CONTRACTOR to the special circumstances of
          children with special health care needs; and

          (3) Provision of health care services to all persons who are eligible
          for and enrolled in CHIP in an efficient, cost-effective manner.

     SECTION 2.04 DESIRED BENEFITS.

     CONTRACTOR understands that as a result of CONTRACTOR's arranging for the
delivery of health care services, HHSC anticipates and CONTRACTOR is committed
to assist HHSC achieve the following desired benefits for the State of Texas:

     (1) High-quality health care services as described in this Agreement
provided in a cost-effective, efficient manner;

     (2) Health insurance coverage for low-income children in the State of Texas
who are currently uninsured and who are not served by or eligible for other
state-assisted health insurance programs.

     (3) A flexible relationship between HHSC and CONTRACTOR under which
CONTRACTOR will be highly responsive to the needs and requests of HHSC and to
changes in methods and strategies for providing services; and

     (4) Continuous identification of methods to improve services and reduce
costs.

     SECTION 2.05 CONSTRUCTION OF AGREEMENT.

     (a) Scope of Article.

     The provisions of this article are intended to be a general introduction to
this Agreement and are not intended to expand the scope of the Parties'
obligations under this Agreement or to alter the plain meaning of the terms and
conditions of this Agreement. For purposes of this transaction, HHSC, the single
state agency designated to administer CHIP, is the contracting agency.
References in this Agreement to the State are interpreted, as appropriate, to
mean or include HHSC and other State agencies that may participate in the
administration of CHIP; provided, however, that no provision will be interpreted
to include any entity other than HHSC as the contracting agency.

     (b) Severability.

     If any provision of this Agreement is construed to be illegal or invalid,
such interpretation will not affect the legality or validity of any of its other
provisions. The illegal or invalid provision will be deemed stricken and deleted
to the same extent and effect as if never incorporated in this Agreement, but
all other provisions will remain in full force and effect.

                                  Page 3 of 78
<PAGE>

     (c) Survival of terms.

     Termination or expiration of this Agreement for any reason will not release
either Party from any liabilities or obligations set forth in this Agreement
that:

          (1) The Parties have expressly agreed shall survive any such
          termination or expiration; or

          (2) Remain to be performed or by their nature would be intended to be
          applicable following any such termination or expiration.

     (d) Headings.

     The article and section headings in this Agreement are for reference and
convenience only and may not be considered in the interpretation of this
Agreement.

     (e) Global drafting conventions.

          (1) The terms "include," "includes," and "including" are terms of
          inclusion, and where used in this Agreement, are deemed to be followed
          by the words "without limitation."

          (2) Any references to "sections," "appendices," or "attachments" are
          deemed to be references to sections, appendices, or attachments to
          this Agreement.

          (3) Any references to agreements, contracts, statutes, or
          administrative rules or regulations in this Agreement are deemed
          references to these documents as amended, modified, or supplemented
          from time to time during the term of this Agreement.

     SECTION 2.06 TIME OF THE ESSENCE.

     In consideration of the time limits for implementation of the CHIP, time is
of the essence in the performance of the Parties' obligations under this
Agreement.

     SECTION 2.07 NO IMPLIED AUTHORITY.

     The authority delegated to CONTRACTOR by HHSC is limited to the terms of
this Agreement. HHSC is the state agency designated by the Texas Legislature to
administer CHIP, and no other agency of the State grants CONTRACTOR any
authority related to CHIP unless directed through HHSC. CONTRACTOR may not rely
upon implied authority, and specifically is not delegated authority under this
Agreement to:

          (1) make public policy;

          (2) promulgate, amend or disregard administrative regulations or
          program policy decisions made by State and federal agencies
          responsible for administration of CHIP; or

          (3) unilaterally communicate or negotiate with any federal or state
          agency or the Texas Legislature on behalf of HHSC regarding the CHIP
          program.

     CONTRACTOR is required to reasonably cooperate to assist HHSC in
communications and negotiations with state and federal agencies as directed by
HHSC.

                                  Page 4 of 78
<PAGE>

     SECTION 2.08 LEGAL AUTHORITY.

     (a) HHSC is authorized to enter into this Agreement under sections of
Chapter 531, Texas Government Code, Chapter 62, Texas Health & Safety Code, and
section 2155.144, Texas Government Code. CONTRACTOR is authorized to enter into
this Agreement pursuant to the authorization of its governing board or
controlling owner or officer.

     (b) The person or persons signing and executing this Agreement on behalf of
HHSC, or representing themselves as signing and executing this Agreement on
behalf of HHSC, warrant and guarantee that he, she, or they have been duly
authorized by HHSC to execute this Agreement on behalf of HHSC and to validly
and legally bind HHSC to all of its terms, performances, and provisions.

ACCORDINGLY, UNLESS OTHERWISE SPECIFIED IN THIS AGREEMENT, CONTRACTOR ASSURES
COMPLIANCE WITH THE FOLLOWING TERMS AND CONDITIONS:

                             ARTICLE 3. DEFINITIONS.

     As used in this Agreement, the following terms and conditions shall have
the meanings assigned below:

     "ADMINISTRATIVE SERVICES CONTRACTOR" means the entity performing the
functions under a contract awarded pursuant to a procurement solicitation
instrument entitled "Children's Health Insurance Program, Administrative
Services Request for Proposals," issued by HHSC on July 7, 1999.

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

     "AGREEMENT" means this formal, written, and legally enforceable agreement
and amendments thereto between the Parties that is awarded pursuant to state law
and in accordance with the procurement solicitation instrument entitled "Texas
Children's Health Insurance Program, Health Maintenance Organization Request for
Proposals," issued by HHSC on August 2, 1999.

     "ANNIVERSARY DATE" means May 1 of each year after the first year of this
Agreement, regardless of the date of execution or effective date of the
Agreement.

     "AUXILIARY AIDS AND SERVICES" include qualified interpreters or other
effective methods of making aurally-delivered materials understood by persons
with hearing impairments; taped texts, large print, Braille, or other effective
methods to ensure visually-delivered materials are available to individuals with
visual impairments. Auxiliary Aids and Services also include effective methods
to ensure that materials (delivered both aurally and visually) are available to
those with cognitive or other disabilities affecting communication.

     "CAPITATION" means a method of payment in which CONTRACTOR or a health care
provider receives a fixed sum of money each month for each enrolled Member,
regardless of the amount of covered services used by the enrolled Member.

     "CHANGE" means any alteration, adjustment, exchange, substitution, or
modification of the Services under this Agreement that are authorized in
accordance with Article 8 of this Agreement.

     "CHANGE ORDER" means an authorization to make a change in the Services or
Deliverables under this Agreement.

                                  Page 5 of 78
<PAGE>

     "CHILDREN'S HEALTH INSURANCE PROGRAM" or "CHIP" means the health insurance
program that is the subject of the services under this Agreement, authorized and
funded pursuant to Title XXI, Social Security Act (42 U.S.C. Sections
1397aa-1397jj) and administered by the Texas Health and Human Services
Commission.

     A "CHILD WITH COMPLEX SPECIAL HEALTH CARE NEEDS" or "CCSHCN" means a child
who:

          a. ranges in age from birth up to age 19 years;

          b. has a serious ongoing illness, a complex chronic condition, or a
          disability that has lasted or is anticipated to last at least twelve
          continuous months or more;

          c. has an illness, condition or disability that results (or without
          treatment would be expected to result) in limitation of function,
          activities, or social roles in comparison with accepted pediatric
          age-related milestones in the general areas of physical, cognitive,
          emotional, and/or social growth and/or development;

          d. requires regular, ongoing therapeutic intervention and evaluation
          by appropriately trained health care personnel; and

          e. has a need for health and/or health-related services at a level
          significantly above the usual for the child's age.

     "CHIP SERVICE AREA" means those areas originally designated and numbered by
HHSC in the RFP as available for coverage by a health maintenance organization.

     "COMPLAINANT" means a Member or a treating provider or other individual
designated to act on behalf of the Member who files the Complaint.

     "COMPLAINT" means any dissatisfaction, expressed by a complainant orally or
in writing to CONTRACTOR, with any aspect of CONTRACTOR's operation, including,
but not limited to, dissatisfaction with plan administration, procedures related
to review or appeal of an adverse determination, as that term is defined in
Texas Insurance Code, article 20A.12; the denial, reduction, or termination of a
service for reasons not related to medical necessity; the way a service is
provided; or disenrollment decisions. The term does not include misinformation
that is resolved promptly by supplying the appropriate information or clearing
up the misunderstanding to the satisfaction of the Member.

     "CONFIDENTIAL INFORMATION" means any communication or record (whether oral,
written, electronically stored or transmitted, or in any other form) that
consists of:

          (a) Information relating to applicants or recipients of services or
          benefits under the CHIP Program;

          (b) All non-public budget, expense, payment, and other financial
          information;

          (c) Any information marked by HHSC as confidential or not subject to
          required public disclosure for purposes of Chapter 552, Texas
          Government Code;

          (d) Unless previously publicly disclosed by HHSC or another state
          agency or authorized by HHSC, the substance and content of any CHIP
          program guidance or manual; and

                                  Page 6 of 78
<PAGE>

     "CONTRACTOR" means Texas Universities Health Plan, Inc., a health
maintenance organization licensed by the State of Texas.

     "CONTRACTOR'S CSA" means all of the counties in the State of Texas in which
CONTRACTOR is providing Covered Services, specifically set out in Appendix C.

     "CSA #(INSERTED)" means a designated CHIP Service Area as specified in the
RFP.

     "CORRECTIVE ACTION PLAN" means the detailed written plan required by HHSC
to correct or resolve a deficiency or event causing the assessment of a
liquidated damage against CONTRACTOR.

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

     "COVERAGE YEAR" means twelve (12) months from the first date that a Member
is covered by a health plan or the appropriate period for pregnant Members in
accordance with section 11.01(c).

     "COVERED SERVICES" are those health care services that CONTRACTOR must
arrange to provide to Members, as set out in the RFP.

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

     "DATE OF DISENROLLMENT" means the last day of the last month for which
CONTRACTOR receives premium for a Member.

     "DELIVERABLE" means a written or recorded work product prepared, developed,
or procured by CONTRACTOR as part of the Services under this Agreement for the
use or benefit of HHSC or the State of Texas and identified in Article 17 of
this Agreement to be specified in a report matrix to be developed by the Parties
and attached to this Agreement as an amendment.

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

     "EFFECTIVE DATE" means January 19, 2000. For purposes of this Agreement,
the term includes any period under which work is performed in accordance with a
properly executed Letter of Intent between HHSC and CONTRACTOR.

     "EFFECTIVE DATE OF COVERAGE" means the first day of the month for which
CONTRACTOR has received premium for a Member.

     "EXPIRATION DATE" means April 30, 2003.

     "FORCE MAJEURE EVENT" means any failure or delay in performance of a duty
by a Party under this Agreement that is caused by fire, flood, hurricane,
tornadoes, earthquake, an act of God, an act of war, riot, civil disorder, or
any similar event beyond the reasonable control of such Party and without the
fault or negligence of such Party.

     "HEALTH AND HUMAN SERVICES COMMISSION" or "HHSC" means the administrative
agency within the executive department of Texas state government established
under chapter 531, Texas Government Code,

                                  Page 7 of 78
<PAGE>

and authorized to administer CHIP under chapter 62, Texas Health and Safety Code
or its designee, including, but not limited to, the Texas Department of Health.

     "HEALTH MAINTENANCE ORGANIZATION" or "HMO" means an entity defined in
article 20A.02(n), Texas Insurance Code.

     "IMPLEMENTATION DATE" means May 1, 2000.

     "INITIAL TERM" means the period between the Effective Date and the original
Expiration Date of this Agreement.

     "KEY CONTRACTOR PERSONNEL" means the critical management and technical
positions identified by CONTRACTOR in its Proposal and subject to the approval
and oversight of HHSC in accordance with section 5.02 of this Agreement.

     "MANAGEMENT SERVICES CONTRACTOR" means the entity contracted by HHSC to
manage CHIP service contracts.

     "MEMBER" means a person who has met CHIP eligibility criteria, and is
enrolled in a CHIP health plan.

     "NON-PROVIDER SUBCONTRACTS" means contracts between CONTRACTOR and a third
party which performs a function, excluding delivery of health care services,
that CONTRACTOR is required to perform under its contract with HHSC.

     "PARTIES" means HHSC and CONTRACTOR, collectively.

     "PARTY" means either HHSC or CONTRACTOR, individually.

     "PROPOSAL" means the proposal submitted by CONTRACTOR in response to the
CHIP Health Maintenance Organization Request for Proposals.

     "PROVIDER SUBCONTRACT" means an agreement entered into by a direct provider
of health care services and CONTRACTOR or an intermediary entity.

     "PUBLIC INFORMATION" means information that:

          (1) Is collected, assembled, or maintained under a law or ordinance or
          in connection with the transaction of official business by a
          governmental body or for a governmental body; and

          (2) The governmental body owns or has a right of access to.

     "READINESS REVIEW" means the examination conducted by HHSC of CONTRACTOR's
ability, preparedness, and availability to fulfill its obligations under this
Agreement.

     "REQUEST FOR PROPOSALS" or "RFP" means the procurement solicitation
instrument entitled Children's Health Insurance Program, Health Maintenance
Organization Request for Proposals," issued by HHSC on August 2, 1999, and under
which this Agreement was awarded and is executed. The term includes all
modifications, amendments, revisions, and errata to the RFP published by HHSC.

     "SCOPE OF WORK" means the description of Services and Deliverables
specified in the RFP, CONTRACTOR's Proposal, and Articles 7 and 10 through and
including 19 of this Agreement.

                                  Page 8 of 78
<PAGE>

     "SERVICES" means the tasks, functions, and responsibilities assigned and
delegated to CONTRACTOR under this Agreement and described in Articles 7 and 10
through and including 19 of this Agreement, and any ancillary tasks, functions
or responsibilities not otherwise expressly described in this Agreement but
which are customary or required for the proper performance or delivery of the
Services.

     "SOFTWARE" means all operating system and applications software used by
CONTRACTOR to provide the Services under this Agreement.

     "STATE" means HHSC or an agency within the executive or legislative branch
of Texas state government other than HHSC, as appropriate.

     "SYSTEM" means the automated information system utilized by CONTRACTOR in
the performance of the Services under this Agreement.

     "SUBCONTRACT" means any written agreement between CONTRACTOR and other
party to fulfill the requirements of this Agreement. All subcontracts are
required to be in writing.

     "SUBCONTRACTOR" means any individual or entity which has entered into a
subcontract with CONTRACTOR.

     "SUPPLEMENTAL REIMBURSEMENT" means a methodology that is available for the
first year that CHIP is in operation by which health plans may select one of a
prescribed set of thresholds that, once the selected threshold is met by claim
costs with dates of service between May 1, 2000, and April 30, 2001, that
represent actual expenses incurred by CONTRACTOR for Covered Services,
CONTRACTOR will be reimbursed by HHSC for claim costs with dates of service
between May 1, 2000, and April 30, 2001, that represent actual expenses incurred
by CONTRACTOR for Covered Services that exceed the selected threshold. The
supplemental reimbursement applies to all Members during the first year of the
Initial Term.

     "TDI" means the Texas Department of Insurance.

     "TRANSITION PLAN" means the written plan developed by CONTRACTOR, approved
by HHSC, and to be employed in the event of an early termination of this
Agreement. The Transition Plan describes CONTRACTOR's policies and procedures
that will assure:

                  (1) The least disruption in the delivery of health care
         services to those CHIP-eligible children who are enrolled with
         CONTRACTOR during the transition to a substitute health plan; and

                  (2) Cooperation with HHSC and the substitute health plan
         provider in transferring information to a substitute health plan , as
         well as notifying Members of the transition and of their option to
         select a new plan, as requested and in the form required or approved by
         HHSC.

     "VALUE-ADDED SERVICES" means those services, if any, that CONTRACTOR
offered to provide and described in its Proposal, which are required to be
offered and provided to Members. CONTRACTOR does not receive capitation for
these services. The cost of providing these Value-added Services is an allowable
expense for purposes of calculating the experience rebate described in section
10.06.

                                  Page 9 of 78
<PAGE>

                         ARTICLE 4. GENERAL TERMS AND CONDITIONS

     SECTION 4.01 TERM OF THE AGREEMENT.

     (a) General provisions.

     This section will govern the period for performance of this Agreement. No
commitment of funds by HHSC is permitted prior to the Effective Date or
subsequent to the last regularly-scheduled payment date services provided during
the Initial Term, including retroactive adjustments, and any properly executed
extension of the Initial Term unless authorized under a properly executed Letter
of Intent between HHSC and CONTRACTOR. The term may be extended or shortened by
amendment.

     (b) Initial Term.

     The Initial Term of this Agreement will commence on January 19, 2000, and
will terminate on April 30, 2003, unless terminated sooner or extended in
accordance with the terms of this Agreement. The Initial Term includes any
period during which work is performed under a Letter of Intent that is properly
executed between HHSC and CONTRACTOR.

     (c) Optional extension of Agreement.

     HHSC may offer to extend the term of this Agreement by written notice to
CONTRACTOR no less than 90 days before the Expiration Date. Upon mutual written
agreement of the parties, this Agreement may be extended for two one-year terms.
If HHSC decides to offer an extension of this Agreement for a second one-year
term, HHSC will provide written notice to CONTRACTOR no less than 90 days before
the originally-extended expiration date.

     (d) Modifications upon extension or renewal of Agreement.

          (1) If HHSC seeks modifications to the Agreement as a condition of any
          extension, HHSC's notice to CONTRACTOR will specify those
          modifications, the Agreement pricing terms, or other terms and
          conditions of the Agreement HHSC seeks.

          (2) Modifications proposed by HHSC may apply to operations under this
          Agreement in any Agreement year beginning after the date of written
          notice to CONTRACTOR. CONTRACTOR must respond to HHSC's proposed
          modification within 30 days of receipt. Upon receipt of CONTRACTOR's
          written response to the proposed modifications, HHSC may enter into
          negotiations with CONTRACTOR to arrive at mutually agreeable Agreement
          modifications. If HHSC determines that the Parties will be unable to
          reach agreement on mutually satisfactory Agreement modifications, then
          HHSC must provide written notice to CONTRACTOR of its intent not to
          extend the Agreement beyond the Agreement term then in effect, at
          least 90 days before the Agreement Expiration Date, inclusive of all
          extension options previously exercised.

     SECTION 4.02 SCOPE OF WORK.

     CONTRACTOR will arrange for the delivery of health care services set out in
the RFP and prepare and deliver the reports described in Article 17 and to be
more specifically described in an appendix that the Parties will develop and
attach as an appendix by amendment of this Agreement. CONTRACTOR will also
perform the other functions set out in Articles 7 and 10 through and including
19 of this Agreement, as well as the duties and responsibilities set out in the
RFP and CONTRACTOR's Proposal. The RFP and CONTRACTOR's Proposal are both
incorporated into this Agreement by reference for all purposes.

                                 Page 10 of 78
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     SECTION 4.03 AGREEMENT ELEMENTS.

     (a) Agreement documentation.

     The agreement between the Parties will consist of this Agreement, the RFP,
and CONTRACTOR's Proposal.

     (b) Order of documents.

     In the event of any conflict or contradiction between or among these
documents, the documents shall control in the following order of precedence:

         (1) The final executed Agreement;

         (2) CONTRACTOR's Proposal ; and

         (3) The RFP.

     (c) Oral and written representations.

     No oral or written representations of CONTRACTOR, including representations
made outside of its formal Proposal documentation, have been regarded by HHSC as
inducements to contract and are not expressly made a part of this Agreement.

     SECTION 4.04 NOTICES.

     (a) Any notice under this Agreement must be sent by registered or certified
mail, return receipt requested, or must be delivered in hand, and a receipt
provided.

     (b) Any notice under this Agreement to HHSC will be sufficient if
hand-delivered or mailed to:

                  Don A. Gilbert, M.B.A.
                  Commissioner
                  Health and Human Services Commission
                  P.O. Box 12347
                  4900 North Lamar Blvd.
                  Austin, Texas 78751

                  Copy to:
                  Jason Cooke
                  Health & Human Services Commission
                  P.O. Box 12347
                  4900 North Lamar Blvd.
                  Austin, Texas 78751

     (c) Any notice under this Agreement to CONTRACTOR will be sufficient if
hand-delivered or mailed to:

                  Name: Sydney Stuart
                  Title: Vice President of Government Affairs and Compliance
                  Business name: Texas Universities Health Plan, Inc.
                  Address: 701 Brazos Street, Suite 950
                           Austin, Texas 78701

                                 Page 11 of 78
<PAGE>

                  Copy to:
                  Name: John Hackworth
                  Address: 701 Brazos Street, Suite 950
                           Austin, Texas 78701

     (d) Either Party may change its designee or address upon five (5) days'
prior written notice to the other Party.

     SECTION 4.05 FUNDING.

     This Agreement is expressly conditioned on the availability of state and
federal appropriated funds. CONTRACTOR will have no right of action against HHSC
in the event that HHSC is unable to perform its obligations under this Agreement
as a result of the suspension, termination, withdrawal, or failure of funding to
HHSC or lack of sufficient funding of HHSC for any activities or functions
contained within the scope of this Agreement. If funds become unavailable, the
provisions of Article 20 (Remedies and Disputes) will apply. HHSC will use all
reasonable efforts to ensure that such funds are available. HHSC shall make best
efforts to provide reasonable written advance notice to CONTRACTOR upon learning
that funding for CHIP may be discontinued.

     SECTION 4.06 DELEGATION OF AUTHORITY.

     Whenever, by any provision of this Agreement, any right, power, or duty is
imposed or conferred on HHSC, the right, power, or duty so imposed or conferred
is possessed and exercised by the Commissioner unless any such right, power, or
duty is specifically delegated to the duly appointed agents or employees of
HHSC. The Commissioner will reduce any such delegation of authority to writing
and provide a copy to CONTRACTOR on request.

     SECTION 4.07 NO WAIVER OF SOVEREIGN IMMUNITY.

     The Parties expressly agree that no provision of this Agreement is in any
way intended to constitute a waiver by HHSC or the State of Texas of any
immunities from suit or from liability that HHSC or the State of Texas may have
by operation of law.

     SECTION 4.08 FORCE MAJEURE.

     Neither CONTRACTOR nor HHSC will be liable to the other for any delay in,
or failure of performance, of any requirement contained in the Agreement caused
by a force majeure event. The existence of such causes of delay or failure will
extend the period of performance in the exercise of reasonable diligence until
after the causes of delay or failure have been removed. Each Party must inform
the other in writing with proof of receipt within ten (10) business days of the
existence of a force majeure event or otherwise waive this right as a defense.

     SECTION 4.09 HOLD HARMLESS.

     CONTRACTOR agrees that it shall hold harmless HHSC and its Commissioner,
employees, agents, contractors, subcontractors, and independent consultants and
their subcontractors and consultants from any and all actions in bid or proposal
evaluation other than acts of willful misconduct and gross negligence.

                                 Page 12 of 78
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     SECTION 4.10 ASSIGNMENT.

     This Agreement was awarded to CONTRACTOR based on CONTRACTOR's
qualifications to perform the services described in the RFP. CONTRACTOR cannot
assign this Agreement without the written consent of TDI and HHSC. This
provision does not prevent CONTRACTOR from subcontracting duties and
responsibilities to qualified Subcontractors. If TDI and HHSC consent to an
assignment of this Agreement, a transition period of 90 days will run from the
date the assignment is approved by TDI and HHSC so that Members' services are
not interrupted. The assigning CONTRACTOR must also submit a transition plan, as
set out in section 20.15(d), subject to HHSC's approval.

     SECTION 4.11 EVIDENCE OF FINANCIAL SOLVENCY.

     CONTRACTOR must be and remain in full compliance with all applicable state
and federal solvency requirements for basic-service health maintenance
organizations, including but not limited to, all reserve requirements, net worth
standards, debt-to-equity ratios, or other debt limitations.

     If CONTRACTOR becomes aware of any impending changes to its financial or
business structure that could adversely impact its compliance with the
requirements of this Agreement or its ability to pay its debts as they come due,
CONTRACTOR must notify HHSC immediately in writing. CONTRACTOR has not filed for
protection under any state or federal bankruptcy laws.

     SECTION 4.12 MINIMUM NET WORTH.

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

     SECTION 4.13 PERFORMANCE AND FIDELITY BONDS.

     CONTRACTOR will furnish HHSC with a performance bond in the form prescribed
by HHSC and approved by TDI, naming HHSC as Obligee, securing CONTRACTOR's
faithful performance of the terms and conditions of this Agreement. The
performance bond has been issued in the amount of $100,000 for a three-year
period (the Initial Term). If the Agreement is renewed or extended under section
4.01(c), a separate bond will be required for each additional term of the
Agreement. The bond has been issued by a surety licensed by TDI, and specifies
cash payment as the sole remedy. Performance Bond requirements under this
article must comply with article 20A.30 of the Texas Insurance Code and 28
T.A.C. Section 11.1805, relating to Performance and Fidelity Bonds. The bond
must be delivered to HHSC at the same time this signed Agreement is delivered to
HHSC.

     SECTION 4.14 INSURANCE.

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

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

                                 Page 13 of 78
<PAGE>

     CONTRACTOR must maintain an umbrella professional liability insurance
policy for the greater of $3,000,000 or an amount (rounded to the next $100,000)
which represents the number of CONTRACTOR's Members in the first month of the
Agreement term multiplied by one hundred fifty dollars ($150), not to exceed
$10,000,000.

     Any exceptions to the requirements of this section must be approved in
writing by HHSC prior to the Implementation Date. Subcontractors and providers
who qualify as state or federal units of government and are prohibited by law
from purchasing liability insurance are exempt from the insurance requirements
of this section. State and federal units of government are required to comply
with and are subject to the provisions of the Texas or Federal Tort Claims Act.

     SECTION 4.15 REPROCUREMENT RIGHTS.

     Notwithstanding anything in this Agreement to the contrary, HHSC may at any
time issue requests for proposals to other potential contractors for performance
of any portion of the Services covered by this Agreement or services similar or
comparable to the Services performed by CONTRACTOR under this Agreement to
achieve choice in a CHIP Service Area or to replace an HMO who is no longer
providing Covered Services in a CHIP Service Area. HHSC will provide advance
written notice to CONTRACTOR if HHSC reprocures in CONTRACTOR's CSA.

                   ARTICLE 5. CONTRACTOR PERSONNEL MANAGEMENT

     SECTION 5.01 QUALIFICATIONS, RETENTION AND REPLACEMENT OF CONTRACTOR
EMPLOYEES.

     CONTRACTOR agrees to maintain the organizational and administrative
capacity and capabilities to carry out all duties and responsibilities under
this Agreement. The personnel CONTRACTOR assigns to perform the duties and
responsibilities under this Agreement will be properly trained and qualified for
the functions they are to perform. CONTRACTOR does not warrant the quality of
training for which the State is responsible. Notwithstanding transfer or
turnover of personnel, CONTRACTOR remains obligated to perform all duties and
responsibilities under this Agreement without degradation and in accordance with
this Agreement.

     SECTION 5.02 KEY CONTRACTOR PERSONNEL.

     (a) CONTRACTOR's Proposal includes a list of designated key management and
technical personnel ("Key CONTRACTOR Personnel") who will be assigned to this
Agreement. For the purposes of this requirement, Key CONTRACTOR Personnel are
those with management responsibility or principal technical responsibility for
the following functional areas of this Agreement: Member Services; Management
Information Systems; Provider/Network Development and Maintenance; Benefit
Administration and Utilization; Financial Functions; and Reporting. CONTRACTOR's
Medical Director is also a Key CONTRACTOR Personnel.

     (b) CONTRACTOR shall maintain throughout the period of this Agreement with
HHSC the ability to support its Key CONTRACTOR Personnel with the required
resources necessary to meet contract requirements and comply with applicable
law. CONTRACTOR shall ensure project continuity by timely replacing Key
CONTRACTOR Personnel, if necessary, with a sufficient number of persons having
the requisite skills, experience and other qualifications. No later than thirty
(30) calendar days after any change in Key CONTRACTOR Personnel, CONTRACTOR
shall notify HHSC in writing with the names of any replacement staff and details
of their requisite skills, experience and other qualifications.

                                 Page 14 of 78
<PAGE>

     (c) If HHSC determines that a working relationship satisfactory to HHSC
cannot be established between a Key CONTRACTOR Personnel and HHSC and desires
that the Key CONTRACTOR Personnel not work with HHSC on CONTRACTOR's duties and
responsibilities under this Agreement, HHSC will notify CONTRACTOR in writing.
After receipt of HHSC's notice, HHSC and CONTRACTOR will attempt to resolve
HHSC's concerns on a mutually agreeable basis.

     (d) Regardless of specific personnel changes, CONTRACTOR must maintain the
overall level of expertise, experience, and skill reflected in the Key
Contractor Personnel resumes submitted. HHSC will continuously monitor the
overall level of expertise of CONTRACTOR's staff to ensure that CONTRACTOR is in
compliance with this requirement.

     SECTION 5.03 MEDICAL DIRECTOR

     CONTRACTOR must have the equivalent of a full-time Medical Director
licensed under the Texas State Board of Medical Examiners (M.D. or D.O.). The
Medical Director must comply with applicable federal and state statutes and
regulations.

     The Medical Director must exercise independent medical judgment in all
decisions relating to medical necessity. CONTRACTOR must ensure that its
decisions relating to medical necessity are not adversely influenced by fiscal
management decisions. HHSC may conduct reviews of decisions relating to medical
necessity upon reasonable notice.

     SECTION 5.04 RESPONSIBILITY FOR CONTRACTOR PERSONNEL.

     (a) CONTRACTOR's employees will not in any sense be considered employees of
HHSC or the State of Texas, but will be considered CONTRACTOR's employees for
all purposes.

     (b) Except as expressly provided in this Agreement, neither CONTRACTOR nor
any of CONTRACTOR's employees, subcontractors or agents may act in any sense as
agents or representatives of HHSC or the State of Texas.

     (c) CONTRACTOR's employees must be paid exclusively by CONTRACTOR for all
services performed. CONTRACTOR is responsible for and must comply with all
requirements and obligations related to such employees under local, state or
federal law, including minimum wage, social security, unemployment insurance,
state and federal income tax and workers' compensation obligations.

     SECTION 5.05 COOPERATION WITH HHSC OR STATE ADMINISTRATIVE AGENCIES.

     (a) Cooperation with HHSC contractors.

     CONTRACTOR agrees to reasonably cooperate with and work with the state's
contractors, subcontractors and third-party representatives as requested by
HHSC. To the extent permitted by HHSC's financial and personnel resources, HHSC
agrees to reasonably cooperate with CONTRACTOR and to use its best efforts to
ensure that HHSC's other CHIP contractors reasonably cooperate with CONTRACTOR.

     (b) Cooperation with state and federal administrative agencies.

     CONTRACTOR must ensure that CONTRACTOR personnel will cooperate with HHSC
or other state or federal administrative agency personnel at no charge to HHSC
for purposes relating to the administration of the CHIP program including, but
not limited to the following purposes:

                                 Page 15 of 78
<PAGE>

          (1) The investigation and prosecution of fraud, abuse, and waste in
          the Texas Title XIX Medical Assistance (Medicaid) Program or the CHIP
          program;

          (2) Audit, inspection, or other investigative purposes; and

          (3) Testimony in judicial or quasi-judicial proceedings relating to
          the Services under this Agreement or other delivery of information to
          HHSC or other agencies' investigators or legal staff.

                        ARTICLE 6. GOVERNING LAW AND REGULATIONS

     SECTION 6.01 GOVERNING LAW AND VENUE.

     This Agreement is governed by the laws of the State of Texas and
interpreted in accordance with Texas law. Proper venue for litigation arising
from this Agreement is the District Courts of Travis County, Texas.

     SECTION 6.02 LAW AND REGULATIONS GOVERNING ADMINISTRATION OF THE AGREEMENT.

     The administration of the Agreement shall be in accordance with the
following laws and regulations:

          (1) Title XXI of the Social Security Act, as amended, and any final
          regulations promulgated thereunder;

          (2) Chapter 62, Texas Health & Safety Code, as amended, and any
          administrative rules adopted under that chapter;

          (4) Chapter 531, Texas Government Code, as amended; and

          (5) Any other pertinent provisions of Federal law or Texas law.

     SECTION 6.03 CONTRACTOR RESPONSIBILITY FOR COMPLIANCE WITH LAWS AND
REGULATIONS.

     CONTRACTOR is responsible for compliance with all laws, regulations, and
administrative rules that govern the performance of the Services including, but
not limited to, all state and federal tax laws, state and federal employment
laws, state and federal regulatory requirements, and licensing provisions.
CONTRACTOR is responsible for ensuring each of its personnel who provide
services under the Agreement are properly licensed, certified, and/or have
proper permits to perform any activity related to the Services.

     SECTION 6.04 LAWS AND REGULATIONS GOVERNING PROCUREMENT OF THE SERVICES.

     (a) It is the express intention of the Parties that this Agreement be a
procurement of health care services and meeting all applicable requirements of
the following:

          (1) Title 42, Code of Federal Regulations, Part 92;

          (2) Title 45, Code of Federal Regulations, Part 74;

          (3) Chapter 62, Texas Health & Safety Code;

                                 Page 16 of 78
<PAGE>

          (4) Section 2155.144, Texas Government Code.

     SECTION 6.05 IMMIGRATION REFORM AND CONTROL ACT OF 1986.

     CONTRACTOR shall comply with the requirements of the Immigration Reform and
Control Act of 1986 and the Immigration Act of 1990, 8 U.S.C. Sections 1101, et
seq., regarding employment verification and retention of verification forms for
any individual(s) hired on or after November 6, 1986, who will perform any labor
or services under this Agreement.

     SECTION 6.06 COMPLIANCE WITH STATE AND FEDERAL ANTI-DISCRIMINATION LAWS.

     (a) To the extent such provisions are applicable to CONTRACTOR, CONTRACTOR
agrees to fully comply with the following laws and regulations that implement
such laws:

          (1) Title VI of the Civil Rights Act of 1964, 28 U.S.C. Sections 2000d
          to 2000d-4 (P.L. 88-352);

          (2) Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. Section
          794 (P.L.] 93-112);

          (3) The Americans with Disabilities Act of 1990, 29 U.S.C. Section
          706, 42 U.S.C. Sections 12101, et seq.;

          (4) 47 U.S.C. Sections 152, 221, 225, 611 (P.L. 101-336);

          (5) Title 45, Code of Federal Regulations, Part 80 (relating to race,
          color and national origin);

          (6) Title 45, Code of Federal Regulations, Part 84 (relating to
          handicap);

          (7) Title 45, Code of Federal Regulations, Part 86 (relating to sex);
          and

          (8) Title 45, Code of Federal Regulations, Part 91 (relating to age).

     Collectively, these authorities obligate HHSC to provide services without
discrimination on the basis of race, color, national origin, age, sex,
disability, or political or religious beliefs. CONTRACTOR agrees that in
carrying out the terms of this Agreement, it will do so in a manner that assists
HHSC to comply with such obligations.

     (b) CONTRACTOR agrees to comply with the applicable requirements of Texas
Labor Code, Chapter 21, which requires that certain employers not discriminate
on the basis of race, color, disability, religion, sex, national origin, or age.

     SECTION 6.07 ENVIRONMENTAL PROTECTION LAWS.

     CONTRACTOR agrees to comply with the applicable provisions of federal
environmental protection laws as described in this section:

     (a) Pro-Children Act of 1994.

     CONTRACTOR agrees to comply with the Pro-Children Act of 1994, as
applicable, 20 U.S.C. Sections 6081 - 6084 P.L. 103-227; 108 Stat. Section 104)
regarding the provision of a smoke-free workplace and promoting the non-use of
all tobacco products.

                                 Page 17 of 78
<PAGE>

     (b) National Environmental Policy Act of 1969.

     CONTRACTOR agrees to comply with any applicable provisions relating to the
institution of environmental quality control measures contained in the National
Environmental Policy Act of 1969, 42 U.S.C. Sections 4321-4332,) and Executive
Order 11514 ("Protection and Enhancement of Environmental Quality").

     (c) Clean Air Act and Water Pollution Control Act regulations.

     CONTRACTOR agrees to comply with any applicable provisions relating to
required notification of facilities violating the requirements of Executive
Order 11738 ("Providing for Administration of the Clean Air Act and the Federal
Water Pollution Control Act with Respect to Federal Contracts, Grants, or
Loans").

     (d) State Clean Air Implementation Plan.

     CONTRACTOR agrees to comply with any applicable provisions requiring
conformity of federal actions to State (Clean Air) Implementation Plans under
Section 176(c) of the Clean Air Act of 1955, as amended (42 U.S.C. Sections
740-7642).

     (e) Safe Drinking Water Act of 1974.

     CONTRACTOR agrees to comply with applicable provisions relating to the
protection of underground sources of drinking water under the Safe Drinking
Water Act of 1974, as amended (21 U.S.C. Section 349; 42 U.S.C. Sections 300f to
300j-9).

            ARTICLE 7. SERVICE LEVELS AND PERFORMANCE MEASUREMENT.

     SECTION 7.01 PERFORMANCE MEASUREMENT.

     Satisfactory performance of this Agreement will be measured by:

     (a) Adherence to this Agreement, including all representations and
warranties;

     (b) Compliance with project work plans, schedules, and milestones as
proposed by CONTRACTOR in its Proposal and as revised by CONTRACTOR and finally
approved by HHSC;

     (c) Delivery of the Services and Deliverables in accordance with the
service levels and availability proposed in its Proposal and as finally approved
or accepted by HHSC;

     (d) Results of audits performed by HHSC or its representatives in
accordance with Article 9;

     (e) Timeliness, completeness, and accuracy of required reports; and

     (f) Achievement of performance measures developed by CONTRACTOR and HHSC
and as modified from time to time by written agreement during the Initial Term
of this Agreement.

                                 Page 18 of 78
<PAGE>
     SECTION 7.02 MEASUREMENT AND MONITORING TOOLS.

     CONTRACTOR must implement all reasonably necessary measurement and
monitoring tools and procedures required to measure and report CONTRACTOR's
performance of the Services against the applicable service levels as such
service levels are specified in the Agreement. Such measurement and monitoring
must permit reporting at a level of detail sufficient to verify compliance with
the service levels specified in the Agreement and will be subject to audit by
HHSC. CONTRACTOR will provide HHSC with information and access to all applicable
information or work product produced by such tools and procedures upon request
for purposes of verification.

     SECTION 7.03 CONTINUOUS IMPROVEMENT AND BEST PRACTICES.

     CONTRACTOR must on an ongoing basis, as part of its total quality
management process, identify ways to improve performance of the Services and
identify and apply techniques and tools from other operations that would benefit
CHIP either operationally or financially.

     SECTION 7.04 SYSTEMS DEVELOPMENT, MAINTENANCE AND OPERATION.

     (a) General responsibilities.

     CONTRACTOR will develop, maintain, and operate or arrange for the
development, maintenance, and operation of the automated information system
described in CONTRACTOR's Proposal that will be utilized by CONTRACTOR in the
performance of the Services under this Agreement (the "System") and that
performs functions necessary and convenient to the delivery of the Services,
including, but not limited to, the following:

          (1) The general management information systems functions described in
          subsection (b) of this section; and

          (2) The specific system-wide functions described in subsection (c) of
          this section.

     (b) General management information system functions.

          (1) General data storage and handling requirements.

          (A) The System will manage, process, and securely store data in
          accordance with the requirements of this Agreement, the RFP, and
          CONTRACTOR's Proposal.

          (B) The System must process, store, manipulate, or manage information
          relating to CONTRACTOR's business operations and this Agreement,
          including, but not limited to:

               (i) Accounting and financial information, including, but not
               limited to:

                    a. Health care payment information--e.g., capitation
                    payments, claims payments, refunds;

                    b. Administrative financial information--e.g., payments to
                    subcontractors, suppliers, interest income

               (ii) Enrolled member information specified by HHSC; and

               (iii) Utilization data specified by HHSC.

                                 Page 19 of 78
<PAGE>

          (C) In addition to any other requirement specified in this article,
          the System implemented by CONTRACTOR must include the following system
          features or functionality:

               (i) The capability to access, update and edit all data in a
               manner approved by HHSC;

               (ii) The capability to maintain automated audit trails regarding
               data changes to enable verification and validation of data
               changes, including:

                    a. The date of a change;

                    b. The reason and authority for the change;

                    c. The chronological recording of the change (i.e., the
                    information before the change and after the change);

                    d. Whether the change was made by the system or by a person;
                    and

                    e. The identity, authority, login name, or machine ID of the
                    person, operator, or machine that made the change;

               (iii) The capability to allow data input, updating, and editing
               through manual and electronic transmissions;

               (iv) Procedures and processes for accumulating, archiving, and
               restoring data in the event of a system or subsystem failure;

               (v) Maintenance of automated or manual linkages between and among
               all management information systems subsystems and interfaces;

               (vi) The capability to relate member and provider data with
               utilization, service, accounting data, and reporting functions
               and other relationships deemed appropriate by HHSC within time
               frames specified by or on behalf of HHSC;

               (vii) The capability to relate and extract data elements into
               detail and summary reporting formats;

               (viii) Process and procedures manuals, available in written or
               electronic format, that:

                    a. Document and describe all manual and automated system
                    procedures and processes for all the functions and features
                    described in this section, and the various subsystem
                    components; and

                    b. Are reviewed and updated at least annually and updated
                    within

               (ix) The capability to maintain and cross-reference all
               member-related information with the most current CHIP member
               unique identifying number.

         (2) Data override capability.

     The System implemented by CONTRACTOR must include data override capability
sufficient to allow CONTRACTOR staff to manually or electronically correct
errors and, with appropriate permissions and security clearances, to mitigate
specific system-wide data problems.

                                 Page 20 of 78
<PAGE>

         (3) HIPAA compliance.

     The System implemented by CONTRACTOR must comply with applicable
certificate of coverage and data specification and reporting requirements
promulgated pursuant to the federal Health Insurance Portability and
Accountability Act of 1996, P.L. 104-91 (August 21, 1996), as amended.
CONTRACTOR will issue the Certificate of Creditable Coverage to disenrolled
Members.

          (4) Data security and confidentiality.

     The System implemented by CONTRACTOR must contain system security features
that include:

               (A) The ability to log and report all unauthorized attempts to
               access the system;

               (B) Dial-up access protection to permit systems access only from
               authorized locations and/or users;

               (C) A process for ensuring complete confidentiality of all
               passwords and IDs used by CONTRACTOR and HHSC employees;

               (D) Storage of all critical data files, when not in use, in a
               fireproof vault; and (E) Additional security requirements as
               agreed to by HHSC and CONTRACTOR.

          (5) Back-up.

               (A) CONTRACTOR will develop, equip, operate, and maintain or
               contract with a facility that will conduct back-up operations of
               all critical operational data (including all major data files,
               microfiche records, computer programs, system and operations, and
               documentation) received, generated, and maintained by the System
               in accordance with the representations in CONTRACTOR's Proposal
               or as specified by HHSC.

               (B) In fulfilling the requirements of this section, CONTRACTOR
               will implement a data back-up plan subject to HHSC approval.

               (C) The data back up operations described in this section will be
               for the purpose of restoring the System or data to fully
               operational status within timeframes specified by HHSC in
               cooperation with CONTRACTOR and will be conducted at a site other
               than the central facility established by CONTRACTOR for data
               center operations.

          (6) Disaster recovery.

          (A) CONTRACTOR must provide acceptable back-up hardware processing
          facilities for maintaining back-ups for all computer programs,
          microfiche originals, major files, system and operations, and user
          documentation (in magnetic and non-magnetic form) in the event of a
          disaster.

          (B) In the event of a failure of the data processing facilities and/or
          communications networks because of any disaster, mission critical
          administrative services normally furnished by CONTRACTOR must be fully
          available within five (5) working days following the disaster. The
          five-day period does not excuse CONTRACTOR from meeting the
          contractual performance criteria.

                                 Page 21 of 78
<PAGE>

         (C) CONTRACTOR must provide HHSC with an updated acceptable detailed
         back-up and disaster recovery plan on an annual basis. The plan, and
         any subsequent modifications, are subject to HHSC approval. CONTRACTOR
         must demonstrate the back-up facilities' capability to HHSC at least
         once a year.

         (D) Failure to comply with the requirements set out in subsections (A)
         through (C) may subject CONTRACTOR to imposition of liquidated damages
         under Article 20 of this Agreement.

         (E) CONTRACTOR will test the operability of the Disaster Recovery Plan
         and related systems no sooner than April 1, 2000.

         (F) CONTRACTOR will supply any data or information (including cost
         information) HHSC may require in order to secure a waiver under House
         Bill 1, 76th Texas Legislature (General Appropriations Act), Article
         IX, Section 9-6.23 ("West Texas Disaster Recovery and Data Operations
         Center") if such a waiver is or becomes necessary. CONTRACTOR will
         reasonably cooperate with HHSC to secure such waiver.

     (c) System-wide functions.

     The System utilized by CONTRACTOR will have the functionality of and
accomplish the requirements of the separate subsystems and tasks identified in
the RFP and in this section, including the following:

         (1) Enrollment and Eligibility Subsystem.

         (A) The System implemented by CONTRACTOR must include an enrollment and
         Eligibility Subsystem that has the capability to receive, store, and
         process in accordance with this paragraph (c)(1) this section.

         (B) The System implemented by CONTRACTOR must:

              (i) Receive CHIP member enrollment information that is
              electronically transmitted to CONTRACTOR by the CHIP
              Administrative Services Contractor on a monthly basis. CONTRACTOR
              must update its records and issue new or revised
              membership/identification cards on the basis of the updated CHIP
              member enrollment information.

              (ii) Maintain historical data (files) as required by HHSC;

              (iii) Maintain data on enrollment, disenrollment, complaint, and
              appeal activities, including, but not limited to the following:

                    a. The reason for or type of disenrollment; and

                    b. Complaint and appeal resolution, organized in accordance
                    with a format approved by HHSC;

              (iv) Receive, translate, edit and update files in accordance with
              requirements developed by the CHIP Administrative Services
              Contractor and HHSC prior to inclusion in the System, including
              processing updates received from the CHIP Administrative Services
              Contractor within 2 working days of CONTRACTOR's receipt of such
              updates;

                                 Page 22 of 78
<PAGE>

               (v) Provide error reports and a reconciliation process between
               new data and data existing in the System;

               (vi) Verify Member eligibility for medical services rendered, or
               for other Member inquiries; and

               (vii) Search records by a variety of fields (e.g., name, unique
               identification numbers, date of birth, social security number,
               etc.) for eligibility verification purposes.

          (2) Provider Subsystem.

          (A) The System implemented by CONTRACTOR must include a Provider
          Subsystem that accepts, processes, stores and retrieves current and
          historical data on health care providers in CONTRACTOR's network,
          including, but not limited to, the following data:

               (i) Services offered or provided;

               (ii) Payment methodology;

               (iii) License/credentialing information;

               (iv) Service capacity and facility linkages; and

               (v) If required by HHSC, information concerning excluded
               providers.

          (B) The functions and/or features of the Provider Subsystem must
          achieve the following:

               (i) Identify network providers, specialty or specialties by:

                    a. The appropriate regulatory board
                    certification/eligibility;

                    b. Admission privileges;

                    c. Member linkage;

                    d. Capacity;

                    e. Facility linkages;

                    f. Emergency arrangements or contact; and

                    g. Other limitations, affiliations, or restrictions
                    specified by HHSC;

               (ii) Maintain provider history files to include audit trails and
               effective dates of information;

               (iii) Maintain provider fee schedules/remuneration agreements to
               permit accurate payment for services based on the financial
               agreement in effect on the date of service;

               (iv) Support CONTRACTOR's credentialing, re-credentialing, and
               credential-tracking processes;

                                 Page 23 of 78
<PAGE>

               (v) Incorporate or link appropriate billing, client, and other
               information to the provider record;

               (vi) Flag and identify providers with restrictive conditions
               (e.g. limits to capacity, type of patient, and other services if
               approved out of network, age restrictions, exclusion, etc.);

               (vii) Support national and state provider number formats (such as
               UPIN, NPI, CLIA, Medicaid, TPI, etc.) as required by HHSC;

               (viii) Identify providers excluded from participation by HHSC as
               ineligible or excluded and update Provider Subsystem and other
               files to reflect period and reason for exclusion;

               (ix) Capture provider complaints;

               (x) Provide geographical mapping of provider network and
               assessment of network's capabilities to meet client needs; and

               (xi) Update provider information (e.g. provider addresses).

          (3) Claims/Services Data Subsystem.

          (A) The System implemented by CONTRACTOR must include a
          Claims/services Data Subsystem that collects, processes, and stores
          data on all services delivered for which CONTRACTOR is financially
          responsible, primarily for the following purposes:

               (i) Processing claims and tracking service utilization data;

               (ii) Capturing all medically related services, including medical
               supplies and/or equipment (using standard codes as specified by
               HHSC, e.g. HCPCS, ICD9-CM), rendered by service providers to an
               eligible member;

               (iii) Approving, preparing for payment, or rejecting or denying
               claims submitted. This subsystem may integrate manual and
               automated systems to validate and adjudicate claims. Refer to
               Section VIII of the RFP for additional information.

          (B) Functions and features of this subsystem are:

               (i) Accommodate multiple input methods -- tape, claim document,
               magnetic media;

               (ii) Support entry and capture of a minimum of two diagnosis
               codes for each individual encounter for a provider on a specific
               date of service;

               (iii) Edit and audit to ensure allowed services are provided to
               eligible clients by eligible providers;

               (iv) Interface with the Enrollment and Eligibility Subsystem,
               Provider Subsystem, and/or other CHIP-related systems specified
               by HHSC;

               (v) Edit for utilization and service criteria, medical policy,
               fee schedules, multiple contract periods and conditions;

                                 Page 24 of 78
<PAGE>

               (vi) The ability to submit data to HHSC when requested through
               electronic transmission using specified formats and meeting
               specified edits;

               (vii) Support multiple fee schedule benefit packages and
               capitation rates for all contract periods for individual
               providers, groups, services, etc. A claim must be initially
               adjudicated and all adjustments must use the fee and policy
               applicable to the date of service;

               (viii) Provide timely, accurate, and complete data for monitoring
               claims processing performance;

               (ix) Provide claims editing capability for detecting CPT coding
               errors;

               (x) Provide timely, accurate, and complete data for reporting
               service utilization;

               (xi) Maintain and apply prepayment edits to verify accuracy and
               validity of claims data for proper adjudication;

               (xii) Maintain and apply edits and audits to verify timely,
               accurate, and complete data reporting;

               (xiii) Submit reimbursement to non-contracted providers for
               emergency services and medically necessary services not available
               in network but rendered to members in a timely and accurate
               manner.

               (xiv) Validate approval and denials of precertification, prior
               authorization, and referral requests during adjudication of
               claims;

               (xv) Track and report the exact date a service was performed
               using HHSC approved date ranges; and

               (xvi) Support all functions and report all required data
               elements.

               (xvii) CONTRACTOR must comply with the standards adopted by the
               United States Department of Health and Human Services under the
               Health Insurance Portability and Accountability Act of 1996
               (HIPAA) for submitting and receiving claims information through
               electronic data interchange that allows for automated processing
               and adjudication of claims within two or three years, as
               applicable, from the date the rules promulgated under HIPAA are
               adopted.

          (4) Financial Subsystem.

          (A) The System implemented by CONTRACTOR must include a Financial
          Subsystem that provides the necessary data for all accounting
          functions including:

               (i) Cost accounting;

               (ii) Inventory;

               (iii) Fixed assets;

               (iv) Payroll;

                                 Page 25 of 78
<PAGE>

               (v) General ledger;

               (vi) Accounts receivable and payable; and

               (vii) Financial statement presentation.

          (B) The Financial Subsystem must be capable of providing CONTRACTOR's
          management staff with information that:

               (i) Demonstrates that CONTRACTOR is meeting, exceeding, or
               falling short of fiscal goals; and

               (ii) Provides CONTRACTOR management with the necessary data to
               identify signs of potential fiscal distress and to enable
               management to take appropriate mitigating or corrective action.

          (5) Utilization/Quality Improvement Subsystem.

          (A) The System implemented by CONTRACTOR must include a
          Utilization/Quality Improvement Subsystem that combines data from
          other subsystems, and/or external systems, to:

               (i) Produce reports for analysis which focus on:

                    a. The review and assessment of quality of care given;

                    b. Detection of overutilization and underutilization of
                    services; and

                    c. Development of user-defined reporting criteria and
                    standards.

               (ii) Profiles utilization of providers and members and compares
               them against experience and norms for comparable individuals;

               (iii) Support the quality assessment function;

               (iv) Track utilization control function(s) and monitor inpatient
               admissions, emergency room use, ancillary, and out-of-area
               services.

               (v) Produce health care provider profiles, occurrence reporting,
               monitoring and evaluation studies, and member satisfaction survey
               compilations;

               (vi) Integrate, at CONTRACTOR's discretion, with CONTRACTOR's
               manual and automated processes or incorporate other software
               reporting and/or analysis programs; and

               (vii) Incorporate and summarize information from member surveys,
               provider and member complaints, and appeal processes.

          (B) Functions and features of the Utilization/Quality Improvement
          Subsystem are:

               (i) Supports CONTRACTOR processes to monitor and identify
               deviations in patterns of treatment from recognized standards or
               norms or standards specified by HHSC;

                                 Page 26 of 78
<PAGE>

               (ii) Provides feedback information for monitoring progress toward
               goals, identifying optimal practices, and promoting continuous
               improvement;

               (iii) Supports development of cost and utilization data by
               provider and service;

               (iv) Provides aggregate performance and outcome measures using
               standardized quality indicators similar to HEDIS or as specified
               by HHSC.

               (v) Supports focused quality of care studies;

               (vi) Supports the management of referral/utilization control
               processes and procedures including prior authorization and
               precertifications and denials of services;

               (vii) Monitors primary care provider referral patterns;

               (ix) Supports functions of reviewing access, use and coordination
               of services (i.e. actions of Peer Review an alert/flag for review
               and/or follow-up; laboratory, x-ray and other ancillary service
               utilization per visit);

               (x) Stores and reports patient satisfaction data through use of
               member surveys;

               (xi) Supports fraud and abuse detection, monitoring and
               reporting, including support of state- operated fraud and abuse
               detection systems; and

               (xii) Otherwise satisfies the minimum reporting/data
               collection/analysis functions requirements of the RFP.

          (6) Report Subsystem.

          (A) The System implemented by CONTRACTOR must include a Reporting
          Subsystem that:

               (i) Supports reporting requirements of all CONTRACTOR operations
               to the CHIP Administrative Services Contractor and HHSC and
               enables recipients of reports to verify or validate the accuracy
               of the reports; and

               (ii) Allows CONTRACTOR to develop various reports to support
               contract management and evaluation and to facilitate HHSC
               oversight.

          (B) The minimum functions and capabilities of the Reporting Subsystem
          are:

               (i) Produces standard, HHSC-required reports (whether on a
               recurring or sporadic) and ad hoc reports from data available in
               all management information subsystems specified in the RFP or
               this section within the timeframes requested by HHSC;

               (ii) Has system flexibility to permit the development of reports
               at irregular periods as needed and according to any combination
               of data (including calculated data--i.e., age) and variety of
               formats (including paper, electronic, or web-based formats);

               (iii) Generates reports of unduplicated counts of members,
               providers, payments and units of service as requested by HHSC;

               (iv) Generates alphabetic and numeric member listings;

                                 Page 27 of 78
<PAGE>

               (v) Generates member eligibility listings by each PCP (panel
               report);

               (vi) Reports on third party liability information as required by
               HHSC;

               (vii) Generates claims lag reports, including dates of service,
               claims receipts, and claims paid or denied;

               (viii) Generates aged outstanding liability reports;

               (ix) Produces member ID Cards;

               (x) Produces client/provider mailing lists and labels; and

               (xi) Other appropriate functions specified by HHSC.

          (7) Data Interface Subsystem.

          (A) The System implemented by CONTRACTOR must include a Data Interface
          Subsystem that maintains secure electronic interfaces with the
          following entities:

               (i) CONTRACTOR's subcontractors, including, if required by HHSC,
               health care providers comprising CONTRACTOR's provider network;

               (ii) The CHIP Administrative Services Contractor;

               (ii) The CHIP Quality Monitor Contractor; and

               (iii) Any other entity specified by HHSC.

          (B) The electronic interfaces required for the Data Interface
          Subsystem must:

               (i) Maintain and update critical data, including, but not limited
               to:

                    a. Member enrollment data;

                    b. Primary care physician selection;

                    c. Enrollment/disenrollment status; and

                    d. Other relevant data identified by HHSC.

               (ii) Comply with frequency, file formatting and other relevant
               requirements established by the CHIP Administrative Services
               Contractor in conjunction with HHSC;

               (iii) Exchange data for the following functions:

                    a. Enrollment/disenrollment functions;

                    b. Premiums payable functions;

                    c. Provider capacity and availability functions;

                                 Page 28 of 78
<PAGE>

                    d. Confirmation of the status of Children with Complex
                    Special Health Care Needs;

                    e. Quality monitoring functions; and

                    f. CONTRACTOR, subcontractor, or health care provider
                    performance measurement.

     (d) Additions or changes to the requirements set out in this section.

     The Parties will negotiate in good faith to reach agreement on when
requested additions or changes to the requirements in this section will be made
by CONTRACTOR at no additional charge to HHSC and when requested additions or
changes should be handled through the Change Order Process set out in Article 8.

             ARTICLE 8. AMENDMENTS, MODIFICATIONS, AND CHANGE ORDERS

     SECTION 8.01 MODIFICATIONS.

     (a) Modifications resulting from changes in law or contract.

     If Federal or State laws, rules, regulations, policies or guidelines are
adopted, promulgated, judicially interpreted or changed, or if contracts are
entered or changed, the effect of which is to alter the ability of either Party
to fulfill its obligations under this Agreement, the Parties will promptly
negotiate in good faith appropriate modifications or alterations to the
Agreement and any schedule(s) or attachment(s) made a part of this Agreement.
Such modifications or alterations must equitably adjust the terms and conditions
of this Agreement and must be limited to those provisions of this Agreement
affected by the change.

     (b) Modifications resulting from imposition of remedies.

     This Agreement may be modified under the terms of Article 20 (relating to
Remedies and Disputes). This Agreement may not be amended or modified unless
such amendment or modification to the Scope of Work is in writing and signed by
individuals with authority to bind the parties.

     (c) Modifications upon renewal or extension of Agreement

          (1) If HHSC seeks modifications to the Agreement as a condition of any
          annual extension, HHSC's notice to CONTRACTOR will specify those
          modifications to the Scope of Work, the Agreement pricing terms, or
          other terms and conditions of the Agreement HHSC seeks.

          (2) Modifications proposed by HHSC may apply to the services under
          this Agreement in any Agreement year beginning after the date of
          notice to CONTRACTOR. CONTRACTOR must respond to HHSC's proposed
          modification within 30 days of receipt. Upon receipt of CONTRACTOR's
          response to the proposed modifications, HHSC may enter into
          negotiations with CONTRACTOR to arrive at mutually agreeable Agreement
          amendments. In the event that HHSC determines that the Parties will be
          unable to reach agreement on mutually satisfactory Agreement
          modifications, then HHSC must provide written notice to CONTRACTOR of
          its intent not to extend the Agreement beyond the Agreement term then
          in effect, at least 90 days before the Expiration Date to provide for
          the approval and implementation of the transition plan as set out in
          section 20.15(d), inclusive of all extension options previously
          exercised.

                                 Page 29 of 78
<PAGE>

     SECTION 8.02 CHANGE ORDER PROCEDURES

     (a) Expectations and understandings.

     As specified in section 8.01 of this Agreement, the Agreement may be
amended by HHSC and CONTRACTOR by mutual agreement. Changes in contracted
Services or Deliverables shall be authorized in accordance with this article.

     (b) Change order approval procedure.

         (1) During the Initial Term of this Agreement HHSC or CONTRACTOR may
         propose changes in the Services, Deliverables, or other aspects of this
         Contract ("Changes"), including, but not limited to, issues that
         CONTRACTOR contends affects the actuarial soundness of CONTRACTOR's
         premium, and any such Changes will be implemented pursuant to the
         procedures set forth in this section 8.02.

         (2) If HHSC desires to propose a Change, it shall deliver a written
         notice to CONTRACTOR describing the proposed Change ("Change Order
         Request"). CONTRACTOR must respond to such proposal as promptly as
         reasonably possible by preparing, at no additional cost to HHSC for
         developing the response, and delivering to HHSC a written document (a
         "Change Order Response"), that specifies:

                    (A) The effect, if any, of the Change Order Request on the
                    amounts payable by HHSC under this Agreement and the manner
                    in which such effect was calculated;

                    (B) The effect, if any, of the Change Order Request on
                    CONTRACTOR's performance of its obligations under this
                    Agreement, including the effect on the Services or
                    Deliverables;

                    (C) The anticipated time schedule for implementing the
                    Change Order Request; and

                    (D) Any other information requested in the Change Order
                    Request or which is reasonably necessary for HHSC to make an
                    informed decision regarding the proposal.

         (3) If CONTRACTOR desires to propose a Change, it must deliver a
         CONTRACTOR Change Order Request to HHSC that includes the information
         described in section 8.02(b) for a Change Order and Change Order
         Response.

         (4) Upon HHSC's receipt of a Change Order and Change Order Response,
         the Parties shall negotiate a resolution of the requested Change in
         good faith. The Parties will exchange information in good faith in an
         attempt to resolve the requested Change.

     (c) Written approval required.

     No Change to the contracted Services or Deliverables or any other aspect of
this Agreement will become effective without the written approval and execution
of a mutually agreeable written amendment to this Agreement by HHSC and
CONTRACTOR. Under no circumstances will CONTRACTOR be entitled to payment for
any work or services rendered under a Change Order that has not been approved by
HHSC in accordance with the Change Order Procedures.

                                 Page 30 of 78
<PAGE>

     SECTION 8.03  REQUIRED COMPLIANCE WITH MODIFICATION PROCEDURES.

     No different or additional services, work, or products will be authorized
or performed except pursuant to an amendment or modification of this Agreement
that is executed in compliance with this article. No waiver of any term,
covenant, or condition of this Agreement will be valid unless executed in
compliance with this article. CONTRACTOR will not be entitled to payment for any
services, work or products that are not authorized by a properly executed
Agreement amendment or modification, or through the express authorization of
HHSC.

                        ARTICLE 9. AUDIT AND FINANCIAL COMPLIANCE.

     SECTION 9.01 FINANCIAL RECORD RETENTION AND AUDIT.

     CONTRACTOR agrees to maintain and retain financial records and supporting
documents relating to this Agreement for a period of three (3) years and ninety
(90) days after the date of final payment under this Agreement or until the
resolution of all litigation, claim, financial management review or audit
pertaining to this Agreement, whichever is longer. CONTRACTOR agrees to repay
any valid, undisputed audit exceptions taken by HHSC in any audit of this
Agreement.

     SECTION 9.02 OPERATION/PERFORMANCE AUDITS.

     CONTRACTOR agrees to make available at reasonable times and for reasonable
periods all books, records, and supporting documents kept current by CONTRACTOR
pertaining to this Agreement, wherever such books, records, and supporting
documentation are maintained, for purposes of inspecting, monitoring, auditing,
or evaluation by HHSC, the State Auditor of Texas, the Comptroller General of
the United States, the United States Department of Health and Human Services, a
State or Federal law enforcement agency, or their representatives upon request
or notification from HHSC.

     HHSC will provide a minimum of thirty (30) calendar days written notice
prior to initiating a comprehensive audit (intensive review of files and
documents, along with interviews with key staff) not resulting from a complaint.
HHSC will provide CONTRACTOR written notice at least ten (10) business days
prior to any site visit at CONTRACTOR's offices (a general inspection and
interviews with CONTRACTOR's staff) not resulting from a complaint. If an
on-site visit or audit is the result of a complaint against CONTRACTOR, HHSC
will send written notice to CONTRACTOR via facsimile at least 24 hours prior to
the hour that the visit or audit will begin. CONTRACTOR must cooperate with
HHSC's evaluation or audit process.

     SECTION 9.03 ACCESS TO RECORDS, BOOKS, AND DOCUMENTS.

     (a) CONTRACTOR must provide the officials and entities identified in
paragraph (b) of this section 9.03 with prompt, reasonable, and adequate access
to any records, books, documents, and papers that are directly pertinent to the
performance of the services under this Agreement. Such access must be provided
upon request of the officials or entities identified in paragraph (b) for the
purpose of examination, audit, investigation, contract administration, or the
making of excerpts or transcripts.

     (b) The access required under this section must be provided to the
following officials and/or entities:

                    (1) The United States Department of Health and Human
               Services or its designee;

                    (2) The Comptroller General of the United States or its
               designee;

                                 Page 31 of 78
<PAGE>

                    (3) CHIP program personnel from HHSC or the Texas Department
               of Health;

                    (4) The Office of Investigations and Enforcement of HHSC;

                    (5) The CHIP program Management Services Contractor, when
               acting on behalf of HHSC;

                    (6) The Office of the State Auditor of Texas or its
               designee; and

                    (7) A special or general investigating committee of the
               Texas Legislature or its designee.

                     ARTICLE 10. TERMS AND CONDITIONS OF PAYMENT.

     SECTION 10.01 MONTHLY PREMIUM PAYMENTS.

     (a) CONTRACTOR agrees to provide the Services and Deliverables described in
this Agreement for monthly premium payments to be paid by HHSC to CONTRACTOR.

     (b) CONTRACTOR understands and expressly assumes the risks associated with
the performance of the duties and responsibilities under this Agreement,
including the failure, termination or suspension of funding to HHSC, delays or
denials of required approvals, and cost overruns not reasonably attributable to
HHSC. To the extent that funding or required approvals are not provided,
CONTRACTOR is not further obligated to provide Services or Deliverables beyond
any Service or Deliverable for which HHSC can provide acceptable assurances of
available funding.

     (c) CONTRACTOR further agrees that:

         (1) No additional charges, fees, or costs will be added to the monthly
         premium amount and the delivery supplemental payment described in
         section 10.03 or sought except for properly authorized and executed
         Change Orders; and

         (2) No other charges for tasks, functions, or activities that are
         incidental or ancillary to the delivery of the Services and
         Deliverables will be sought from HHSC or any other state agency, nor
         will the failure of HHSC or any other party to pay for such incidental
         or ancillary services entitle CONTRACTOR to withhold Services or
         Deliverables due under the Agreement.

     (d) A CONTRACTOR's monthly premium payment will not be reduced for a
family's failure to make its premium payment. There is no relationship between
the per member/per month amount owed to an CONTRACTOR for coverage provided
during a month and the family's payment of its premium obligation for that
month.

     SECTION 10.02 TIME AND MANNER OF PREMIUM PAYMENT.

     For the first year of the Initial Term, CONTRACTOR will be receiving
supplemental reimbursement at the attachment level of $100,000. CONTRACTOR will
be paid based on per member/per month premiums and new and current enrollment
figures (including disenrollment adjustments to previous monthly enrollment
totals). The Administrative Services Contractor will convey premiums payable
information to CONTRACTOR for data reconciliation and to the Management Services
Contractor. CONTRACTOR must reconcile the data and report any errors to the
Management Services Contractor by the cut-off date of the next

                                 Page 32 of 78
<PAGE>

month. CONTRACTOR must accept payment for premiums by direct deposit into
CONTRACTOR's account. For the first year of the Initial Term, these premium
rates are:

<Table>
<Caption>
      CSA #              Under Age 1            Ages 1-5             Ages 6-14            Ages 15-18
      -----              -----------            --------             ---------            ----------
<S>                      <C>                    <C>                  <C>                  <C>
      CSA 1                $372.47                $75.88               $49.60               $ 98.20

      CSA 4                $393.63                $80.30               $52.48               $103.92

      CSA 7                $358.86                $73.41               $47.78               $ 94.14

      CSA 11               $358.52                $73.04               $47.74               $ 94.04
</Table>

     CONTRACTOR does not bill HHSC, the Administrative Services Contractor,
other state agencies, or institutions for the monthly premium payment.

     Claim costs incurred for any child with dates of service between May 1,
2000, and April 30, 2001 that exceed the selected supplemental reimbursement
attachment level will be reimbursed to CONTRACTOR by HHSC. These claim costs
must represent actual expenses incurred by CONTRACTOR for CHIP covered services.
The supplemental reimbursement applies to all Members during the first year of
the Initial Term. After the first year of the Initial Term, HHSC will review the
supplemental reimbursement methodology and the attachment levels and determine
whether it should continue after the first year and, if so, in the same manner.
HHSC has final authority to decide whether the supplemental methodology will
continue and, if so, in what manner.

     HHSC may audit all claims for an individual whose costs have exceeded the
supplemental reimbursement attachment level.

     SECTION 10.03 DELIVERY SUPPLEMENTAL PAYMENT (DSP).

     HHSC shall pay to CONTRACTOR a one-time-per-pregnancy Delivery Supplemental
Payment (DSP) in the amount of $3,000.00 for each live or still birth delivery.
The one-time payment is made regardless of whether there is a single birth or
multiple births at the time of delivery. For purposes of this section, a
"delivery" is the birth of a live-born infant, regardless of the duration of the
pregnancy, or a stillborn (fetal death) infant of 22 weeks or more gestation.

     CONTRACTOR should make its best effort to report all deliveries to the
Administrative Services Contractor within 10 days of the delivery and no later
than 45 days from the date of delivery. No DSP will be made for deliveries that
are not reported by CONTRACTOR to the Administrative Services Contractor within
120 days from the receipt of claim, or within 60 days from the date of discharge
from the hospital for the stay related to the delivery, whichever is later.

     HHSC reserves the right to audit the claims submitted for DSP to ensure the
accuracy of those claims. The DSP will be paid to CONTRACTOR as part of the
monthly premium payment after receiving an accurate report from CONTRACTOR.

                                 Page 33 of 78
<PAGE>

     SECTION 10.04 PREMIUM RATES AFTER THE FIRST YEAR OF THE INITIAL TERM.

     (a) Second year.

     HHSC will review the methodology submitted by CONTRACTOR for determining
subsequent premium rate changes and re-examine the premium rates paid to
CONTRACTOR during the first year of the Initial Term to determine if a rate
change is needed for the second year of the Initial Term. HHSC will establish
the premium rates for each year. HHSC will provide any proposed revisions to the
premium rate changes for the second year of the Initial Term no later than 30
days before the first Anniversary Date. If CONTRACTOR disagrees with any
proposed revisions to the premium rates, the Parties will exchange actuarial
data supporting each of their positions as to what the premium rates for the
second year should be. HHSC and CONTRACTOR only will negotiate in good faith to
reach an agreement on the premium rates for the second year. Failing timely
agreement, CONTRACTOR and HHSC will select a neutral actuary who is agreeable to
both parties to review each of the Party's recommended premium rates and the
supporting actuarial data. The Parties will share the cost of the neutral
actuary equally. Full payment to the actuary may be made by CONTRACTOR, with
HHSC reimbursing CONTRACTOR for HHSC's share. The neutral actuary will make
non-binding recommendations for the premium rates for the second year after
reviewing each of the Party's data. HHSC will then determine the premium rates
for the second year.

     (b) Third year.

     HHSC will review the methodology submitted by CONTRACTOR for determining
subsequent premium rate changes and re-examine the premium rates paid to
CONTRACTOR during the first and second years of the Initial Term to determine if
a rate change is needed for the third year of the Initial Term. HHSC will
establish the premium rates for each year. HHSC will provide any proposed
revisions to the premium rate changes for the third year of the Initial Term no
later than 30 days before the second Anniversary Date. If CONTRACTOR disagrees
with any proposed revisions to the premium rates, the Parties will exchange
actuarial data supporting each of their positions as to what the premium rates
for the third year should be. HHSC and CONTRACTOR only will negotiate in good
faith to reach an agreement on the premium rates for the third year. Failing
timely agreement, CONTRACTOR and HHSC will select a neutral actuary who is
agreeable to both parties to review each of the Party's recommended premium
rates and the supporting actuarial data. The Parties will share the cost of the
neutral actuary equally. Full payment to the actuary may be made by CONTRACTOR,
with HHSC reimbursing CONTRACTOR for HHSC's share. The neutral actuary will make
non-binding recommendations for the premium rates for the third year after
reviewing the Parties' data. HHSC will then determine the premium rates for the
third year.

     SECTION 10.05 ADJUSTMENTS TO PREMIUM PAYMENTS.

     As provided below, HHSC or the Administrative Services Contractor may
adjust or recoup premiums paid to CONTRACTOR in error, which may be either human
or machine error on the part of HHSC. HHSC may recoup or adjust premiums paid to
CONTRACTOR if a CHIP-eligible child is enrolled into CONTRACTOR in error and
CONTRACTOR provides no covered services to the child for the period of time for
which the monthly premium payment was made. If CONTRACTOR arranged for services
to be provided to the Member as a result of the error during the time period for
which the monthly premium payment was made, no recoupment will occur. Under no
circumstances may HHSC recoup premiums paid for a period greater than two (2)
months.

     HHSC or the Administrative Services Contractor may recoup monthly premium
payments paid to CONTRACTOR if an Member for whom the monthly premium payment is
made was deceased during any full month for which CONTRACTOR received a premium
payment for that Member.

                                 Page 34 of 78
<PAGE>

     HHSC or the Administrative Services Contractor may adjust a monthly premium
or recoup a monthly premium payment made to CONTRACTOR for a Member if the
Member's eligibility status is changed, corrected, or retroactively adjusted as
a result of error. Adjustments to premium or recoupment may be appealed by
CONTRACTOR using the dispute resolution process outlined in section 20.16.

     SECTION 10.06 EXPERIENCE REBATE.

     For the Initial Term, CONTRACTOR must pay to HHSC an experience rebate
calculated in accordance with the tiered rebate method listed below based on the
excess of allowable CHIP HMO revenues over allowable CHIP HMO expenses as
measured by any positive amount on Line 7, Net Income Before Taxes, of "Part 1:
CHIP Financial Summary, All Coverage Groups Combined" of the annual
Financial-Statistical Report contained in Appendix D, as reviewed and confirmed
by HHSC.

                             GRADUATED REBATE METHOD

<Table>
<Caption>
      Experience Rebate as a
      Percentage of Revenues                CONTRACTOR Share                        HHSC Share
      ----------------------                ----------------                        ----------
<S>                                         <C>                                     <C>
             0% - 3%                             100%                                   0%

          Over 3% - 7%                            75%                                  25%

          Over 7% - 10%                           50%                                  50%

        Over 10% - 15%                            25%                                  75%

            Over 15%                               0%                                 100%
</Table>

     The financial governance document for calculating the experience rebate is
the governance document used in the Texas Medicaid STAR program on the Effective
Date of the Agreement.

     Losses incurred for one contract year may be carried forward only to the
next contract year. If CONTRACTOR operates in multiple CHIP Service Areas,
losses in one CHIP Service Area cannot be used to offset net income before taxes
in another CHIP Service Area.

     CONTRACTOR may subtract from an experience rebate that is owed to HHSC any
expenses for population-based health initiatives that have been approved by
HHSC.

     A population-based initiative is a project or program designed to improve
some aspect of quality of care, quality of life, or health care knowledge for
children and/or their adult caretakers, as a whole.

     There will be two settlements for payment(s) of the state share of the
experience rebate. The first settlement shall equal 100% of the state share of
the experience rebate as derived from Line 7, Net Income Before Taxes, of "Part
1: CHIP Financial Summary, All Groups Combined" of the annual CHIP Financial-
Statistical (CFS) Report contained in Appendix D and shall be paid on the same
day the first annual CFS Report is submitted to the Administrative Services
Contractor or HHSC. The second settlement shall be an adjustment to the first
settlement and shall be paid to HHSC on the same day that the second annual CFS
Report is submitted to the Administrative Services Contractor or HHSC if the
adjustment is a payment from CONTRACTOR to HHSC. HHSC or its agent may audit or
review the CFS reports. If HHSC determines that corrections to the CFS reports
are required based on an HHSC audit/review or other documentation acceptable to
HHSC, to determine an adjustment to the amount of the second settlement, then
final

                                 Page 35 of 78
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adjustment shall be made within two years from the date that CONTRACTOR submits
the second annual CFS report. CONTRACTOR must pay the first and second
settlements on the due dates for the first and second CFS reports respectively
as identified in section 17.02. HHSC may adjust the experience rebate if HHSC
determines that CONTRACTOR has paid affiliates amounts for goods or services
that are higher than the fair market value of the goods and services in that
CHIP Service Area. Fair market value may be based on the amount CONTRACTOR pays
a non-affiliate(s) or the amount another health maintenance organization pays
for the same or similar service in that CHIP Service Area. HHSC has final
authority in auditing and determining the amount of the experience rebate.

     SECTION 10.07 RESTRICTION ON ASSIGNMENT OF FEES.

     During the term of the Agreement CONTRACTOR may not, directly or
indirectly, assign to any third party any beneficial or legal interest of
CONTRACTOR in or to any payments to be made by HHSC pursuant to this Agreement.

     SECTION 10.08 LIABILITY FOR TAXES.

     HHSC is not responsible in any way for the payment of any Federal, state or
local taxes related to or incurred in connection with the Services or
Deliverables or this Agreement. CONTRACTOR must pay and discharge any and all
such taxes, including any penalties and interest.

     SECTION 10.09 LIABILITY FOR EMPLOYMENT-RELATED CHARGES AND BENEFITS.

     CONTRACTOR will perform work under this Agreement as an independent
contractor and not as agent or representative of HHSC. CONTRACTOR is solely and
exclusively liable for all taxes and employment-related charges incurred in
connection with the performance of this Agreement. HHSC will not be liable for
any employment-related charges or benefits of CONTRACTOR, such as workers
compensation benefits, unemployment insurance and benefits, or fringe benefits.

     SECTION 10.10 LIABILITY FOR OVERTIME COMPENSATION.

     CONTRACTOR will be solely responsible for any obligations of overtime pay
due employees.

ARTICLE 11. CHIP ELIGIBILITY, ENROLLMENT, DISENROLLMENT, AND COST-SHARING

     SECTION 11.01 CHIP ELIGIBILITY.

     (a) Generally.

     CHIP eligibility will be determined by the Administrative Services
Contractor. The Administrative Services Contractor will enroll and disenroll
eligible individuals into and out of CHIP. Parents or guardians will enroll
eligible individuals in a health plan.

     (b) Continuous coverage for first twelve months.

     A child who is CHIP-eligible will, for at least the first year of CHIP,
have twelve months of continuous coverage. That coverage begins on the first day
of the month following the child's enrollment into a health

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plan unless enrollment occurs after the cut-off date, in which case coverage
begins on the first day of the next month.

     (c) Pregnant Members and infants.

     Becoming pregnant, in and of itself, does not make a Member ineligible for
CHIP. If, after becoming pregnant, a Member chooses to apply for Medicaid and is
determined to be Medicaid-eligible, she is no longer eligible for CHIP. The
Administrative Services Contractor will notify the Member about her potential
Medicaid eligibility and of her ability to apply for Medicaid and will provide
appropriate resource information.

     Infants are automatically enrolled in the mother's CHIP health plan at
birth with CHIP eligibility and re-enrollment following the same timeframe as
those of the mother.

     CONTRACTOR through electronic means or the providers through calls to the
provider hotline will notify the Administrative Services Contractor when a
pregnancy is diagnosed. The administrative contractor will suspend the pregnant
Member's eligibility expiration date after notification is received. The
Administrative Services Contractor will unsuspend the mother's eligibility
expiration date and set the mother's and baby's eligibility expiration dates at
the later of (1) the end of the second month following the month of the baby's
birth or (2) the date when the mother's eligibility would have expired if it had
not been suspended during her pregnancy.

     To further ensure the reliability of the data, families also will be
encouraged to notify the Administrative Services Contractor by phone or in
writing when delivery of a baby to a CHIP-enrolled Member occurs.

     (d) Span of coverage.

     If a Member's effective date of coverage occurs while the Member is
confined in a hospital, the CONTRACTOR is responsible for the Member's costs of
Covered Services beginning on the Effective Date of Coverage. For each day that
the Member is hospitalized beginning on the Effective Date of Coverage, HHSC
will pay to CONTRACTOR $700 for non-ICU care and $1400 for ICU care. If a Member
is disenrolled while the Member is confined in a hospital, CONTRACTOR's
responsibility for the Member's costs of Covered Services terminates on the Date
of Disenrollment. Six months after the Implementation Date, the Parties will
review CONTRACTOR's data, and if either party believes that these payments are
insufficient, either Party can instigate the Change Order process set out in
Article 8. The Parties agree to negotiate any requested Change Order in good
faith.

     SECTION 11.02 ENROLLMENT.

     To enroll in CONTRACTOR's health plan, the Member's permanent residence
must be located within CONTRACTOR's CSA.

     HHSC makes no guarantees or representations to CONTRACTOR regarding the
number of eligible Members who will ultimately be enrolled into CONTRACTOR's
health plan.

     The Administrative Services Contractor will electronically transmit to
CONTRACTOR new Member information, PCP selections, and change information
applicable to active Members five business days prior to the first day of each
month. This monthly transmittal date is defined as the "cut-off date." Twelve
months of continuous coverage begins on the first day of the month following
enrollment unless enrollment occurs after the cut-off date, in which case
coverage begins on the first day of the next month. CONTRACTOR must

                                 Page 37 of 78
<PAGE>

accept all persons who reside within CONTRACTOR's CSA and chose to enroll in
CONTRACTOR's health plan without regard to the Member's health status or any
other factor.

     A Member is enrolled in a health plan initially selected for twelve (12)
months from the date that the individual is first covered by that health plan or
the applicable time period if the Member is pregnant as is set out in section
11.01(c). However, CONTRACTOR must accommodate Member requests to change health
plans for exceptional reason or good cause including, but not limited to:

     (a) permanent relocation from a CHIP Service Area; or

     (b) permanent relocation within CONTRACTOR's CSA that necessitates a change
in the Member's Primary Care Provider that CONTRACTOR cannot accommodate within
the prescribed TDI access standards;

     Additional reasons that qualify as an exceptional reason or good cause will
be determined by HHSC on a case-by-case basis or by rule. Members may change
health plans the first day of the month following the month in which exceptional
reason or good cause situation occurred, in accordance with the same cut-off
processing timeframes applied to new Members. All changes must be handled
through the Administrative Services Contractor. If a Member changes health plans
while the Member is confined in a hospital, the health plan from which the
Member is moving is responsible for all charges until the Member is discharged.

     There is no retroactive enrollment in CHIP.

     SECTION 11.03 RE-ENROLLMENT.

     At the beginning of the tenth month of coverage, the Administrative
Services Contractor will send a notice to the family outlining the next steps
for renewal or continuation of coverage. The Administrative Services Contractor
will also send a notice to CONTRACTOR regarding its Members and to a
community-based outreach organization providing follow-up assistance in the
Members' areas. To promote continuity of care for children eligible for
re-enrollment, CONTRACTOR may facilitate re-enrollment through reminders to
Members and other appropriate means. Failure of the family to respond to the
Administrative Services Contractor's renewal notice will result in disenrollment
from the plan and from CHIP.

     SECTION 11.04 DISENROLLMENT DUE TO LOSS OF ELIGIBILITY.

     For those Members who are disenrolled because they are no longer eligible
for CHIP, CONTRACTOR will receive from the Administrative Services Contractor
notice informing CONTRACTOR that the Members' coverage will end on a particular
date. Disenrollment due to loss of eligibility includes, but is not limited to:

         "Aging-out" when a child turns nineteen;

         Failure to re-enroll at the conclusion of the 12-month eligibility
         period;

         Change in health insurance status, such as a child enrolling in an
         employer-sponsored health plan;

         Failure to meet monthly cost-sharing obligation;

         Death of a child;

         The child permanently moves out of the state; and

                                 Page 38 of 78
<PAGE>

         Data match with the Medicaid system indicates dual enrollment in
         Medicaid and CHIP.

     If a child is disenrolled from CHIP, the child loses his or her CHIP
eligibility and must re-apply for a determination of CHIP eligibility in the
future.

     Regardless of the reason for retroactive disenrollment, recoupment of
premium payments by HHSC shall be in accordance with section 10.05. Under no
circumstances may HHSC recoup premiums paid for a period greater than two (2)
months.

     SECTION 11.05 DISENROLLMENT BY CONTRACTOR.

     CONTRACTOR has a limited right to request a Member be disenrolled from
CONTRACTOR without the Member's consent. HHSC must approve any CONTRACTOR
request for disenrollment of a Member for cause within thirty (30) days from
date request is received. Disenrollment of a Member may be permitted for the
reasons set out in 11 T.A.C. Section 11.506(a)(3). Disenrollment of a Member at
the request of CONTRACTOR may not occur during an inpatient stay.

     CONTRACTOR must notify the Member of HHSC's approval of the disenrollment
of the Member. IF THE MEMBER DISAGREES WITH THE DECISION TO DISENROLL THE MEMBER
FROM CONTRACTOR, CONTRACTOR MUST NOTIFY THE MEMBER OF THE AVAILABILITY OF
CONTRACTOR'S COMPLAINT PROCEDURE.

     THE CONTRACTOR CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES THAT ARE MEDICALLY
NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

     SECTION 11.06 COST-SHARING.

     Health care providers within CONTRACTOR's network are responsible for
collecting all Member copayments and deductibles at the time of service. No
co-payments apply, at any income level, to well-child or well-baby visits or
immunizations.

     No co-payments for families under 100% of the federal poverty level (FPL)

     Co-payments for families between 100% and 150% FPL are as follows:

              $2 per office visit
              $5 per emergency room visit
              $1 per prescription valued up to and including $15; $2 per
              prescription valued at more than $15 (based on retail value)
              An annual self-declared co-payment cap of $100 per family

     Co-payments for families above 150% FPL and up to and including 185% FPL
         are as follows:

              $5 per office visit
              $25 per emergency room visit
              $5 per generic prescription and $10 per brand-name prescription

     Co-payments for families above 185% FPL are as follows:
              $10 per office visit
              $35 per emergency room visit
              $5 per generic prescription and $10 per brand-name prescription

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<PAGE>

     For families with incomes between 186% and 200% FPL, a per-family annual
deductible of $200 for inpatient hospital services and $50 for outpatient
hospital services will apply. This $50 deductible for outpatient hospital stays
does not include applicable pharmacy co-pays.

     Upon notification from the Administrative Services Contractor that a family
is approaching its cost-sharing limit for the Coverage Year, CONTRACTOR will
generate and mail to the Member a new Member ID card, showing that the Member's
cost-sharing obligation for that Coverage Year has been met. No cost-sharing may
be collected from these Members for the balance of their Coverage Year.

     Except for costs associated with unauthorized non-emergency services
provided to a Member by out-of-network providers and for non-covered services,
the co-payments and deductibles outlined in this section are the only amounts
that a provider may collect from a CHIP-eligible family.

     Federal law prohibits charging co-payments or deductibles to Members of
Native American Tribes. The Administrative Services Contractor will notify
CONTRACTOR of Members who are Native Americans and who are not subject to
cost-sharing requirements. CONTRACTOR is responsible for educating providers
about the cost-sharing waiver for this population.

     A CONTRACTOR's monthly premium payment will not be reduced for a family's
failure to make its premium payment. There is no relationship between the per
member/per month amount owed to an CONTRACTOR for coverage provided during a
month and the family's payment of its premium obligation for that month.

                       ARTICLE 12. SCOPE OF CHIP COVERED SERVICES

     SECTION 12.01 BASIC REQUIRED COVERED SERVICES.

     CONTRACTOR is paid capitation for all services that are Covered Services as
described in the RFP. Unless the RFP specifies otherwise, CONTRACTOR may
determine if a covered service requires prior authorization, pre-certification,
or physician prescription. CONTRACTOR must pay for or reimburse for all
CHIP-covered services provided to Members for whom CONTRACTOR is paid
capitation.

     Out-of-network and emergency services also must be provided in accordance
with the Texas Insurance Code and TDI regulations as they apply to HMOs. Covered
services are subject to change due to changes in federal law, changes in CHIP
policy, and/or responses to changes in medicine, clinical protocols, or
technology. If covered services change, the change will be the subject of a
change order as provided in Article 8 of this Agreement. Any proposed change in
the scope of Covered Services, as set out in the RFP, will be made through a
Change Order under Article 8 of this Agreement.

     SECTION 12.02 DRUG FORMULARIES.

     If CONTRACTOR utilizes a prescription drug formulary for Members,
CONTRACTOR must fully disclose its use of the formulary in its marketing
materials. During the term of the Agreement, CONTRACTOR cannot create a new
formulary or significantly revise an existing formulary; however, minor
revisions to include new drugs, or to remove drugs in compliance with FDA
directives are allowed. HHSC will determine if a revision is significant.
CONTRACTOR may revise the formulary on a annual basis, subject to HHSC review
and approval.

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<PAGE>
     SECTION 12.03 VALUE-ADDED SERVICES.

     CONTRACTOR must also provide or arrange for the provision of the
Value-added services, offered by CONTRACTOR in its proposal. CONTRACTOR must
provide these Value-added Services at no additional cost to HHSC. CONTRACTOR
must not pass on the cost of the Value-added Services to providers. CONTRACTOR
must specify the conditions and specific parameters regarding the delivery of
the Value-added Services in CONTRACTOR's marketing materials and evidence of
coverage or member handbook. CONTRACTOR must clearly state to Members any
limitations or conditions specific to the Value-added Services.

     Value-added Services can be added or removed only by written amendment of
this Agreement. CONTRACTOR cannot include a Value-added Service in any material
distributed to Members or prospective Members until this Agreement has been
amended to include that Value-added Service or CONTRACTOR has received written
approval of the suggested Value-added Service from HHSC pending finalization of
the amendment.

     If a Value-added Service is deleted by amendment, CONTRACTOR must notify
each Member that the service is no longer available through CONTRACTOR.
CONTRACTOR must also revise all materials distributed to prospective Members to
reflect the change in Value-added Services.

     SECTION 12.04 DENTAL SERVICES.

     CONTRACTOR is not responsible for providing preventive and therapeutic
dental services to Members. However, hospital and related medical charges, such
as anesthesia, that are associated with dental care, are covered CHIP services.
CONTRACTOR must provide access to facilities and physician services that are
medically necessary to support the dentist who is providing CHIP dental services
under general anesthesia or intravenous (IV) sedation. Covered Services relating
to dental services are set forth in the RFP; this section does not expand the
scope of the Covered Services set out in the RFP.

     CONTRACTOR must inform network facilities, anesthesiologists, and PCPs what
authorization procedures are required, and how providers are to be reimbursed
for the preoperative evaluations by the PCP and/or anesthesiologist and for the
facility services. For dental-related medical emergency services, CONTRACTOR
must reimburse in-network and out-of-network providers in accordance with
federal and state statutes and regulations.

     SECTION 12.05 CASE MANAGEMENT SERVICES FOR CHILDREN WITH COMPLEX SPECIAL
                   HEALTH CARE NEEDS

     CONTRACTOR must have a documented process for identifying and tracking the
services of CHIP-eligible children with complex special health care needs
(CCSHCN).

     A child, a child's family, a health care provider, the CHIP Administrative
Services Contractor, or CONTRACTOR may preliminarily identify a CCSHCN.
CONTRACTOR must confirm the designation of a CCSHCN utilizing the standardized
screening instrument provided by the State. That screening instrument will be
substantially in the form attached hereto as Appendix E. Procedures for
collecting and processing data for CCSHCN are being developed; however,
CONTRACTOR will be required to electronically transmit CCSHCN information to the
Administrative Services Contractor on a quarterly basis.

     CCSHCN are eligible for case management services beyond the scope normally
provided to other CHIP-eligible children. CONTRACTOR must provide the following
enhanced case management services to CCSHCN as appropriate:

                                 Page 41 of 78
<PAGE>

     (a) Outreach and Informing

     Upon CCSHCN designation by CONTRACTOR, CONTRACTOR must contact the CCSHCN's
family to discuss covered services, including specialty services, the family's
right to select a specialist as a primary care provider, out-of-network services
applicable to the child's condition, if not available within network, the
availability of enhanced care coordination, and community referrals.

     (b) Enhanced Care Coordination

     Upon CCSHCN designation by CONTRACTOR, CCSHCNs, their families, or their
health providers may request enhanced care coordination from CONTRACTOR.
CONTRACTOR must furnish a care coordinator when requested. CONTRACTOR may also
recommend to the CCSHCN's family that a care coordinator be furnished if
CONTRACTOR determines that care coordination would benefit the child. Care
coordinators are responsible for working with CCSHCN, their families, and their
health care providers to develop a seamless package of care in which primary,
acute, and specialty service needs are met through a single plan that is
understandable to the family. A written plan of care must be developed and
updated at least annually. The care coordinator will coordinate all services
with the PCP and, as necessary, with the child's pediatric specialty care
physician. The care coordinator also makes referrals for other community
services.

     (c) Community Referrals

     CONTRACTOR must make a best effort to implement a systematic process to
enlist the involvement of community organizations that may not be providing
CHIP-covered services but are otherwise important to the health and well being
of Members. CONTRACTOR also must make a best effort to establish relationships
with these community organizations in order to make referrals for CCSHCN and
other children who need community services. These organizations may include, but
are not limited to:

     Early Childhood Intervention Program (512/424-6745)

     Department of Mental Health and Mental Retardation (MHMR) (512/206-4830)

     Texas Department of Health (TDH) Title V Program (512/458-7321)

     Local School District (Special Education)

     Other state and local agencies and programs with jurisdiction over
children's services, including food stamps, Women, Infants, and Children's (WIC)
Program

     Texas Information and Referral Network

     Texas Commission for the Blind (TCB)

     Child-serving civic and religious organizations and consumer and advocacy
groups, such as United Cerebral Palsy, that also work on behalf of the CCSHCN
population

     SECTION 12.06 PRE-EXISTING CONDITIONS.

     CONTRACTOR may not impose any pre-existing condition limitations or
exclusions or require evidence of insurability to provide coverage to any
CHIP-eligible child.

                                 Page 42 of 78
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     SECTION 12.07 COURT-ORDERED COMMITMENTS.

     CONTRACTOR must provide inpatient psychiatric services to Members under the
age of 19 who have been ordered to receive the services by a court of competent
jurisdiction under the provisions of Chapters 573 and 574 of the Texas Health
and Safety Code, relating to court-ordered commitments to psychiatric
facilities.

     Any modification or termination of services must be presented to the court
with jurisdiction over the matter for determination.

     A Member who has been ordered to receive treatment under the provisions of
Chapter 573 or 574 of the Texas Health and Safety Code cannot appeal the
commitment through CONTRACTOR's complaint or appeals process as described in
section 13.06 of this Agreement.

     CONTRACTOR must comply with 28 TAC Sections 3.8001, et seq. regarding
utilization review of chemical dependency treatment.

     SECTION 12.08 EARLY CHILDHOOD INTERVENTION (ECI).

     (a) ECI Services.

     CONTRACTOR must provide all federally mandated services contained at 34
C.F.R. 303.1, et seq., and 25 TAC Section 621.21 et seq., relating to
identification and referral for health care services contained in the Member's
Individual Family Service Plan (IFSP). An IFSP is the written plan which: (1)
identifies a Member's disability or chronic or complex condition(s) or
developmental delay; (2) describes the course of action developed to meet those
needs; and (3) identifies the person or persons responsible for each action in
the plan. The plan is a mutual agreement of the Member's PCP, case manager, and
the Member/family, and is part of the Member's medical record.

     (b) Identification and Referral.

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

     (c) Intervention.

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

                                 Page 43 of 78
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                           ARTICLE 13. MEMBER SERVICES

     SECTION 13.01 MEMBER EDUCATION.

     CONTRACTOR must, at a minimum, develop and implement health education
initiatives that educate Members about:

          (a) How the HMO system operates;

          (b) How to obtain services, including:

               (1) Accessing OB/GYN and plan requirements concerning specialty
               care;

               (2) Emergency services;

               (3) Behavioral health care services;

               (4) Prenatal services and unique aspects of CHIP/Medicaid
               eligibility prior- and post-partum;

               (5) Care and treatment, under CONTRACTOR's plan, for Members with
               disabilities and Children with Complex, Special Health Care
               Needs; and

               (6) Early Childhood Intervention (ECI) Services;

          (c) Covered Services, limitations and any Value-added Services offered
          by CONTRACTOR;

          (d) Member co-payments, if applicable; and

          (e) The value of screening and preventive care.

     CONTRACTOR also must provide child-oriented, disease specific-information
and educational materials to Members.

     In addition to the above requirements, CONTRACTOR must make any additional
educational initiatives outlined in its Proposal appropriately available to
Members.

     CONTRACTOR may respond to inquiries from pregnant Members or their families
regarding their potential Medicaid eligibility and making an informed choice.
CONTRACTOR's presentation should be balanced, presenting and explaining the
advantages and disadvantages to the Member of both CHIP and Medicaid as
appropriate in response to the Member's inquiries.

     SECTION 13.02 MEMBER MATERIALS.

     CONTRACTOR must design, print, and distribute Member identification (ID)
cards, provider directories, and evidence of coverage or Member handbooks
detailing Covered and any Value-added Services and the complaint and appeals
process as set out in section 13.06 of this Agreement.

     (a) Member Handbook.

     Except as noted below, CONTRACTOR must submit to HHSC a Member handbook
that complies with 28 T.A.C. Section 11.1600(b).

          (1) Exceptions to Section 11.1600(b) requirements.

                                 Page 44 of 78
<PAGE>

          Readability. The Member handbook should have a 6th grade reading level
          as measured by the appropriate score on the Flesch reading ease test.

          Cost-sharing. The Member handbook section regarding cost-sharing
          should illustrate the variations in Member financial responsibility by
          income levels.

          Provider Directory. CONTRACTOR need not mail a provider directory
          along with the member handbook to individuals at the time of their
          enrollment with CONTRACTOR's health plan. The Texas Department of
          Insurance has approved this exception to 28 TAC Section 11.1600. The
          Administrative Services Contractor will send CONTRACTOR's provider
          directory to an individual after the individual's program application
          is approved. This section does not preclude CONTRACTOR from mailing a
          provider directory to CONTRACTOR's Members.

          (2) Additional requirements.

          Cultural competency. The Member handbook must be available in a format
          accessible to the visually-impaired. The accessible format may include
          large print, Braille, and audio tapes.

          Languages other than English. The Member handbook must be available in
          English, Spanish, and the languages of other major population groups
          making up 10% or more of the enrolled CHIP population within the CHIP
          Service Area, as specified by HHSC. HHSC will provide CONTRACTOR with
          reasonable notice when the enrolled CHIP population reaches 10% within
          the CONTRACTOR's CSA.

     (b) Evidence of Coverage.

     CONTRACTOR's evidence of coverage must be approved by HHSC and TDI and
comply with applicable Texas insurance law and regulation.

     (c) Provider Directory.

     The font in the provider directory must be no more or less than 10 points
in height and lowercase unspaced alphabet length of no more or less than 120
points. The weight of the provider directory cannot exceed three (3) ounces. The
provider directory cannot measure larger than 8 1/2" by 11" and the content of
the directory is limited to:

     1. listing of all network providers, their locations, phone numbers and
office hours, with the exception of specialty providers, who may be listed by
name and location, which may be by county, and by a complete alphabetical list;
and

     2. two pages (1-page front and back) introducing the plan to the
prospective Member.

     The introduction of the plan to the prospective Member must be at a 6th
grade reading level, as measured by the appropriate score on the Flesch reading
ease test, and must be available in Spanish, English, and the languages of other
major population groups making up 10% or more of the enrolled CHIP population
within the CHIP Service Area, as specified by HHSC. HHSC will provide CONTRACTOR
with reasonable notice when the enrolled CHIP population reaches 10% within the
CONTRACTOR's CSA. The provider directory must be available in a format
accessible to the visually-impaired. The accessible format may include large
print, Braille, and audio tapes.

                                 Page 45 of 78
<PAGE>

     (d) HHSC review of Member material.

     HHSC has 15 business days from the date the Member material is received to
review the submitted material and to recommend any suggestions or required
changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted material.

     (e) Mailing of Member Material.

     CONTRACTOR must mail a Member's ID card and evidence of coverage or Member
handbook to the Member's mailing address by the fourth business day of the month
following receipt of an enrollment file from the Administrative Services
Contractor. CONTRACTOR is responsible only for those Members for whom valid data
is contained in the enrollment file.

     SECTION 13.03 CHIP-SPECIFIC INTERNET WEBSITE

     By May 1, 2000, CONTRACTOR must have operational and must maintain, a
website to provide general information about the plan, its provider network, its
Member services, and its complaints and appeals process as set out in section
13.06 of this Agreement. The site's content must be: written in English,
Spanish, and the languages of other major populations making up 10% or more of
the enrolled CHIP population within CONTRACTOR'S CSA, as specified by HHSC;
culturally appropriate; written for understanding at the 6th grade reading
level; and be geared to the health needs of children, including those with
special needs. CONTRACTOR's CHIP website must receive prior approval from HHSC.
HHSC has 15 business days from the date the website content and design is
received to review the submitted material and to recommend any suggestions or
required changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted material. CONTRACTOR may develop a CHIP page
within its existing website to meet the requirements of this section.

     CONTRACTOR's CHIP website cannot use tools or techniques that require
significant memory or disk resources or require special intervention on the
customer side to install plug-ins or additional software. CONTRACTOR cannot use
proprietary items that would require a specific browser in the CHIP website.

     SECTION 13.04 MEMBER TELEPHONE HOTLINE

     CONTRACTOR must maintain a Member telephone hotline. CONTRACTOR must ensure
that its Member service representatives treat all callers with dignity and
respect the callers' need for privacy. At a minimum, CONTRACTOR's Member service
representatives must be:

     (1) Able to give correct cost-sharing information relating to co-pays or
deductibles;

     (2) Able to answer non-technical questions pertaining to the role of the
primary care provider;

     (3) Able to answer administrative, non-clinical questions pertaining to
referrals or the process for receiving authorization for special procedures or
services;

     (4) Trained regarding cultural competency; and

     (5) Trained regarding the administrative process used to designate a child
as a child with complex special health care needs.

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     Except for federal holidays, CONTRACTOR must staff the toll-free hotline
from 8:00 AM to 5:00 PM Monday through Friday (Central Time Zone or Mountain
Time Zone, as applicable). A voice mailbox must be available after hours with a
callback the next working day. All recordings must be in English and Spanish.

     If CONTRACTOR does not have a voice-activated menu system, CONTRACTOR must
have a menu system that will accommodate individuals who cannot access the
system through other physical means, such as pushing a button on the telephone.

     CONTRACTOR must appropriately handle calls from non-English speaking (and
particularly Spanish-speaking) callers, as well as calls from individuals who
are deaf or hard-of-hearing.

     During the Initial Term, CONTRACTOR must answer 80% of all telephone calls
within an average of 30 seconds, and the abandonment rate must not exceed 10%.

     SECTION 13.05 NOTIFICATION OF PROVIDER TERMINATION

     If CONTRACTOR terminates its contract with a health care provider,
CONTRACTOR must provide timely written notification, as defined by the Texas
Insurance Code and TDI regulations, to affected Members.

     SECTION 13.06 MEMBER COMPLAINT AND APPEALS PROCESS.

     CONTRACTOR must develop, implement and maintain a Member complaint system
that complies with the requirements of article 20A.12 of the Texas Insurance
Code. The complaint and appeals procedure must be the same for all Members and
must comply with Texas Insurance Code, article 20A.12.

     CONTRACTOR must implement and maintain a procedure to appeal adverse
determinations that complies with the requirements of article 21.58A of the
Texas Insurance Code. The appeal of an adverse determination procedure must be
the same for all Members and must comply with Texas Insurance Code, article
21.58A.

     The provisions of article 21.58A, Texas Insurance Code, relating to a
Member's right to appeal an adverse determination made by CONTRACTOR or a
utilization review agent to an independent review organization also apply to
Members .

     SECTION 13.07 MEMBER CULTURAL AND LINGUISTIC SERVICES.

     (a) Cultural Competency Plan.

     CONTRACTOR must have a comprehensive written Cultural Competency Plan
describing how it will ensure culturally competent services and provide
linguistic and disability-related access. The plan must describe how the
individuals and systems within CONTRACTOR will effectively provide services to
people of all cultures, races, ethnic backgrounds, and religions, as well as
those with disabilities, in a manner that recognizes, values, affirms, and
respects the worth of the individuals and protects and preserves their dignity.
CONTRACTOR must submit a written plan to HHSC at the time of the readiness
review. Modifications and amendments to the written plan must be submitted to
HHSC no later than 30 days prior to implementation of the modification or
amendment. The plan must also be made available to CONTRACTOR's network of
providers.

     The Cultural Competency Plan must include the following:

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

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

     A description of how CONTRACTOR will implement the plan in its
organization, identifying a person in the organization who will serve as the
contact with HHSC regarding the plan;

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

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

     A description of how CONTRACTOR will help Members access culturally and
linguistically appropriate community health or social service resources.

     (b) Linguistic, Interpreter Services, and Provision of Auxiliary Aids and
Services.

     CONTRACTOR must provide experienced, professional interpreters when
technical, medical, or treatment information is to be discussed. See Title VI of
the Civil Rights Act of 1964, 42 U.S.C. Sections 2000d, et seq. CONTRACTOR must
ensure that auxiliary aids and services necessary for effective communication
are provided, as per the Americans with Disabilities Act, Title III, Department
of Justice Regulations 36.303.

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

     A competent interpreter is defined as someone who is:

         (1)      proficient in both English and the other language;

         (2)      has had orientation or training in the ethics of interpreting;
                  and

         (3)      has the ability to interpret accurately and impartially.

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

     Family Members, especially minor children, should not be used as
interpreters in assessments, therapy, or other medical situations in which
impartiality and confidentiality are critical, unless specifically requested by
the Member. However, a family member or friend may be used as an interpreter if
he or she can be relied upon to provide a complete and accurate translation of
the information being provided to the Member if (1)

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the Member is advised that a free interpreter is available, and (2) the Member
expresses a preference to rely on the family member or friend.

     CONTRACTOR must provide or arrange access to TDD to Members who are deaf or
hearing impaired.

                             ARTICLE 14. MARKETING.

     SECTION 14.01 AIM OF MARKETING.

     CONTRACTOR may engage in marketing within the marketing guidelines set out
in this Agreement. CONTRACTOR's marketing activities must have the goal of
increasing the number of applications for health insurance and be consistent
with HHSC's outreach campaign.

     SECTION 14.02 MARKETING GUIDELINES.

     1. CONTRACTOR may accept CHIP eligibility applications, with any applicable
supporting eligibility documentation, and mail to Administrator Contractor.

     2. CONTRACTOR is prohibited from engaging in door-to-door marketing or
solicitation.

     3. CONTRACTOR is prohibited from marketing to any person who is under the
age of eighteen (18) years.

     4. CONTRACTOR is prohibited from street marketing.

     5. CONTRACTOR may conduct telephone marketing during incoming calls from
prospective Members. CONTRACTOR may return telephone calls only when requested
to do so by the caller. CONTRACTOR is prohibited from initiating outbound
telemarketing calls.

     6. If CONTRACTOR approaches a person who is currently enrolled in Medicaid,
no marketing can take place; CONTRACTOR must refer the individual to the
Medicaid enrollment broker in areas where Medicaid managed care is present.

     7. CONTRACTOR's marketing representatives must wear ID badges with nametags
and photographs.

     8. CONTRACTOR may conduct face-to-face marketing during CBO, Administrative
Services Contractor, or health plan sponsored events.

     9. CONTRACTOR may provide health-related promotional giveaways under $10
("Giveaways") during events sponsored by a CBO, the Administrative Services
Contractor, or the health plans, to the extent permitted by applicable statutes
and TDI rules. Giveaways that include only CONTRACTOR's name or initials and its
phone number and do not refer to CHIP in any way do not require HHSC approval
before distribution.

     10. CONTRACTOR must seek and obtain permission from the appropriate person
or entity at the site where CONTRACTOR plans to market prior to engaging in CHIP
marketing activities. With permission, CONTRACTOR may market at small businesses
and factories, unemployment offices, Head Start, WIC, day care centers,
providers' offices, and schools. CONTRACTOR must not marketing in County Welfare
Agencies (CWA) or around the CWA office.

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     11. Only the following marketing materials are allowed: billboards,
literature display racks, bus ads, flyers, newspaper advertisements, pamphlets,
brochures, radio advertisements, television advertisements, and CHIP material
provided by HHSC. All CONTRACTOR marketing materials must be approved by HHSC.
HHSC has 15 business days from the date the Member material is received to
review the submitted material and to recommend any suggestions or required
changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted material.

     12. CONTRACTOR may request that HHSC approve marketing materials other than
those listed in section 14.02(11). HHSC will approve or disapprove the submitted
marketing materials within fifteen (15) business days from the date HHSC
receives the materials. These materials will not be deemed approved.

     SECTION 14.03 DISENROLLMENTS.

     The Administrative Services Contractor must handle all disenrollments.
CONTRACTOR is not allowed to discuss, induce or accept disenrollment from a CHIP
Member except to refer to the CHIP Administrative Services Contractor. If
CONTRACTOR approaches or is approached by a person who states that he or she is
enrolled in another CHIP health plan, CONTRACTOR must end the conversation.

     SECTION 14.04 MARKETING SCHEDULE.

     CONTRACTOR must submit to HHSC for approval a marketing schedule at least
twenty (20) business days prior to beginning of any CHIP marketing activity.
CONTRACTOR must indicate the exact address of the site at which it will market
on the schedule. HHSC will respond to the submitted marketing schedule within
fifteen (15) business days from the date of receipt. CONTRACTOR must receive
HHSC's approval of the schedule prior to the marketing event, which approval
HHSC may not unreasonably withhold. If HHSC does not approve the schedule within
the allotted fifteen (15) business days, the schedule is deemed approved. If
HHSC expressly disapproves the marketing schedule, CONTRACTOR is prohibited from
engaging in the marketing activity set out on the schedule at the time
indicated. HHSC may require changes in the marketing schedule before it will
approve the schedule.

     SECTION 14.05 GENERAL PROVISIONS.

     CONTRACTOR must comply with all state insurance law and TDI regulations
regarding prohibitions on marketing.

     CONTRACTOR may conduct a plan-sponsored event without being required to
invite other health plans participating in CHIP.

     At no time during the application, enrollment, and re-enrollment processes
may CONTRACTOR use licensed insurance agents.

     SECTION 14.06 REGULATION.

     An industry group comprised of one representative from each health
maintenance organization participating in CHIP, as well as ex officio
representation from the State and consumers, will be charged with developing and
recommending to HHSC a sanctions schedule for marketing violations by CHIP
health maintenance organizations. The sanctions schedule is subject to approval
by HHSC. The industry group is responsible for reporting to HHSC possible
marketing violations that the group discovers or that are reported to the group.
HHSC is responsible for investigating possible marketing violations that are
reported to it by

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the industry group and is responsible for imposing sanctions based on the
sanctions schedule developed by the industry group. The industry group must meet
regularly, at least once a month. The first meeting will be called by HHSC. At
the end of the first year of the Initial Term, the State will evaluate the
effectiveness of this regulatory approach and will review options for state
enforcement if that approach is deemed by HHSC to be inadequate.

                      ARTICLE 15. PROVIDER NETWORK REQUIREMENTS

     SECTION 15.01 PROVIDER SUBCONTRACTS.

     (a) Generally.

     CONTRACTOR must enter into written contracts with properly credentialed
health care service providers, licensed in Texas, either directly or through
intermediaries, such as Independent Practice Associations (IPAs). CONTRACTOR
must have its own credentialing process to review, approve, and periodically
re-certify the credentials of all participating providers in compliance with 28
T.A.C. Section 11.1902. CONTRACTOR may delegate credentialing in accordance with
TDI regulations.

     (b) Subcontract terms.

     CONTRACTOR must ensure that, as part of its contract with the provider, or
in its intermediary's contract with the actual provider of health services, in
addition to any requirements imposed by state insurance law or TDI regulation,
the following requirements are included:

          (1) A statement to the effect that the provider is subject to all
          state and federal laws, rules and regulations that apply to all
          persons or entities receiving state and federal funds, including
          provisions of the Clean Air Act and the Federal Water Pollution
          Control Act, as amended, found at 42 C.F.R. 7401, et seq. and 33
          U.S.C. 1251, et seq., respectively; the exclusion, debarment, and
          suspension provisions of Section 1128(a) or (b) of the Social Security
          Act (42 USC Section 1320 a-7), or Executive Order 12549; the
          provisions of the Byrd Anti-Lobbying Amendment, found at 31 U.S.C.
          1352, relating to use of federal funds for lobbying for or obtaining
          federal contracts; Health and Safety Code, Chapter 85, Subchapter E,
          relating to the Duties of State Agencies and State Contractors for the
          confidentiality of AIDS and HIV-related medical information and an
          anti-discrimination policy for employees and Members with communicable
          diseases; confidentiality provisions relating to Member information
          (cite); Title VI of the Civil Rights Act of 1964, Section 504 of the
          Rehabilitation Act of 1973, the Americans with Disabilities Act of
          1990, and all requirements imposed by the regulations implementing
          these acts and all amendments to the laws and regulations; the
          provisions of Executive Order 11246, as amended by 11375, relating to
          Equal Employment Opportunity; Texas Government Code, Title 10,
          Subtitle D, Chapter 2161 and 1 TAC Section 111.11(b) and 111.13(c)(7)
          relating to the good faith effort to use Historically Underutilized
          Businesses (HUBs); section 9-7.06 of article IX of the General
          Appropriations Act of 1999 regarding "Buy Texas"; Texas Family Code
          Section 231.006 regarding child support payments; and chapter 552 of
          the Texas Government Code regarding the release of public information;

          (2) A statement that the provider understands and agrees that
          CONTRACTOR has the sole responsibility for payment of covered services
          rendered by the provider under CONTRACTOR/provider contract and a
          statement that in the event that CONTRACTOR becomes insolvent or
          ceases operations, the provider's sole recourse is against CONTRACTOR
          through CONTRACTOR's bankruptcy, conservatorship, or receivership
          estate;

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<PAGE>

         (3) A statement that CONTRACTOR will initiate and maintain any action
         necessary to stop a health care provider or employee, agent, assign,
         trustee, or successor-in-interest from maintaining an action against
         HHSC or any Member to collect payment from HHSC or any Members over and
         above allowable copayments or deductibles, excluding payment for
         services not covered under CHIP;

         (4) A statement that CONTRACTOR must defend, indemnify and hold
         harmless Members and HHSC against any and all claims, costs, damages,
         or expenses (including attorney's fees) of any type or nature arising
         from the failure, inability, or refusal of CONTRACTOR to pay health
         care providers for covered services or supplies;

         (5) CONTRACTOR must ensure that each health care provider contract
         prohibits the provider from engaging in direct marketing to Members
         that is designed to increase enrollment in a particular health plan.
         This prohibition should not constrain providers from engaging in
         permissible marketing activities consistent with broad outreach
         objectives and application assistance;

         (6) A statement that the provider is subject to all state and federal
         laws and regulations relating to fraud and abuse in health care and
         CHIP. The provider must cooperate and assist HHSC and any state or
         federal agency that has the duty of identifying, investigating,
         sanctioning or prosecuting suspected fraud and abuse. The provider must
         provide originals and/or copies of all records and information
         requested and allow access to premises and provide records to HHSC or
         its authorized agent(s), HCFA, the U.S. Department of Health and Human
         Services (DHHS), FBI, TDI, or other unit of state government. The
         provider must provide all copies of records free of charge; and

         (7) A requirement that the provider is responsible for collecting at
         the time of the service any applicable CHIP copayments or deductibles
         given the limitations on those copayments and deductibles as set out in
         section 11.06 of this Agreement.

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

     THE CONTRACTOR REMAINS RESPONSIBLE FOR PERFORMING AND FOR ANY FAILURE TO
PERFORM ALL DUTIES, RESPONSIBILITIES AND SERVICES UNDER THIS AGREEMENT
REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED TO
ANOTHER FOR ACTUAL PERFORMANCE.

     SECTION 15.02 PROVIDER ACCESSIBILITY.

     CONTRACTOR is required to meet the TDI accessibility and availability
requirements and the TDI services requirements for HMOs (Title 28, Part I,
Chapter 11, Subchapters Q and U of the Texas Administrative Code).
Out-of-network and emergency services also must be provided in accordance with
the Texas Insurance Code and TDI regulations as they apply to HMOs.

     CONTRACTOR must have a sufficient number of providers (including pediatric
providers) to meet Members' needs in accordance with TDI accessibility and
availability requirements. PCPs and specialty care providers with experience in
treating children and adolescents must be available to all Members .

                                 Page 52 of 78
<PAGE>

     CONTRACTOR must ensure that CCSHCN have access to treatment by a
multidisciplinary team when determined to be medically necessary for effective
treatment or to avoid separate and fragmented evaluations and service plans. The
teams must include both physician and non-physician providers determined to be
necessary by the Member's PCP.

     CONTRACTOR must assure access to Texas Department of Health
(TDH)-designated Level I and Level II trauma centers within the State or
hospitals meeting the equivalent level of trauma care, for emergency services
only. CONTRACTOR may make out-of-network reimbursement arrangements with the
TDH-designated Level I and Level II trauma centers.

     CONTRACTOR must assure adequate access of all Members to children's
hospitals and pediatric health care centers with recognized special expertise in
the care of CCSHCN to meet the medically necessary referrals of a PCP as
documented in the Member's medical record. TDH-approved pediatric transplant
centers and federally qualified hemophilia centers are examples. CONTRACTOR may
make out-of-network reimbursement arrangements for treatment in these hospitals
or centers.

     SECTION 15.03 PARTICULAR PROVIDERS.

     (a) Significant Traditional Providers.

     CONTRACTOR must seek participation in its provider network from:

          (1) all hospitals receiving disproportionate share hospital funds in
          the Medicaid program in State Fiscal Year 1999; and

          (2) all other providers in a county that, when listed by provider type
          or by specialty code in descending order by the amount of recipient or
          Member billings, provided the top 80 percent of recipient or Member
          billings for either the Texas Medicaid Program in State Fiscal Year
          1998 as determined by the Texas Department of Health, or the Texas
          Healthy Kids Corporation program in State Fiscal Year 1999 as
          determined by the Texas Healthy Kids Corporation for each provider
          type or specialty code, or providers that were funded and in good
          standing with the Department of Mental Health and Mental Retardation
          or the Council on Alcohol and Drug Abuse in State Fiscal Year 1999.

     (b) Tribal clinics.

     CONTRACTOR must seek participation in its provider network from the tribal
health clinics located near El Paso, Eagle Pass, and Livingston.

     (c) Rural providers.

     In rural areas of the CONTRACTOR's CSA, CONTRACTOR must seek the
participation in its provider network of rural hospitals, physicians, home and
community support service agencies, and other rural health care providers who:

     1. are the only providers located in the CHIP Service Area; and

     2. are Significant Traditional Providers as defined in 1 T.A.C. Section
361.001.

     To contract with CONTRACTOR, rural health providers must:

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<PAGE>

     1. agree to accept the prevailing provider contract rate of CONTRACTOR
based on provider type; and

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

     SECTION 15.04 GOOD-FAITH EFFORT

     CONTRACTOR must demonstrate a good faith effort to include STPs, tribal
clinics, and rural providers in its provider network. CONTRACTOR's compliance
with this requirement must be reported on a quarterly basis using report
requirements defined by HHSC.

     To be a network provider under this section, STPs, tribal clinics, and
rural providers must agree to the provider contract requirements set out in
section 15.01 of this Agreement unless exempted from a requirement by law or
rule. STPs, tribal clinics, and rural providers must also agree in the contract
that they will:

          (1) accept the standard reimbursement rate offered by CONTRACTOR to
          other providers for the same or similar services;

          (2) meet CONTRACTOR's credentialing requirements. CONTRACTOR must not
          require STPs to meet a different or higher credentialing standard than
          is required of other providers providing the same or similar services.
          CONTRACTOR also must not require STPs to contract with a subcontractor
          who requires a different or higher credentialing standard than
          CONTRACTOR's if the application of that higher standard results in a
          disproportionate number of STPs being excluded from the subcontractor;
          and

          (3) accept the same form of provider agreement that CONTRACTOR is
          using in its core CHIP business.

     Failure to demonstrate a good faith effort to include STPs, tribal clinics,
and rural providers in CONTRACTOR's provider network, or failure to report
efforts and compliance as required in this section are defaults under this
Agreement and may result in any or all of the remedies included in Article 20 of
this Agreement.

     SECTION 15.05 PROVIDER TAX IDENTIFICATION NUMBERS.

     CONTRACTOR must require tax identification numbers from all providers.
CONTRACTOR is required to do back-up withholding from all payments to providers
who fail to give tax identification numbers or who give incorrect numbers.

     SECTION 15.06 PROVIDER HANDBOOK.

     CONTRACTOR must submit to HHSC a provider handbook that complies with Texas
Department of Insurance provisions, including, but not limited to: 28 T.A.C.
Section 11.1606(e)(5) (regarding the requirements CONTRACTOR imposes upon
physicians and providers); 28 T.A.C. Section 11.1903(2)(F)(iv) (practice
guidelines); and 28 T.A.C. Section 11.900(b) (regarding the written criteria for
determining medical need for a Member to utilize a specialist as a primary care
physician).

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<PAGE>

     HHSC has 15 business days from the date the provider handbook is received
to review the submitted material and to recommend any suggestions or required
changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted handbook.

     SECTION 15.07 CLAIMS SUBMISSION AND PAYMENT.

     CONTRACTOR must comply with article 20A.18B of the Texas Insurance Code
regarding prompt payment of physicians and providers and any applicable
regulations. Providers are required to comply with chapter 146 of the Texas
Civil Practice and Remedies Code regarding timely billing.

                     ARTICLE 16. CONTINUOUS QUALITY IMPROVEMENT.

     SECTION 16.01 COMMITMENT TO QUALITY.

     CONTRACTOR shall develop and maintain an ongoing quality improvement
program designed to objectively and systematically monitor and evaluate the
quality and appropriateness of care and service provided to Members, and to
pursue opportunities for improvement.

     SECTION 16.02 QUALITY IMPROVEMENT COMMITTEE.

     CONTRACTOR must have a formal quality improvement committee that meets the
requirements of 11 T.A.C. Section 11.1903.

     SECTION 16.03 QUALITY IMPROVEMENT PLAN (QIP).

     CONTRACTOR must provide to HHSC its annual written Quality Improvement Plan
(QIP) in accordance with federal and state requirements. The Quality Improvement
Plan shall meet all requirements of 28 TAC Section 11.1902 with regard to scope
and content.

                             ARTICLE 17. REPORTING REQUIREMENTS

     SECTION 17.01 GENERALLY.

     The Parties agree that they will collaborate and negotiate in good faith to
develop a report matrix that will be added through amendment to this Agreement.
The Parties intend the report matrix to supply reporting details that are not in
this Agreement, the Proposal, or the RFP.

     SECTION 17.02 FINANCIAL REPORTS.

     CONTRACTOR must submit to HHSC the following financial reports as they are
described in Appendix D:

          The Monthly or Quarterly CHIP Financial-Statistical Report in the
          format set out in Appendix D, as modified or amended by HHSC;

          The Annual CHIP Financial-Statistical Report in the format set out in
          Appendix D, as modified or amended by HHSC;

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          The Affiliate Report;

          CONTRACTOR'S Annual Audited Financial Report;

          Form HCFA-1513;

          Section 1318 Financial Disclosure Report;

          TDI Examination Report on CONTRACTOR; and

          CONTRACTOR'S IBNR Plan.

     SECTION 17.03 ENCOUNTER DATA SPECIFICATIONS REPORT.

     The Parties agree that they will negotiate in good faith to develop the
specifications on the reporting and processing of encounter data that meet
federal and programmatic requirements. Any subsequent requirements leading to
actual data reporting will be handled through an amendment of this Agreement.

     SECTION 17.04 UTILIZATION MANAGEMENT REPORTS.

     (a) HEDIS Reporting.

     The Parties agree that they will negotiate in good faith to develop the
specifications on the reporting of HEDIS data that meets federal and
programmatic requirements. Any subsequent requirements leading to actual data
reporting will be handled through an amendment of this Agreement.

     (b) Physical Health

     Physical Health (PH) Utilization Management Reports are required on a
quarterly basis due to HHSC no later than 150 days following the end of the
reporting period. The form of the report and the instructions are contained in
Appendix G. The PH Utilization Management Report instructions may periodically
be updated by HHSC to facilitate clear communication to CONTRACTOR.

     (c) Behavioral Health

     Behavioral Health (BH) Utilization Management Reports are required on a
quarterly basis due to HHSC no later than 150 days following the end of the
reporting period. The form of the report and the instructions are contained in
Appendix H. The BH Utilization Report instructions may periodically be updated
by HHSC to facilitate clear communication to the health plan.

     SECTION 17.05 FOCUSED STUDIES REPORTS

     CONTRACTOR must conduct one (1) state-specified focused study and one (1)
study chosen by CONTRACTOR. The state-specified study will be developed through
collaboration among HHSC, TDH, the Administrative Services Contractor, and the
health plans and is conducted and submitted on an annual basis. This study must
be conducted and data collected using criteria and methods developed by HHSC and
TDH in collaboration with the health plans. The report format is set out in the
RFP.

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     SECTION 17.06 ANNUAL QUALITY IMPROVEMENT PLAN (QIP) SUMMARY REPORT

     An annual Quality Improvement Plan (QIP) summary report must be conducted
yearly based on the state fiscal year. The annual QIP summary report must be
submitted by March 31 of each year. The information to be included is set out in
the RFP.

     SECTION 17.07 HUB REPORTS

     CONTRACTOR must submit quarterly reports documenting CONTRACTOR's
Historically Underutilized Business (HUB) program efforts and accomplishments.
The format for this report is contained in Appendix I.

     SECTION 17.08 FRAUDULENT PRACTICES REPORT

     CONTRACTOR must report all fraud and abuse enforcement actions or
investigations taken against CONTRACTOR and/or any of its subcontractors or
providers by any state or federal agency for fraud or abuse under Title XVIII or
Title XIX of the Social Security Act or any State law or regulation and any
known or suspected act of fraud or abuse. The report must include information
concerning the detection and the disposition of any potential fraudulent or
abusive practices.

FRAUD AND ABUSE COMPLIANCE PLAN.

Model Compliance Plan

     CONTRACTOR must submit a written compliance plan to HHSC for approval no
later than the scheduled date for initiating readiness reviews. CONTRACTOR must
comply with the requirements of the Model Compliance Plan for HMOs when this
model plan is issued by the U.S. Department of Health and Human Services, the
Office of Inspector General, if the federal government mandates the Plan for
CHIP. In the meantime, HHSC will provide guidance in the form of a template for
use by plans in developing compliance plans that will be subject to HHSC
approval. That template is attached to this Agreement as Appendix J.

Requirements for the CONTRACTOR's compliance plan

     Additionally, the plan must ensure that all officers, directors, managers
and employees know and understand the provisions of the CONTRACTOR's fraud and
abuse compliance plan. The written plan must contain procedures designed to
prevent and detect potential or suspected abuse and fraud in the administration
and delivery of Services under this Agreement. The plan must contain provisions
for the confidential reporting of plan violations to the designated person,
ensure that the identity of an individual reporting violations of the plan is
protected and that no individual who reports plan violations or suspected fraud
and abuse is subject to retaliation. The plan provisions must provide for the
investigation and follow-up of any compliance plan reports and contain specific
and detailed internal procedures for officers, directors, managers and employees
for detecting, reporting, and investigating fraud and abuse compliance plan
violations. The compliance plan also must require that confirmed violations be
reported to HHSC. The plan must require any confirmed violations or confirmed or
suspected fraud and abuse under state or federal law is reported to HHSC or its
designated agents or other units of state government specified in the Agreement.

Fraud and abuse training.

     CONTRACTOR must designate executive and essential personnel to attend
mandatory training in fraud and abuse detection, prevention and reporting. The
training will be conducted by the Office of Investigation

                                 Page 57 of 78
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and Enforcement, Health and Human Services Commission, and will be provided free
of charge. CONTRACTOR must schedule and complete training no later than 90 days
after the Implementation Date.

     The CONTRACTOR must designate an officer or director in its organization
with responsibility and authority for carrying out the provisions of the
compliance plan. A CONTRACTOR'S failure to report potential or suspected fraud
or abuse may result in sanctions, cancellation of contract, or exclusion from
participation in CHIP. The CONTRACTOR must allow the HHSC, its agents, or other
governmental units to conduct private interviews of the CONTRACTOR's personnel,
Subcontractors and their personnel, witnesses, and patients with regard to a
confirmed violation. The CONTRACTOR's personnel and it Subcontractors and their
personnel must cooperate fully by being available in person for interviews,
consultation, grand jury proceedings, pre-trial conferences, hearings, trials
and in any other process, including investigations, at the CONTRACTOR's and
Subcontractors' own expense.

     SECTION 17.09 PROVIDER NETWORK REPORTS

     (a) PCPs and Specialists Report

     CONTRACTOR must submit to HHSC by the date of the readiness review an
electronic listing of all PCPs participating in their network. The format for
this report is contained in Appendix K.

     CONTRACTOR must also submit to HHSC by the date of the readiness review an
electronic listing of all specialists participating in their network. The format
for this report is contained in Appendix L to the RFP.

     (b) Provider Network Change Report

     CONTRACTOR must submit a monthly report summarizing changes in CONTRACTOR's
provider network. The report must be submitted to HHSC in the format set out in
the RFP 30 days following the end of the reporting month.

     (c) PCP Network and Capacity Report

     CONTRACTOR must submit electronically to the Administrative Services
Contractor a weekly report that shows changes to the PCP network and PCP
capacity.

     SECTION 17.10 THIRD PARTY RECOVERY (TPR) REPORTS

     If CONTRACTOR chooses to engage in Third Party Recovery (TPR) activities,
it must file quarterly TPR Reports in accordance with the format developed by
the State. TPR reports must include total dollars recovered from third party
payers for services to Members for each month and the total dollars recovered.

     SECTION 17.11 ALL CLAIMS SUMMARY REPORT

     CONTRACTOR must submit the "All Claims Summary Report" as a contract
year-to-date report. The report must be submitted quarterly by the last day of
the month following the reporting period. The report must be submitted to HHSC
in a format specified by HHSC. This report format will be developed
collaboratively with the health plans.

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     SECTION 17.12 SUMMARY REPORT OF PROVIDER AND MEMBER COMPLAINTS

     CONTRACTOR must submit Member and provider complaints reports. CONTRACTOR
must also report complaints submitted to its subcapitated groups (e.g., IPAs).
The complaint reports must be submitted in two paper copies and one electronic
copy on or before the 45 days following the end of the state fiscal quarter
using the TDI format.

     SECTION 17.13 MONTHLY MEMBER HOTLINE STATUS REPORT

     CONTRACTOR must submit, on a monthly basis, a Member hotline status report
that contains the elements set out in the RFP.

     SECTION 17.14 PROVIDER HOTLINE PERFORMANCE REPORT

     CONTRACTOR must submit, on a monthly basis, a provider telephone status
report that contains the elements set out in the RFP.

     SECTION 17.15 AD HOC REPORTS.

     CONTRACTOR will provide ad hoc reports as requested by HHSC at no
additional charge if the information requested is currently available or easily
modified from existing data. If the requested information is not currently
available or easily modified from existing data, the change order process set
out in Article 8 will apply or the Parties may mutually agree on an alternative.

           ARTICLE 18. DISCLOSURE AND CONFIDENTIALITY OF INFORMATION.

     SECTION 18.01 CONFIDENTIALITY.

     (a) CONTRACTOR and all subcontractors under this Contact shall treat all
information which is obtained through performance under this Agreement as
confidential information to the extent that confidential treatment is provided
under law and regulations, and shall not use any information so obtained in any
manner except as necessary to the proper discharge of obligations and securing
of rights hereunder.

     (b) CONTRACTOR will have a system in effect to protect all records and all
other documents deemed confidential by law which are maintained in connection
with the activities funded under this Agreement. Any disclosure or transfer of
confidential information by CONTRACTOR, including information required by HHSC,
will be in accordance with applicable law.

     (c) In addition to the requirements expressly stated in this article,
CONTRACTOR will comply with any policy, rule, or reasonable requirement of HHSC
that relates to the safeguarding or disclosure of information relating to
Members, CONTRACTOR's operations, or the Services performed by CONTRACTOR under
this Agreement.

     SECTION 18.02 REQUESTS FOR PUBLIC INFORMATION.

     (a) HHSC agrees that it will promptly notify CONTRACTOR of a request for
disclosure of public information that relates to information or data to which
CONTRACTOR has a proprietary or commercial interest. HHSC will deliver a copy of
the request for public information to CONTRACTOR.

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<PAGE>

     (b) With respect to any confidential information that is the subject of a
request for disclosure, CONTRACTOR is required to provide a written explanation
of specific reasons why the requested information is confidential or otherwise
excepted from required public disclosure under law. HHSC shall, in its sole
discretion, determine the appropriate response to the request for information.

     SECTION 18.03 PUBLICITY.

     (a) CONTRACTOR may use the name of HHSC, the State of Texas, or any other
state agency, or the name of the Children's Health Insurance Program in a media
release, public announcement, or public disclosure relating to this Agreement or
its subject matter (other than in proposals submitted to the State of Texas, an
administrative agency of the State of Texas, or a governmental agency of another
state) only if, at least three (3) business days prior to distributing the
material, CONTRACTOR submits the information to HHSC for review and approval. If
HHSC has not responded within three (3) business days, CONTRACTOR may use the
submitted information. If the information is to be used in marketing, the
provisions of Article 14 apply to the material.

     (b) CONTRACTOR may publish, at it sole expense, results of CONTRACTOR
performance under this Agreement with HHSC's prior review and approval, which
HHSC may not unreasonably withhold. Any publication (written, visual, or sound)
shall acknowledge the support received from HHSC and any federal agency, as
appropriate. CONTRACTOR will provide HHSC at least three (3) copies of any such
publication prior to public release. CONTRACTOR will provide additional copies
at the request of HHSC. If HHSC has not responded to the CONTRACTOR within
fifteen (15) business days from the date HHSC receives the information for
review, the information is deemed approved.

     (c) HHSC will submit all studies or audits that relate or refer to
CONTRACTOR for review and comment to CONTRACTOR fifteen (15) days prior to
releasing the report to the public or to Members.

     SECTION 18.04 MEMBER RECORDS.

     CONTRACTOR and any subcontractor shall not transfer an identifiable Member
record, including a patient record, to another entity or person without written
consent from the Member or someone authorized to act on his or her behalf;
however, HHSC may require CONTRACTOR, or any subcontractor, to transfer a Member
record to another agency or to HHSC if the transfer is necessary to protect
either the confidentiality of the record or the health and welfare of the
Member.

     If at any time during the Initial Term, this Agreement is terminated, HHSC
may require the transfer of Member records, upon written notice to CONTRACTOR,
to another entity that agrees to continue performance of the Agreement, as
consistent with federal and state laws and applicable releases.

     The term "Member Record" for this section means only those administrative,
enrollment, case management and other such records maintained by CONTRACTOR and
is not intended to include patient records maintained by participating network
providers.

     SECTION 18.05 ACCESSIBILITY AND AVAILABILITY OF MEDICAL RECORDS.

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

                                 Page 60 of 78
<PAGE>

     SECTION 18.06 RECORDKEEPING.

     Medical records may be on paper or electronic. CONTRACTOR must require,
through contractual provisions or provider manual, providers to create and keep
medical records in compliance with the medical records standards contained in
the Standards for Quality Improvement Programs in Appendix F. All medical
records must be kept for at least five (5) years, except for records of rural
health clinics, which must be kept for a period of six (6) years from the date
of service. CONTRACTOR must take steps to promote maintenance of medical records
in a legible, current, detailed, organized and comprehensive manner that permits
effective patient care and quality review.

                        ARTICLE 19. NON-PROVIDER SUBCONTRACTING

     SECTION 19.01 WRITTEN SUBCONTRACTS.

     CONTRACTOR must enter into written contracts with all Non-Provider
Subcontractors and maintain copies of the Subcontracts in CONTRACTOR's
administrative office. CONTRACTOR must submit two copies of all Non-Provider
Subcontracts to HHSC for approval no later than 60 days after the Effective Date
of this Agreement. Subcontracts entered into after the Effective Date of this
Agreement must be submitted no later than 30 days prior to the date of execution
of the Subcontract. CONTRACTOR must also make Non-Provider Subcontracts
available to HHSC upon request, at the time and location requested by HHSC.

     HHSC has 15 business days to review the Subcontract and recommend any
suggestions or required changes. If HHSC has not responded to CONTRACTOR by the
fifteenth day, CONTRACTOR may execute the Subcontract. HHSC reserves the right
to request CONTRACTOR to modify any Subcontract that has been deemed approved.

     The form and substance of all Subcontracts, including subsequent
amendments, are subject to approval by HHSC. HHSC retains the authority to
reject or require changes to any provisions of the Subcontract that do not
comply with the requirements or duties and responsibilities of this Agreement or
create significant barriers for HHSC in carrying out its duty to monitor
compliance with the Agreement.

     Additionally, if CONTRACTOR desires to enter into a Non-Provider
Subcontract that has a value over $100,000, CONTRACTOR must obtain prior written
approval from HHSC. HHSC reserves the right to require the replacement of any
Non-Provider Subcontractor, which HHSC will not unreasonably require.

     SECTION 19.02 APPLICATION OF FEDERAL LAW TO NON-PROVIDER SUBCONTRACTORS.

     CONTRACTOR must ensure that Non-Provider Subcontractors are aware of their
obligations and responsibilities under 42 U.S.C. Section 1320a-7a and 42 U.S.C.
Section 1320a-7b. CONTRACTOR must also ensure that its Non-Provider
Subcontractors are required to cooperate in the investigation and prosecution of
any suspected fraud or abuse, and must provide any and all requested originals
and copies of records and information, free-of-charge on request, to any state
or federal agency with authority to investigate fraud and abuse in CHIP.

     SECTION 19.03 NO STATE LIABILITY FOR PAYMENT UNDER NON-PROVIDER
                   SUBCONTRACTORS.

     CONTRACTOR must ensure that Non-Provider Subcontractors understand and
agree that CONTRACTOR is solely responsible for payment of services rendered by
the Non-Provider Subcontractor. CONTRACTOR must ensure that Non-Provider
Subcontractors understand and agree that if

                                 Page 61 of 78
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CONTRACTOR becomes insolvent or ceases operations, the Subcontractor's sole
recourse is against CONTRACTOR

     SECTION 19.04 TERMINATION OF NON-PROVIDER SUBCONTRACTS.

     CONTRACTOR must notify HHSC no later than 90 days prior to terminating any
Non-Provider Subcontract affecting a major performance function of this
Agreement. All major Non-Provider Subcontractor, defined as those Subcontracts
with a value over $100,000 or affecting a major function under this Agreement,
terminations or substitutions require HHSC approval. HHSC may require CONTRACTOR
to provide a transition plan describing how the subcontracted function will
continue to be provided. All Subcontracts are subject to the terms and
conditions of this Agreement.

     SECTION 19.05 FRAUD AND ABUSE INVESTIGATIONS.

     Subcontracts that are requested by any agency with authority to investigate
and prosecute fraud and abuse must be produced at the time and in the manner
requested by the requesting agency. Subcontracts requested in response to a
Public Information request must be produced within 3 business days from HHSC's
notification to CONTRACTOR of the request. All requested records must be
provided free-of-charge.

     THE CONTRACTOR REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE
DUTY, RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER.

                              ARTICLE 20. REMEDIES AND DISPUTES.

     SECTION 20.01 UNDERSTANDING AND EXPECTATIONS.

     (a) CONTRACTOR agrees and understands that HHSC may pursue contractual
remedies for both programmatic and financial noncompliance. HHSC, in its
discretion, may impose or pursue one or more remedies for each item of
noncompliance and will determine sanctions on a case-by-case basis. HHSC's
pursuit or non-pursuit of a tailored administrative remedy shall not constitute
a waiver of any other remedy that HHSC may have at law or equity.

     (b) As described in the RFP, CHIP represents a comprehensive and aggressive
effort to provide adequate health care to uninsured children by providing
affordable insurance to their families. Section 2.04 of this Agreement also
describes HHSC's objective to establish a flexible and responsive relationship
with CONTRACTOR. Accordingly, the remedies described in this article are
directed to CONTRACTOR's timely and responsive performance of the Services and
production of Deliverables.

     SECTION 20.02  ADMINISTRATIVE REMEDIES.

     (a) CONTRACTOR responsibility for improvement.

     HHSC expects CONTRACTOR's performance to continuously meet or exceed
performance criteria over the term of this Agreement. Accordingly, CONTRACTOR
will be responsible for ensuring that performance for a particular activity or
result described in its Proposal or the RFP that falls below the expectations

                                 Page 62 of 78
<PAGE>

identified in CONTRACTOR's Proposal, the RFP, or this Agreement must improve
within thirty (30) days of written notice from HHSC regarding the deficiency.

     (b) Notification and interim response.

     (1) HHSC will notify CONTRACTOR in writing of specific areas of CONTRACTOR
performance that fail to meet performance standards as set out in this
Agreement, but which, in the determination of HHSC, do not result in a material
delay in the implementation or operation of the CHIP health plan coverage
through HMOs. CONTRACTOR will, within five (5) business days of receipt of
written notice of a non-material deficiency, provide HHSC with a written
response that:

          (A) Explains the reasons for the deficiency, CONTRACTOR's plan to
          address or cure the deficiency, and the date and time by which the
          deficiency will be cured; or

          (B) If CONTRACTOR disagrees with HHSC's findings, its reasons for
          disagreeing with HHSC's findings.

     (2) CONTRACTOR's proposed cure of a non-material deficiency is subject to
the approval of HHSC. CONTRACTOR's repeated commission of non-material
deficiencies or repeated failure to resolve any such deficiencies may be
regarded by HHSC as a material deficiency and entitle HHSC to pursue any other
remedy provided in this Agreement or any other appropriate remedy HHSC may have
at law or equity.

     (c) Notice and opportunity to cure.

     TDH will provide CONTRACTOR with written notice of default (Notice of
Default) under this Agreement. The Notice of Default may be given by any means
that provides verification of receipt. The Notice of Default must contain the
following information:

     1. A clear and concise statement of the circumstances or conditions that
constitute a default under this Agreement;

     2. The Agreement provision(s) under which HHSC is declaring a default;

     3. A clear and concise statement of whether CONTRACTOR may cure the default
and, if so, how;

     4. A clear and concise statement of the time period during which CONTRACTOR
may cure the default if CONTRACTOR is allowed to cure;

     5. The remedy or remedies HHSC is electing to pursue and when the remedy or
remedies will take effect;

     6. If HHSC is electing to impose liquidated damages, the amount that HHSC
intends to withhold or impose;

     7. If HHSC elects to pursue liquidated damages, whether any part of those
damages may be passed through to an individual or entity who is or may be
responsible for the act or omission for which HHSC declares a default;

     8. Whether failure of CONTRACTOR to cure the default within any specified
time period will result in HHSC pursuing an additional remedy or remedies,
including, but not limited to, additional damages and/or termination of the
Agreement.

                                 Page 63 of 78
<PAGE>

     (d) Particular Events of Default.

     For convenience, specified events of default under this Agreement, which
are listed throughout this Agreement, are listed here. Those events, include,
but are not limited to:

          (1) Failure to demonstrate a good faith effort to include STPs, tribal
          clinics, and rural providers in the CONTRACTOR's provider network, or
          failure to report efforts and compliance as required in section 15.04;

          (2) CONTRACTOR's placing the health and safety of the Members in
          jeopardy;

          (3) Exclusion of the CONTRACTOR or any of the managing employees or
          persons with an ownership interest whose disclosure is required by
          Section 1124(a) of the Social Security Act from the Medicaid or
          Medicare program under the provisions of Section 1128(a) and/or (b) of
          the Social Security Act is a default under this contract;

          (4) Exclusion of any Subcontractor or any of the managing employees or
          persons with an ownership interest of the Subcontractor whose
          disclosure is required by Section 1124(a) of the Social Security Act
          from the Medicaid or Medicare program under the provisions of Section
          1128(a) and/or (b) of the Social Security if the exclusion will
          materially affect the CONTRACTOR's performance under this Agreement;
          and

          (5) A CONTRACTOR'S failure to report potential or suspected fraud or
          abuse.

     (e) Corrective Action Plan.

     (1) In the event HHSC assesses a liquidated damage as provided in this
article, HHSC may require CONTRACTOR to submit to HHSC a detailed written plan
(the "Corrective Action Plan") to correct or resolve the deficiency or event
causing the assessment of the liquidated damage. The Corrective Action Plan must
provide a detailed explanation of the reasons for the cited deficiency,
CONTRACTOR's assessment or diagnosis of the cause, and a specific proposal to
cure or resolve the deficiency. The Corrective Action Plan must be submitted
within ten (10) business days following the request for the plan by HHSC and is
subject to approval by HHSC, which approval will not unreasonably be withheld.

     (2) Notwithstanding the submission and acceptance of a Corrective Action
Plan, CONTRACTOR remains responsible for achieving all written performance
criteria. The acceptance of a Corrective Action Plan under this section will not
excuse prior substandard performance, relieve CONTRACTOR of its duty to comply
with performance standards, or prohibit HHSC from assessing additional
liquidated damages or pursuing other appropriate remedies for continued
substandard performance.

     (f) Additional remedies.

     HHSC at its own discretion may impose one or more the following remedies
for each item of noncompliance and will determine the scope and severity of the
remedy on a case-by-case basis. Both Parties agree that a state or federal
statute, rule, regulation or federal guideline will prevail over the provisions
of this section unless the statute, rule, regulation, or guidelines can be read
together with this section to give effect to both.

          (1) Assess liquidated damages in accordance with section 20.03 and
          deduct such damages against payments to CONTRACTOR as set-off in
          accordance with section 20.04;

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<PAGE>

          (2) Conduct accelerated monitoring of CONTRACTOR. Accelerated
          monitoring means more frequent or more extensive monitoring will be
          performed by HHSC than would routinely be accomplished;

          (3) Require additional, more detailed, financial and/or programmatic
          reports to be submitted by CONTRACTOR in accordance with Article 17 of
          this Agreement; or

          (4) Suspend new enrollment.

               (a) HHSC must give the CONTRACTOR 30 days notice of intent to
               suspend new enrollment other than for imminent danger to the
               health or safety of Members. The suspension date will be
               calculated as 30 days following the date that the CONTRACTOR
               receives the notice of intent to suspend new enrollment.

               (b) HHSC may immediately suspend new enrollment into the
               CONTRACTOR for a default declared as a result of imminent danger
               to the health and safety of Members.

               (c) The suspension of new enrollment may be for any duration, up
               to the termination date of the Agreement. HHSC will base the
               duration of the suspension upon the type and severity of the
               default and upon the CONTRACTOR's ability, if any, to cure the
               default.

          (5) Decline to renew this Agreement.

     HHSC will formally notify CONTRACTOR of the imposition of an administrative
remedy in writing in accordance with paragraph (b) of this section, with the
exception of accelerated monitoring, which may be unannounced. CONTRACTOR is
required to file a written response to in accordance with paragraph (b) of this
section.

     (g) Informal review of administrative remedies.

     CONTRACTOR may request an informal review of the imposition of the
foregoing remedies in accordance with section 20.16 within ten (10) business
days of receipt of written notification of the imposition of a remedy by HHSC.

     SECTION 20.03 LIQUIDATED DAMAGES.

     The liquidated damages prescribed in this section are not intended to be in
the nature of a penalty, but are intended to be reasonable estimates of HHSC's
projected financial loss and damage resulting from CONTRACTOR's non-performance,
including financial loss as a result of project delays.

     The Parties intend to negotiate liquidated damages specifically tailored
for particular events of nonperformance, which schedule will be attached to this
Agreement through amendment. In the event that the Parties fail to reach
agreement on the liquidated damages to be assessed, the events on which they are
to be assessed, or the amount of the damages, the liquidated damages set out in
this section will apply.

     Accordingly, in the event CONTRACTOR fails to perform in accordance with
this Agreement, HHSC may assess liquidated damages as provided in this section.

                                 Page 65 of 78
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     (a) Failure to provide contracted services or support.

     If CONTRACTOR fails to perform any of the Services described in this
Agreement, HHSC may assess a liquidated damage of $1,000.00 each business day
such Service is not provided.

         (1) Maximum damages.

     Liquidated damages assessed pursuant to this paragraph shall not, in any
single month, exceed 25% of the fee due CONTRACTOR for that month. However, if
CONTRACTOR fails to perform any Service or combination of Services, and such
failure represents a budgeted sum greater than 25% of the fee due CONTRACTOR for
that month, HHSC may terminate the Agreement in accordance with this article.

         (2) CONTRACTOR responsibility for associated costs.

     If HHSC terminates this Agreement pursuant to paragraph (a)(i) of this
section, CONTRACTOR will be responsible to HHSC for all costs incurred by HHSC,
the State of Texas or any of its administrative agencies to replace CONTRACTOR.
These costs include, but are not limited to, the costs of procuring a substitute
vendor following termination of this Agreement and the cost of any claim or
litigation that is reasonably attributable to CONTRACTOR's failure to perform
any Service in accordance with the Agreement.

     SECTION 20.04 METHOD OF COLLECTION.

     HHSC may elect to assess a liquidated damage directly to CONTRACTOR, or it
may deduct amounts assessed as liquidated damages as set-off against payments
then due to CONTRACTOR for the Services or Deliverables or which become due at
any time thereafter.

     SECTION 20.05 MODIFICATION OF AGREEMENT IN THE EVENT OF REMEDIES.

     As provided in section 8.01(b) of this Agreement, HHSC may propose a
modification of this Agreement in response to the imposition of a remedy under
this article. Any modifications under this section must be reasonable, limited
to the matters causing the exercise of a remedy, and in writing. CONTRACTOR must
negotiate such proposed modifications in good faith.

     SECTION 20.06 TERMINATION OF AGREEMENT.

     In addition to other provisions of this article allowing termination, this
Agreement will terminate upon the Expiration Date unless extended in accordance
with Article 4 of this Agreement, or terminated sooner under the terms of
section 20.07 through section 20.09 of this Agreement. Prior to completion of
the Initial Term and any extensions or renewal thereof, all or a part of this
Agreement may be terminated for any of the following reasons:

     SECTION 20.07 TERMINATION BY MUTUAL AGREEMENT OF THE PARTIES.

     This Agreement may be terminated by mutual agreement of the Parties. Such
agreement must be in writing.

     SECTION 20.08 TERMINATION FOR CAUSE.

     HHSC reserves the right to terminate this Agreement, in whole or in part,
upon the following conditions:

                                 Page 66 of 78
<PAGE>

     (a) Assignment for the benefit of creditors, appointment of receiver, or
inability to pay debts.

     HHSC may terminate this Agreement if CONTRACTOR:

          (1) Makes an assignment for the benefit of its creditors;

          (2) Admits in writing its inability to pay its debts generally as they
          become due; or

          (3) Consents to the appointment of a receiver, trustee, or liquidator
          of CONTRACTOR or of all or any part of its property.

     (b) Judgment and execution.

     (1) HHSC may terminate this Agreement if judgment for the payment of money
in excess of $50,000.00 (fifty thousand dollars and zero cents) which is not
covered by insurance is rendered by any court or governmental body against
CONTRACTOR, and CONTRACTOR does not

          (i) Discharge the judgment or provide for its discharge in accordance
          with the terms of the judgment;

          (ii) Procure a stay of execution thereof within 30 days from the date
          of entry thereof; or

          (iii) Perfect an appeal of such judgment and cause the execution of
          such judgment to be stayed during the appeal, providing such financial
          reserves as may be required under generally accepted accounting
          principles.

     (2) If a writ or warrant of attachment or any similar process is issued by
any court against all or any material portion of the property of CONTRACTOR, and
such writ or warrant of attachment or any similar process is not released or
bonded within 30 days after its entry, HHSC may terminate this Agreement in
accordance with this section.

     (c) Failure to adhere to laws, rules, ordinances, or orders.

     HHSC may terminate this Agreement if a court of competent jurisdiction
finds CONTRACTOR failed to adhere to any laws, ordinances, rules, regulations or
orders of any public authority having jurisdiction and such violation prevents
or substantially impairs performance of CONTRACTOR's duties under this
Agreement.

     (d) Breach of confidentiality.

     HHSC may terminate this Agreement if CONTRACTOR breaches confidentiality
laws with respect to the Services provided under this Agreement.

     (e) Failure to maintain adequate personnel or resources.

     HHSC may terminate this Agreement if, after providing notice and an
opportunity to correct in accordance with section 20.02 of this Agreement, HHSC
determines that CONTRACTOR has either failed to provide the personnel and
resources described in its Proposal or has failed to supply personnel or
resources and such failure results in CONTRACTOR's inability to fulfill its
duties under this Agreement and substantially compromises HHSC's ability to
comply with legislative mandates regarding the implementation or administration
of CHIP.

                                 Page 67 of 78
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     (f) Termination for insolvency.

     (1) HHSC may, by giving written notice of termination to CONTRACTOR,
terminate this Agreement as of a date specified in such notice of termination if
CONTRACTOR:

          (A) files for bankruptcy;

          (B) becomes or is declared insolvent, or is the subject of any
          proceedings related to its liquidation, insolvency or the appointment
          of a receiver or similar officer for it;

          (C) makes an assignment for the benefit of all or substantially all of
          its creditors; or

          (D) enters into a contract for the composition, extension, or
          readjustment of substantially all of its obligations.

     (2) CONTRACTOR agrees to pay for all reasonable expenses of HHSC including
the cost of counsel, incident to:

          (A) The enforcement of payment of all obligations of CONTRACTOR by any
          action or participation in, or in connection with a case or proceeding
          under chapters 7, 11, or 13 of the United States Bankruptcy Code, or
          any successor statute;

          (B) A case or proceeding involving a receiver or other similar officer
          duly appointed to handle CONTRACTOR's business; or

          (C) A case or proceeding in a State court initiated by HHSC when
          previous collection attempts have been unsuccessful.

     (g) Termination for gifts and gratuities.

     (1) HHSC may terminate this Agreement on one (1) days' notice to CONTRACTOR
following the determination by a competent judicial or quasi-judicial authority
and CONTRACTOR's exhaustion of all legal remedies that CONTRACTOR, its
employees, agents or representatives have either offered or given any thing of
value an officer or employee of HHSC or the State of Texas in violation of state
law.

     (2) CONTRACTOR must include a similar provision in each of its subcontracts
and shall enforce this provision against a subcontractor who has offered or
given any thing of value to any of the persons or entities described in this
section, whether or not the offer or gift was in CONTRACTOR's behalf.

     SECTION 20.09 TERMINATION FOR NON-APPROPRIATION OF FUNDS.

     (a) Notwithstanding any other provision of this Agreement, if funds for the
continued fulfillment of this Agreement by HHSC are at any time not forthcoming
or are insufficient, through failure of any entity to appropriate funds or
otherwise, then HHSC will have the right to terminate this Agreement at no
additional cost and with no penalty whatsoever by giving prior written notice
documenting the lack of funding.

     (b) In such instance, unless otherwise agreed to by the Parties, this
Agreement will terminate and become null and void on the last day of the fiscal
period for which appropriations were received. HHSC will use all reasonable
efforts to ensure appropriated funds are available.

                                 Page 68 of 78
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     SECTION 20.10 TERMINATION IN THE EVENT OF HHSC'S FAILURE TO PAY.

     CONTRACTOR may terminate this Agreement if HHSC fails to pay the CONTRACTOR
undisputed charges when due as required under this Agreement. Retaining premium,
recoupment, sanctions, or penalties that are allowed under this Agreement or
that result from the CONTRACTOR's failure to perform or the CONTRACTOR's default
under the terms of this Agreement is not cause for termination. Termination for
failure to pay does not release HHSC from the obligation to pay undisputed
charges for services provided prior to the termination date.

     CONTRACTOR must give HHSC 90 days written notice of intent to terminate
this Agreement. The termination date will be calculated as the last day of the
month following 90 days from the date the notice of intent to terminate is
received by HHSC.

     HHSC must be given 30 days from the date HHSC receives the CONTRACTOR's
written notice of intent to terminate for failure to pay to pay the CONTRACTOR
all undisputed amounts due. If HHSC pays all undisputed amounts then due within
this 30-day period, the CONTRACTOR cannot terminate the Agreement under this
article for that reason.

     SECTION 20.11 TERMINATION FOR HHSC'S MATERIAL BREACH OF THIS AGREEMENT.

     (a) Generally.

     HHSC's failure to perform a material duty or responsibility as set out in
this Agreement is a default under this Agreement.

     (b) Notice of default and opportunity to cure.

     CONTRACTOR will provide HHSC with written notice of default (Notice of
Default) under this Agreement. The Notice of Default may be given by any means
that provides verification of receipt. The Notice of Default must contain the
following information:

     1. A clear and concise statement of the circumstances or conditions that
CONTRACTOR contends constitute a default under this Agreement;

     2. The Agreement provision(s) under which CONTRACTOR is declaring a
default; and

     3. A statement that HHSC has thirty (30) days from the date HHSC receives
the Notice of Default to cure the alleged breach.

     SECTION 20.12 NOTICE OF TERMINATION.

     Each Party will provide written notice of termination of this Agreement at
least 90 days prior to the intended date of termination unless the health or
safety of the Members is at issue, in which case HHSC may terminate immediately.

     SECTION 20.13  EXTENSION OF TERMINATION EFFECTIVE DATE.

     HHSC may extend the effective date of termination one or more times as it
elects, in its sole discretion, provided that the total of all such extensions
shall not exceed 90 calendar days following the original effective date of
termination, excluding termination under section 20.11.

                                 Page 69 of 78
<PAGE>

     SECTION 20.14  INJUNCTIVE RELIEF.

     Each Party acknowledges and agrees that, in the event of a breach or
threatened breach of any of the provisions of this Agreement, such Party may
have no adequate remedy in damages. Accordingly, each Party will be entitled to
seek an injunction to prevent such breach or threatened breach. However, the
specification of a particular legal or equitable remedy will not be construed as
a waiver, prohibition, or limitation of any other legal or equitable remedies in
the event of a breach of this Agreement.

     SECTION 20.15 PAYMENT AND OTHER PROVISIONS AT AGREEMENT TERMINATION.

     (a) If HHSC terminates this Agreement, HHSC will pay CONTRACTOR on the
effective date of termination (or as soon as possible thereafter taking into
account appropriation and fund accounting requirements) any undisputed amounts
due for all completed, approved, and accepted Services or Deliverables.

     (b) HHSC further agrees to negotiate in good faith with CONTRACTOR to
equitably adjust and settle any accrued or outstanding liabilities for any
unaccepted Service or deliverable and Change Order that

          (1) Is due or delivered prior to or upon contract termination;

          (2) Is complete or substantially complete, or for which CONTRACTOR can
          document to the satisfaction of HHSC substantial progress; and

          (3) Benefits HHSC or the State of Texas, notwithstanding its
          unaccepted status.

     (c) CONTRACTOR must provide HHSC all reasonable access to records,
facilities, and documentation as is required to efficiently and expeditiously
close out the Services under this Agreement.

     (d) HHSC and the CONTRACTOR must prepare a transition plan, which is
acceptable to and approved by HHSC, to ensure that Members are reassigned to
other plans without interruption of services. That transition plan will be
implemented during the 90-day period between receipt of notice and the
termination date unless termination is the result of HHSC's reasonable belief
that the CONTRACTOR is placing the health or welfare of Members in jeopardy.

     CONTRACTOR must continue to perform Services under the transition plan
until the last day of the month following 90 days from the date of receipt of
notice if the termination is for any reason other than HHSC's reasonable belief
that the CONTRACTOR is placing the health and safety of the Members in jeopardy.
If termination is due to this reason, HHSC may prohibit the CONTRACTOR's further
performance of Services under this Agreement.

     (1) If HHSC terminates this Agreement for any reason other than
non-appropriation of funds under section 20.10:

          (a) HHSC is responsible for notifying all Members of the date of
          termination and how Members can continue to receive Covered Services;

          (b) CONTRACTOR is responsible for all expenses related to giving
          notice to Members; and

          (c) CONTRACTOR is responsible for all expenses incurred by HHSC in
          implementing the transition plan.

                                 Page 70 of 78
<PAGE>

     (2) If the Agreement is terminated by the CONTRACTOR for any reason:

          (a) HHSC is responsible for notifying all Members of the date of
          termination and how Members can continue to receive Covered Services;

          (b) HHSC is responsible for all expenses related to giving notice to
          Members; and

          (c) HHSC is responsible for all expenses it incurs in implementing the
          transition plan.

     (3) If the Agreement is terminated by mutual agreement of the Parties under
section 20.07:

          (a) HHSC is responsible for notifying all Members of the date of
          termination and how Members can continue to receive Covered Services;

          (b) CONTRACTOR is responsible for all expenses related to giving
          notice to Members; and

          (c) HHSC is responsible for all expenses it incurs in implementing the
          transition plan.

     SECTION 20.16 DISPUTE RESOLUTION.

     (a) General agreement of the Parties.

     The Parties mutually agree that the interests of fairness, efficiency, and
good business practices are best served when the Parties employ all reasonable
and informal means to resolve any dispute under this Agreement. The Parties
express their mutual commitment to using all reasonable and informal means of
resolving disputes including, but not limited to, the informal review of
liquidated damage assessments under section 20.02 of this Agreement, prior to
invoking a remedy provided elsewhere in this section.

     (b) Duty to negotiate in good faith.

     Any dispute that in the judgment of any Party to this Agreement may
materially or substantially affect the performance of any Party will be reduced
to writing and delivered to the other Party. The Parties must then negotiate in
good faith and use every reasonable effort to resolve such dispute and the
Parties shall not resort to any formal proceedings unless they have reasonably
determined that a negotiated resolution is not possible. The resolution of any
dispute disposed of by agreement between the Parties shall be reduced to writing
and delivered to all Parties within ten (10) business days.

     (c) Claims for breach of Agreement.

     (1) General requirement. As required by Chapter 2260, Government Code,
CONTRACTOR's claim for breach of this Agreement must resolved in accordance with
the dispute resolution process established by HHSC in accordance with Chapter
2260, Government Code.

     (2) Negotiation of claims. A CONTRACTOR's claim for breach of this
Agreement that the Parties cannot resolve in the ordinary course of business or
through the use of all reasonable and informal means must be submitted to the
negotiation process provided in Chapter 2260, subchapter B, Government Code.

          (A) To initiate the process, CONTRACTOR must submit written notice in
          accordance with Section 4.04 of this Agreement that specifically
          states that CONTRACTOR invokes the provisions of Chapter 2260,
          subchapter B, Government Code.

                                 Page 71 of 78
<PAGE>

          (B) Compliance by CONTRACTOR with Chapter 2260, subchapter B,
          Government Code, is a condition precedent to the filing of a contested
          case proceeding under Chapter 2260, subchapter C, of the Government
          Code.

     (3) Contested case proceedings. The contested case process provided in
Chapter 2260, subchapter C, Government Code, is CONTRACTOR's sole and exclusive
process for seeking a remedy for any and all alleged breaches of contract by
HHSC if the Parties are unable to resolve their disputes under subsection (d)(2)
of this section.

          (A) Compliance with the contested case process provided in Chapter
          2260, Subchapter C, Government Code, is a condition precedent to
          seeking consent to sue from the Texas Legislature under Chapter 107,
          Civil Practices & Remedies Code. Neither the execution of this
          Agreement by HHSC nor any other conduct of any representative of HHSC
          relating to this Agreement shall be considered a waiver of the State's
          sovereign immunity to suit.

     (4) HHSC rules. The submission, processing and resolution of CONTRACTOR's
claim is governed by the rules to be adopted by HHSC pursuant to Chapter 2260,
Government Code.

          (A) CONTRACTOR expressly acknowledges that, as of the Effective Date
          of this Agreement, HHSC has not adopted rules to implement the
          requirements of Chapter 2260, Government Code. CONTRACTOR expressly
          waives any claim regarding the absence of any such rules at the
          Effective Date.

     (5) CONTRACTOR's duty to perform. Neither the occurrence of an event
constituting an alleged breach of contract nor the pending status of any claim
for breach of contract is grounds for the suspension of performance, in whole or
in part, by CONTRACTOR of any duty or obligation with respect to the Services
under this Agreement.

     SECTION 20.17 LIABILITY OF CONTRACTOR.

     CONTRACTOR will not be liable to HHSC for any loss, damages or liabilities
attributable to or arising from:

          (1) The failure of HHSC or any state agency or HHSC CONTRACTOR to
          perform a service or activity in connection with this Agreement; or

          (2) CONTRACTOR's prudent and diligent performance of the Services in
          compliance with instructions given by HHSC in accordance with section
          2.07 (relating to implied authority), section 4.04 (relating to
          notices), and section 4.06 (relating to delegation of authority) of
          this Agreement.

                    ARTICLE 21. ASSURANCES AND CERTIFICATIONS

     SECTION 21.01 LOBBYING.

     (a) In accordance with 3l U.S.C. Section 1352 (Section 1352 of Public Law
[P.L.] 101-121 effective December 22, 1989), CONTRACTOR is prohibited from using
funds granted under this Agreement for lobbying Congress or any Federal agency
in connection with a particular Agreement. CONTRACTOR agrees that none f the
funds provided under this Agreement will be so used.

                                 Page 72 of 78
<PAGE>

     (b) In addition, if at any time a contract exceeds $100,000, the law
requires certification that none of the funds provided by HHSC to CONTRACTOR
have been used for payment to lobbyists. CONTRACTOR certifies that it has not
and will not use any funds provided under this Agreement for such prohibited
purposes.

     (c) Regardless of funding source, if a Contract Attachment exceeds
$100,000, CONTRACTOR will provide to HHSC a certification of the names of any
and all registered lobbyists with whom CONTRACTOR has an agreement. CONTRACTOR
agrees that it will provide this certification on a form provided by HHSC, along
with the names of any lobbyists, if applicable, within 90 days of receipt of the
executed Agreement.

     SECTION 21.02 DEBARMENT AND SUSPENSION.

     (a) CONTRACTOR certifies by execution of this Agreement that it is not now
ineligible for participation in Federal or State assistance programs under
Executive Order 12549, Debarment and Suspension.

     (b) CONTRACTOR certifies by execution of this Agreement that neither it nor
its principals is presently debarred, suspended, proposed for debarment,
declared ineligible, or voluntarily excluded from participation in this
transaction by any Federal department or agency.

     (c) Where CONTRACTOR is unable to certify to any of the statements in this
certification, CONTRACTOR shall attach an explanation.

     (d) CONTRACTOR specifically warrants that it has not knowingly failed to
pay a single substantial debt or a number of outstanding debts to a Federal or
State agency and it is not subject to an outstanding judgment in a suit against
CONTRACTOR for collection of the balance. A false statement regarding
CONTRACTOR's status will be treated as a material breach of this Agreement and
may be grounds for termination at the option of HHSC.

     SECTION 21.03 CONFLICTS OF INTEREST.

     (a) Representation.

     CONTRACTOR agrees to comply with regulations regarding conflicts of
interest in the performance of its duties under this Agreement.

     (b) General duty regarding conflicts of interest.

     CONTRACTOR will establish safeguards to prohibit employees from using their
positions for a purpose that constitutes or presents the appearance of personal
or organizational conflict of interest, or personal gain. CONTRACTOR will
operate with complete independence and objectivity without actual, potential or
apparent conflict of interest with respect to the activities conducted under
this Agreement with the State of Texas.

     (c) Disclosure requirements.

         (1) CONTRACTOR must disclose any existing or potential conflicts of
         interest relative to the performance requirements of this Agreement and
         must comply with other disclosure requirements set out below, as
         applicable.

                                 Page 73 of 78
<PAGE>

         (2) Any relationship that might be perceived or represented as a
         conflict must be disclosed by CONTRACTOR within 15 calendar days of its
         discovery by CONTRACTOR or by HHSC as a potential conflict. This
         disclosure requirement is a continuing obligation throughout the
         Initial Term of this Agreement and any extension of this Agreement.

         (3) By submitting a Proposal in response to the RFP, CONTRACTOR
         affirmed that it has neither given, nor intends to give, at any time
         hereafter, any economic opportunity, future employment, gift, loan,
         gratuity, special discount, trip, favor, or service to a public servant
         or any employee or representative of same, at any time during the
         procurement process or in connection with the procurement process
         except as allowed under relevant state and federal law.

         (4) In addition, it is the responsibility of CONTRACTOR to request, in
         writing, a determination by HHSC when there is a question as to whether
         a conflict exists. HHSC reserves the right to make a final
         determination regarding conflict of interest with respect to
         CONTRACTOR's relationship with other parties whether individual or
         corporate, public or private, and CONTRACTOR agrees to abide by HHSC's
         decision.

         (5) A violation of the disclosure requirements applicable to this
         Agreement may constitute grounds for the immediate termination of this
         Agreement. Furthermore, such violation may be submitted to the Office
         of the Attorney General, Texas Ethics Commission, or appropriate State
         or Federal law enforcement officials for further action.

     SECTION 21.04 CERTIFICATION REGARDING GOOD FAITH EFFORT.

     HHSC is committed to making a good faith effort to assist Historically
Underutilized Businesses (HUBs) through the contract award process in a manner
consistent with rules prescribed by the General Services Commission (GSC) at 1
T.A.C. 111.11 et seq. The GSC has established a goal of a minimum 18.1 percent
(18.1%) HUB participation in non-professional services contracts, either through
direct contracting or through prime or general contractors' subcontracting
efforts. HHSC is required to establish that CONTRACTOR has complied with this
good faith effort. CONTRACTOR has completed or shall complete required
documentation of good faith effort on forms and in the manner prescribed by
HHSC. CONTRACTOR shall comply with continuing reporting requirements imposed by
HHSC or GSC.

     SECTION 21.05 CHILD SUPPORT CERTIFICATION.

     In accordance with Section 231.006, Family Code, CONTRACTOR certifies the
following:

         "Under Section 231.006, Family Code, the vendor or applicant certifies
         that the individual or business entity named in this Agreement, bid, or
         application is not ineligible to receive the specified grant, loan, or
         payment, and acknowledges that this Agreement may be terminated and
         payment withheld if this certification is inaccurate."

     SECTION 21.06 TEXAS CORPORATE FRANCHISE TAX CERTIFICATION.

     CONTRACTOR has certified that it is not delinquent in payments or
obligations due or owing for state franchise taxes by executing the form
entitled "Texas Corporate Franchise Tax Certification" contained in its
Proposal.

                                 Page 74 of 78
<PAGE>
     SECTION 21.07 CERTIFICATION REGARDING STATUS OF LICENSE, CERTIFICATE, OR
                   PERMIT.

     Article IX, Section 163 of the General Appropriations Act for the 1998/1999
state fiscal biennium prohibits an agency which receives an appropriation under
either Article II or V of the General Appropriations Act from awarding a
Agreement with the owner, operator, or administrator of a facility which has had
a license, certificate, or permit revoked by another Article II or V agency.
CONTRACTOR certifies it is not ineligible for an award under this provision.

     SECTION 21.08 OUTSTANDING DEBTS AND JUDGMENTS.

     CONTRACTOR certifies that it is not presently indebted to the State of
Texas, and that CONTRACTOR is not subject to an outstanding judgment in a suit
by the State of Texas against CONTRACTOR for collection of the balance. For
purposes of this section, an indebtedness is any amount sum of money that is due
and owing to the State of Texas and is not currently under dispute. A false
statement regarding CONTRACTOR's status will be treated as a material breach of
this Agreement and may be grounds for termination at the option of HHSC.

     SECTION 21.09 UNAUTHORIZED ACTS.

     Each Party agrees to:

     (1) Notify the other Party promptly of any unauthorized possession, use, or
knowledge, or attempt thereof, of any Confidential Information by any person or
entity that may become known to it;

     (2) Promptly furnish to the other Party full details of the unauthorized
possession, use, or knowledge, or attempt thereof, and use reasonable efforts to
assist the other Party in investigating or preventing the reoccurrence of any
unauthorized possession, use, or knowledge, or attempt thereof, of Confidential
Information;

     (3) Cooperate with the other Party in any litigation and investigation
against third Parties deemed necessary by such Party to protect its proprietary
rights; and

     (4) Promptly prevent a reoccurrence of any such unauthorized possession,
use, or knowledge of Confidential Information.

     SECTION 21.10  LEGAL ACTION.

     Neither party may commence any legal action or proceeding in respect to any
unauthorized possession, use, or knowledge, or attempt thereof, of Confidential
Information by any person or entity which action or proceeding identifies the
other Party or its Confidential Information without such Party's consent.

                   ARTICLE 22. REPRESENTATIONS AND WARRANTIES.

EXCEPT AS SPECIFIED IN THIS ARTICLE AND ARTICLE 2, CONTRACTOR MAKES NO
WARRANTIES AND DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE IN
RESPECT TO THE SERVICES OR DELIVERABLES.

                                 Page 75 of 78
<PAGE>

     SECTION 22.01 AUTHORIZATION.

     (a) CONTRACTOR is a corporation duly incorporated, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.

     (b) The execution, delivery and performance of this Agreement has been duly
authorized by CONTRACTOR and no approval, authorization or consent of any
governmental or regulatory agency is required to be obtained in order for
CONTRACTOR to enter into this Agreement and perform its obligations under this
Agreement.

     (c) CONTRACTOR is duly authorized to conduct business in and is in good
standing in each jurisdiction in which CONTRACTOR will conduct business in
connection with this Agreement.

     (d) CONTRACTOR has obtained all licenses, certifications, permits, and
authorizations necessary to perform the Services under this Agreement and
currently is in good standing with all regulatory agencies that regulate any or
all aspects of CONTRACTOR's performance of the Services. CONTRACTOR will
maintain all required certifications, licenses, permits, and authorizations
during the term of this Agreement.

     SECTION 22.02 ABILITY TO PERFORM.

     CONTRACTOR has the financial resources necessary to perform the functions
under this Agreement without advances from the State.

     CONTRACTOR represents that each non-provider subcontractor providing
services under this Agreement under a contract with a value greater than
$100,000 has the financial resources to carry out its duties under this
Agreement.

     SECTION 22.03 WORKMANSHIP AND PERFORMANCE.

     (a) All Services and Deliverables provided under this Agreement will be
provided in a manner consistent with the standards of quality and integrity as
outlined in this Agreement, the RFP, and CONTRACTOR's Proposal.

     (b) All Services and Deliverables must meet or exceed the levels of
performance specified in or pursuant to this Agreement.

     (c) CONTRACTOR will perform the Services in a workmanlike manner, in
accordance with best practices and high professional standards.

     SECTION 22.04 COMPLIANCE WITH LAWS.

     CONTRACTOR will comply with all applicable local, state and Federal laws
and regulations in providing the Services and must have and maintain all
applicable permits, rights and licenses to perform the Services.

     SECTION 22.05 COMPLIANCE WITH AGREEMENT.

     CONTRACTOR will not take any action substantially or materially
inconsistent with any of the terms and conditions set forth in this Agreement
without the express written approval of HHSC.

                                 Page 76 of 78
<PAGE>

     SECTION 22.06 CONTINGENT FEE ARRANGEMENTS.

     CONTRACTOR warrants that no person or agency, other than a bona fide
regular employee or bona fide commercial agency has been employed or retained to
solicit or obtain this Agreement upon a contract or understanding for a
contingent fee.

     SECTION 22.07 PROSELYTIZING.

     CONTRACTOR and HHSC mutually agree that neither party will intentionally
solicit or recruit any employee of the State of Texas who is assigned to provide
assistance or services to the CHIP program in connection with this Agreement to
become an employee or agent of CONTRACTOR, and vice versa, during the term of
this Agreement and for one-year following the termination of this Agreement.

     SECTION 22.08 YEAR 2000 PERFORMANCE WARRANTY

     (a) Terms of Warranty

     CONTRACTOR warrants that all Software records, stores, processes, and
presents calendar dates falling on or after January 1, 2000 at no added cost to
HHSC. CONTRACTOR must take all appropriate measures to ensure that the Software
used by CONTRACTOR in connection with CHIP will not lose, alter, or destroy
records containing dates falling on or after January 1, 2000. CONTRACTOR must
ensure that all Software will interface and operate with HHSC's data systems
that exchange data, including, but not limited to, historical and archived data.
CONTRACTOR warrants that the year 2000 leap year calculations will be
accommodated and will not result in software, hardware, or firmware failures.

     (b) Duration of warranty.

         (1) The duration of this warranty and the remedies available to HHSC or
         CONTRACTOR for breach of this warranty shall be as defined in, and
         subject to, the terms and conditions of CONTRACTOR's standard
         commercial warranty or warranties contained in this Agreement.

         (2) Despite any provision to the contrary in CONTRACTOR's standard
         commercial warranty or warranties, the remedies available to HHSC or
         CONTRACTOR under the warranty made under this section must include
         repair or replacement of any supplied product whose non-compliance is
         discovered and made known to CONTRACTOR in writing within ninety (90)
         days from the date that CONTRACTOR receives notice of the
         non-compliance

     (c) No limitation of rights or remedies.

     Nothing in the warranty made under this section will be considered to limit
any rights or remedies HHSC or CONTRACTOR may otherwise have under this
Agreement with respect to defects other than Year 2000 performance.

                                 Page 77 of 78
<PAGE>

IN WITNESS HEREOF, HHSC AND CONTRACTOR HAVE EACH CAUSED THIS AGREEMENT TO BE
SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.

    TEXAS UNIVERSITIES HEALTH                     TEXAS HEALTH AND HUMAN
            PLAN, INC.                              SERVICES COMMISSION

---------------------------------           ------------------------------------
JOHN R. HACKWORTH, M.D.                     DON A. GILBERT
PRESIDENT AND CEO                           COMMISSIONER

                                 Page 78 of 78

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