Document:

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                                                                   EXHIBIT 10.20

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of ____________,
is by and between IASIS Healthcare Corporation, a Delaware corporation (the
"Company"), and ________________________ (the "Executive").

         WHEREAS, the Executive has experience beneficial to the Company's
operations, management and business development of acute care hospitals,
outpatient facilities and ancillary medical services (the "Business"); and

         WHEREAS, the Company desires that the Executive serve as
______________________ of the Company and the Executive desires to hold such
position(s) under the terms and conditions of this Agreement; and

         WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
the Company.

         NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:

         1.       Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth herein.

         2.       Term.

                  (a)      Subject to termination pursuant to Section 10 hereof,
the term of the employment by the Company of the Executive pursuant to this
Agreement (as the same may be extended, the "Term") shall commence on
________________ (the "Effective Date"), and terminate on the fifth anniversary
thereof.

                  (b)      Commencing on the fourth anniversary of the Effective
Date and on each subsequent anniversary thereof, the Term shall automatically be
extended for a period of one (1) additional year following the expiration of the
otherwise applicable Term unless, not later than ninety days (90) prior to any
such anniversary date, either party hereto shall have notified the other party
hereto in writing that such extension shall not take effect.

         3.       Position. During the Term, the Executive shall serve as
____________________ of the Company, supervising the conduct of the business and
affairs of the Company and performing such other duties as the Board of
Directors of the Company (the "Company Board") shall determine, which duties
shall not be materially inconsistent with the duties to be performed by
executives holding similar offices in similarly-sized healthcare corporations.
The Executive shall report directly to the Chief Executive Officer.

         4.       Duties. During the Term, the Executive shall devote _____ full
time and attention during normal business hours to the business and affairs of
the Company.

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         5.       Salary and Bonus.

                  (a)      During the Term, the Company shall pay to the
Executive a base salary at the rate of Three Hundred Eighty Thousand and No/100
($380,000.00) per year. Commencing on or before the first anniversary of the
Effective Date, the Company Board shall review the base salary annually and may
increase such amount from time to time as it may deem advisable, (such salary,
as the same may be increased, the "Base Salary"). The Base Salary shall be
payable to the Executive in substantially equal installments in accordance with
the Company's normal payroll practices.

                  (b)      For the Company's fiscal year ending
     and for each fiscal year thereafter during the Term, the Executive shall
be eligible to receive an annual cash bonus equal to up to one hundred percent
(100%) of the Base Salary, subject to the terms of the Company's executive bonus
program to be adopted by the Company Board, the principal terms of which are set
forth on Exhibit A hereto (the "Bonus Plan"), or, to the extent more favorable
to the Executive, other incentive compensation plan established by the Company
Board for the Company's senior executive officers, as either of the same may be
amended from time to time (provided that no such amendment or alternative plan
shall materially diminish the benefits available to the Executive upon
satisfaction of the conditions of such plan).

         6.       Stock Option Plan Initial Grant of Options. Reference is made
to the IASIS Healthcare Corporation 2000 Stock Option Plan as adopted by the
Company Board and stockholders of the Company, the principal terms of which are
set forth on Exhibit B, hereto (the "Stock Option Plan"). The Company shall
grant the Executive options under the Stock Option Plan (the terms of which
shall not be inconsistent with the provisions of Sections 10(e) and 10(f)
below), to purchase ______________ shares of common stock of the Company under
the Stock Option Plan. Thereafter during the Term, the Executive shall be
eligible to participate in the Stock Option Plan or, to the extent more
favorable to the Executive, other equity plan established by the Company Board
for the Company's senior executive officers, as the same may be amended from
time to time (provided that no such amendment shall materially diminish the
benefits to Executive there under), as and to the extent other senior executive
officers participate in the same.

         7.       Vacation, Holidays and Sick Leave. During the Term, the
Executive shall be entitled to paid vacation, paid holidays and sick leave in
accordance with the Company's standard policies for its senior executive
officers; provided that the Executive shall during each year of the Term be
entitled to at least four (4) weeks of such vacation, which shall not accrue
from year to year.

         8.       Business Expenses. The Executive shall be reimbursed for all
reasonable and necessary business expenses incurred by him in connection with
the his employment (including, without limitation, expenses for travel and
entertainment incurred in conducting or promoting business for the Company) upon
timely submission by the Executive of receipts and other documentation in
accordance with the Company's normal expense reimbursement policies.

         9.       Other Benefits. During the Term, the Executive shall be
eligible to participate fully in all health and other employee benefit
arrangements available to senior executive officers

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of the Company generally; provided that (i) the Company agrees in any event to
provide major medical, disability and life insurance coverage in amounts
substantially consistent with such coverage at similarly-sized healthcare
corporations, and (ii) the Company agrees to provide a 401(k) savings program
and/or other retirement plan, consistent with similar benefits offered to other
employees of the Company at comparable levels as considered and approved by the
Company Board, and make employer contributions thereto on the Executive's
behalf.

         10.      Termination of Agreement. The Executive's employment by the
company pursuant to this Agreement shall not be terminated prior to the end of
the Term hereof except as set forth in this Section 10.

                  (a)      By Mutual Consent. The Executive's employment
pursuant to this Agreement may be terminated at any time by the mutual written
agreement of the Company and the Executive.

                  (b)      Death. The Executive's employment pursuant to this
Agreement shall be terminated upon the death of the Executive, in which event
the Executive's spouse or heirs shall receive, when the same would have been
paid to the Executive (whether or not the Term shall have expired during such
period), (i) all-Base Salary and benefits to be paid or provided to the
Executive under this Agreement through the Date of Termination (as defined in
Section 10(h) hereof) and (ii) Base Salary at the then-current rate of Base
Salary and benefits to be provided pursuant to clause 9(i) above through the
date one (1) year after the Date of Termination. In the case of health and
medical continuation coverage ("COBRA"), the Company will make all COBRA premium
payments on behalf of the Executive and _____ dependents (and the Company will
continue to pay that portion of the coverage then-currently paid by the Company)
until the earlier to occur of the date of cessation of benefits as provided
above or the end of the maximum period of COBRA eligibility under
then-applicable law.

                  (c)      Disability. The Executive's employment pursuant to
this Agreement may be terminated by written notice to the Executive by the
Company or to the Company by the Executive in the event that (i) the Executive
becomes unable to perform his duties as set forth in Section 3 by reason of
physical or mental illness or accident for any six (6) consecutive month period
or (ii) the Company receives written opinions from both a physician for the
Company and a physician for the Executive that the Executive will be so
disabled. In the event the Executive's employment is terminated pursuant to this
Section 10(c), the Executive shall be entitled to receive, when the same would
have been paid to the Executive (whether or not the Term shall have expired
during such period), (i) all Base Salary and benefits to be paid or provided to
the Executive under this Agreement through the Date of Termination and (ii) Base
Salary at the then-current rate of Base Salary and benefits to be provided
pursuant to clause 9(i) above though the date one (1) year after the Date of
Termination provided, however that amounts payable to the Executive under this
Section 10(c), shall be reduced by the proceeds of any short or long-term
disability payments to which the Executive may be entitled during such period
under policies maintained at the expense of the Company as and to the extent
such disability payments compensate the insured for lost wages resulting from
the disability. In the case of COBRA, the Company will make all COBRA premium
payments on behalf of the Executive and _____ dependents (and the Company will
continue to pay that portion of the coverage then-currently

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paid by the Company) until the earlier to occur of the date of cessation of
benefits as provided above or the end of the maximum period of COBRA eligibility
under then-applicable law.

                  (d)      By the Company for Cause. The Executive's employment
pursuant to this Agreement may be terminated by written notice to the Executive
("Notice of Termination") upon the occurrence of any of the following events
(each of which shall "Cause" for termination): (i) the Executive commits any act
of gross negligence, fraud or willful misconduct causing material harm to the
Company, (ii) the conviction of the Executive of a felony that would reasonably
be expected by the Company Board to adversely affect the Company or its
reputation, (iii) the Executive intentionally obtains material personal gain,
profit or enrichment at the expense of the Company or from any transaction in
which the Executive has an interest which is adverse to the interest of the
Company, unless the Executive shall have obtained the prior written consent of
the Company Board, or (iv) any material breach of the Executive of this
Agreement, including, without limitation, a material breach of Section 13
hereof, which breach remains uncorrected for a period of fifteen (15) days after
receipt of the Executive of written notice from the Company setting forth the
breach. In the event the Executive's employment is terminated pursuant to this
Section 10(d), the Executive shall be entitled to receive all Base Salary and
benefits to be paid or provided to the Executive under this Agreement through
the Date of Termination and no more.

                  (e)      By the Company Without Cause. The Executive's
employment pursuant to this Agreement may be terminated by the Company at any
time without Cause by delivery of a Notice of Termination to the Executive. In
the event that the Executive's employment is terminated pursuant to this Section
10(e), the Executive shall be entitled to receive (i) on or prior to the Date of
Termination, all Base Salary and benefits to be paid or provided to the
Executive under this Agreement through the Date of Termination, (ii) an amount
equal to two hundred percent (200%) of the Executive's Base Salary at the
then-current rate of Base Salary, (iii) to the extent applicable, an amount
equal to the pro rata bonus (the "Pro Rata Bonus") determined by comparing the
Company's actual aggregate earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the period beginning on the first day of the fiscal
year during which the Date of Termination occurs and ending on the last day of
the month in which the Date of Termination occurs (such period, the "Bonus
Measuring Period"), with the aggregate budgeted EBITDA as reflected in the
monthly budgets prepared by the Company and accepted by the Company Board with
respect to such period, provided, the Pro Rata Bonus shall be in an amount equal
to the product of (I) a fraction, the numerator of which equals the number of
months in the Bonus Measuring Period and the denominator of which equals twelve
and (II) the bonus set forth in the Bonus Plan for the fiscal year in which the
Date of Termination occurs, treating the Bonus Measuring Period as if it was the
full fiscal year for purposes of determining the Executive's bonus percentage,
(iv) in the event that the Executive is entitled to receive a payment with
respect to the Pro Rata Bonus, a severance amount equal to two hundred percent
(200%) of the Pro Rata Bonus and (v) a lump sum payment equal to the then
present value of all major medical, disability and life insurance coverage to be
provided pursuant to Section 9 above through the date two (2) years after the
Date of Termination, provided that under such circumstances the Executive shall
make all COBRA premium payments on _____ own behalf. The sum of the amounts
described in clauses (ii), (iii), if any, (iv) and (v) above hereafter referred
to as the "Severance Amount." Fifty percent (50%) of the Severance Amount shall
be paid to the Executive no later than ten (10) days following the Date of
Termination and the balance of the Severance Amount shall be paid to the
Executive in twenty-four (24) equal

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monthly installments commencing on the first day of the month immediately
following the Date of Termination. Additionally, in the event that the
Executive's employment is terminated pursuant to this Section 10(e), a
percentage of the Executive's options to purchase shares of capital stock of the
Company unvested as of the Date of Termination but otherwise scheduled to vest
on the first vesting date scheduled to occur following the Date of Termination,
which percentage shall equal the percentage of the twelve (12) month period
immediately preceding such subsequent vesting date occurring prior to the Date
of Termination, shall immediately vest and become exercisable on the Date of
Termination. In the event that the Executive shall be entitled to receive a
bonus payment pursuant to clause (iii) above, all of the Executive's options to
purchase capital stock of the Company that are vested as of the applicable Date
of Termination or become vested pursuant to the immediately preceding sentence
may be exercised by the Executive at any time within twenty-four (24) months
following the Executive's Date of Termination notwithstanding any other
provision of the Stock Option Plan or any grant of options there under to the
contrary.

                  (f)      By the Executive for Good Reason. The Executive's
employment pursuant to this Agreement may be terminated by the Executive by
written notice of _____ resignation ("Notice of Resignation") delivered within
twelve (12) months after the occurrence of any of the following events (each of
which shall constitute "Good Reason" for resignation): (i) any Change of Control
(as defined below) shall occur, (ii) the removal of the Executive from or the
failure to elect or re-elect the Executive to the position of _______________ of
the Company, (iii) any material reduction by the Company of the Executive's
duties or responsibilities or the assignment to the Executive of duties
materially inconsistent with such position or (iv) any breach by the Company of
this Agreement (including the provisions of Section 3), which breach remains
uncorrected for a period of fifteen (15) days after receipt of the Company of
written notice from the Executive. Notwithstanding the provisions of clause (i),
(ii), (iii) or (iv) above, in the event the Executive is elected as
_______________________ of any entity which requires control of more than 50% of
the voting securities of the Company or, if such entity is subsidiary of another
entity, the ultimate parent of such subsidiary, with responsibility for (A) no
fewer facilities than the Company controlled at the end of the fiscal year
ending immediately preceding such Change of Control and (B) operating revenues
equal to or greater than the Company's operating revenues during such fiscal
year, and is provided with a written employment agreement by the entity or, if
such entity is a subsidiary of another entity, the ultimate parent of such
subsidiary, on substantially the same terms as those contained in this
Agreement, the appointment to such position shall not constitute Good Reason for
purposes of the Agreement. In the event that the Executive resigns for Good
Reason pursuant to this Section 10(f), the Executive shall be entitled to
receive, (i) on or prior to the Date of Termination, all Base Salary and
benefits to be paid or provided to the Executive under this Agreement through
the Date of Termination and (ii) the Severance Amount payable at the times and
in the manner set forth in Section 10(e) above, provided that applicable
references therein to the date of delivery of Notice of Termination shall mean
reference to the date of delivery of Notice of Resignation. Additionally, in the
event that the Executive's employment is terminated pursuant to this Section
10(f), a percentage of the Executive's options to purchase shares of capital
stock of the Company unvested as of the Date of Termination but otherwise
scheduled to vest on the first vesting date scheduled to occur following the
Date of Termination, which percentage shall equal the percentage of the twelve
(12) month period immediately preceding such subsequent vesting date occurring
prior to the Date of Termination, shall immediately vest and become exercisable
on the Date of Termination.

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In the event that the Severance Amount described in clause (ii) above shall
include a bonus payment as determined pursuant to clause (iii) of Section 10(e)
above, all of the Executive's options to purchase capital stock of the Company
that are vested as of the applicable Date of Termination or become vested
pursuant to the immediately preceding sentence may be exercised by the Executive
at any time within twenty-four (24) months following the Executive's Date of
Termination notwithstanding any other provision of the Stock Option Plan or any
grant of options there under to the contrary.

         For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred (A) at such times as any Person (as defined in Section 13(d)(3)
or 14(d)(2) of the Securities and Exchange Act of 1934, as amended from time to
time (the "Exchange Act")) or "group" of Persons (as defined in Section 13(d) of
the Exchange Act), other than any of the parties to that certain Stockholders
Agreement, dated October 7, 1999, among the company, JLL Healthcare, LLC, a
Delaware limited liability company, and certain other stockholders, as the same
may be amended (the "Stockholders Agreement"), directly and indirectly, acquires
beneficially or of record, more than 50% of the outstanding voting securities of
the Company (by operation of law or otherwise) or (B) upon a sale of all or
substantially all of the assets of the Company.

                  (g)      By the Executive Without Good Reason. The Executive's
employment pursuant to this Agreement may be terminated by the Executive at any
time by delivery of a Notice of Resignation to the Company. In the event that
the Executive's employment is terminated pursuant to this Section 10(g), the
Executive shall receive all Base Salary and benefits to be paid or provided to
the Executive under this Agreement through the Date of Termination and no more.

                  (h)      Date of Termination. The Executive's Date of
Termination shall be (i) if the Executive's employment is terminated pursuant to
Section 10(b), the date of _____ death, (ii) if the Executive's employment is
terminated pursuant to Section 10(c), the last day of the six-month period
referred to in Section 10(c)(i) or the date of delivery of the last physician's
opinion referred to in Section 10(e)(ii), as the case may be, (iii) if the
Executive's employment is terminated pursuant to Section 10(d), the date on
which a Notice of Termination is given, (iv) if the Executive's employment is
terminated pursuant to Section (10(e), sixty (60) days after the date of the
Notice of Termination is given; provided, however that the Company may waive
such notice in the event of a termination pursuant to Section 10(e) in which
event, the Executive's Date of Termination shall be five (5) days after the
Notice of Termination (v) if the Executive's employment is terminated pursuant
to Section 10(f), five (5) days after the date of the Notice of Resignation is
given and (vi) if the Executive's employment is terminated pursuant to Section
10(g), one hundred twenty (120) days after the date the Notice of Resignation is
given or such shorter period as may be determined by the Company.

                  (i)      Company's Failure to Extend Term. In the event the
Company provides notice of its intent not to extend the Term for any additional
period as provided in Section 2(b) and the Executive is not then in violation of
Section 13 hereof, The Company shall pay to Executive, on the expiration of the
Term, a lump sum payment in an amount equal to the sum of (i) the aggregate
amount of one (1) year of Base Salary at the then-current rate of Base Salary
and (ii) in the event that (A) the Company's actual EBITDA for the twelve (12)
month period ending on the last day of the month prior to the month in which
such expiration of the Term

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occurs (for purposes of this Section 10(i), such 12-month period, the "Trailing
Employment Year") shall equal or exceed the aggregate budgeted EBITDA as
reflected in the monthly budgets prepared by the Company with respect to such
period and (B) the Company's EBITDA for any nine (9) months during the Trailing
Employment Year, considered individually, shall equal or exceed the budgeted
EBITDA as reflected in the budgets prepared by the Company with respect to such
months, an amount equal to one hundred percent (100%) of the base target bonus
(e.g., in the case of the Bonus Plan for the fiscal year ending _______________,
fifty percent (50%) of the Executive's base salary) set forth in the Bonus Plan
for the fiscal year in which such expiration of the Term occurs.

         11.      Representations.

                  (a)      The Company represents and warrants that this
Agreement has been authorized by all necessary corporate action of the Company
and is a valid and binding agreement of the Company enforceable against both in
accordance with its terms.

                  (b)      The Executive represents and warrants that _____ is
not a party to any agreement or instrument, which would prevent him from
entering into or performing his duties in any way under this Agreement.

         12.      Assignment; Binding Agreement. This Agreement is a personal
contract and the rights and interests of the Executive hereunder may not be
sold, transferred, assigned, pledged, encumbered, or hypothecated by her, except
as otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall insure to the benefit of and be enforceable by the Executive and
_____ personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Executive should die while
any amount would still be payable to _____ hereunder had the Executive continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to _____ devisee, legatee or other
designee or, if there is no such designee, to _____ estate.

         13.      Confidentiality; Non-Competition; Ownership of Works.

                  (a)      The Executive acknowledges that: (i) the Business is
intensely competitive and that the Executive's employment by the Company will
require that the Executive has access to and knowledge of confidential
information of the Company relating to the Business, including but not limited
to, the identity of the Company's employees, physicians, payors or suppliers,
the kinds of services provided by the Company, the manner in which such services
are performed or offered to be performed, the service needs of actual or
prospective patients, physicians or payors, pricing information and other
contractual terms, information concerning the creation, acquisition or
disposition of products and services, creative ideas and concepts, including
clinical and financial systems, compliance programs and physician relation and
retention programs, computer software applications and other programs, research
data, personnel information and other trade secrets, in each case other than as
and to the extent such information is generally known or publicly available
through no violation of this Section 13 by the Executive or such information is
readily discernible (the "Confidential Information"); (ii) the disclosure of any
such Confidential Information may place the Company at a competitive
disadvantage and may do damage, monetary or otherwise, to the Company's
business; and (iii) the engaging by the Executive in any

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of the activities prohibited by this Section 13 may constitute improper
appropriation and/or use of such Confidential Information. The Executive
expressly acknowledges the trade secret status of the Confidential Information
and that the Confidential Information constitutes a protectable business
interest in the Company. Accordingly, the Company and the Executive agree as
follows:

                  (b)      For purposes of this Section 13, the Company shall be
construed to include the Company and its parents and subsidiaries engaged in the
Business, including any divisions managed by the Executive.

                  (c)      During the Executive's employment with the Company,
and at all times after the termination of the Executive's employment by
expiration of the Term or otherwise, the Executive shall not, directly or
indirectly, whether individually, as a director, stockholder, owner, partner,
employee, principal or agent of any business, or in any other capacity, make
known, disclose, furnish, make available or utilize any of the Confidential
Information, other than in the proper performance of the duties contemplated
herein, or as expressly permitted herein, or as required by a court of competent
jurisdiction or other administrative or legislative body, the Executive shall
promptly notify the Company so that the Company may seek a protective order or
other appropriate remedy. The Executive agrees to return all documents or other
materials containing Confidential Information, including all photocopies,
extracts and summaries thereof, and any such information stored electronically
on tapes, computer disks or in any other manner to the Company at any time upon
request by the Company and immediately upon the termination of _____ employment
for any reason.

                  (d)      For a period of two (2) years following the
Executive's Date of Termination (or one (1) year following the expiration of the
Term in the case of the Company's delivery of notice of its intent not to extend
the Term for any additional period as provided in Section 2(b)), whether upon
expiration of the Term or otherwise, the Executive shall not engage in
Competition, as defined below, with the Company or its subsidiaries within fifty
(50) miles of the location of any hospital managed by the Company (or other
facility managed by the Company from which in excess of five percent (5%) of the
Company's annual revenues are derived) at the time of, or within six (6) months
prior to, the Executive's Date of Termination or the expiration of the Term (as
applicable) or in which, during the six (6) months period prior to the
Executive's Date of Termination or the expiration of the Term (as applicable),
the Company had made substantial plans with the intention of establishing
operations in such locality or region. For purposes of this Agreement,
"Competition" by the Executive shall mean the Executive's engaging in
significant activities relating to, or otherwise directly or indirectly being
employed by or acting as a consultant or lender to, or being a director,
officer, employee, principal, agent, stockholder, member, owner or partner of,
or permitting _____ name to be used in connection with the activities of any
entity engaged in significant activities relating to, the Business; provided
that it shall not be a violation of this sub-paragraph for the Executive to
become the registered or beneficial owner of up to five (5%) of any class of
capital stock of any one or more competing corporations registered under the
Securities Exchange Act of 1934, as amended, provided that the Executive does
not actively participate in the business of such corporation until such time as
this covenant expires.

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                  (e)      For a period of two (2) years following the Executive
Date of Termination (or one (1) year following the expiration of the Term in the
case of the Company's delivery of notice of its intent not to extend the Term
for any additional period as provided in Section 2(b)), whether upon expiration
of the Term or otherwise, the Executive agrees that _____ will not, directly or
indirectly, for _____ benefit or for the benefit of any other person, firm or
entity, do any of the following:

                           (i)      solicit from any physician or physician
         group, payor or supplier doing business with the Company as of the
         Executive's termination, business of the same or of a similar nature to
         the business of the Company with such physician, physician group, payor
         or supplier;

                           (ii)     solicit from any known potential physician
         or physician group, payor or supplier of the Company business of the
         same or of a similar nature to that which has been the subject of a
         known written or oral bid, offer or proposal by the Company, or of
         substantial preparation with a view to making such a bid, proposal or
         offer, within six (6) months prior to the Executive's termination: or

                           (iii)    recruit or solicit the employment or
         services of any person who was employed by the Company upon termination
         of the Executive's employment and is employed by the Company at the
         time of such recruitment or solicitation.

                  (f)      The Executive will make full and prompt disclosure to
the Company of all inventions, improvements, formulas, data, programs,
processes, ideas, concepts, discoveries, methods, developments, software, and
works of authorship, whether or not copyrightable, trademarkable or patentable,
which relate to the actual or anticipated business, activities or research of
the Company and either (i) are created, made, conceived or reduced to practice
by the Executive, either alone, under _____ direction or jointly with others
during the period of _____ employment with the Company, (ii) result from or are
suggested by work performed by the executive for the Company or (iii) result, to
any extent, from use of the Company's premises or property (all of which are
collectively referred to in this Agreement as "Works"). All Works shall be the
sole property of the Company, and, to the extent that the Company is not already
considered the owner thereof as a matter of law, the Executive hereby assigns to
the Company, without further compensation, all _____ right, title and interest
in and to such Works and any and all related intellectual property rights
(including, but not limited to, patents, patent applications, copyright
applications, and trademarks) in the United States and elsewhere.

                  (g)      The Executive acknowledges that the services to be
rendered by _____ to the company are of a special and unique character, which
gives this Agreement a peculiar value to the Company, the loss of which may not
be reasonably or adequately compensated for by damages in a action at law, and
that a breach or threatened breach by _____ of any of the provisions contained
in this Section 13 may cause the Company irreparable injury. The Executive
therefore agrees that the Company may be entitled, in addition to any other
right or remedy, to a temporary, preliminary and permanent injunction, without
the necessity of proving the inadequacy of monetary damages or the posting of
any bond or security, enjoining or restraining the Executive from any such
violation or threatened violations.

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                  (h)      If any one or more of the provisions contained in the
Agreement shall be held to be excessively broad as to duration, activity or
subject, such provisions shall be construed by limiting and reducing them so as
to be enforceable to the fullest extent permitted by law.

         14.      Entire Agreement. This Agreement contains all the
understandings between the parties hereto pertaining to the matters referred to
herein, and supersedes any other undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto. The Executive
represents that, in executing this Agreement, _____ does not rely and has not
relied upon any representation or statement not set forth herein made by the
Company with regard to the subject matter or effect of this Agreement or
otherwise.

         15.      Amendment or Modification Waiver. No provision of this
Agreement may be amended or waived, unless such amendment or waiver is agreed to
in writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of any breach by another party hereto of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.

         16.      Notices. Any notice to be given hereunder shall be in writing
and shall be deemed given when delivered personally, sent by courier or
facsimile or registered or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such address as such party may subsequently give notice hereunder in writing:

                  To the Executive at:

                  --------------------------

                  --------------------------

                  To the Company at:

                           IASIS Healthcare Corporation
                           Dover Centre
                           113 Seaboard Lane, Suite A200
                           Attention:       General Counsel
                           Franklin, TN 37067
                           Facsimile:       (615) 467-1284

                  With copies to:

                           Joseph Littlejohn & Levy
                           450 Lexington Avenue
                           New York, New York 10022
                           Attention: Jeffrey C. Lightcap

                                       10
<PAGE>

                  With copies to:

                           Skadden, Arps, Slate, Meagher & Flom, LLP
                           One Rodney Square
                           P.O Box 636
                           Wilmington, Delaware 19899
                           Facsimile: (302) 651-3001
                           Attention: Robert B. Pincus, Esquire

         Any notice delivered personally or by courier under this Section 16
shall be deemed given on the date delivered and nay notice sent by facsimile or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date transmitted by facsimile or mailed.

         17.      Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.

         18.      Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.

         19.      Governing Law; Venue. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof.

         20.      Headings. All descriptive headings of sections and paragraphs
in this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.

         21.      Withholding. All payments to the Executive under this
Agreement shall be reduced by all applicable withholding required by federal,
state or local law.

         22.      Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but of which together shall
constitute one and the same instrument.

                         [Signatures On Following Page]

                                       11
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on ____________________ to be effective as of the Effective Date.

                                        IASIS HEALTHCARE CORPORATION

                                        By:
                                           --------------------------------
                                        Name:
                                             ------------------------------
                                        Title:
                                              -----------------------------

                                              -----------------------------

                                       12<PAGE>

                                                                   EXHIBIT 10.21

                   ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM

                          SOLICITATION, OFFER AND AWARD
<TABLE>

<S>                                          <C>                             <C>                 <C>
CONTRACT NO: YH8-0001-05                     RFP NO: YH8-0001                DATE ISSUED:         FEBRUARY 10, 1997
                                                                             REVISED:                APRIL 14, 1997

ISSUED BY:        AHCCCSA
                  CONTRACTS AND PURCHASING                             SUBJECT OF SOLICITATION:
                  701 E. JEFFERSON AVENUE                              ACUTE CARE SERVICES - CYE 98
                  PHOENIX, AZ  85034                                       (TERM OF CONTRACT: 10/1/97-9/30/97)

----------------------------------------------------------------------------------------------------------------------
I.   SOLICITATION

Sealed Offers (Original and 5 copies) for providing the services described
herein will be received at the issuing office (above until 3:00 p.m. local time
May 12, 1997. For information call:

Mark Renshaw, Contracts and Purchasing    Phone (602) 417-4577
----------------------------------------------------------------------------------------------------------------------
                                                  TABLE OF CONTENTS
A.   SOLICITATION OFFER AND AWARD
     FORM...........................................1        F.   LIST OF ATTACHMENT.............................63
B.   RATES..........................................2        G.   REPRESENTATIONS &
C.   DEFINITIONS..................................3-7             CERTIFICATIONS...............................64-71
D.   PROGRAM REQUIREMENTS........................8-52        H.   INSTRUCTIONS TO OFFERORS.....................72-84
E.   CONTRACT CLAUSES...........................53-62        I.   EVALUATION FACTORS...........................85-87
                                                                  ATTACHMENTS
II.  OFFER (Must be fully completed by Offeror)
----------------------------------------------------------------------------------------------------------------------
The undersigned Offeror hereby agrees, if this offer is accepted within 120 days
of bid opening to provide all services in accordance with the terms and
requirements stated herein, including all attachments, amendments, and best-and
final offer (if any).

NAME OF OFFEROR: HEALTH CHOICE ARIZONA, INC.                               PHONE:  (602) 968-6866
                 ---------------------------                                       --------------

ADDRESS:    1600 West Broadway Suite 260
            ----------------------------

CITY/STATE:  Tempe, Arizona                     ZIP: 85282
             --------------                          -----

NAME OF THE PERSON AUTHORIZED
TO SIGN OFFER:   Patricia E. Levin                                         TITLE:  President/CEO
                ------------------                                                 -------------

OFFEROR'S SIGNATURE:       /s/ Patricia E. Levin                           DATE:                5/2/97
                      --------------------------------                            --------------------

----------------------------------------------------------------------------------------------------------------------
III. AWARD (To be completed by AHCCCSA)

The offer, including all attachments, amendments and best-and-final offer (if
any), contained herein, is accepted.

NAME OF AHCCCSA CONTRACTING OFFICER:  Michael Veit DATE:  June 24, 1997
                                                          -------------

SIGNATURE OF AHCCCSA CONTRACTING OFFICER:                  /s/ Michael Veit
                                                   -----------------------------

----------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                           SECTION B: CAPITATION RATES

1.       The Contractor shall provide services as described in this
         solicitation.
2.       Attachment B, Service Area Minimum Network Standards, describes
         location requirements by Geographic Service Area (GSA).
3.       The following capitation rate table, shown for example only, will be
         generated by the capitation rate computer program described in
         Attachment E. The Offeror must complete one such rate table for each
         Geographic Service Area (see Section H, Paragraph 9, Award of Contract)
         it is bidding. The Offeror should insert between this page and the
         following page the computer-generated printout of all such proposed
         rate tables.
4.       In preparing capitation rate bids, offerors, especially continuing
         offerors, should note the program changes described in the following
         paragraphs:

                  Section D, Paragraph 39, Reinsurance
                  Section D, Paragraphs 1 and 6, regarding Family Planning
                  Extension Program Section D, Paragraph 6, regarding Health
                  Plan Choice and Prior Period Coverage Section H, Paragraph 9,
                  regarding bidding by Geographic Service Areas

5.       Offerors are encouraged to negotiate discounts for inpatient,
         outpatient and other medical services to provide for the most
         cost-effective capitation rates.

--------------------------------------------------------------------------------

                                   SAMPLE ONLY

PROPOSED CAPITATION RATES:

(1) GEOGRAPHIC SERVICE AREA:

<TABLE>
<CAPTION>

<S>                                               <C>                                     <C>
                                                                                            SUPPLEMENTAL
          RATE CODE AND AGE/SEX                   CAPITATION RATE PER MEMBER PER          PAYMENT PER SOBRA
             CLASSIFICATION                                   MONTH:                           BIRTH:

TANF AND CCP AGE/SEX:
                           < 1 YEAR M + F     $
                                                 ----------------------------------
                         1-13 YEARS M + F
                                                 ----------------------------------
                            14-44 YEARS F
                                                 ----------------------------------
                            14-44 YEARS M
                                                 ----------------------------------
                          45+ YEARS M + F
                                                 ----------------------------------
SSI WITH MEDICARE
                                                 ----------------------------------
SSI WITHOUT MEDICARE
                                                 ----------------------------------
MN/MI *
                                                 ----------------------------------
SOBRA FAMILY PLANNING
                                                 ----------------------------------
SOBRA SUPPLEMENTAL                                                                  $
                                                                                       -------------------------------
</TABLE>

* All MN/MI's (i.e. with and without Medicare) are grouped together for
capitation purposes.

<PAGE>

                             SECTION C: DEFINITIONS

<TABLE>
<S>                        <C>
AAC                        See "Arizona Administrative Code".

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

AID TO FAMILIES            A federal assistance program under Title IV-A of the Social
WITH DEPENDENT             Security Act.  Replaced by the Temporary Assistance to Needy
CHILDREN (AFDC)            Families (TANF) program.

AHCCCS                     Arizona Health Care Cost Containment System as defined by
                           ARS 36-2901.

AHCCCSA                    Arizona Health Care Cost Containment System Administration.

AHCCCS BENEFITS            See "COVERED SERVICES".

AHCCCS MEMBER              See "MEMBER".

ALTCS                      The Arizona Long Term Care System (ALTCS), a program under
                           AHCCCSA that delivers long term, acute and behavioral health
                           care services to eligible members, as authorized by ARS ss.
                           36-2931 et seq.

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

AMPM                       The AHCCCS Medical Policy Manual.

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

ARS                        Arizona Revised Statutes.

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

BIDDERS LIBRARY            As referred to in this RFP, a repository of manuals,
                           statutes, rules and other reference material located at the
                           AHCCCS office in Phoenix.
</TABLE>

                                           i
<PAGE>

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

CAPITATION                 A method by which a contractor is paid to deliver covered
                           services for the duration of a contract to members based on
                           a fixed rate per member notwithstanding (a) the actual
                           number of members who receive care from the contractor, and
                           (b) the amount of health care services provided to any
                           member, a cost containment alternative to fee-for-service
                           payments.

CATEGORICALLY              A member who is eligible for Medicaid.
ELIGIBLE MEMBER

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

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

CONTRACT SERVICES          See "COVERED SERVICES".

CONTRACT YEAR (CY)         Corresponds to federal fiscal year (Oct. 1 through Sept. 30)
                           For example, Contract Year 98 is 10/1/97 - 9/30/98.

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

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

CO-PAYMENT                 An amount which the member pays directly to a contractor or
                           provider at the time covered services are rendered.

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

COVERED SERVICES           Health care services to be delivered by a contractor which
                           are so designated in Section D of this contract and also
                           AHCCCS Rules R9-22-202 et seq.
</TABLE>

                                          ii
<PAGE>

<TABLE>
<S>                        <C>
CRS                        Children's Rehabilitative Services (See Section D,
                           Paragraph 1, Covered Services).

CY                         See "CONTRACT YEAR".

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

DAYS                       Calendar days unless otherwise specified.

DHS                        Arizona Department of Health Services.

DIRECTOR                   The Director of AHCCCSA.

DISCLOSING ENTITY          An AHCCCS provider or a fiscal agent.

DME                        Durable Medical Equipment; sturdy, long-lasting items and
                           appliances that can withstand repeated use, are designed to
                           serve a medical purpose, and are not generally useful to a
                           person in the absence of a medical condition, illness or
                           injury.

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

DUAL ELIGIBLE              A person who is entitled to Medicare Part A insurance and who
QUALIFIED MEDICARE         meets certain income, resource and residency requirements of the
BENEFICIARY                Qualified Medicare Beneficiary program, and is categorically
                           eligible for full AHCCCS benefits.

EAC                        Eligible Assistance Child as defined in ARS 36-2905.03(B);
                           an AHCCCS state program for children under age 14 receiving
                           food stamps.

ELIC                       Eligible Low-Income Child as defined in ARS 36-2905.05(c)
                           and (D); an AHCCCS state program for children under age 14
                           whose household income exceeds the income limit for the
                           MN/MI program but is less than 100% of the federal poverty
                           level.

ELIGIBLE PERSON            A person who meets all eligibility requirements for the
                           AHCCCS acute care program but who has not yet been enrolled
                           with an AHCCCS acute care contractor.

ELIGIBILITY                A process of determining, through a written application, including
DETERMINATION              required documentation, whether an applicant meets the
                           qualifications for federal (categorical) and/or state only
                           eligibility.
</TABLE>

                                          iii
<PAGE>

<TABLE>
<S>                        <C>
ENCOUNTER                  An encounter is a record of a medically related service
                           rendered by a provider or providers registered with AHCCCSA
                           to a member who is enrolled with a contractor on the date of
                           service. It includes all services for which the contractor
                           incurred any financial liability.

ENROLLMENT                 The process by which a person who has been determined
                           eligible becomes a member with a contractor subject to the
                           limitations specified in AHCCCS Rule R9-22-333.

EPSDT                      Early and Periodic Screening, Diagnosis and Treatment; these
                           services provide comprehensive health care, as defined in
                           Rule R9-22-213, through primary prevention, early
                           intervention, diagnosis and medically necessary treatment of
                           physical and behavioral health problems for AHCCCS members
                           under 21 years of age.

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

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

FFP                        Federal financial participation (FFP) refers to the federal
                           matching rate that the Federal government makes to the Title
                           XIX program portion of AHCCCS.

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

FULL-TIME EMPLOYEE         One who is available at all times to fulfill the
                           requirements of the position.

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

GEOGRAPHIC SERVICE         A specific county or defined grouping of counties that are
AREA (GSA)                 available for contract award. An offeror may bid on any or
                           all GSA's. See Section H, Paragraph 9, Award of Contract.
</TABLE>

                                          iv

<PAGE>

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

HCFA                       Health Care Financing Administration, an organization
                           within the Department of Health and Human Services, a
                           federal agency.

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

HEALTH PLAN                See "CONTRACTOR".

IBNR                       Incurred But Not Reported claims which is the liability for
                           services rendered for which claims have not been received.

IHS                        Indian Health Service (IHS) is a division of the U.S. Public
                           Health Service. It administers a system of hospitals and
                           health centers providing health services to Native Americans
                           and Native Alaskans.

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

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

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

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

                                           v
<PAGE>

<TABLE>
<S>                        <C>
MATERIAL OMISSION          A fact, data or other information excluded from a report, contract,
                           etc. which could lead to erroneous conclusions following
                           reasonable review of such report, contract, etc.

MEDICAID                   A Federal/State program authorized by Title XIX of the Social
                           Security Act, as amended, which provides Federal matching
                           funds for a state-operated medical assistance program for
                           specified populations. Certain mandatory populations and
                           services must be included to receive FFP; however, states
                           may add additional optional populations and services with
                           HCFA approval and also receive FFP.

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

MEMBER                     For purposes of this solicitation, a person eligible for
                           AHCCCS who is enrolled with a Contractor.

MN/MI                      Medically Needy/Medically Indigent; state program for
                           individuals not eligible for Medicaid but who meet the
                           eligibility requirements for the state program.

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

NON-CONTRACTING            A provider who has a contract or subcontract within the AHCCCS
PROVIDER                   system and renders covered services to an eligible person or
                           member to whom such provider bears no contractual obligation.

OFFEROR                    The organization, entity or person which submits a proposal in
                           response to the AHCCCS Request for Proposal. An offeror who
                           is awarded a contract becomes a Contractor.

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

PMMIS                      Pre-paid Medicaid Management Information System.

PRIMARY CARE               An individual responsible for the management of the member's
PROVIDER                   (PCP) health care that includes a physician who is generally
                           a family practitioner, general practitioner, pediatrician,
                           general internist,
</TABLE>

                                          vi
<PAGE>

<TABLE>
<S>                        <C>
                           obstetrician, gynecologist, certified nurse practitioner or,
                           under the supervision of a physician, a physician's
                           assistant. The PCP must be an individual, not a group or
                           association of persons, such as a clinic.

PROVIDER                   A person or entity who contracts with AHCCCSA or subcontracts
                           with an AHCCCS health plan to provide AHCCCS covered
                           services to members.

QUALIFIED MEDICARE         A Medicare cost-sharing program established by the Medicare
BENEFICIARY (QMB)          Catastrophic Coverage Act of 1988 in which Medicaid pays
                           the Medicare premiums, coinsurance and deductibles for
                           Medicare recipients meeting specific eligibility
                           requirements.

RATE CODE                  Eligibility classification for capitation payment purposes.

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

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

RFP                        Request For Proposal document prepared by AHCCCSA which describes
                           the services required and which instructs prospective
                           offerors how to prepare a response (proposal).

SCOPE OF SERVICES          See "COVERED SERVICES".

SERIOUSLY MENTALLY         An adult whose emotional or behavioral functioning is so impaired
ILL (SMI)                  as to interfere with his (or her) capacity to remain in the
                           community without supportive treatment or services of a
                           long-term or indefinite duration. The mental disability is
                           severe and persistent and may result in a long-term
                           limitation of his capacities for primary activities of daily
                           living, interpersonal relationships, home-making, self-care,
                           employment or recreation.
</TABLE>

                                          vii

<PAGE>

<TABLE>
<S>                        <C>
SOBRA                      Refers to a federal law (Sixth Omnibus Budget and Reconciliation Act)
                           passed in 1986 and subsequently amended, which establishes
                           eligibility for pregnant women and children based on a
                           percentage of the federal poverty level (FPL). Currently,
                           AHCCCS covers pregnant women and infants up to age one with
                           income up to 140% of FPL, children from 1 through 5 years
                           with income up to 133% of FPL and children born on or after
                           September 30, 1983 with income up to 100% of FPL.

STATE                      The state of Arizona.

STATE PLAN                 The written agreement between the State and HCFA which describes
                           how the AHCCCS program meets HCFA requirements for
                           participation in the Medicaid program.

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

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

SUPPLEMENTAL               A federal assistance program under Title XVI of the Social
SECURITY INCOME (SSI)      Security Act.

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

THIRD PARTY                An individual, entity or program that is or may be liable
                           to pay all or part of the medical cost of injury, disease or
                           disability of an AHCCCS applicant or member. Filing of liens
                           is a method of securing reimbursement from third parties.

THIRD PARTY                The resources available from a person or entity that is, or may be,
LIABILITY                  by agreement, circumstance or otherwise, liable to pay all or part
                           of the medical expenses incurred by an AHCCCS applicant or
                           eligible person.

YEAR                       See "Contract Year."
</TABLE>

                                         viii
<PAGE>

                         SECTION D: PROGRAM REQUIREMENTS
                                Table of Contents

<TABLE>
<CAPTION>
                                                                                             PAGE
                                                                                            ------
<S>     <C>                                                                                 <C>
1       Scope of Services .............................................................     D -  1
2       Behavioral Health Services ....................................................     D -  7
3       AHCCCS Medical Policy Manual ..................................................     D -  9
4       Vaccine for Children Program ..................................................     D -  9
5       Denials or Reductions of Services..............................................     D -  9
6       Enrollment And Disenrollment ..................................................     D - 10
7       Mainstreaming of AHCCCS Members ...............................................     D - 12
8       Member Information ............................................................     D - 13
9       Member Surveys ................................................................     D - 15
10      Marketing Plans ...............................................................     D - 15
11      Open Enrollment ...............................................................     D - 15
12      Transition of Members .........................................................     D - 16
13      Staff Requirements and Support Services .......................................     D - 17
14      Written Policies, Procedures and Job Descriptions .............................     D - 18
15      Advance Directives ............................................................     D - 19
16      Performance Measures ..........................................................     D - 19
17      Quality Management and Utilization Management (QM/UM) .........................     D - 21
18      Physician Incentives ..........................................................     D - 22
19      Appointment Standards .........................................................     D - 22
20      Referral Procedures and Standards..............................................     D - 23
21      Provider Manual ...............................................................     D - 23
22      Primary Care Provider Standards ...............................................     D - 24
23      Other Provider Standards ......................................................     D - 25
24      Network Development ...........................................................     D - 26
25      Network Management ............................................................     D - 27
26      Federally Qualified Health Centers (FQHC) .....................................     D - 27
27      Provider Registration .........................................................     D - 29
28      Provider Affiliation Tape .....................................................     D - 29
29      Periodic Report Requirements ..................................................     D - 29
30      Dissemination of Information ..................................................     D - 30
31      Requests for Information ......................................................     D - 30
32      Operational and Financial Readiness Reviews ...................................     D - 30
33      Operational and Financial Reviews .............................................     D - 30
34      Claims Payment System .........................................................     D - 31
35      Hospital Reimbursement ........................................................     D - 32
36      Nursing Facility Reimbursement ................................................     D - 33
37      Compensation ..................................................................     D - 33
38      Capitation Adjustments ........................................................     D - 35
39      Reinsurance ...................................................................     D - 35
40      Coordination of Benefits/Third Party Liability ................................     D - 37
41      Medicare Services and Cost Sharing ............................................     D - 39
42      Copayments ....................................................................     D - 41
43      Records Retention .............................................................     D - 41
44      Medical Records ...............................................................     D - 42
45      Advances, Distributions, Loans and Investments ................................     D - 43
46      Accumulated Fund Deficit ......................................................     D - 43
47      Data Exchange Requirement .....................................................     D - 43
48      Encounter Data Reporting ......................................................     D - 44
49      Monthly Roster Reconciliation .................................................     D - 45
50      Term of Contract and Option to Renew ..........................................     D - 45
51      Subcontracts ..................................................................     D - 46
52      Specialty Contracts ...........................................................     D - 48
53      Management Services Subcontractors ............................................     D - 48
54      Management Services Subcontractor Audits ......................................     D - 49
55      Minimum Capitalization Requirements ...........................................     D - 49
56      Performance Bond or Bond Substitute ...........................................     D - 50
57      Amount of Performance Bond ....................................................     D - 50
58      Financial Viability Criteria/Performance Measures .............................     D - 51
59      Merger, Reorganization and Change of Ownership ................................     D - 51
60      Sanctions .....................................................................     D - 52
61      Auto-Assignment Algorithm .....................................................     D - 52
62      Grievance Process and Standards ...............................................     D - 53
63      Quarterly Grievance Report ....................................................     D - 53
64      Pending Legislative Issues ....................................................     D - 53
</TABLE>

                                          ix
<PAGE>

                         SECTION D: PROGRAM REQUIREMENTS

         Note to Prospective Offerors: Attachment L, Offeror's Checklist, has
         been added to this RFP as a convenience to offerors. It is believed to
         be a complete list of all submission requirements pursuant to this RFP.
         However, if a requirement is stated anywhere in the RFP text yet does
         not appear in the Offeror's Checklist, the text statement takes
         precedence over the omission of that requirement in the Offeror's
         Checklist.

1.       SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable federal, state and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R9-22-202 et seq., the AHCCCS Medical Policy
Manual, the AHCCCS Behavioral Health Policy Manual, and the document entitled
"AHCCCS Health Plan Performance Indicators", all of which are incorporated
herein by reference and may be found in the Bidder's Library. The covered
services are briefly described below. Covered services must be medically
necessary and provided by, or coordinated with, a primary care provider, except
for behavioral health and children's preventive dental services. Services must
be rendered by providers that are appropriately licensed, operating within their
scope of practice, and registered as an AHCCCS provider. The Contractor shall
provide the same standard of care for all members regardless of the member's
eligibility category. In situations where a medical policy will not become
effective until 10/1/97 but will affect the bidding or negotiation processes,
relevant information regarding the policy will be available in the Bidder's
Library.

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

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

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

Behavioral Health: The Contractor shall provide behavioral health services as
described in Section D, Paragraph 2. Behavioral Health Services. For
non-categorical members (MN/MI, EAC, ELIC) behavioral health services are
limited to up to the first 72 hours per episode of

                                      D-1
<PAGE>

emergency/ crisis stabilization, not to exceed 12 days per contract year. See
also the AHCCCS Medical Policy Manual and the AHCCCS Behavioral Health Policy
Manual for details on covered behavioral health services.

CHILDREN'S REHABILITATIVE SERVICES (CRS): The program for CRS-covered conditions
is administered by the Arizona Department of Health Services (ADHS) for children
who meet CRS eligibility criteria. The Contractor is responsible for referring
children to the CRS program who are potentially eligible for these services.
Eligibility criteria and the referral process are described in the CRS Policy
and Procedures Manual available in the Bidder's Library. The Contractor is also
responsible for providing primary medical care, including emergency services and
initial care of newborn infants, for members who are also CRS eligible, and to
require the members Primary Care Provider (PCP) to coordinate their care with
the CRS program. All services provided must be included in the members medical
record maintained by the PCP.

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

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

EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment for members
under age 21. The Contractor shall ensure that EPSDT members receive required
health screenings in compliance with the AHCCCS periodicity schedule to take
effect 10/1/97 (included herein as Attachment K) and to submit to the AHCCCS
Office of the Medical Director/Acute Care Unit, all EPSDT reports as required by
AHCCCS medical policy. The Contractor is required to meet specific
participation/utilization rates far EPSDT members; these are described in
Section D, Paragraph 16, Performance Measures.

                                      D-2
<PAGE>

EMERGENCY SERVICES: The Contractor shall have and/or provide the following as a
minimum:

a.       Emergency services facilities adequately staffed by qualified medical
professionals to provide pre-hospital, emergency care on a 24-hour-a-day,
7-day-a-week basis, for the sudden onset of a medically emergent condition as
defined by AHCCCS Rule R9-22-l01. The Contractor is encouraged to contract with
emergency service facilities for the provision of emergency services. The
Contractor is encouraged to contract with or employ the services of
non-emergency facilities (e.g. urgent care centers) to address member
non-emergency care issues occurring after regular office hours or on weekends.
The Contractor shall be responsible for educating members and providers
regarding appropriate utilization of emergency room services. The Contractor
shall monitor emergency services utilization (by both provider and member) and
shall have guidelines for implementing corrective action for inappropriate
utilization.

b.       All medical services necessary to rule out an emergency condition
c.       Emergency transportation
d.       Member access by telephone to a physician, registered nurse,
         physician assistant or nurse practitioner for advice in emergent or
         urgent situations, 24 hours per day, 7 days per week.

EYE EXAMINATIONS/OPTOMETRY: The Contractor shall provide all medically necessary
emergency eye care, vision examinations, prescriptive lenses, and treatments for
conditions of the eye for EPSDT members. For members who are 21 years of age and
older, the Contractor shall provide emergency care for eye conditions which meet
the definition of an emergency medical condition, cataract removal, and/or
medically necessary vision examinations and prescriptive lenses if required
following cataract removal and other eye conditions as specified in the AHCCCS
Medical Policy Manual (AMPM).

FAMILY PLANNING: The Contractor shall provide family planning services for all
members who choose to delay or prevent pregnancy, including medical, surgical,
pharmacological and laboratory services, as well as contraceptive devices,
information and counseling necessary to allow the members to make informed
decisions regarding family planning methods. If the Contractor does not provide
family planning services, it must contract for these services through another
health care delivery system which allows members freedom of choice in selecting
a provider. A prospective offeror may discuss arrangements for family planning
services only with other prospective offerors during the RFP process for the
purpose of making arrangements for the provision of family planning services. In
addition, the Contractor shall provide services to members enrolled in the
Family Planning Services Extension Program, a program that provides only family
planning services for a maximum of 24 months to women whose SOBRA eligibility
has terminated. The Data Book contains cost-related information for this
population and is available in the Bidder's Library.

HEALTH RISK ASSESSMENT AND SCREENING: The Contractor shall provide these
services for non-hospitalized members 21 years of age and older. These services
include, but are not limited to, screening for hypertension, elevated
cholesterol, colon cancer, sexually-transmitted diseases, tuberculosis and
HIV/AIDS, mammographies and prostate screenings: physical examinations and
diagnostic work-ups; and immunizations. Assessment and screening services for
members under age 21 are based on the AHCCCS EPSDT periodicity schedule.

                                      D-3
<PAGE>

HOME HEALTH: The Contractor shall provide these services when members require
part-time or intermittent care but do not require hospital care under the daily
direction of a physician to prevent re-hospitalization or institutionalization
and may include skilled nursing, therapies, supplies and home health aide
services.

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

IMMUNIZATIONS: The Contractor shall provide immunizations for adults (21 years
of age and older) to include diphtheria-tetanus, influenza, pneumococcus,
rubella, measles and hepatitis-B. EPSDT immunization requirements include
diptheria, tetanus, pertussis vaccine (DPT), oral polio vaccine, measles, mumps,
rubella vaccine (MMR), H. influenza, type B (HIB), hepatitis B (Hep B), combined
3-antigen rate (4 DPT, 3 OPV, 1 MMR) and varicella vaccine. The Contractor is
required to meet specific immunization rates for EPSDT members which are
described in Section D, Paragraph 16, Performance Measures.

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

MATERNITY: The Contractor shall provide pre-conception counseling, pregnancy
identification, prenatal care, treatment of pregnancy related conditions, labor
and delivery services, and postpartum care for members. Services may be provided
by physicians, physician assistants or nurse practitioners certified in
midwifery. Members may select or be assigned to a PCP specializing in
obstetrics. Circumcisions are covered if performed during the newborn's hospital
stay after birth, or on an outpatient basis within one month of the infant's
hospital discharge. Members anticipated to have a low-risk delivery may elect to
receive labor and delivery services in their home from their maternity provider
if this setting is included in allowable settings for the Contractor, and the
Contractor has providers in its network that offer home labor and delivery
services. Members anticipated to have a low-risk prenatal course and delivery
may elect to receive maternity services of prenatal care, labor and delivery and
postpartum care provided by licensed midwives if they are in the Contractor's
provider network. All licensed midwife labor and delivery services must be
provided in the member's home since licensed midwives do not have admitting
privileges in hospitals or AHCCCS registered free-standing birthing centers.

                                      D-4
<PAGE>

Members receiving maternity services from a licensed midwife must also be
assigned to a PCP for other health care and medical services.

MEDICALLY NECESSARY ABORTIONS: These services are covered when the pregnancy
would endanger the life of the mother if the fetus were to be carried to term
or, for Title XIX members, if the pregnancy is the result of rape or incest.
Providers must document and submit to the Contractor a Certificate of Medical
Necessity for Pregnancy Termination and prior authorization is required. If the
procedure is performed on an emergency basis, documentation must be submitted to
the Contractor within two working days. Additional documentation, outlined in
the AMPM, is required for members under 13 years of age who seek medically
necessary abortion due to rape or incest.

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

NURSING FACILITY: The Contractor shall provide nursing facility services for
members who require short-term convalescent care not to exceed 90 days per
contract year. Services must be provided in a dually-certified Medicare/Medicaid
facility which includes in the per-diem rate: nursing services, basic patient
care equipment and sickroom supplies, dietary services, administrative physician
visits, non-customized DME, necessary maintenance rehabilitation therapies,
over-the-counter medications, social, recreational and spiritual activities, and
administrative, operational medical direction services. The Contractor shall
continue medically necessary nursing facility services for any member who has
not been determined ALTCS eligible but is currently residing in a nursing
facility and is eligible for services provided under this contract. If the
member becomes ALTCS eligible and is enrolled with an ALTCS Program Contractor
before the end of the maximum 90 days of nursing facility coverage, the
Contractor is only responsible for nursing facility coverage during the time the
member is enrolled with the Contractor.

NUTRITION: The Contractor shall provide nutritional assessment and nutritional
supplements including oral supplements for EPSDT members when medically
necessary. Total parenteral nutrition (TPN) is covered for all members when it
is the sole source of nutrition due to severe pathology of the alimentary tract.
TPN may also be used to supplement nutrition for EPSDT members when medically
necessary but need not be the member's sole source of nutrition.

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

                                      D-5
<PAGE>

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

PRESCRIPTION MEDICATIONS AND PHARMACY: Medications ordered by a PCP, attending
physician or dentist and dispensed under the direction of a licensed pharmacist
are covered subject to limitations related to prescription supply amounts.
Contractor formularies and prior authorization requirements, as well as
restrictions for immunosuppressant drugs addressed in AHCCCS medical policies
for transplantations.

PRIMARY CARE PROVIDER (PCP): PCP services are covered when provided by a
physician, physician assistant or nurse practitioner selected by, or assigned
to, the member. The PCP provides primary health care and serves as a gatekeeper
and coordinator in referring the member for specialty medical services,
behavioral health and dental services. The PCP is responsible for maintaining
the member's primary medical record which contains documentation of all health
risk assessments and health care services, including those provided by the PCP
and through referral.

RADIOLOGY AND MEDICAL IMAGING: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical condition. Services are
generally provided in hospitals, clinics, physician offices and other health
care facilities.

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

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

TRANSPLANTATION OF ORGANS AND TISSUE, AND RELATED IMMUNOSUPPRESSANT DRUGS: These
services include bone marrow, heart, lung, heart-lung, kidney, liver and cornea
transplantations (all with related immunosuppressant medications), and are
covered within limitations defined in the AMPM, Chapter 300 for members
diagnosed with specified medical conditions. Such limitations include whether
the stage of the disease is such that the transplant can affect the outcome; the
member has no other conditions which substantially reduce the potential for
successful transplantation; and whether the member will be able to comply with
necessary and required regimens of treatment. Bone grafts are also covered under
this service.

Services include: pre-transplant inpatient or outpatient evaluation; donor
search; organ/tissue harvesting or procurement; preparation and transplantation
services; and convalescent care. In addition, if a member receives a transplant
covered by a source other than AHCCCS, medically

                                      D-6
<PAGE>

necessary non-experimental services are provided within limitations after the
discharge from the acute care hospitalization for the transplantation. AHCCCS
has contracted with transplantation providers for the Contractor's use or the
Contractor may select its own transplantation provider. However, the quality of
services must be equal to or exceed those from the AHCCCS provider and the rate
paid can not exceed the AHCCCS provider's negotiated rate. Transplantations for
the MN/MI population are subject to available funding.

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

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

2.       BEHAVIORAL HEALTH SERVICES

The Contractor is responsible for the provision of Title XIX covered behavioral
health services to members as described below:

CATEGORICAL MEMBERS:

UNDER AGE 18; AGE 21 AND OVER; SMI: On and after the effective date of
enrollment, the Contractor is responsible for up to 72 hours of emergency
behavioral health services provided to categorical members not enrolled with
ADHS. The Contractor is also responsible for referring categorically eligible
members under the age of 18, age 21 and older, and SMI members of any age to the
Regional Behavioral Health Authorities (RBHAs) for the provision of Title XIX
covered behavioral health services. (The RBHAs may, in turn, contract with local
providers.) The Contractor is responsible for ensuring that a medical record is
established by the PCP when information is received about an assigned member
even if the PCP has not yet seen the assigned member. The Contractor shall also
communicate information pertaining to ADHS enrolled members to the ADHS RBHAs
including, but not limited to, current diagnosis, medication, pertinent
laboratory results, last PCP visit, and last hospitalization. For prior period
coverage, the Contractor is responsible for payment of all claims for medically
necessary covered behavioral health services to eligible persons not enrolled
with ADHS.

                                      D-7
<PAGE>

NON-SMI, AGE 18, 19 AND 20: The Contractor is responsible for providing Title
XIX covered behavioral health services to categorically eligible non-SMI members
age 18, 19 and 20 in accordance with AHCCCS Rule R9-22-1204 and the AHCCCS
Behavioral Health Policy Manual. Covered services include: inpatient hospital,
inpatient psychiatric facility for individuals under the age of 21, individual
therapy and counseling, group and/or family therapy and counseling, psychotropic
medication adjustment and monitoring, partial care, emergency crisis services,
behavior management, psychosocial rehabilitation, screening, evaluation and
diagnosis, case management, psychotropic medications, and medically necessary
transportation.

         REFERRALS: Categorically eligible members age 18, 19 and 20 may be
         referred directly for the provision of behavioral health services by
         the PCP, family members, self-referrals, schools, other service
         providers, and members of the community and State agencies as well as
         the Contractor's staff. The same referral procedures which are
         applicable to other health care services apply to behavioral health
         services.

         SERVICE PLAN: The Contractor is responsible for developing a Service
         Plan for each categorically eligible member age 18, 19 and 20 requiring
         behavioral health services. Service Plans shall be developed within two
         weeks of assessment and services shall be authorized and provided
         within 30 days from completion of the screening. The Service Plan is to
         be included as part of the member's medical record.

         CASE MANAGEMENT, CASE COORDINATION: The Contractor is responsible for
         providing case management services, when medically necessary. Case
         management services may vary in scope and frequency, depending on the
         eligible person's intensity of need. Case management services consist
         of a set of services and activities through which appropriate and
         cost-effective Title XIX covered services are identified, planned,
         coordinated, obtained, monitored and continuously evaluated. Case
         coordination is provided to categorically eligible members age 18, 19
         and 20 who are in need of behavioral health services but who do not
         require case management services which are more intensive. Case
         coordination is limited to Service Plan development, identification of
         service providers, monitoring, updates and follow-up, when necessary.

         QUALITY MANAGEMENT/UTILIZATION, MANAGEMENT (QM/UM) REQUIREMENTS:
         Quality management QM/UM for behavioral health services must be
         integrated into the Contractors QM/UM plans and must meet the QM/UM
         requirements established by AHCCCSA.

         PROVIDER NETWORK: The Contractor is responsible for contracting with
         behavioral health providers who meet ADHS licensure and/or
         certification standards and who are registered as a behavioral health
         provider with AHCCCSA. The Contractor may, at its option, contract with
         ADHS RBHAs for the provision of behavioral health services. The
         Contractor must ensure that a sufficient number of qualified behavioral
         health providers are in their provider network and that providers
         comply with subcontracting, appointment standards and other provider
         related requirements in this document.

                                      D-8
<PAGE>

         NOTIFICATION REQUIREMENTS: The Contractor is responsible for notifying
         AHCCCSA monthly of 18-19-and 20-year-old categorical. non-SMI members
         referred and receiving behavioral health services. The information is
         to be submitted to the AHCCCS Office of Managed Care using the
         reporting format developed by AHCCCSA and available in the Bidder's
         Library.

MN/MI, EAC, ELIC MEMBERS:

For non-categorical members (MN/MI, EAC, ELIC) behavioral health services are
limited to up to 72 hours per episode of emergency/crisis stabilization, not to
exceed 12 days per contract year.

3.       AHCCCS MEDICAL POLICY MANUAL (AMPM)

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference into
this contract. AHCCCSA will provide three copies of the AMPM to the Contractor
(for use by the CEO, Medical Director and Quality Management staff). Updates to
medical policies will be distributed quarterly. The Contractor is responsible
for maintaining the AMPM with these updates and for complying with the
requirements set forth therein.

4.       VACCINE FOR CHILDREN PROGRAM

Federal legislation passed in 1993 (OBRA 93) amended Title XIX of the Social
Security Act and created the Vaccine for Children (VFC) program which became
effective 10/1/94. Through this program the federal government purchases, and
makes available to the states free of charge, vaccines for children under age 19
who are Title XIX eligible (or Native American) and not insured, or whose
insurance does not cover immunizations. Any provider licensed by the State to
administer immunizations may register with ADHS as a "VFC provider" and receive
free vaccines. State money to purchase vaccines is not available since the
program is 100% funded by the federal government. The Contractor shall comply
with all VFC requirements and monitor its providers to ensure that, if providing
immunizations to AHCCCS EPSDT members, the providers are registered with
ADHS/VFC.

5.       DENIALS OR REDUCTIONS OF SERVICES

When a covered service is denied, reduced, suspended or terminated, the
Contractor shall comply with the notice and continuation of benefits
requirements specified in 42 CFR 431.200 et seq. and further prescribed in Perry
V. Chen, now referred to as Perry v. Kelly.

                                      D-9
<PAGE>

6.       ENROLLMENT AND DISENROLLMENT

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

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

Department of Economic Security (DES)       DES determines eligibility for the
                                            Temporary Assistance to Needy
                                            Families (TANF) program (formerly
                                            Aid to Families with Dependent
                                            Children), TANF Medical Assistance
                                            Only (MAO) groups (including SOBRA
                                            women and children), the Eligible
                                            Assistance Children state program
                                            (EAC) and the Federal Emergency
                                            Services program (FES) related to
                                            the TANF or SOBRA programs.

AHCCCSA                                     AHCCCSA determines eligibility for
                                            the SSI/MAO groups, including the
                                            FES program related to the SSI-Cash
                                            program (aged, disabled, blind), the
                                            Arizona Long-Term Care System
                                            (ALTCS), and the Qualified Medicare
                                            Beneficiary program.

Arizona's 15 Counties                       Each county determines eligibility
                                            for the Medically Needy/Medically
                                            Indigent (MN/MI), Eligible Low
                                            Income Children (ELIC), and the
                                            State Emergency Services state
                                            programs.

AHCCCS acute care eligible members are enrolled with contractors in accordance
with the rules set forth in R9-23-333, R9-22-334, R9-22-335, R9-22-337,
R9-22-339, R9-22-340, R9-22-342 and R9-22-707.

HEALTH PLAN CHOICE

All members except for those eligible under the MN/MI program have a choice of
available health plans. AHCCCSA anticipates that a listing of the available
health plans and their telephone numbers will be given to each member applicant
during the application process for AHCCCS benefits. Also included are
instructions to member applicants to call the health plans directly with
specific questions concerning the health plan. If there is only one health plan
available for the member applicant's Geographical Service Area, no choice is
offered. Members who do not choose prior to AHCCCSA's being notified of their
eligibility are anticipated to be

                                      D-10
<PAGE>

automatically assigned to a health plan based on family continuity or the
auto-assignment algorithm.

AHCCCSA assigns MN/MI eligible members to an available health plan based on
family continuity or through AHCCCSA's auto-assignment algorithm. These members
do not get a choice of available contractors until the annual open enrollment
period.

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

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

PRIOR PERIOD COVERAGE: AHCCCS provides prior period coverage for categorical and
non-categorical members. For categorical members, prior period coverage starts
from the first day of the month of application, or first eligible month. The
Contractor is responsible for payment of all claims for medically necessary
covered services provided to categorical members during prior period coverage.
For non-categorical members (MN/MI, ELIC) prior period coverage is generally
limited to the two days prior to the date of AHCCCSA being notified of
eligibility. However, prior period coverage could include additional days prior
to the date of enrollment. The Contractor is responsible for payment of all
claims for medically necessary covered services provided on an emergency basis
to non-categorical members pursuant to ARS ss. 36-2908 for the first two days of
the prior period coverage. Any additional prior period coverage for
non-categorical members will include all claims for medically necessary covered
services. This may include services provided prior to 10/1/97. (See Section D,
Paragraph 37, Compensation, for a description of the Contractor's reimbursement
from AHCCCSA for this eligibility time period.)

NEWBORNS: Newborns born to AHCCCS-eligible mothers who were enrolled at the time
of the child's birth and whose newborn notification was received by AHCCCSA will
be enrolled with the mother's contractor. The Contractor is responsible for
notifying AHCCCSA of a child's birth to an enrolled member and, for capitation
purposes, the effective date of the newborn's enrollment is the date AHCCCSA
receives such notification. Note that AHCCCSA is currently available to receive
these calls Monday through Friday from 8 am to 5 pm. The effective date of
enrollment will be the date notification is received and capitation will begin
on that date. Categorically eligible mothers or newborns are sent a letter
advising them of their right to choose a different contractor for their child;
otherwise the child will remain with the mother's contractor. The Contractor is
responsible for all covered services to the newborn whether or not AHCCCSA has
received notification of the child's birth. Newborns of MN/MI mothers are
enrolled with the mother's contractor for a minimum of 30 days up to a maximum
of 60 days.

                                      D-11
<PAGE>

AHCCCS Rules R9-22-342 and R9-22-707 contain additional information concerning
newborn enrollment and payment.

ENROLLMENT GUARANTEES: Upon initial capitated enrollment as a categorically
eligible member, or as an Eligible Assistance Child (EAC), the member is
guaranteed a minimum of five full months of continuous enrollment. Enrollment
guarantees do not apply to Native Americans who choose to obtain their covered
services through Indian Health Services (IHS) on a fee-for-service basis. The
enrollment guarantee applies a maximum of one time per member as a categorical
member and one time as an EAC member. If a member changes from one contractor to
another within the enrollment guarantee period, the remainder of the guarantee
period applies to the new contractor. The enrollment guarantee may not be
granted or may be terminated if the member is incarcerated or, if a minor child,
is adopted. AHCCCS Rule R9-22-337 describes other reasons for which the
enrollment guarantee may not apply.

NATIVE AMERICANS: Native Americans eligible under any coverage group other than
MN/MI, on or off-reservation, have a choice of Indian Health Services (IHS) or
any available contractor. If choice is not made within the specified time limit,
Native American members living on-reservation will be assigned to IHS and Native
American members living off-reservation will be assigned to an available
contractor using AHCCCSA's family continuity policy and auto-assignment
algorithm. Native American members eligible under the MN/MI coverage group
living on-reservation will be assigned to Indian Health Services (IHS) and those
living off-reservation will be assigned to a contractor using regular MN/MI
enrollment policy. Native Americans may change from IHS to a contractor or from
a contractor to IHS at any time.

7.       MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take affirmative
action so that members are provided covered services without regard to payer
source, race, color, creed, sex, religion, age, national origin, ancestry,
marital status, sexual preference, or physical or mental handicap, except where
medically indicated. Examples of prohibited practices include, but are not
limited to, the following:

a.       Denying or not providing a member any covered service or access to an
         available facility.
b.       Providing to a member any covered service which is different, or is
         provided in a different manner or at a different time from that
         provided to other members, other public or private patients or the
         public at large except where medically necessary.
c.       Subjecting a member to segregation or separate treatment in any manner
         related to the receipt of any covered service; restricting a member in
         any way in his or her enjoyment of any advantage or privilege enjoyed
         by others receiving any covered service.
d.       The assignment of tunes or places for the provision of services on the
         basis of the race, color, creed, religion, age, sex, national origin,
         ancestry, marital status, sexual preference, income status, AHCCCS
         membership, or physical or mental handicap of the participants to be
         served.

                                      D-12
<PAGE>

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

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

8.       MEMBER INFORMATION

All informational materials prepared by the Contractor shall be approved by
AHCCCSA prior to distribution to members. Information shall be submitted on
disk, saved as a text file (.txt) along with a hard copy printout. Information
shall be provided in English and a second language when 200 members or 5% of the
Contractor's enrolled population, whichever is greater, are non-English
speaking. (AHCCCSA will advise the Contractor when and if this requirement
applies.) When there are program or service site changes notification will be
provided to the affected members at least 14 days before implementation. The
Contractor shall review and update the Member Handbook at least once a year. The
Handbook must be submitted to AHCCCSA Office of Managed Care for approval by
Sept. 1 of each contract year, or within four weeks of receiving the annual
renewal amendment, whichever is later.

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

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

I.       A Member Handbook which, at a minimum, shall include:
a.       A table of contents
b.       A general description of how managed care works, particularly in
         regards to member responsibilities, appropriate utilization of services
         and the PCP's role as gatekeeper of services
c.       A description of all available covered services and an explanation of
         any service limitations or exclusions from coverage and a notice
         stating that the Contractor will be liable only for those services
         authorized by the Contractor. The description should include a brief
         explanation of the Contractor's approval and denial process.
d.       Information on what to do when family size changes
e.       How to obtain a PCP
f.       How to change PCPs
g.       How to make, change and cancel appointments with a PCP
h.       List of applicable copayments (including a statement that care will not
         be denied due to lack of copayment). The member handbook must clearly
         state that members cannot be billed for covered services (other than
         applicable copayments) and under what circumstances a member may be
         billed for non-covered services.

                                      D-13
<PAGE>

i.       Dual eligibility (i.e. Medicare and Medicaid); services received in and
         out of the Contractor's network, copayments. See Section D, Paragraph
         41, Medicare Services and Cost Sharing.
j.       The process of referral to specialists and other providers, including
         access to behavioral health services provided by the ADHS RBHA system
         for members under age 18, 21 and older, and SMI members of any age.
k.       How to contact Member Services and a description of its function
1.       What to do in case of an emergency and instructions for receiving
         advice on getting care in case of an emergency. In a life-threatening
         situation, the member handbook should instruct members to use the
         emergency medical services (EMS) available and/or activate EMS by
         dialing 9-1-1. Handbook should contain information on proper emergency
         service utilization.
m.       How to obtain emergency transportation and medically necessary
         transportation.
n.       EPSDT services. Screenings include a comprehensive and developmental
         history, comprehensive, unclothed physical examination, appropriate
         vision testing, hearing testing, laboratory tests, dental screening and
         immunizations.
o.       Maternity and family planning services
p.       Listing of covered behavioral health services
q.       Listing of all covered dental services for members under 21 and how to
         access these services
r.       Out of county/out of state moves
s.       Grievance procedures, including a clear explanation of the member's
         right to file a grievance and to appeal any decision that affects the
         member's receipt of covered services.
t.       Contributions the member can make towards his/her own health, member
         responsibilities, appropriate and inappropriate behavior, and any other
         information deemed essential by the Contractor or AHCCCS. This shall
         include a statement that the member is responsible for protecting his
         or her ID card and that misuse of the card, including loaning, selling
         or giving it to others could result in loss of the member's eligibility
         and/or legal action.
u.       How to access after-hours care (urgent care).
v.       Advance directives for adults
w.       Use of other sources of insurance. See Section D, Paragraph 40,
         Coordination of Benefits.
x.       The last revision date

Regardless of the format chosen by the Contractor, the member handbook must be
printed in a type-style and size which can easily be read by members with
varying degrees of visual impairment. At a minimum, the member handbook shall
also contain the following language regarding questions, problems and grievances
(Ref. AHCCCS Rule 9-22-518):

Q.       What if I have any questions, problems or complaints about
         [Contractor's name]?
A.       If you have a question or problem, please call _________ and ask to
         talk to a Member Representative. They are there to help you.
A.       If you have a specific complaint about your medical care, the Member
         Representative will help you.

                                      D-14
<PAGE>

Q.       What if I'm not happy with the help given to me by the Member
         Representative?
A.       If you are unhappy with the answer you receive, you can tell the Member
         Representative you want to file a written or oral grievance. The
         grievance must be filed not later than 35 days after the date of the
         action, decision, or incident.
A.       [Contractor's name] will make a final decision for grievances within 30
         days of receiving your written or oral grievance. A letter will be
         mailed to you stating the health plan's decision and the reason for the
         decision. The letter will tell you how you can appeal the decision if
         you are still unhappy. You must let the health plan know you want to
         appeal the decision letter.
A.       If you are appealing the health plan's decision, [Contractor's name]
         will send your request for appeal to the AHCCCSA. You will receive
         information from AHCCCSA on how your appeal will be handled. AHCCCSA
         will then decide if the health plan's decision was correct under the
         circumstances.

II.       A list of the names, telephone numbers and service site addresses of
PCPs available for selection by the member and a description of the selection
process.

9.       MEMBER SURVEYS

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

10.      MARKETING PLANS

The Contractor shall submit all proposed marketing plans and materials to
AHCCCSA for prior approval in accordance with the AHCCCS Health Plan Marketing
Policy, a copy of which is available in the Bidder's Library. The Contractor
must have signed contracts with hospitals (in Maricopa and Pima counties), PCPs,
specialists and pharmacies in order for them to be included in marketing
materials.

11.      OPEN ENROLLMENT

AHCCCSA conducts an open enrollment for members once per contract year, usually
in August or September. AHCCCSA may hold additional open enrollments on a
limited basis as deemed necessary. During open enrollment members may change
contractors subject to the availability of other contractors within their area.
Members are mailed a printed enrollment form and may

                                      D-15
<PAGE>

choose a new contractor by contacting AHCCCSA to complete the enrollment
process. If the member does not participate in open enrollment, no change of
contractor will be made (except for approved changes under the Change of Plan
policy) for the new contract year provided the Contractor's contract is renewed
and the member continues to live in the Contractor's service area. The
Contractor shall comply with the Office of Managed Care Member Transition for
Open Enrollment policy.

12.      TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM standards for member transitions
between health plans or GSA's, to or from an ALTCS program contractor, and upon
termination or expiration of a contract. The Contractor shall develop and
implement policies and procedures which comply with AHCCCS medical policy to
address transition of:

1.       Members with significant medical conditions such as a high-risk
         pregnancy or pregnancy within the last 30 days, the need for organ or
         tissue transplantation, chronic illness resulting in hospitalization or
         nursing facility placement, etc.;
2.       Members who are receiving ongoing services such as behavioral health,
         dialysis, home health, chemotherapy and/or radiation therapy or who are
         hospitalized at the time of transition;
3.       Members who have received prior authorization for services such as
         scheduled surgeries, out-of-area specialty services, nursing home
         admission;
4.       Prescriptions, DME and medically necessary transportation ordered for
         the transitioning member by the relinquishing contractor; and
5.       Medical records of the transitioning member (the cost of reproducing
         and forwarding medical records shall be the responsibility of the
         relinquishing contractor).

When relinquishing members, the Contractor is responsible for timely
notification of the receiving contractor regarding pertinent information related
to any special needs of transitioning members. The Contractor, when receiving a
transitioning member with special needs, is responsible to coordinate care with
the relinquishing contractor in order that services not be interrupted, and for
providing the new member with health plan and service information, emergency
numbers and instructions of how to obtain services. The Contractor shall comply
with the AHCCCS Behavioral Health Policy Manual for transition of members in
need of behavioral health services to be provided through the ADHS RBHA system.

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

                                      D-16
<PAGE>

a.       Notification of subcontractors and members.
b.       Payment of all outstanding obligations for medical care rendered to
         members.
c.       Until AHCCCSA is satisfied that the Contractor has paid all such
         obligations, the Contractor shall provide the following reports to
         AHCCCSA:
         1) A monthly claims aging report by provider/creditor including
            IBNR amounts;
         2) A monthly summary of cash disbursements;
         3) Copies of all bank statements received by the Contractor.
         Such reports shall be due on the fifth day of each succeeding month for
         the prior month.
d.       In the event of termination or suspension of the contract by AHCCCSA,
         such termination or suspension shall not affect the obligation of the
         Contractor to indemnity AHCCCSA for any claim by any third party
         against the State or AHCCCSA arising from the Contractor's performance
         of this contract and for which the Contractor would otherwise be liable
         under this contract.
e.       Any dispute by the Contractor with respect to termination or suspension
         of this contract by AHCCCSA shall be exclusively governed by the
         provisions of Section E, Paragraph 26, Disputes.
f.       Any funds advanced to the Contractor for coverage of members for
         periods after the date of termination shall be returned to AHCCCSA
         within 30 days of termination of the contract.

HOSPITAL REIMBURSEMENT PILOT PROGRAM - MARICOPA AND PIMA COUNTIES ONLY: Members
transferred from non-contracting hospitals shall be done in accordance with the
AHCCCS Medical Policy pertaining to member transfers dated 10/1/94.

13.      STAFF REQUIREMENTS AND SUPPORT SERVICES

The Contractor shall have in place the organization, management and
administrative systems capable of fulfilling all contract requirements. At a
minimum, the following staff are required.

a.       A full-time Administrator who is available at all times to fulfill the
         responsibilities of the position and to oversee the entire operation of
         the health plan.
b.       A Medical Director who shall be an Arizona-licensed physician. The
         Medical Director shall be actively involved in all major clinical
         programs and QM/UM components of the Contractor's health plan. The
         Medical Director shall devote sufficient time to Contractor's health
         plan to ensure timely medical decisions, including after-hours
         consultation as needed.
c.       A full-time Chief Financial Officer who is available at all times to
         fulfill the responsibilities of the position and to oversee the budget
         and accounting systems implemented by the Contractor.
d.       A Quality Management/Utilization Management Coordinator who is an
         Arizona-licensed registered nurse, physician or physician's assistant.
e.       A Maternal Health/EPSDT Coordinator who shall be an Arizona-licensed
         registered nurse, physician or physician's assistant; or have a
         Master's degree in health services, public health or health care
         administration or other related field.

                                      D-17
<PAGE>

f.       A Behavioral Health Coordinator who shall be a behavioral health
         professional as described in Health Services Rule R9-20-306.B.
g.       Prior Authorization staff to authorize medical care 24 hours per day, 7
         days per week. This staff shall include an Arizona-licensed registered
         nurse, physician or physician's assistant.
h.       Concurrent Review staff to conduct inpatient concurrent review. This
         staff shall consist of an Arizona-licensed registered nurse, physician,
         physician's assistant or an Arizona-licensed practical nurse
         experienced in concurrent review and under the direct supervision of a
         registered nurse, physician or physician's assistant.
i.       Member Services Manager and staff to coordinate communications with
         members and act as member advocates. There shall be sufficient Member
         Service staff to enable members to receive prompt resolution to their
         problems.
j.       Provider Services Manager and staff to coordinate communications
         between the Contractor and its subcontractors. There shall be
         sufficient Provider Services staff to enable providers to receive
         prompt resolution to their problems or inquiries.
k.       A Claims Administrator and Claims Processors to ensure the timely and
         accurate processing of original claims, claims correction letters,
         re-submissions and overall adjudication of claims.
l.       Encounter Processors to ensure the timely and accurate processing and
         submission to AHCCCSA of encounter data and reports.
m.       A Grievance Coordinator who will manage and adjudicate member and
         provider grievances.
n.       Clerical and Support staff to ensure appropriate functioning of the
         Contractor's operation.

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

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

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

14.      WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures shall be reviewed at least annually to ensure that the
Contractor's written policies reflect current practices. Reviewed policies shall
be dated and

                                      D-18
<PAGE>

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

15.      ADVANCE DIRECTIVES

The Contractor shall specify in the contract or agreement with each hospital,
nursing facility, provider of home health care, hospice or personal care
services that the provider must comply with federal and State law regarding
advance directives for adult members. At a minimum, the providers (hospitals,
nursing facilities, home health care, hospice and personal services) shall:
a.       Maintain written policies for adult members receiving care through
         their organization regarding the member's right to make decisions about
         medical care, including the right to accept or refuse medical care and
         the right to execute an advance directive. The information must contain
         an explanation of any conscientious objection the provider may have in
         carrying out the advance directive. (The Contractor is not prohibited
         from making such objection when made pursuant to ARS 36-3205 (C.l)
b.       Provide written information to adult members regarding an individual's
         rights under State law to make decisions regarding medical care and the
         provider's written policies concerning advance directives.
c.       Require documentation in the member's medical record as to whether the
         adult member has executed an advance directive.
d.       Not condition the provision of care or discriminate against a member
         because of his or her decision to execute or not execute an advance
         directive.
e.       Provide education for staff on issues concerning advance directives.
f.       Ensure compliance with requirements of federal and State law regarding
         advance directives.

The Contractor shall also maintain policies and procedures on advance directives
with respect to all adult members. These policies and procedures must contain
the same information described immediately above.

16.      PERFORMANCE MEASURES

EPSDT PARTICIPATION: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program to at least 80% of all enrolled EPSDT
members during CYE 98. "Participation" is defined as at least one initial and
periodic screening or one preventive or treatment visit. AHCCCSA will measure
participation levels through encounter data and will not use information from
prior period coverage (see Paragraph D.6. Prior Period Coverage) in evaluating
the Contractor's performance.

If the Contractor has not achieved at least the statewide average
participation/utilization rates for EPSDT services by the end of the contract
year, as indicated through notification from AHCCCSA, the Contractor shall
submit a corrective action plan to AHCCCSA. The plan shall

                                      D-19
<PAGE>

be submitted within 30 days of the Contractor's receipt of
participation/utilization rate notification from AHCCCSA. In addition, AHCCCSA
may conduct one or more follow-up on-site reviews to verify compliance with the
corrective action plan.

If the Contractor's rate is higher than the statewide average for EPSDT
participation. but lower than 80%, AHCCCSA may require the Contractor to submit
a corrective action plan within specified time lines.

EPSDT IMMUNIZATIONS: The Contractor shall ensure EPSDT members receive
age-appropriate immunizations as specified in the AHCCCS Medical Policy Manual.
The AHCCCSA long range goal is to reach or exceed the Healthy People Year 2000
goal of 90% immunization for two year old members. During CYE98, the Contractor
shall meet or exceed the following:

<TABLE>
<CAPTION>
                                                 Percentage of           Number of
         Immunization                          Members Immunized           Doses
<S>                                            <C>                       <C>
Diptheria, Tetanus, Pertussis vaccine (DPT)           80%                      4
Oral Polio Vaccine                                    85%                      3
Measles, Mumps, Rubella Vaccine (M7MR)                90%                      1
H. Influenza, Type B (HIB)                            90%                      1
Hepatitis B (Hep B)                                   85%                      3
Combined 3-Antigen Rate (4DPT, 3 OPV, 1MMR)           80%                    N/A
Combined All Antigens                                 70%                    N/A
Varicella Vaccine                                    N/A                     N/A
</TABLE>

The Contractor shall conduct an annual immunization audit based on random
sampling to assess and verify the immunization status of two year old EPSDT
members. AHCCCSA will provide the Contractor, within two weeks after the end of
the contract year, with the selected sample, specifications for conducting the
audit, the AHCCCSA reporting requirements, and technical assistance. The
Contractor shall identify the children's PCP, conduct the assessment, and report
to AHCCCSA in the required format all immunization rates for the sampled
two-year-old children no later than December 15 after the end of the contract
year. If medical records are missing for more than 5% of the sample group, the
Contractor is subject to sanctions by AHCCCSA. Health Services Advisory Group
(HSAG) will conduct a study to validate the Contractor's reported rates.

AHCCCSA will provide the statewide average immunization rates to the Contractor.
If the Contractor has not achieved at least these statewide averages by the end
of the contract year, the Contractor shall submit a corrective action plan to
AHCCCSA. The plan shall be submitted within 60 days of the Contractor's receipt
of utilization rate notification from AHCCCSA. In addition, AHCCCSA may conduct
one or more follow-up on-site reviews to verify compliance with the corrective
action plan.

If the Contractor's immunization rates are higher than the statewide average for
immunizations, but lower than the stated goals set forth in this contract,
AHCCCSA may require the Contractor to submit a corrective action plan within
specified time lines.

                                      D-20
<PAGE>

PERFORMANCE INDICATORS: The AHCCCS goal for quality of care is to meet or exceed
the Healthy People Year 2000 national goals. For CYE 98, the Contractor shall
comply with AHCCCS quality management requirements to improve performance of at
least the following established performance indicators: low birth weight;
mammography screening; and cervical cancer screening.

If the Contractor has not achieved at least the statewide average for each
performance indicator by the end of the contract year, it shall submit to
AHCCCS, Office of the Medical Director, Acute Care Unit, a quality improvement
plan. The plan shall be submitted within 60 days after the Contractor's receipt
of performance measurement notification from AHCCCA.

A quality improvement plan may be required for each performance indicator in
which the Contractors performance rate is above the statewide average for all
contractors but below the midpoint between the statewide average and the
best-performing health plan.

EPSDT DENTAL SERVICES: The Contractor shall take affirmative steps to increase
utilization of dental services for EPSDT members. At least 50% of all enrolled
members under age 21 shall have at least one dental visit during CYE98. AHCCCSA
will monitor utilization through reported encounter data.

If the Contractor has not achieved at least the statewide average rate for
utilization of dental services by the end of the contract year, as indicated
through notification from AHCCCSA, the Contractor shall submit a corrective
action plan to AHCCCSA. The plan shall be submitted within 30 days of the
Contractor's receipt of utilization rate notification from AHCCCSA. In addition,
AHCCCSA may conduct one or more follow-up on-site reviews to verify compliance
with the corrective action plan. If the Contractor's rate is higher than the
statewide average for EPSDT dental services, but lower than 50%, AHCCCSA may
require the Contractor to submit a corrective action plan within specified time
lines.

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

The Contractor shall provide to members quality medical care as described in the
AHCCCS Medical Policy Manual, Chapter 900, regardless of payer source or
eligibility category. The Contractor shall institute processes to assess, plan,
implement and evaluate quality improvement activities. The Contractor shall
conduct two clinical studies each contract year as required in Chapter 900 of
the AHCCCS Medical Policy Manual. AHCCCSA will determine the subject matter and
study methodology for one of the annual studies and the Contractor shall submit
to AHCCCSA by November 15 of each contract year its proposed subject matter and
methodology for the other. The results of the studies shall be submitted to
AHCCCS, Office of the Medical Director, within 90 days after the end of each
contract year.

The Contractor must maintain a written QM/UM plan which details plans for
compliance with the AHCCCS Medical Policy Manual. The Contractor shall
incorporate in its QM/UM plan an action plan for improving the performance rates
for those indicators with established baselines.

                                      D-21
<PAGE>

18.   PHYSICIAN INCENTIVES

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

The Contractor shall not enter into contractual arrangements that place
providers at significant financial risk as defined in CFR 417.479 unless
specifically approved in advance by the Office of Managed Care. AHCCCSA has
accumulated all available information from HCFA regarding physician incentives
in a binder marked "Physician Incentive Guidelines" in the Bidder's Library. Due
to recent verbal communication with HCFA representatives regarding physician
incentives, AHCCCSA is postponing its development of the "AHCCCS Physician
Incentive Guidelines"; therefore, offerors are instructed to use the information
described above.

19.   APPOINTMENT STANDARDS

For purposes of this section "urgent" is defined as an acute but not necessarily
severe disorder which, if not attended to, could endanger the patient's health.
The Contractor shall have procedures in place that ensure the following
standards are met: a. Emergency PCP appointments - same day b. Urgent care PCP
appointments - within two days c. Routine care PCP appointments - within 21 days

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

a.    Emergency appointments- within 24 hours of referral

b.    Urgent care appointments - within 3 days of referral

c.    Routine care appointments - within 30 days of referral

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

a.    First trimester - within 14 days of request

b.    Second trimester - within 7 days of request

c.    Third trimester - within 3 days of request

d.    High risk pregnancies - within 3 days of identification of high risk by
                              the Contractor or maternity care provider, or
                              immediately if an emergency exists

For behavioral health services to members 18-20 years of age, non-seriously
mentally ill, the Contractor shall be able to provide appointments as follows:

a.    Emergency screening and evaluation - within 24 hours of referral or
      request for services

b.    Behavioral health screening - within seven days of referral

c.    Non-emergency appointments - within 30 days of referral or behavioral
      health screening

                                      D-22

<PAGE>

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

The Contractor shall monitor the adequacy of its appointment processes and
reduce the unnecessary use of alternative methods such as emergency room visits.
The Contractor shall monitor and ensure that a member's waiting time for a
scheduled appointment at the PCP's or specialist's office is no more than 45
minutes, except when the provider is unavailable due to an emergency.

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

20.   REFERRAL PROCEDURES AND STANDARDS

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

a.    Use of referral forms clearly identifying the Contractor

b.    A system for resolving disputes regarding the referrals

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

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

e.    Referral to Medicare HMO including payment of copayments

21.   PROVIDER MANUAL

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

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

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

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

                                      D-23
<PAGE>

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

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

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

g.    Dental services

h.    Maternity/Family Planning services

i.    Listing of behavioral health services

j.    The Contractor's policy regarding PCP assignments

k.    Referrals to specialists and other providers, including access to
      behavioral health services provided by the ADHS RBHA system for members
      under age 18, 21 and older and SMI members of any age

l.    Grievance and appeal rights

m.    Billing and encounter submission information

      -    indicate which form, UB92, HCFA 1500, or Form C is to be used
           for services

      -    indicate which fields are required for a claim to be considered
           acceptable by the Contractor. A completed sample of each form shall
           be included

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

o.    Claims re-submission policy and procedure

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

q.    Explanation of remittance advice

r.    Prior authorization requirement

s.    Claims medical review

t.    Concurrent review

u.    Fraud and Abuse

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

w.    AHCCCS appointment standards

22.   PRIMARY CARE PROVIDER STANDARDS

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

At a minimum, the Contractor's number of full-time equivalent PCPs to enrolled
members shall not exceed a ratio of 1:1800 for adults and 1:1200 for children
who are 12 or younger. If the PCP contracts with more than one AHCCCS health
plan, the ratio shall be adjusted by the Contractor to ensure the total number
of AHCCCS members does not exceed the above ratio. The

                                      D-24
<PAGE>

Contractor should consider the PCP's total patient panel size (i.e., AHCCCS and
non-AHCCCS patients) when assessing the PCP's ability to meet AHCCCS'
appointment and other standards. In addition, AHCCCS members shall not comprise
the majority of the PCP's panel of patients. The Contractor shall also reduce
the number of members assigned to its network PCPs as necessary to meet the
appointment standards specified in Section D, Paragraph 19, Appointment
Standards. Any variation to the above standards must be submitted to AHCCCSA
Office of the Medical Director for prior approval. PCPs with assigned members
diagnosed with AIDS or as HIV-positive shall meet criteria and standards set
forth in AHCCCS Medical Policy and AHCCCS AIDS Advisory Committee Guidelines.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data regarding
PCP assignments is current. The Contractor is encouraged to assign members with
complex medical conditions who are age 12 and younger to Board-certified
pediatricians.

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

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

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

b.    Initiation of referrals for medically necessary specialty care

c.    Maintaining continuity of care for each assigned member

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

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

23. OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and procedures to:

                                      D-25
<PAGE>

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

b.    Monitor the adequacy, accessibility and availability of its provider
      network to meet the needs of its members.

Contractor policies shall be subject to approval by AHCCCS, Office of the
Medical Director and shall be monitored through operational audits at least
annually.

For specialty services, the Contractor shall ensure that:

a.    PCP referral shall be required for specialty physician services.

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

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

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

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

b.    Certified nurse midwives

c.    Licensed midwives.

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

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

24.   NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is sufficient
to provide all covered services to AHCCCS members. It shall ensure covered
services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient professional and
paramedical personnel for the provision of covered services,

                                      D-26
<PAGE>

including emergency medical care on a 24-hour-a-day, 7-days-a-week basis. The
proposed network shall be sufficient to provide covered services within
designated time and distance limits.

25.   NETWORK MANAGEMENT

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

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

b.    Monitor and control network compliance with policies and rules of AHCCCSA
      and the Contractor

c.    Evaluate the quality of services delivered by the network

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

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

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

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

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

26.   FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide covered services
and must comply with the federal mandates in OBRA 89 and OBRA 90. This
legislation gives FQHCs the option to require state Medicaid programs to
reimburse the FQHC at 100% of reasonable costs

                                      D-27
<PAGE>

for the services delivered. AHCCCSA and its contractors are required to comply
with this legislation.

At the time of contracting, the Contractor must offer the FQHC the option to
elect reasonable cost reimbursement for categorically eligible members. This
provision should be within the contract between the FQHC and the Contractor. If
the FQHC does not elect reasonable cost reimbursement, the FQHC waives the
opportunity to receive reasonable cost reimbursement for that contract period.
No retroactive elections shall be permitted.

If the FQHC elects reasonable cost reimbursement, the Contractor must notify the
AHCCCSA Office of Managed Care within seven days of the subcontract signing. If
the FQHC elects reasonable cost reimbursement, the Contractor may, at its
discretion, pay reasonable cost reimbursement, or pay using some other method of
payment, such as capitation, since the requirement to pay reasonable costs
applies to the State Medicaid Agency, not to the Contractor.

For example, the Contractor contracts with an FQHC that elects reasonable cost
reimbursement. The method of payment throughout the contract period could be
capitation. Throughout the year, the Contractor would be required to file a
quarterly cost report with AHCCCS. (The instructions for the health plan
quarterly reports can be obtained from the Office of Managed Care.) At the end
of the year, the FQHC must complete certain reporting requirements outlined in
the Arizona Health Care Cost Containment System Reasonable Cost Reimbursement
Cost Report & Instructions. These two reporting packages will enable AHCCCSA to
determine reasonable costs, in comparison to actual capitation paid by the
Contractor. AHCCCSA would reimburse the FQHC if the capitation payments were
less than reasonable costs. Likewise, AHCCCSA would recoup payments in excess of
reasonable costs.

In determining the reasonableness of the capitation payments made by the
Contractor to the FQHC, AHCCCSA will value the per member per month capitation
payment at a rate which approximates the average rate being paid by the
Contractor in the community to other similar providers. If there are no other
providers from which to develop an average rate, other means will be used to
determine the average for the area. If the actual capitation rate paid by the
Contractor to the FQHC is less than the average rate being paid by the
Contractor to other providers, the Contractor must reimburse the FQHC for this
difference. AHCCCSA would reimburse the difference between reasonable cost and
the average capitation rate.

The Contractor shall adhere to the AHCCCS Federally Qualified Health Centers
Cost Resort Instructions-General Instructions which describes the reporting
requirements applicable to the Contractor's contracting with a FQHC that elects
cost reimbursement. A copy of these requirements is available in the Bidder's
Library. Included among the FQHCs currently recognized by HCFA are the
following:

         Clinica Adelante
         West Pinal Family Health Center
         Valley Health Center
         United Community Health Center
         Mariposa Community Health Center

                                      D-28
<PAGE>

         Lake Powell Medical Center
         Mountain Park Health Center
         El Rio Santa Cruz Neighborhood Health Center
         Native American Health Care Center
         Traditional Indian Alliance
         Native Americans for Community Action, Inc.

27.   PROVIDER REGISTRATION

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

28.   PROVIDER AFFILIATION TAPE

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

29.   PERIODIC REPORT REQUIREMENTS

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

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

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

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

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

                                      D-29
<PAGE>

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

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

30.   DISSEMINATION OF INFORMATION

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

31.   REQUESTS FOR INFORMATION

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

32.   OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
successful offerors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business for the contract year beginning 10/1/97. The
purpose of Readiness Reviews is to assess new contractors' readiness and ability
to provide contract services to members at the start of the contract year. A new
contractor will be permitted to commence operations only if the Readiness Review
factors are met to AHCCCSA's satisfaction.

33.   OPERATIONAL AND FINANCIAL REVIEWS

In accordance with HCFA requirements, AHCCCSA will conduct regular Operational
and Financial Reviews for the purpose of (but not limited to) ensuring
operational and financial program compliance. The Reviews will identify areas
where improvements can be made and make recommendations accordingly, monitor the
Contractor's progress towards implementing mandated programs and provide the
Contractor with technical assistance if necessary. The

                                      D-30

<PAGE>

Contractor shall comply with all other medical audit provisions as required by
AHCCCS Rule R9-22-521.

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful. AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with AHCCCSA and the AHCCCSA Review Team by
forwarding in advance such policies, procedures, job descriptions, contracts,
logs and other information that AHCCCSA may request. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance by
AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor personnel as identified in advance shall be
available to the Review Team at all times during AHCCCSA on-site review
activities. While on-site, the Contractor shall provide the Review Team with
work space, access to a telephone, electrical outlets and privacy for
conferences. Certain documentation submission requirements may be waived at the
discretion of AHCCCSA if the Contractor has obtained accreditation from NCQA or
any other nationally recognized accrediting body. The Contractor must submit the
entire NCQA report to AHCCCSA for such waiver consideration.

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

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

34.   CLAIMS PAYMENT SYSTEM

The Contractor shall develop and maintain a claims payment system capable of
processing, cost-avoiding and paying claims in accordance with AHCCCS Rule
R9-22-705, a copy of which may be found in the Bidder's Library. In the absence
of a subcontract provision to the contrary, claims submission deadlines shall be
calculated from the date of service or the elective date of enrollment,
whichever is later. Remittance advices accompanying the Contractor's payments to
providers must contain, at a minimum, adequate descriptions of all denials and
adjustments, the reasons for such denials and adjustments, the amount billed,
the amount paid, and grievance rights. The Contractor's claims payment system,
as well as its prior authorization and concurrent review process, must minimize
the likelihood of having to recoup already-paid claims. Any

                                      D-31

<PAGE>

recoupment in excess of $50,000 per provider within a contract year must be
approved in advance by AHCCCSA, Office of Managed Care.

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

35.   HOSPITAL REIMBURSEMENT

MARICOPA AND PIMA COUNTIES ONLY: The Arizona Laws of 1996 Chapter 288 Section 20
sets forth the Hospital Reimbursement Pilot Program (Pilot), which is effective
from October 1, 1997, through September 30, 2000. The Pilot as defined by AHCCCS
Rule R9-22-7l8 requires hospital subcontracts to be negotiated between health
plans in Maricopa and Pima counties and hospitals to establish reimbursement
levels, terms and conditions. Subcontracts shall be negotiated by the Contractor
and hospitals to cover operational concerns, such as timeliness of claims
submission and payment, payment of discounts or penalties, legal resolution,
which may. as an option, include establishing arbitration procedures. These
negotiated subcontracts shall remain under close scrutiny by AHCCCSA to insure
availability of quality services within specific service districts, equity of
related party interests, reasonableness of rates, and only marketing of
contracted organizations. The general provisions of this program encompass acute
care hospital services and outpatient hospital services that result in an
admission. The Contractor shall submit all hospital subcontracts and any
amendments to AHCCCSA Office of Managed Care, for prior approval. For
non-emergency patient-days, the Contractor shall ensure that at least 35% of its
members use contracted hospitals. AHCCCSA reserves the right to subsequently
adjust the 85% standard. Further, if in AHCCCSA's judgment the number of
emergency days at a particular non-contracted hospital becomes significant,
AHCCCSA may require a subcontract at that hospital. Hospitals and health
plans/program contractors outside of Maricopa and Pima counties are not included
in this Pilot. Offerors should refer to the "Hospital Reimbursement Pilot
Program Packet" for additional information and requirements.

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

FOR OUT-OF-STATE HOSPITALS: The Contractor shall reimburse out-of-state
hospitals in accordance with AHCCCS Rule R9-22-705.

The Contractor may conduct prepayment and postpayment medical reviews of all
hospital claims including outlier claims. Erroneously paid claims are subject to
recoupment. If the Contractor

                                      D-32
<PAGE>

fails to identify lack of medical necessity through concurrent review and/or
prepayment medical review, lack of medical necessity identified during
postpayment medical review shall not constitute a basis to recoupment by the
Contractor. See also Section D, Paragraph 34, Claims Payment System. For a more
complete description at the guidelines for hospital reimbursement, please
consult the Bidder's Library for applicable statutes and rules.

36.   NURSING FACILITY REIMBURSEMENT

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

37.   COMPENSATION

The method of compensation under this contract will be capitation. SOBRA
supplement, HIV-AIDS supplement, reinsurance, and third party liability, as
described and defined within this contract and appropriate laws, regulations or
policies.

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

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

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

                                      D-33
<PAGE>

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund, as described in ARS ss.36-2913. An error discovered by the State with or
without an audit in the amount of fees paid to Contractor will be subject to
adjustment or repayment by Contractor making a corresponding decrease in a
current Contractor's payment or by making an additional payment by AHCCCSA to
the Contractor.

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

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

CAPITATION: The Contractor will be paid capitation for all prospective member
months, including partial member months. This capitation includes the cost of
providing medically necessary covered services to members during prior period
coverage. AHCCCSA will make monthly capitation payments to the Contractor for
each member enrolled with the Contractor on the first of the month as payment in
full for any and all covered services provided to the member including covered
services provided during prior period coverage. (See Section D, Paragraph 6,
Enrollment and Disenrollment, for clarification of prior period coverage.)
Payment shall be made no later than the fifth working day of the month for which
payment is due. For members enrolled at any time after the beginning of the
month's payment cycle, capitation will be prorated from the effective date of
enrollment through the remainder of the month of enrollment. These payments will
be made by AHCCCS to Contractor on a weekly basis.

SOBRA SUPPLEMENT: When the Contractor has an enrolled SOBRA woman who delivers
during an enrollment period, the Contractor will be entitled to a SOBRA payment.
AHCCCSA reserves the right at any time during the term of this contract to
adjust the amount of this SOBRA payment for women who deliver at home. The
Contractor is responsible for meeting the newborn notification requirements
defined in AHCCCS Rule R9-22-342 before this payment will be made to the
Contractor.

HIV/AIDS SUPPLEMENT: In addition to the capitation payment described above, a
separate and additional payment will be made to the Contractor to help defray
costs for members receiving approved protease inhibitors and associated lab work
related to their treatment for HIV/AIDS. The list of AHCCCSA-approved protease
inhibitors is available in the Bidder's Library.

On a quarterly basis, the Contractor shall submit to AHCCCSA, Office of Managed
Care, an unduplicated monthly count or members, by rate code, who are using
approved protease inhibitors. The report shall be submitted, along with the
quarterly financial reporting package, within 60 days after the end at each
quarter. (A sample or this reporting form may be found in the Bidder's Library.)

                                      D-34
<PAGE>

The rate of reimbursement for this separate payment will be $634.50 per month
and is subject to review during the term of the contract. Payment will be made
quarterly to the Contractor based on the reported eligible members for the
preceding quarter. AHCCCSA will review this HIV/AIDS-related data at least
annually as part of its Operational and Financial Review and reserves the right
to recoup any amounts paid for ineligible members as determined through this
review as well as an associated penalty for incorrect reporting.

38.   CAPITATION ADJUSTMENTS

Except for changes made specifically in accordance with this contract, the rates
set forth in Section B shall not be subject to re-negotiation or modification
during the contract period. AHCCCSA may, at its option, review the effect of a
program change and determine if a capitation adjustment is needed. In these
instances the adjustment will be prospective with assumptions discussed with the
Contractor prior to modifying capitation rates. The Contractor may request a
review of a program change if it believes the program change was not equitable;
AHCCCSA will not unreasonably withhold such a review.

If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the default. The Contractor shall reimburse AHCCCSA
and/or AHCCCSA may deduct from future monthly capitation for any portion of a
month during which the Contractor was not at risk due to, for example:

a.    death of a member

b.    member's incarceration (nor eligible for AHCCCS benefits)

c.    duplicate capitation to the same contractor

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

39.   REINSURANCE

REGULAR ACUTE REINSURANCE: Reinsurance is a stop-loss program provided by
AHCCCSA to the Contractor for the partial reimbursement of covered inpatient
facility medical services incurred for a member with an acute medical condition
beyond an annual deductible (AHCCCS Rule R9-22-503). Per diem rates paid for
nursing facility services, including room and board, provided in lieu of
hospitalization for up to 90 days in any contract year shall be eligible for
reinsurance coverage (see AHCCCS Rule R9-22-203 subsection B for excluded
services). Reinsurance for the Hospital Reimbursement Pilot Program (See Section
D, Paragraph 35, Hospital Reimbursement), will be paid in accordance with AHCCCS
Rule R9-22-503.

                                      D-35
<PAGE>

AHCCCSA is self-insured for the reinsurance program. The program is
characterized by an initial deductible level and a subsequent coinsurance
percentage. The coinsurance percent is the rate at which AHCCCSA will reimburse
the Contractor for inpatient covered services incurred above the deductible.
Reinsurance coverage applies to both prospective and prior period coverage
periods. The deductible level the Contractor is eligible for is based on the
Contractor's statewide AHCCCS acute care enrollment as of October 1st each
contract year for all rate codes and counties, as shown in the following table.
These deductible levels are subject to change by AHCCCSA during the term of this
contract.

REGULAR REINSURANCE:

<TABLE>
<CAPTION>
Statewide Plan Enrollment     Deductible - MN/MI       Deductible-Others      Coinsurance %
<S>                           <C>                      <C>                    <C>
          0 - 19,999              $ 15,000                 $ 20,000              75%
     20,000 - 49,999              $ 15,000                 $ 35,000              75%
     50,000 and over              $ 15,000                 $ 50,000              75%
</TABLE>

If a Contractor's actual non-MN/MI deductible is $35,000 or $50,000, AHCCCSA
will increase the Contractor's capitation rate awarded by defined amounts for
each capitation risk group. These specific capitation adjustments are available
in the Bidder's Library. A Contractor whose enrollment qualifies it for the
$35,000 or $50,000 non-NM/MI deductible level may, prior to the start of the
contract period, elect one of the lower deductible levels indicated in the above
table.

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

The Contractor shall be subject to utilization and other reviews by AHCCCSA of
care provided to a member which results in a reinsurance claim as referenced in
R9-22-503 (G.3).

Medical review on regular reinsurance cases will be determined based on
statistically valid random sampling. AHCCCSA, Office of the Medical Director,
will generate the sampling and will notify the Contractor of documentation
needed for the retrospective medical review process to occur at the Contractor's
offices. The results of the medical review sampling will be extrapolated to the
entire regular reinsurance reimbursement population of the Contractor. A
recoupment of reinsurance reimbursements made to the Contractor may occur based
on the results of the medical review sampling. AHCCCSA will give the Contractor
at least 45 days advance notice of any on-site review. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance by
AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor representative shall be available to the
Review Team at all times during AHCCCSA on-site review activities. While
on-site, the Contractor shall provide the Review Team with work space, access to
a telephone, electrical outlets and privacy for conferences. The Contractor will
be furnished a copy of the

                                      D-36
<PAGE>

Regular Acute Reinsurance Review Report within 60 days of the onsite review and
given an opportunity to comment on any review findings.

CATASTROPHIC REINSURANCE: The reinsurance program also includes a special
Catastrophic Reinsurance program. This program encompasses members diagnosed
with hemophilia and members who receive covered organ and tissue transplantation
including bone marrow, heart and other organ transplantation. For additional
detail and restrictions see AHCCCS Rule R9-222-202. There is no deductible for
catastrophic reinsurance cases and AHCCCS will reimburse the Contractor at 85%
of the Contractor's covered costs. All catastrophic claims will be subject to
medical review by AHCCCSA.

HEMOPHILIA: When an eligible member is identified as being catastrophically
eligible by AHCCCSA due to a specific diagnosis of hemophilia (ICD9 286.0,
286.1, 286.2 and 286.4), all medically necessary covered services provided
during the contract year shall be eligible for reimbursement at 85% of the
Contract's paid amount. Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDA VP responders
that are dependent on Plasma Factor VIII. The Contractor must promptly notify
AHCCCS Office of the Medical Director, Reinsurance Unit after diagnosis.
Catastrophic reinsurance will be paid for a maximum 30-day retroactive period
from the date of notification to AHCCCSA.

TRANSPLANTS: Bone grafts, kidney and cornea transplantation services are not
eligible for catastrophic reinsurance coverage but are eligible under the
regular (non-catastrophic) reinsurance program. Catastrophic reinsurance
coverage for transplants is limited to 85% of the AHCCCS contract amount for the
transplantation services rendered, or 85% of the Contractor-paid amount
whichever is lower. The AHCCCS contracted transplantation rates may be found in
the Bidder's Library.

Encounter data will not be used to determine catastrophic reinsurance benefits.
However, this does not relieve the Contractor of the responsibility for
submitting encounters for catastrophic reinsurance services. The initial claims
for reimbursement under the catastrophic reinsurance program must be filed no
later than June 30th of the year following the contract year. Catastrophic
reinsurance claims that are submitted within this time limit and are denied or
adjusted, may be corrected until September 30th of the year following the
contract year. All catastrophic reinsurance claims must be submitted in
accordance with the AHCCCS Reinsurance Policy/Procedure Manual.

40.   COORDINATION OF BENEFITS/THIRD PARTY LIABILITY

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

                                      D-37
<PAGE>

COST AVOIDANCE: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires the member to pay any
copayment, coinsurance or deductible, the Contractor is responsible for making
these payments, even if the services are provided outside of the Contractor's
network. The Contractor's liability for coinsurance and deductibles is limited
to what the Contractor would have paid for the entire service pursuant to a
written contract with the provider or the AHCCCS fee-for-service rate, less any
amount paid by the third party. (The Contractor must decide whether it is more
cost-effective to provide the service within its network or pay coinsurance and
deductibles for a service outside its network. For continuity of care, the
Contractor may also choose to provide the service within its network.) If the
Contractor refers the member for services to a third-party insurer (other than
Medicare), and the insurer requires payment in advance of all copayments,
coinsurance and deductibles, the Contractor must make such payments in advance.

If the Contractor knows that the third party insurer will neither pay for nor
provide the covered service, and the service is medically necessary, the
Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so. (See also Section D, Paragraph 41,
Medicare Services and Cost Sharing.)

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

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

Uninsured/underinsured motorist insurance
First and third-party liability insurance
Tortfeasors
Adoption recovery
Estate recovery
Worker's Compensation

                                      D-38
<PAGE>

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

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

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

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

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

REPORTING: The Contractor may be required to report case level detail of
third-party collections and cost avoidance. The Contractor shall notify
AHCCCSA's authorized representative within five working days of the
identification of a third-party liability case with known reinsurance (often
referred to as joint liability cases). The Contractor shall communicate any
known change in health insurance information, including Medicare to AHCCCS
Administration, Division of Member Services, not later than 10 days from the
date of discovery using the AHCCCS Third-Party Coverage Form found in the
Bidder's Library.

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

41.   MEDICARE SERVICES AND COST SHARING

AHCCCS has members enrolled who are eligible for both Medicare and AHCCCS
services. These members are referred to as "dual eligibles" and include persons
who are Qualified Medicare Beneficiaries (QMB) and non-QMB eligible persons. QMB
eligible persons are entitled to all covered Medicaid services and, in addition,
may receive the following Medicare services which are not covered by AHCCCS or
differ in scope or limitation:

         Chiropractic services
         Inpatient and outpatient occupational therapy coverage
         Inpatient psychiatric services
         Psychological services

                                      D-39
<PAGE>

         Respite services
         Any services covered by or added to the Medicare program which are not
         covered by AHCCCS

For all dual eligible persons, the Contractor shall be responsible for providing
all AHCCCS covered services and pay all Medicare coinsurance and deductibles for
Medicare services which are covered by AHCCCS and provided on a fee-for-service
basis within the Contractor's network. The Contractor's network is defined as
any contracted provider, or provider used more than 12 times during the course
of the contract year, even if no written contract exists. For QMB eligible
persons, the Contractor shall be responsible for paying the Medicare coinsurance
and deductibles for Medicare services not covered by AHCCCS (described above)
which are provided by a Medicare provider on a fee-for-service basis, regardless
of whether the service is provided in or out of the Contractor's network.
Members shall not be required to pay any coinsurance or deductibles for Medicare
services.

Based on an agreement between AHCCCS and HCFA, Medicare cost sharing
requirements for Medicare services provided on a fee-for-service basis (FFS) and
those services provided by a Medicare HMO are different. Please refer to the
table below:

                 CONTRACTOR LIABILITY FOR MEDICARE BENEFICIARIES

<TABLE>
<CAPTION>
                                           Cost Sharing for Members with                   Cost Sharing for Members
                                             Fee-For-Service Medicare                        with Medicare HMO
----------------------------------------------------------------------------------------------------------------------
          Contractor            Full amount of the           Full amount of the           Medicare co-payments,
       Responsibility:          co-insurance and             co-insurance and             deductibles or premiums
                                deductibles for Medicare     deductibles for Medicare     assessed by Medicare HMO
                                services provided by a       services not covered by      for dual eligibles.
                                Medicare provider on a FFS   AHCCCS and provided by a
                                basis in the Contractor's    Medicare provider on a FFS
                                network.                     basis (in or
                                                             out-of-network)
----------------------------------------------------------------------------------------------------------------------
<S>                             <C>                          <C>                          <C>
QMB - DUALS                                 YES                       YES                          NO
Persons who are eligible for
Medicaid, who meet QMB income
and resource requirements and
who have Medicare Part A and
Part B.  AHCCCS pays the Part
B premium.
----------------------------------------------------------------------------------------------------------------------
NON-QMBS                                    YES                       NO                           NO
Persons who are eligible for
Medicaid, who do not meet the
QMB income and resource
requirements and who have
Medicare Part A. AHCCCS pays
the Part B premium in certain
instances.
----------------------------------------------------------------------------------------------------------------------
MN/MI WITH MEDICARE                         YES                       NO                           NO
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      D-40
<PAGE>

The Contractor shall not deny payment of coinsurance and deductibles for
Medicare services provided in network or Medicare-only services provided
out-of-network if the reason for such denial is the failure of the provider to
obtain prior authorization for payment of coinsurance and deductibles.

Since AHCCCSA is the payer of last resort, all Medicare covered services which
are provided to dual eligibles who are not enrolled in a Medicare TEFRA Risk HMO
shall be billed to Medicare or any other third party liability source.

If a dual eligible is enrolled with a Medicare TEFRA Risk HMO, Medicare will not
reimburse the Contractor for Medicare covered services provided by the
Contractor. Therefore, the Contractor shall refer the member to the Medicare
TEFRA Risk HMO for all Medicare covered services and shall not be responsible
for the payment of any Medicare copayments, deductibles or premiums assessed by
the Medicare TEFRA Risk HMO. The Contractor shall be responsible for any AHCCCS
covered services not provided by the Medicare TEFRA Risk HMO.
As of July 1, 1996, persons who are eligible for Medicare and who can receive
Medicare covered services through a Medicare HMO will generally not be approved
or re-approved for the MN/MI program. The following individuals are not eligible
to enroll in a Medicare HMO: (1) those who are taking immunosuppressant drugs
following a transplant, (2) those who have end-stage renal disease, or (3) those
who receive Medicare hospice services. Persons who are not enrolled with
Medicare Part B or a Medicare HMO at the time of application or re-determination
for MN/MI, may receive MN/MI benefits until they can enroll in Medicare Part B
and/or a Medicare HMO.

42.   COPAYMENTS

The Contractor is responsible for the collection of copayments from members in
accordance with AHCCCS Rule R9-22-711.

43.   RECORDS RETENTION

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

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

                                      D-41
<PAGE>

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

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

b.    Records which relate to grievances, disputes, litigation or the settlement
      of claims arising out of the performance of this contract, or costs and
      expenses of this contract to which exception has been taken by AHCCCSA,
      shall be retained by the Contractor for a period of five years after the
      date of final disposition or resolution thereof.

44.   MEDICAL RECORDS

The member's medical record is the property of the provider who generates the
record. Each member is entitled to one copy of his or her medical record free of
charge. The Contractor shall have written policies and procedures to maintain
the confidentiality of all medical records. AHCCCSA shall be afforded access to
all members' medical records whether electronic or paper within 20 working days
of receipt of request. The Contractor is responsible for ensuring that a medical
record is established when information is received about a member. If the PCP
has not yet seen the member, such information may be kept temporarily in an
appropriately labeled file, in lieu of actually establishing a medical record,
but must be associated with the member's medical record as soon as one is
established.

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

The Contractor shall have written standards for documentation on the medical
record for legibility, accuracy and plan of care which comply with the AHCCCS
Medical Policy Manual, a copy of which may be found in the Bidder's Library.

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

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

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

                                      D-42
<PAGE>

Information related to fraud and abuse may be released so long as protected
HIV-related information is not disclosed. (ARSss.36-6641)

45.   ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

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

46.   ACCUMULATED FUND DEFICIT

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

47.   DATA EXCHANGE REQUIREMENT

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

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

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

                                      D-43
<PAGE>

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

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

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

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

ELECTRONIC DATA INTERCHANGE (EDI): In addition to the requirements outlined in
Section D, Paragraph 34, Claims Payment System, the Contractor will be required
to comply with all EDI standards which result from the Kennedy-Kassebaum
legislation. This law requires the Department of Health and Human Services to
provide national electronic submission standards for health care data and may
include compliance with National Provider Identifier requirements. The Secretary
has 18 months to develop these standards. As the standards are finalized,
AHCCCSA will phase in the implementation. Electronic standards which may be
implemented include, but are not limited to, encounters, enrollment and
capitation payments.

48.   ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to the success of
the AHCCCS program. AHCCCSA uses encounter data to pay reinsurance benefits, set
fee-for-service and capitation rates, determine disproportionate share payments
to hospitals, and to determine compliance with performance measures. The
Contractor shall submit encounter data to AHCCCSA for all covered services for
which the Contractor incurred a financial liability,

                                      D-44
<PAGE>

including services provided during prior period coverage. This requirement is a
condition of the HCFA grant award.

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

49.   MONTHLY ROSTER RECONCILIATION

AHCCCSA produces daily roster updates identifying new members and changes to
members' demographic, eligibility and enrollment data which the Contractor shall
use to update its member records. The daily roster which is run prior to the
monthly roster is referred to as the "last daily" and will contain all rate code
changes made for the prospective month, as well as any new enrollments and
disenrollments.

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

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

50.   TERM OF CONTRACT AND OPTION TO RENEW

The term of this contract shall be 10/1/97 through 9/30/98. In addition, AHCCCSA
reserves the sole option to extend the term of the contract, not to exceed a
total contracting period of five years. The terms and conditions of any such
contract extension shall remain the same as the original contract, as amended.
Any contract extension, however, shall not affect the maximum contracting period
of five years. All contract extensions shall be through contract amendment. If,
in conjunction with a contract extension, AHCCCSA elects to increase the
capitation rate for any rate code category, such increase will not exceed the
inflation rate recognized by the Arizona Legislature.

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

                                      D-45
<PAGE>

AHCCCSA may require a contractor to renew all GSA's, or may terminate remaining
GSA's if the Contractor does not agree to renew all GSA's.

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

CONTRACTOR'S NOTICE OF INTENT NOT TO RENEW: If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the Contractor
provides AHCCCSA written notice of its intent not to renew this contract at
least 120 days before its expiration, this liability for transition costs may be
waived by AHCCCSA.

51.   SUBCONTRACTS

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

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

a.    Automated data processing

b.    Third-party administrators

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

d.    Model subcontracts

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

See also Section D, Paragraph 35, Hospital Reimbursement, regarding required
submission of hospital subcontracts.

The Contractor shall maintain a fully executed original of all subcontracts
which shall be accessible to AHCCCSA within two working days of request by
AHCCCSA. A subcontract is voidable and subject to immediate cancellation by
AHCCCSA in the event any subcontract pertinent to "a" through "e" above is
implemented without the prior written approval of

                                      D-46
<PAGE>

AHCCCSA. All subcontracts shall comply with the applicable provisions of federal
and State laws, regulations and policies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

k.    Procedures for enrollment or re-enrollment of the covered population.

l.    A provision that the subcontractor shall be fully responsible for all tax
      obligations, Workers Compensation Insurance, and all other applicable
      insurance coverage

                                      D-47
<PAGE>

      obligations which arise under this subcontract. For itself and its
      employees, and that AHCCCSA shall have no responsibility or liability for
      any such taxes or insurance coverage.

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

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

52.   SPECIALTY CONTRACTS

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

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

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

53.   MANAGEMENT SERVICES SUBCONTRACTORS

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

                                      D-48
<PAGE>

54.   MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

All management services subcontractors that have oversight responsibilities for
the Contractor's program operations (such as third-party administrators) are
required to have an annual financial audit. A copy of this audit shall be
submitted to AHCCCSA, Office of Managed Care, within 120 days of the
subcontractor's fiscal year end. If services billed by a consultant or actuary
are less than $50,000, AHCCCSA will waive the requirement for an audit of that
consultant or actuary.

55.   MINIMUM CAPITALIZATION REQUIREMENTS

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

<TABLE>
<CAPTION>
           Geographic Service Area             Capitalization Requirement
        <S>                                    <C>
        1.  Yuma                                           $1,400,000
        2.  Mohave, La Paz                                  1,150,000
        3.  Yavapai, Coconino                               1,250,000
        4.  Pinal, Gila                                     1,450,000
        5.  Pima                                            1,250,000
        6.  Maricopa                                        2,500,000
        7.  Graham, Greenlee                                  350,000
        8.  Apache, Navajo                                    650,000
        9.  Cochise, Santa Cruz                             1,450,000
</TABLE>

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

CONTINUING OFFERORS: Continuing offerors that are bidding a county or GSA that
they are currently servicing must meet the equity per member standard (see
Section D, Paragraph 58, Financial Viability Criteria) for their current
membership. Continuing offerors that do not meet the equity standard must fund
through capital contribution the necessary amount to meet this requirement.
Continuing offerors that are bidding a new GSA must provide the additional
capitalization for the new GSA they are bidding. (See the table of requirements
by GSA above).

                                      D-49
<PAGE>

Continuing offerors will not be required to provide additional
capitalization if they currently meet the equity per member standard with their
existing membership and their excess equity is sufficient to cover the proposed
additional members, or they have at least $5,000,000 in equity.

56.      PERFORMANCE BOND OR BOND SUBSTITUTE

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

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

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

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

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

In the event AHCCCSA agrees to accept substitute security in lieu of the
Performance Bond, irrevocable letter of credit or cash deposit, the Contractor
agrees to execute any and all documents and perform any and all acts necessary
to secure and enforce AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and necessary UCC filings
pursuant to the Arizona Uniform Commercial Code. In the event such substitute
security is agreed to and accepted by AHCCCSA, the Contractor acknowledges that
it has granted AHCCCSA a security interest in such substitute security to secure
performance of its obligations under this contract. The Contractor is solely
responsible for establishing the credit-worthiness of all forms of substitute
security. AHCCCSA may, after written notice to the Contractor, withdraw its
permission for substitute security, in which case the Contractor shall provide
AHCCCSA with a form of security described above.

57.      AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110% of the total
capitation payment expected to be paid in the month of October, 1997, or as
determined by AHCCCSA. The total capitation amount shall include SOBRA
supplemental payments. This requirement

                                      D-50
<PAGE>

must be satisfied by the Contractor not later than 15 days after notification by
AHCCCSA of the amount required. Thereafter, AHCCCSA shall evaluate the
enrollment statistics of the Contractor on a monthly basis. If there is an
increase in capitation payment that exceeds 10% of the performance bond amount,
AHCCCSA may require an increase in the amount of the Performance Bond. The
Contractor shall have 15 days following notification by AHCCCSA to increase the
amount of the Performance Bond. The Performance Bond amount that must be
maintained after the contract term shall be sufficient to cover all outstanding
liabilities and will be determined by AHCCCSA.

58.   FINANCIAL VIABILITY CRITERIA/PERFORMANCE MEASURES

AHCCCSA has established the following financial viability criteria/performance
goals:

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

Equity per Member                  Equity divided by the number of non-SOBRA
                                   Family Planning Extension Services members
                                   enrolled at the end of the period.
                                   Standard: At least $150
                                   (Failure to meet this standard may result in
                                   an enrollment cap being imposed in any or all
                                   contracted GSA's.)
                                   Note:  Equity must be unencumbered with no
                                   liens or obligations against it.

Medical Expense Ratio              Total medical expenses divided by total
                                   capitation + SOBRA + TPL + reinsurance.
                                   Standard:  85-90%

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

Received But Unpaid Claims         Received but unpaid claims divided by the
         (Days Outstanding)        average daily medical expenses for the
                                   period, net of sub-capitation expense
                                   Standard: No more than 45 days

59.   MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

A proposed merger, reorganization or change in ownership of the Contractor
health plan shall require prior approval of AHCCCSA and a subsequent contract
amendment. The Contractor

                                      D-51
<PAGE>

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

60.   SANCTIONS

ALHCCCSA may suspend, deny, refuse to renew, or terminate this contract or any
related subcontracts in accordance with AHCCCS Rule R9-22-405 and the terms of
this contract and applicable law and regulations. AHCCCSA may, in addition to
these remedies, impose monetary sanctions if the Contractor violates any
provision stated in law or this contract in accordance with AHCCCS Rule
R9-22-406 and the provisions of this contract, applicable law and regulations.
Written notice will be provided to the Contractor specifying the sanction to be
imposed, the grounds for such sanction and either the length of suspension or
the amount of capitation prepayment to be withheld. The Contractor may appeal
the decision to impose a sanction in accordance with AHCCCS Rule R9-22-804.

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

      a.  Marketing violations

      b.  Failure to meet AHCCCS financial viability standards

      c.  Material deficiency in the Contractor's provider network

      d.  Quality of care and quality management issues

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

61.   AUTO-ASSIGNMENT ALGORITHM

Members who do not have the right to choose a contractor or members who have the
right to choose but do not exercise this right, are assigned to contractors
through an auto-assignment algorithm. The algorithm is a mathematical formula
used to distribute members to the various contractors in a manner that is
predictable and consistent with AHCCCSA goals. The algorithm favors those
contractors with lower capitation rates. For further details on the AHCCCS
Auto-Assignment Algorithm, refer to Attachment G. AHCCCSA may change the
algorithm at any

                                      D-52
<PAGE>

time during the term of the contract and frequently does so in response to
contractor-specific issues of non-compliance (e.g. imposition or an enrollment
cap). The Contractor should consider this in preparing its response to this RFP.
AHCCCSA is not obligated to adjust for any financial impacts this may have on
the Contractor.

62.   GRIEVANCE PROCESS AND STANDARDS

The Contractor shall have in place a written grievance policy for members and
providers which defines their rights regarding any adverse action by the
Contractor. This written policy shall be in accordance with applicable federal
and State law and AHCCCS Rules and policy including, but not limited to, AHCCCS
Rules R9-22-512; R9-22-518(A); R9-22-802; and R9-22-804. The grievance process
may not be delegated or subcontracted outside of the health plan. Refer to
Attachment H for a complete description of grievance process requirements.

63.   QUARTERLY GRIEVANCE REPORT

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

64.   PENDING LEGISLATIVE ISSUES

In addition to the requirements described in this RFP, there are several
legislative issues that could have an impact on services provided by the
Contractor on or after October 1, 1997. The following is a brief description of
the issues that AHCCCS is aware of at the time of the issuance of this RFP:

ELIGIBILITY BASED ON 100% OF THE FEDERAL POVERTY LEVEL (FPL): Through a
successful initiative effort, eligibility for AHCCCS has been expanded to allow
persons with income up to 100% of the FPL to become eligible for the Medicaid
program. Legislative action will be required to implement this new eligibility
guideline and HCFA must approve the expansion. If HCFA approval is granted,
there will be a significant number of new persons who will be eligible for the
program and enrolled with the health plans at some future date.

MANDATORY 48 HOUR MATERNITY STAY: Effective January 1, 1998, a new federal law
requires all group health insurers to allow women and their newborns to receive
48 hours of inpatient hospital care after a normal vaginal delivery and up to 96
hours of inpatient care after a cesarean delivery. The attending health care
provider, in consultation with the mother, may discharge the mother or newborn
prior to the minimum length of stay. HCFA has advised that the mandatory stay
provisions will apply to Medicaid. In preparing their capitation rate proposals,
offerors must assume any additional costs associated with this new requirement.
AHCCCSA will not compensate for additional costs effective January 1, 1998.

                                      D-53
<PAGE>

PREMIUM SHARING: The Arizona legislature passed legislation (Chapter 368, Laws
of 1996) which authorizes a 6-member legislative committee to make
recommendations for a three-year premium sharing demonstration program for
persons whose income does not exceed 300% of FPL. If enacted, the premium
sharing program would add additional people to the AHCCCS program. The program
is scheduled to begin October 1, 1997 but will be repealed if the legislature
does not implement a program by December 31, 1997.

WELFARE REFORM: The Personal Responsibility and Work Opportunity Act of 1996
replaces the AFDC entitlement program with Temporary Assistance to Needy
Families block grants to the states. In addition, states were given an option to
provide full Medicaid services or only emergency services to several groups of
legal immigrants who were in the United States on or before August 22, 1996. The
legislature will be considering the various options and making decisions about
the level of service to legal immigrants. Depending on the outcome of
legislative deliberations, there may be changes to AHCCCS eligibility.

GRADUATE MEDICAL EDUCATION (GME): The legislature may be making changes to the
funding formula for GME. Currently, GME is funded as an add-on to the AHCCCS
tiered per diem inpatient hospital rates. There is legislation to remove the GME
component from the hospital rates and establish a separate GME fund. For
purposes of your response to the RFP, please assume that GME will not be
included in the AHCCCS tiered per diem rates.

[END OF SECTION D]

                                      D-54

<PAGE>

                           SECTION E: CONTRACT CLAUSES

                                TABLE OF CONTENTS

<TABLE>
<S>   <C>                                                                        <C>
1.    APPLICABLE LAW..........................................................    1
2.    AUTHORITY...............................................................    1
3.    ORDER OF PRECEDENCE.....................................................    1
4.    CONTRACT INTERPRETATION AND AMENDMENT...................................    1
5.    SEVERABILITY............................................................    2
6.    RELATIONSHIP OF PARTIES.................................................    2
7.    ASSIGNMENT AND DELEGATION...............................................    2
8.    GENERAL INDEMNIFICATION.................................................    2
9.    INDEMNIFICATION - PATENT AND COPYRIGHT..................................    2
10.   COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS..................    2
11.   ADVERTISING AND PROMOTION OF CONTRACT...................................    3
12.   PROPERTY OF THE STATE...................................................    3
13.   THIRD PARTY ANTITRUST VIOLATIONS........................................    3
14.   RIGHT TO ASSURANCE......................................................    3
15.   TERMINATION FOR CONFLICT OF INTEREST....................................    3
16.   GRATUITIES..............................................................    3
17.   SUSPENSION OR DEBARMENT.................................................    4
18.   TERMINATION FOR CONVENIENCE.............................................    4
19.   TERMINATION FOR DEFAULT.................................................    4
20.   TERMINATION - AVAILABILITY OF FUNDS.....................................    5
21.   RIGHT OF OFFSET.........................................................    5
22.   NON-EXCLUSIVE REMEDIES..................................................    5
23.   NON-DISCRIMINATION......................................................    5
24.   EFFECTIVE DATE..........................................................    5
25.   INSURANCE...............................................................    5
26.   DISPUTES................................................................    6
27.   RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS.............................    6
28.   INCORPORATION BY REFERENCE..............................................    6
29.   COVENANT AGAINST CONTINGENT FEES........................................    7
30.   CHANGES.................................................................    7
31.   TYPE OF CONTRACT........................................................    7
32.   AMERICANS WITH DISABILITIES ACT.........................................    7
33.   WARRANTY OF SERVICES....................................................    7
34.   NO GUARANTEED QUANTITIES................................................    8
35.   CONFLICT OF INTEREST....................................................    8
36.   DISCLOSURE OF CONFIDENTIAL INFORMATION..................................    8
37.   COOPERATION WITH OTHER CONTRACTORS......................................    8
38.   ASSIGNMENT OF CONTRACT AND BANKRUPTCY...................................    8
39.   OWNERSHIP OF INFORMATION AND DATA.......................................    8
40.   AHCCCSA RIGHT TO OPERATE CONTRACTOR.....................................    9
41.   AUDITS AND INSPECTIONS..................................................    9
42.   FRAUD AND ABUSE.........................................................   10
43.   LOBBYING................................................................   10
44.   CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK / LABORATORY TESTING........   12
</TABLE>

                                       i

<PAGE>

                           SECTION E: CONTRACT CLAUSES

1.       APPLICABLE LAW

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

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

2.       AUTHORITY

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

3.       ORDER OF PRECEDENCE

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

4.       CONTRACT INTERPRETATION AND AMENDMENT

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

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

                                       1
<PAGE>

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

5.       SEVERABILITY

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

6.       RELATIONSHIP OF PARTIES

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

7.       ASSIGNMENT AND DELEGATION

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

8.       GENERAL INDEMNIFICATION

The Contractor shall defend, indemnify and hold harmless the State from any
claim, demand, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation) arising out of or relating to injury, disease, or
death of persons or damage to or loss of property resulting from or in
connection with the negligent performance of this contract by the Contractor,
its agents, employees, and subcontractors or anyone for whom the Contractor may
be responsible. The obligations, indemnities and liabilities assumed by the
Contractor under this paragraph shall not extend to any liability caused by the
negligence of the State or its employees. The Contractor's liability shall not
be limited by any provisions or limits of insurance set forth in this contract.
The State shall reasonably notify the Contractor of any claim for which it may
be liable under this paragraph.

9.       INDEMNIFICATION - PATENT AND COPYRIGHT

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

10.      COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS

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

                                       2
<PAGE>

11.      ADVERTISING AND PROMOTION OF CONTRACT

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

12.      PROPERTY OF THE STATE

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

13.      THIRD PARTY ANTITRUST VIOLATIONS

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

14.      RIGHT TO ASSURANCE

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

15.      TERMINATION FOR CONFLICT OF INTEREST

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

16.      GRATUITIES

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that employment or a gratuity was offered or made by
the Contractor or a representative of the Contractor to any officer or employee
of the State for the purpose of influencing the outcome of the procurement or
securing the contract, an amendment to the contract, or favorable treatment
concerning the contract, including the making of any determination or decision
about contract performance. AHCCCSA, in addition to any other

                                       3
<PAGE>

rights or remedies, shall be entitled to recover exemplary damages in the amount
of three times the value of the maturity offered by the Contractor.

17.      SUSPENSION OR DEBARMENT

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

18.      TERMINATION FOR CONVENIENCE

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

19.      TERMINATION FOR DEFAULT

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

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

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

                                       4
<PAGE>

20.      TERMINATION - AVAILABILITY OF FUNDS

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

21.      RIGHT OF OFFSET

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

22.      NON-EXCLUSIVE REMEDIES

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

23.      NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 75-5, which mandates
that all persons, regardless of race, color, religion, sex, national origin or
political affiliation, shall have equal access to employment opportunities, and
all other applicable federal and state laws, rules and regulations, including
the Americans with Disabilities Act. The Contractor shall take positive action
to ensure that applicants for employment, employees, and persons to whom it
provides service are not discriminated against due to race, creed, color,
religion, sex, national origin or disability.

24.      EFFECTIVE DATE

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

25.      INSURANCE

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

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

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

                                       5
<PAGE>
c.       Workers Compensation: Provides coverage to employees of the Contractor
for injuries sustained in the course of their employment. Coverage must meet the
obligations imposed by federal and state statutes and roust also include
Employer's Liability minimum coverage of $100,000. Evidence of qualified
self-insured status will also be considered.

d.       Professional Liability (if applicable): Provides coverage for alleged
professional misconduct or lack of ordinary skills in the performance of a
professional act of service. The above coverages may be evidenced by either one
of the following:

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

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

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

26.      DISPUTES

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

27.      RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS

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

28.      INCORPORATION BY REFERENCE

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

                                       6
<PAGE>

29.      COVENANT AGAINST CONTINGENT FEES

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

30.      CHANGES

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

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

31.      TYPE OF CONTRACT

         Firm Fixed-Price

32.      AMERICANS WITH DISABILITIES ACT

People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling Mark Renshaw at (602) 417-4577.

33.      WARRANTY OF SERVICES

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

                                       7
<PAGE>

34.      NO GUARANTEED QUANTITIES

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

35.      CONFLICT OF INTEREST

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

36.      DISCLOSURE OF CONFIDENTIAL INFORMATION

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

37.      COOPERATION WITH OTHER CONTRACTORS

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

38.      ASSIGNMENT OF CONTRACT AND BANKRUPTCY

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

39.      OWNERSHIP OF INFORMATION AND DATA

Any data or information system, including all software, documentation and
manuals, developed by Contractor pursuant to this contract, shall be deemed to
be owned by AHCCCSA. The federal government reserves a royalty-free,
nonexclusive, and irrevocable license to reproduce, publish,

                                       8
<PAGE>

or otherwise use and to authorize others to use for federal government purposes,
such data or information system, software, documentation and manuals.

Proprietary software which is provided at established catalog or market prices
and sold or leased to the general public shall not be subject to the ownership
or licensing provisions of this section.

Data, information and reports collected or prepared by Contractor in the course
of performing its duties and obligations under this contract shall be deemed to
be owned by AHCCCSA. The ownership provision is in consideration of Contractor's
use of public funds in collecting or preparing such data, information and
reports.

These items shall not be used by Contractor for any independent project of
Contractor or publicized by Contractor without the prior written permission of
AHCCCSA. Subject to applicable state and federal laws and regulations.

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

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

40.      AHCCCSA RIGHT TO OPERATE CONTRACTOR

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

41.      AUDITS AND INSPECTIONS

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

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

                                       9
<PAGE>

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

42.      FRAUD AND ABUSE

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

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

43.      LOBBYING

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

                               [END OF SECTION E]

                                       10
<PAGE>

                         SECTION F: LIST OF ATTACHMENTS

Attachment A:   Minimum Subcontract Provisions
Attachment B:   Geographic Service Area Minimum Network Requirements
Attachment C:   Management Services Subcontractor Statement
Attachment D:   Sample Letter of Intent; Network Summary Form
Attachment E:   Instructions for Preparing Capitalization Proposal on
                Computer Disk.
Attachment F:   Periodic Report Requirements
Attachment G:   Auto-Assignment Algorithm
Attachment H:   Grievance Process and Standards
Attachment I:   Encounter Submission Requirements
Attachment J:   New Offeror Review Guide
Attachment K:   EPSDT Periodicity Schedule
Attachment L:   Offeror's Checklist

                                       11
<PAGE>

SECTION G:  REPRESENTATIONS AND CERTIFICATIONS OF OFFEROR

The Offeror must complete all information requested below.

1.       CERTIFICATION OF ACCURACY OF INFORMATION PROVIDED

By signing this offer the Offeror certifies, under penalty of law, that the
information provided herein is true, correct and complete to the best of
Offeror's knowledge and belief. Offeror also acknowledges that should
investigation at any time disclose any misrepresentation or falsification, any
subsequent contract may be terminated by AHCCCSA without penalty to or further
obligation by AHCCCSA.

2.       CERTIFICATION OF NON-COERCION

By signing this offer the Offeror certifies, under penalty of law, that it has
not made to any provider any requests or inducements not to contract with
another potential program contractor in relation to this solicitation.

3.       CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK / LABORATORY TESTING

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

4.       AUTHORIZED SIGNATORY

Authorized Signatory for
                         -------------------------------------------------------
                                            [OFFEROR'S Name]

-----------------------------------              -------------------------------
(INDIVIDUAL'S Name]                                         [Title]

is the person authorized to sign this contract on behalf of Offeror.

                                       12
<PAGE>

5.       OFFEROR'S MAILING ADDRESS

AHCCCSA should address all notices relative to this offer to the attention of:

--------------------------------------------------------------------------------
Name                                                            Title

--------------------------------------------------------------------------------
Address                                                      Telephone Number

--------------------------------------------------------------------------------
City                             State                              ZIP

                                       13
<PAGE>

OFFEROR GENERAL INFORMATION

1.       LICENSE/CERTIFICATION: Have any licenses in accordance with ARS
ss.20-l065 et. seq., been denied, revoked or suspended within the past 10 years?
Yes ___ No____ If yes, please explain.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

2.       CIVIL RIGHTS COMPLIANCE DATA: Has any federal or state agency ever made
a finding of noncompliance with any civil rights requirements with respect to
your program? Yes ___ No____ If yes, please explain.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

3.       HANDICAPPED ASSURANCE: Does your organization provide assurance that no
qualified handicapped person will be denied benefits of or excluded from
participation in a program or activity because the Offeror's facilities
(including subcontractors) are inaccessible to or unusable by handicapped
persons? (Note: Check local zoning ordinances for handicapped requirements).
Yes____ No____ If yes. describe how such assurance is provided or how your
organization is taking affirmative steps to provide assurance.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

4.       PRIOR CONVICTIONS: List all felony convictions within the past 15 years
of any key personnel (i.e., Administrator, Medical Director, financial officers,
major stockholders or those with controlling interest, etc.). Failure to make
full and complete disclosure shall result in the rejection of your proposal.

5.       FEDERAL GOVERNMENT SUSPENSION/EXCLUSION: Has Offeror been suspended or
excluded from any federal government programs for any reason? Yes ___ No____
If yes, please explain.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

6. WAS AN ACTUARIAL FIRM USED TO ASSIST IN DEVELOPING CAPITALIZATION RATES
Yes ____  No____ If yes, what is name of actuary and actuarial firm?

--------------------------------------------------------------------------------

7. DID A FIRM OR ORGANIZATION PROVIDE THE OFFEROR WITH ANY ASSISTANCE IN MAKING
THIS OFFER (TO INCLUDE DEVELOPING CAPITALIZATION RATES OR PROVIDING ANY OTHER
TECHNICAL ASSISTANCE)? Yes___ No___. If yes, what is the name of this firm or
organization?

--------------------------------------------------------------------------------
Name

--------------------------------------------------------------------------------
Address                             City                              State

                                       14
<PAGE>

8.       HAS THE OFFEROR CONTRACTED OR ARRANGED FOR MANAGEMENT INFORMATION
SYSTEMS, SOFTWARE OR HARDWARE, FOR THE TERM OF THE CONTRACT? Yes ___ No___ If
yes, is the Management Information System being obtained from a vendor? Yes ___
No ___. If yes, please provide the vendor's name, the vendor's background with
AHCCCSA, the vendor's background with other HMOs, and the vendor's background
with other Medicaid programs.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

9.       IF OTHER THAN A GOVERNMENT AGENCY, WHEN WAS YOUR ORGANIZATION FORMED?

--------------------------------------------------------------------------------

                                       15
<PAGE>

FINANCIAL DISCLOSURE STATEMENT                                     (Page 1 of 2)

The Offeror must provide the following information as required by 42 CFR
455.103. This Financial Disclosure Statement shall be prepared as of 3/31/97 or
as specified below. However, continuing offerors who have filed the required
Financial Disclosure Statement within the last 12 months need not complete this
section if no significant changes have occurred since the last filing.

1.       OWNERSHIP. List the name and address of each person with an ownership
or controlling interest, as defined by 42 CFR 455.101, in the entity submitting
this offer:

Name                       Address                    Percent of Ownership or
                                                      Control

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

2.       SUBCONTRACTOR OWNERSHIP: List the name and address of each person with
an ownership or control interest in any subcontractor in which the disclosing
entity has direct or indirect ownership of 5% or more:

Name                       Address                    Percent of Ownership or
                                                      Control

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Name of above persons who are related to another as spouse, parent, child or
sibling:

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

3.       OWNERSHIP IN OTHER ENTITIES: List the name of any other entity in which
a person with an ownership or control interest in the Offeror entity also has an
ownership or control interest:

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                       16
<PAGE>

4.       LONG-TERM BUSINESS TRANSACTIONS: List any significant business
transactions, as defined in 42 CFR 455.101, between the Offeror and any
wholly-owned supplier or between the Offeror and any subcontractor during the
five-year period ending on the Contractor's most recent fiscal year end:

Describe Ownership              Type of Business              Dollar Amount
Of Subcontractors.         Transactions with Provider         of Transaction

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

5.       CRIMINAL OFFENSES: List the name of any person who has ownership or

control interest in the Offeror, or is an agent or managing employee of the
Offeror and has been convicted of a criminal offense related to that person's
involvement in any program under Medicare, Medicaid or the Title XX services
program since the inception of those programs:

Name                             Address                             Title

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

6.       CREDITORS: List name and address of each creditor whose loans or
mortgages exceed 5% of total offeror equity and are secured by assets of the
Offeror's company.

                                            Description             Amount
Name                    Address               of Debt             of Security

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                       17
<PAGE>

RELATED PARTY TRANSACTIONS                                         (PAGE 1 OF 2)

1.       BOARD OF DIRECTORS: List the names and addresses of the Board of
Directors of the Offeror.

Name/Title                          Address

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

2.       HIGHEST-COMPENSATED MANAGEMENT: List names and titles of the 10 highest
compensated management personnel including but not limited to the Chief
Executive Officer, the Chief Financial Officer, Board Chairman, Board Secretary,
and Board Treasurer.

Name                                        Title

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

3.       RELATED PARTY TRANSACTIONS: Describe transactions between the Offeror
and any related party in which a transaction or series of transactions during
any one fiscal year exceeds the lesser of $10,000 or 2% of the total operating
expenses of the disclosing entity. List property, goods, services and facilities
in detail noting the dollar amounts or other consideration for each transaction
and the date thereof. Include a justification as to (1) the reasonableness of
the transaction, (2) its potential adverse impact on the fiscal soundness of the
disclosing entity, and (3) that the transaction is without conflict of interest:

a)       The sale, exchange or leasing of any property:

Description of             Name of Related                    Dollar Amount for
Transaction                Party and Relationship             Reporting Period

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Justification:

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                       18
<PAGE>

RELATED PARTY TRANSACTIONS                                         (PAGE 2 OF 2)

b)       The furnishing of goods, services or facilities for consideration:

Description of             Name of Related                    Dollar Amount for
Transaction                Party and Relationship             Reporting Period

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Justification:

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

c)       Describe all transactions between Offeror and any relaxed party which
includes the lending of money, extensions of credit or any investment in a
related party. This type of transaction requires review and approval in advance
by the Office of the Director:

Description of             Name of Related                    Dollar Amount for
Transaction                Party and Relationship             Reporting Period

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Justification:

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

d)       List the name and address of any individual who owns or controls more
than 10% of stock or that has a controlling interest (i.e. formulates,
determines or vetoes business policy decisions):

Name                   Address          Owner of          Has controlling
                                        Controller        Interest
                                                          Yes/No

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                       19
<PAGE>

OFFEROR'S ADMINISTRATIVE FUNCTIONS SUBCONTRACTORS                  (PAGE 1 OF 1)

The Offeror must identify any organizational or administrative functions (e.g.
claims processing, marketing, automated data processing, accounting) or key
personnel (e.g. administrator, medical director, chief financial officer, etc.)
which are subcontracted.

Subcontractor's Name:
                     ----------------------------------------------------------
Address:
        -----------------------------------------------------------------------
Method Of Payment:
                  -------------------------------------------------------------
Function Performed:
                   ------------------------------------------------------------

Estimated Value Of Contract:               10/1/96 - 9/30/97 $
                                                              -----------------
                                           10/1/97 - 9/30/98 $
                                                              -----------------
                                           10/1/98 - 9/30/99 $
                                                              -----------------

Subcontractor's Name:
                     ----------------------------------------------------------
Address:
        -----------------------------------------------------------------------
Method Of Payment:
                  -------------------------------------------------------------
Function Performed:
                   ------------------------------------------------------------

Estimated Value of Contract                10/1/96-9/30/97   $
                                                              -----------------
                                           10/1/97-9/30/98   $
                                                              -----------------
                                           10/1/98-9/30/99   $
                                                              -----------------
Subcontractor's Name:
                     ----------------------------------------------------------
Address:
        -----------------------------------------------------------------------
Method Of Payment.
                 --------------------------------------------------------------
Function Performed:
                   ------------------------------------------------------------

Estimated Value Of Contract:               10/1/96 -9/30/97  $
                                                              -----------------
                                           10/1/97-9/30/98   $
                                                              -----------------
                                           10/1/98 - 9/30/99 $
                                                              -----------------

Subcontractor's Name:
                     ----------------------------------------------------------
Address:
        -----------------------------------------------------------------------
Method Of Payment:
                  -------------------------------------------------------------
Function Performed:
                   ------------------------------------------------------------

Estimated Value Of Contract:               10/1/96 - 9/30/97 $
                                                              -----------------
                                           10/1/97 - 9/30/98 $
                                                              -----------------
                                           10/1/98 - 9/30/99 $
                                                              -----------------

                                       20
<PAGE>

OFFEROR'S KEY PERSONNEL                                           (Page 1 of 1)

Indicate the names of the persons filling the following positions and the date
(month/year) they began, or will begin, their staff assignment. In addition, the
Offeror must attach detailed professional resumes (two pages maximum) for all
key personnel to include, at a minimum, the following positions. If any of the
following positions are filled by employees who do not spend their full time on
the AHCCCS program, please describe their other duties.

<TABLE>
<CAPTION>
Position:                             Name            Starting Date        # of hours per
                                                                           per week
                                                                           dedicated to
                                                                           AHCCCS
                                                                           program
-----------------------------------------------------------------------------------------
<S>                                   <C>             <C>                  <C>
Administrator
Medical Director
Chief Financial Officer
Claims Administrator
QM/UM Coordinator
Provider Services Manager
Member Services Manager
Behavioral Health Coordinator
Maternal Health/EPSDT Coordinator
Grievance Coordinator
</TABLE>

                                       21
<PAGE>

                       SECTION H: INSTRUCTIONS TO OFFERORS

                                Table of Contents

<TABLE>
<S>  <C>                                                                 <C>
1.    Contents of Offeror's Proposal.....................................73
2.    Prospective Offerors' Inquiries....................................80
3.    On-site Review.....................................................31
4.    Prospective Offerors' Conference...................................31
5.    Late Proposals.....................................................81
6.    Withdrawal of Proposal.............................................81
7.    Amendments to RFP..................................................31
8.    Best and Final Offers..............................................31
9.    Award of Contract..................................................83
10.   RFP Milestone Dates................................................84
11.   AHCCCSA Bidder's Library...........................................84
</TABLE>

<PAGE>

                       SECTION H: INSTRUCTIONS TO OFFERORS

1.   CONTENTS OF OFFEROR'S PROPOSAL

All proposals shall be organized with strict adherence to the Offeror's
Checklist (Attachment L) as described in this section and submitted using the
forms and computer disk provided in this RFP. The Offerer's Checklist refers to
specific RFP page numbers for each requirement. All pages of the Offerer's
proposal must be numbered sequentially with documents placed in sturdy 3-ring
binders. Erasures, interlineations or other modifications in the proposal must
be initialed in original ink by the authorized person signing the offer. AHCCCSA
will not reimburse the Offeror the cost of proposal preparation.

It is the responsibility of the Offeror to examine the entire RFP, seek
clarification of any requirement that may not be clear, and check all responses
for accuracy before submitting its proposal. The proposal becomes a part of the
contract; thus what is stated in the proposal may be evaluated either during the
proposal evaluation process or during other reviews. Proposals may not be
withdrawn after the published due date and time.

All proposals will become the property of AHCCCSA. The Offeror may designate
certain information to be proprietary in nature by typing the word "proprietary"
on top of every page for which nondisclosure is requested. Final determinations
of nondisclosure, however, rest with the AHCCCSA Director. Regardless of such
determinations, all portions of the Offeror's proposal, even pages which are
proprietary, will be provided to HCFA and its evaluation contractor.

All proposals shall be organized according to the following major categories:

I.       General Matters
II.      Provider Network
III.     Capitation
IV.      Program Operations
V.       Organization

Each section shall be separated by a divider and contain all information
requested in this solicitation. Numbering of pages should continue in sequence
through each separate section. For example, "Provider Network" would begin with
the page number following the last page number in "General Matters". Each
section shall begin with a table of contents.

Proposals that are not submitted in conformance with the guidelines described
herein will not be considered. For a continuing offeror, the CYE 97 Operational
and Financial Reviews (CYE 97 Review), AHCCCS member survey, and other existing
experience with the Offeror will be used as part of the evaluation of the new
proposal submitted for CYE 98.

I.       GENERAL MATTERS

See the Offeror's Checklist (Attachment L) for information to be submitted under
this section.

<PAGE>

II.      PROVIDER NETWORK

The Offeror shall have in place an adequate network of providers capable of
meeting contract requirements. Attachment B lists minimum network requirements
by GSA. The following tables specify the submission requirements for both
continuing and new offerors:

<PAGE>

Required Submissions:  Network Development

1.       CONTINUING OFFERORS:

On or about April 11, 1997 current contractors will receive a disk copy of the
Provider Affiliation Tape with an end date of February 14, 1997. The disk will
contain the Load Detail Report, which provides a complete listing of all
Provider Affiliation Tape (PAT) data loaded to the provider affiliation
database. The records are sorted by county, by city, by provider type, by first
specialty. A sample of the Load Detail Report may be found on page 20 of the
Provider Affiliation Tape User Manual. The report will print four columns of
data representing each provider affiliated with the health plan. A totals page
is created at the end of the report indicating the number of records that were
loaded and printed on the report. You will also receive a hard copy of the Load
Detail Report.

In addition, you will receive a hard copy of the following reports:

SUMMARY TOTALS REPORT - provides summarized information about the records on the
Load Detail Report. The records are sorted by county, by city, by provider type,
by first specialty. A total PCP count is listed for each county. Specialty
totals are listed on the report by the following: OVERALL are the number of
records; PCP is the number or providers with a PCP indicator of "yes"; PCP EPSDT
is the number of providers with a PCP indicator and EPSDT indicator of "yes";
EPSDT indicator is the number of providers with an EPSDT indicator of "yes"; PCP
OB is the number of providers with a PCP indicator of "yes" and an OB indicator
of "yes". The OB is the number of providers with an OB indicator of "yes". BH
(Behavioral Health) is the number of providers with a BH indicator of "yes".
Note that all of these totals represent the totals for a provider within the
given health plan, county, city, provider type and first specialty.

TAPE VALIDATION REPORT - provides information about the status of the submitted
PAT. If all conditions are met, the tape passes and is accepted for loading to
the PAT database. A sample of the Tape Validation Report is found on page 18 of
the Provider Affiliation Tape User Manual.

LOAD EXCEPTIONS BY PROVIDER REPORT - provides a list of all exception errors
that occur during the PAT database load process, sorted by Provider ID. The
report is designed to aid the health plan in error correction. A sample of the
Load Exceptions by Provider Report is found on page 19 of the Provider
Affiliation Tape User Manual.

LOAD EXCEPTIONS BY FIELD REPORT - provides the same list of exception errors
reported on the "by Provider" Exception Report, but it is sorted by the field in
error. The report is designed to aid the health plan in error correction. A
sample of the Load Exceptions by Field Report is found on page 19 of the
Provider Affiliation Tape User Manual.

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LOAD SUMMARY REPORT - provides summarized information about the PAT load process
including the total number or records read and the total number of records with
exception errors. A sample of the Load Summary Report is found on page 21 of the
Provider Affiliation Tape User Manual.

PROVIDER AFFILIATION DUPLICATE REPORT - identifies duplicate provider records.

WHAT YOU MUST RETURN TO AHCCCSA WITH YOUR PROPOSAL:

la.      The Offeror must submit, with the RFP response, a detailed listing of
its provider network using one of the following methods:

         -        Submit a hard copy of the Load Detail Report AHCCCS gave you
                  with any changes written in on the appropriate page. You must
                  specify if the change is a correction, addition or deletion
                  using the following codes: A-addition, D-deletion,
                  C-correction. NOTE: Additions must be supported using Letters
                  of Intent. If the provider is currently contracted with the
                  Offeror in the specific service site, the contract signature
                  sheet should be submitted.

OR:

         -        Using the disk provided by AHCCCS, input the additions,
                  deletions and corrections. Print out this detail which now
                  includes your additions, deletions and corrections and submit
                  the hard copy only to AHCCCS with the RFP response. You must
                  specify if the change is a correction, addition or deletion
                  using the following codes: A-addition, D-deletion,
                  C-correction. NOTE: Additions must be supported using Letters
                  of Intent. If the provider is currently contracted with the
                  Offeror in the specific service site, the contract signature
                  sheet should be submitted. DO NOT SUBMIT THE DISK TO AHCCCSA.

lb.      Submit a summary of your network using the Network Summary Form in
Attachment D. The summary must summarize your network by county, by city, by
provider type, by specialty and by PCP. You may use any one of the two methods
mentioned above to compile your summary; however, the summary must tie in with
your detail. The summary is what AHCCCSA will use to score the network portion
of the RFP. The provider type can be found on the eighth line of each entry on
the Load Detail Report. A list of provider types can also be found in the
Bidder's Library.

2.       New offerors: New offerors must submit completed Letters of Intent from
all providers as evidence of its proposed network. Attachment D, Sample Letter
of Intent, is the only acceptable format for these letters. A continuing offeror
seeking an expansion of service area must also submit Letters of Intent from all
providers in its proposed new area. AHCCCSA may, at its option, verify any or
all submitted Letters of Intent by telephone or mail. The Letters of Intent
should be submitted organized by county, by city, by provider type, by
specialty, and by PCP. The Offeror shall also submit a summary of the Letters of
Intent organized in the same order using the Network Summary Form in Attachment
D.

3.       All offerors: Submit all signed hospital contracts for Maricopa and
Pima County (see Section D, Paragraph 35, Hospital Reimbursement) and all
contracts with emergency facilities or urgent care facilities, if any.

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REQUIRED SUBMISSIONS:  Network Management

(Monitoring and Control of the Network)

4.       Network monitoring policies and procedures including forms, records and
         report layouts

5.       Job descriptions for provider services and contracting staff

6.       Description of the role of the provider services and contracting
         departments (Maximum: 3 pages) (A continuing offeror does not need to
         include information about its method of monitoring appointment
         standards if it is in full compliance with the CYE 97 Review Standards
         DS 2.1, 2.2, 2.3, 3.1 and 3.2 and scored 95% on questions 11, 13 and 14
         in the waiting times section of the 1996 AHCCCS member survey.)

(Network Communications)

7.       Provider Manual

8.       Policies and Procedures regarding communication between the Offeror and
         its network

9.       Description of the Offeror's communication process with the provider
         network (Maximum: 3 pages)

10.      Procedure for administering a provider survey, if any

11.      Provider survey, if any

(A continuing offeror does not have to submit the provider manual if fully
compliant with the CYE 97 Review Standards DS 4.2 and 4.3. A continuing offeror
does not have to submit materials describing provider education if it is in
compliance with CYE 97 Review Standards DS 4.4 and 4.5.)

(Capacity Analysis)

12.      By GSA, by city, the percentage of PCPs with evening and/or weekend
         office hours

13.      By GSA, by city, the percentage of PCPs offering languages in addition
         to English

14.      The percentage of PCPs who are Board Certified/Eligible

(Medical Director)

15.      Medical Director job description (A continuing offeror does not need to
         submit this if it is in full compliance with the CYE 97 Review
         Standards MM 4.3 and 4.4.)

16.      The number of hours per week the Medical Director devotes to the
         Offerer's AHCCCS health plan business.

III.     CAPITATION

Capitation is a fixed (per member) monthly payment to Contractor for the
provision of covered services to members. It is an actuarially sound amount to
cover expected utilization and costs for the individual rate codes in a
risk-sharing managed care environment. In addition, AHCCCSA offers reinsurance
programs to provide Contractor with protection from unusual and unforeseen
costs.

The Offeror must demonstrate that the capitation rates proposed are actuarially
sound. In general terms, this means that the Offeror who is awarded a contract
should be able to keep utilization at

<PAGE>
or below its proposed levels and that it will be able to contract for unit costs
that average at or below the amounts shown on its Capitation Rate Calculation
Sheet The Offeror may require assistance from an actuary to develop some of the
fundamental assumptions for meeting the criteria defined above.

To facilitate the preparation of its capitation proposals, AHCCCSA will provide
each offeror with a Data Supplement Book. This book should not be used as the
sole source of information in making decisions concerning the capitation
proposal. Each offeror is solely responsible for research, preparation, and
documentation of its capitation proposal.

Required Submission:       Capitation

17.      The Offeror must submit its capitation proposal using the AHCCCSA
         computer bid disk. Attachment E to this solicitation contains detailed
         instructions for using the computer bid disk program.

Offeror must prepare and submit its capitation proposal assuming a $20,000
deductible level for regular reinsurance for all rate codes (except $15,000
deductible for MN/MI) in all counties. AHCCCSA will provide a table of PM/PM
reinsurance adjustments to be made to capitation rates for those contractors
whose actual deductible level exceeds $20,000. (See Section D, Paragraph 39,
Reinsurance.)

Graduate Medical Education (GME) - The Offeror must delete this component from
the inpatient tiers in its capitation proposal; information regarding GME will
be included in the Bidder's Library. See also Section D, Paragraph 64, Pending
Legislative Issues.

48-hour Maternity Stay - The Offeror must assume any additional costs in its
capitation proposal for the 48-hour maternity stay described in Section D,
Paragraph 64, Pending Legislative Issues. No subsequent adjustments will be
made.

Administrative costs - The Offeror's rate proposal will be deemed by AHCCCSA to
include the costs of administrative adjustments required during the term of this
contract, including the possibility of requiring all health plans to use a
standardized format for claims processing.

IV.      PROGRAM OPERATIONS

Required Submissions: Programs

(Member Services)

18.      Member Handbook (A continuing offeror does not need to submit this if
         it is in full compliance with CYE 97 Review Standard MS 5.3.)

19.      Description of the Offeror's methods of routine communication with its
         members (Maximum: 3 pages)

20.      Policies and procedures pertaining to member communication

21.      Policies and procedures pertaining to new member enrollment

<PAGE>

22.      Policies and procedures pertaining to PCP assignment (A continuing
         offeror does not have to submit if the 1996 AHCCCS Member Survey had a
         95% "easy" response to the question "When you changed a PCP how hard or
         easy was it?".)

23.      Member complaint process policies and procedures (A continuing offeror
         does not have to submit if in full compliance with CYE 97 Review
         Standard MS 3.2 and 6.0 and received a 95% "Very good" or "Good" on
         overall rating of Member Services on the 1996 AHCCCS Member Survey.)

24.      Policies and procedures pertaining to member surveys and survey tools,
         if any. (A continuing offeror does not have to submit if in full
         compliance with CYE 97 Review Standard MS 4.1.)

(Quality Management/ Utilization Management)

25.      Description of the Offeror's medical claims review process (Maximum: 3
         pages)

26.      Policies and procedures pertaining to concurrent review

27.      Policies and procedures pertaining to prior authorization (A continuing
         offeror does not have to submit if it is in full compliance with CYE 97
         Review Standard MM 1.7.)

28.      Policies and procedures pertaining to utilization management (A
         continuing offeror does not have to submit if it is in full compliance
         with CYE 97 Review Standard MM 1.1, l.2, and 1.6.)

29.      Description of utilization management of emergency services (A
         continuing offeror does not have to submit if in full compliance with
         CYE 97 Review Standard MM 1.5.) (Maximum: 2 pages)

30.      Policies and procedures pertaining to case management (A continuing
         offeror does not have to submit if in full compliance with CYE 97
         Review Standard MM 3.1.)

31.      Policies and procedures pertaining to discharge planning

32.      Policies and procedures pertaining to credentialing and
         re-credentialing, including those for on-call back up physicians for
         PCPs

33.      Policies and procedures pertaining to peer review

34.      Description of member's access to advice in emergent or urgent
         situations (Maximum: 2 pages)

35.      Examples of medical and case management protocols, if any

36.      Description of the Offeror's member health assessment process, if any
         (Maximum: 2 pages)

37.      Policies and procedures pertaining to member transition

(EPSDT)

38.      Policies and procedures pertaining to EPSDT (A continuing offeror does
         not have to submit information about immunizations if it is in full
         compliance with the CYE 97 Review Standard MM 14.0. A continuing
         offeror does not have to submit information about member and provider
         EPSDT participation if it is in full compliance with the CYE 97 Review
         Standards 13.0, 15.1 and 15.2 and received at least a 95% response of
         "Yes" to 1996 AHCCCS Member Survey question #15.)

39.      Description of the Offeror's EPSDT activities such as unique programs,
         incentives or other activities not covered in its EPSDT policies and
         procedures.

40.      Description of the Offeror's quality improvement plan as it relates to
         EPSDT Participation, Immunization and Dental Performance Measures.

<PAGE>

(Maternal Health/ Women's Health)

41.      Policies and procedures pertaining to maternal health (A continuing
         offeror does not have to submit case management policies and procedures
         if in full compliance with the CYE 97 Review Standard MM 3.1.)

42.      Description of the Offerer's maternal health program including
         information that may not be covered in the policy and procedures.
         (Maximum: 3 pages)

43.      Policies and procedures pertaining to family planning services,
         including the SOBRA Family Planning Extension Program (A continuing
         offeror does not have to submit if in full compliance with the CYE 97
         Review Standard MM 11.0)

44.      Description of the Offerer's quality improvement plan as it relates to
         Mammography, Cervical Cancer Screening, and Low Birth Weight
         Performance Measures.

(Behavioral Health Service)

45.      Policies and procedures pertaining to the delivery of behavioral health
         services (A continuing offeror does not have to submit if in full
         compliance with the CYE 97 Review Standards MM 16.0, 17.1, 17.3 and
         19.0.)

V.       ORGANIZATION

Organization refers to the Offeror's ability to perform the administrative tasks
necessary to support the requirements identified throughout this RFP. The
following table identifies the submission requirements for continuing as well as
new offerors:

Required Submissions:  Organization

(Organization and Staffing)

46.      Job descriptions of key personnel

47.      Resumes of key personnel (If a continuing offeror received full
         compliance on AM 1.1 in the CYE 97 Review, resumes will not have to be
         submitted.)

48.      The names of people, along with their positions, who have held key
         positions from January 1, 1995 through December 31, 1996.

49.      Organizational chart down to the supervisor level.

50.      Number of full time employees devoted to AHCCCS by functional area
         (functional area defined as: member services, provider services,
         medical services, grievance and appeals, finance, claims/prior
         authorization, information systems, and quality management).

(Fraud and Abuse)

51.      New employee orientation materials. (If a continuing offeror received
         full-compliance with the CYE 97 Review Standard AM 2.1, new employee
         orientation materials do not have to be submitted.)

52.      Policies and procedures pertaining to fraud and abuse. (If a continuing
         offeror received full-compliance with the CYE 97 Review Standard AM
         2.1, the Fraud and Abuse policies and procedures do not have to be
         submitted.)

53.      Flow chart and written description of the Offeror's fraud and abuse
         process (Maximum: 2 pages)

<PAGE>

(Subcontracts)

54.      Model PCP subcontracts (If a continuing offeror received full
         compliance on FM 6.3 in the CYE 97 review, model PCP subcontracts do
         not have to be submitted.)

55.      Model hospital subcontracts.

56.      All signed hospital subcontracts for Maricopa and Pima counties

57.      All signed rural hospital subcontracts, if any

58.      Automated data processing subcontract, if any

59.      Management services subcontract, if any

60.      Third party administrator subcontract, if any

61.      A listing of all hospitals the Offeror attempted to contact with,
         stating those it negotiated successful contracts with, as well as those
         that were not finalized. The reasons for not finalizing contracts
         should be submitted.

(Encounters)

62.      Policies and procedures pertaining to encounter submission

63.      A description of how encounter adjustments are handled, including
         cutback days (Maximum: 3 pages)

64.      A description of the Offeror's process for ensuring ongoing timely and
         complete encounter submission in the event of a major computer system
         conversion (Maximum: 2 pages)

65.      A description of the Offeror's procedure for reconciling the claims
         system with the encounter system (Maximum: 3 pages)

66.      A description of the Offeror's provider education program as it relates
         to claims and encounter submissions. (Maximum: 2 pages)

67.      A description of how the Offeror resolves pended encounters within 100
         days (Maximum: 3 pages) (A continuing offeror does not have to submit
         if in full compliance with CYE 97 Review Standard FM 3.0)

(Claims and Third Party Liability)

68.      Policies and procedures pertaining to claims processing (A continuing
         offeror does not have to submit if it is in full-compliance with CYE 97
         Review Standard FM 2.1)

69.      One-page summary on how the Offeror handles provider claims inquiries

70.      Flow chart and written description of the Offeror's claims process.
         (Maximum: 3 pages) (A continuing offeror does not have to submit if it
         is in full-compliance with CYE 97 Review Standard FM 2.1)

71.      One-page description of the Offeror's claims processing capacity

72.      October, November, December 1996 month end claims aging (A continuing
         offeror does not have to submit if it is in full-compliance with CYE 97
         Review Standard FM 2.2)

73.      Remittance advices from 5 different providers to include a hospital.
         specialist and PCP for December 1996 (A continuing offeror does not
         have to submit if it is in full-compliance with CYE 97 Review Standard
         FM 2.3)

74.      Policies and procedures pertaining to TPL/COB (A continuing offeror
         does not have to submit if it is in full-compliance with CYE 97 Review
         Standard FM 1.0)

<PAGE>

(Financial Standards)

75.      Last four unaudited internally prepared quarterly financial statements
         with preparation date indicated (A continuing offeror does not have to
         submit)

76.      Verification of any contributions made to the Offeror to improve its
         financial position after its audit (copies of bank statements and
         deposit slips, if applicable)

77.      A description of the Offeror's corporate cost allocation plan, if
         applicable (Maximum: 1 page) (A continuing offeror does not have to
         submit if it is in full-compliance with CYE 97 Review Standard FM 6.4)

78.      Financial forecasts for the first three years of the contract starting
         with September 30, 1998. Include all assumptions used for the
         forecasts. Financial forecasts shall include a balance sheet and a
         statement of revenues, expenses and changes in equity in ax least the
         level of detail specified for annual audited financial statements as
         outlined in the Reporting Guide for Acute Care Contractors with the
         Arizona Health Care Cost Containment System.

79.      Two most recent audited financial statements (A continuing offeror does
         not have to submit)

80.      Enrollment as of the two most recent audited financial statements, and
         also the average enrollment for the year based on the 12-month period
         of the offeror's last audit. (A continuing offeror does not have to
         submit)

(Liability Management)

81.      Policies and procedures pertaining to incurred but not reported claims
         (IBNR)

82.      Policies and procedures pertaining to reported but unpaid claims (RBUC)

83.      Sample of an IBNR calculation using 12-31-95 quarterly financial
         statement including all assumptions

84.      Sample of an RBUC calculation using 12-31-95 quarterly financial
         statement including all assumptions

(Grievance and Appeals)

85.      Policies and procedures pertaining to member grievances and provider
         grievances. (A continuing offeror does not have to submit policies and
         procedures for grievances if it is in full compliance with CYE 97
         Review Standard GA 2.3 and GA 2.4.)

86.      Policies and procedures pertaining to member appeals and provider
         appeals. (A continuing offeror does not have to submit policies and
         procedures for appeals if it is in full compliance with CYE 97 Review
         Standard GA 2.3 and GA 2.4.)

87.      Provider grievance and member grievance (complaint) information logs
         from 10/1/95 through 9/30/96. (A continuing offeror does not have to
         submit grievance information logs if it is in full compliance with CYE
         97 Review Standard GA 5.1)

88.      Flowchart and written description of the Offeror's grievance process
         (Maximum: 3 pages)

89.      Flowchart and written description of the Offeror's appeals process
         (Maximum: 3 pages)

90.      A summary of the number of provider grievances and the number of member
         grievances (complaints) from 10-1-95 through 9-30-96. (A continuing
         offeror does not have to submit a grievance summary.)

91.      New offerors must submit the name, address and phone number of the
         offeror's oversight agency.

<PAGE>

2.       PROSPECTIVE OFFERORS' INQUIRIES

Any questions related to this solicitation must be directed to Mark Renshaw,
AHCCCSA Contracts and Purchasing. Offerors shall not contact or ask questions of
other AHCCCSA staff unless authorized by the Contracting Officer. Questions
shall be submitted on disk, saved as a text file (.txt), along with a hard copy
printout, prior to the Prospective Offerors Conference (submit by 4:45 p.m. on
Feb. 26. 1997) or at the Prospective Offerors Conference. Offerors are
encouraged to submit inquiries using Word 6.0 if possible. Questions submitted
by the deadline above may be addressed at the Prospective Offerors Conference.
The envelope must be marked "RFP Questions- Acute Care". Questions that cannot
be answered at the Prospective Offerors' Conference will be answered within a
reasonable period of time by letter. Any correspondence pertaining to this RFP
must refer to the appropriate page, section and paragraph numbers.

3.       ON SITE REVIEW

All new offerors will receive a standardized on site review that has been
specifically developed to determine that an infrastructure is in place that will
support the provision of services to the AHCCCS population. See Attachment J for
areas to be reviewed. A prospective offeror who does not believe it will meet
the requirements evaluated in the review tool in Attachment J should not submit
a proposal or may contact Mark Renshaw, Contracts and Purchasing, for further
clarification.

4.       PROSPECTIVE OFFERORS' CONFERENCES

A New Offerors' Conference will be held on March 4, 1997 from 9 a..m. until
noon, at the 701 E. Jefferson, 3rd Floor Conference Room. The purpose of this
conference will be to orient new offerors to AHCCCS. Continuing offerors are
welcome to attend but the agenda will assume no prior familiarity with the
AHCCCS program. Then from 1 p.m. to 5 p.m. there will be a Prospective Offerors'
conference for all new and continuing offerors. The purpose of this second
conference is to clarify the contents of this solicitation and to avoid any
misunderstandings regarding AHCCCSA requirements. Any doubt as to the contents
and requirements of this solicitation or any apparent omission or discrepancy
should be presented at this conference. AHCCCSA will then determine the action
necessary and issue a written amendment to the solicitation, if appropriate.

5.       LATE PROPOSALS

Late proposals will not be considered.

6.       WITHDRAWAL OF PROPOSAL

At any time prior to the proposal due date and time, the Offeror (or designated
representative) may withdraw its proposal. Telegraphic or mailgram withdrawals
will not be considered.

<PAGE>

7.       AMENDMENTS TO RFP

Amendments may be issued subsequent to the issue date of this solicitation.
Receipt of solicitation amendments must be acknowledged by signing and returning
the signature page of the amendment to AHCCCSA.

8.       BEST AND FINAL OFFERS

AHCCCSA reserves the right to accept any or all initial offers without further
negotiation and may choose not to request a best and final offer (BFO). Offerors
are therefore advised to submit their most competitive offers at the outset. If
it is considered in the best interest of the State, however, AHCCCSA may issue a
written request to all offerors for a best and final offer in a particular
geographic service area or areas. The purpose of a BFO request is to allow
offerors an opportunity to resubmit bids for rate codes not previously accepted
by AHCCCSA. This request will notify them of the date, time and place for the
submission of their offers. In addition. AHCCCSA will disclose to each offeror
which of its bid rates are acceptable (within or below actuarial rate range) and
which are not acceptable (above the actuarial rate range). All offerors whose
final bid rates fall below the bottom of the actuarial rate range will have
their rates increased to the bottom of that rate range after the final BFO. If
an offeror does not submit a notice of withdrawal or a best and final offer, its
immediate previous offer will be considered its best and final offer.

All BFOs must be submitted on the computer disk provided by AHCCCSA. AHCCCSA
will limit the number of BFO rounds if it is in the best interest of the State.
Offerors will be permitted within the restrictions and limitations defined
below, to adjust upward a capitation rate for a rate code that was previously
accepted to offset the reduction of a capitation rate in another rate code in
the first BFO round only. These restrictions and limitations include, but are
not limited to:

a.       An offeror will be allowed to adjust upward a previously accepted rate
         code bid only during the first BFO round;

b.       The weighted amount of BFO increase cannot exceed the weighted amount
         of BFO reduction. AHCCCSA will furnish the Offeror the enrollment
         percentages, by rate code, by GSA, to be used in determining the
         weighted amount. Should the weighted amount of the adjustment exceed
         the weighted amount of the BFO reduction, AHCCCSA shall reject the
         first BFO and the adjustment (costing the Offeror the loss of the first
         BFO round in that GSA). Since a rate code can only be adjusted during
         the first BFO round, the Offeror will lose the opportunity to make an
         upward capitation adjustment to previously accepted rate code bids in
         that GSA.

         For example, assume that MN/MI was the rate code where a BFO was needed
         and the offeror reduced this rate by $10. PMPM. Also assume the MN/MI
         rate code accounted for 9% of the members in the GSA.

         Weighted Average Capitation Reduction - 9% X $10.00 =$.90.

<PAGE>

         Assume the rate code adjusted upward was TANF and this rate code was
         increased by $2.00 PMPM. Also assume this rate code accounted for 50%
         of the members in the GSA.

         Weighted Average Capitation Increase - 50% X $2.00 = $1.00

         Therefore, the BFO would be rejected because the weighted amount of the
         BFO adjustment exceeded the weighted amount of the BFO reduction.

c.       If an adjustment during the initial BFO round causes the Offeror to
         exceed the upper range of any rate code, AHCCCSA will reject the
         adjustment and return the (adjusted) rate code to the initial
         capitation rate bid by the Offeror. Since a previously accepted rate
         code bid can only be adjusted during the first BFO round, the Offeror
         will lose the opportunity to make an upward capitation adjustment for
         this rate code.

d.       AHCCCSA reserves the sole right to accept or reject any adjustment. The
         Offeror by submitting an adjustment to a rate code is requesting
         approval by AHCCCSA; such approval shall not be automatic. If an
         initial bid is below the bottom of a rate range, it cannot be adjusted
         downward by the Offeror in a BFO round.

Capitation Rates Offered after the BFOs: As stated above, AHCCCSA may limit the
number of BFO rounds. After the final BFO round is complete, provided it is in
the best interest of the state, AHCCCSA will cease issuing BFO requests. At this
point, should the Offeror have a rate code(s) without an accepted capitation
rate, AHCCCSA shall offer a capitation rate to the Offeror. The capitation rate
offered shall be somewhere in the bottom half of the rate range (specific
placement to be determined by AHCCCSA and its actuaries). Note that all rates
offered in this manner shall be identical for all offerors in the same GSA and
rate code.

9.       AWARD OF CONTRACT

AHCCCSA has determined that the provision of covered services to eligible
populations in the Geographic Service Areas as described below will stabilize
risk sharing. The Offeror must therefore bid on at least one entire GSA in order
to be considered for a contract award. If deemed in the best interest of the
State, AHCCCSA may limit the number of GSA's awarded to any one offeror.

Notwithstanding any other provision of this solicitation, AHCCCSA expressly
reserves the right to:

a.       Waive any immaterial mistake or informality;

b.       Reject any or all proposals or portions thereof; and/or

c.       Reissue a Request for Proposals

If two plans or their parents merge after obtaining contract awards, AHCCCS
retains the right to address each merger issue on an individual basis according
to what is deemed in the best interest of the State. AHCCCS is aware that APIPA
and Mercy Care may merge, therefore, we have

<PAGE>

notified these plans that we require certification from both plans that those
who work on the APIPA bid and those that work on Mercy Care bid, have not
received, heard or discussed any non-public information about or with the other
in preparing their respective bids. Pending this certification from APIPA and
Mercy Care we shall consider their respective bid proposals.

Effective retroactively to October 1, 1994, Mercy Care Plan is considered to be
an incumbent health plan in Santa Cruz County and APIPA is considered to be an
incumbent health plan in Cochise County.

If there are significant compliance issues with a current plan or a plan's
contract in a particular county has been previously terminated, AHCCCS retains
the right to address each compliance or termination issue on an individual basis
according to what is deemed in the best interest of the State. A new bid
proposal may not be accepted until it has been determined that the reason for
the significant compliance or termination issue has been resolved and there is a
reasonable assurance that it will not recur. Further, points may be deducted
from an offeror's score as described in Section 1 of this contract.

A response to this Request for Proposals is an offer to contract with AHCCCSA
based upon the terms, conditions, scope of work and specifications of the RFP.
Proposals do not become contracts unless and until they are accepted by the
Contracting Officer. A contract is formed when the AHCCCSA Contracting Officer
signs the award page and provides written notice of the award(s) to the
successful offeror(s). For that reason, all of the terms and conditions of the
contract are contained in this solicitation, solicitation amendments and
subsequent contract amendments, if any, signed by the Contracting Officer.
AHCCCSA may also, at its sole option, modify any requirements described herein.
All offerors will be promptly notified of award.

AHCCCSA reserves the right to specify and/or modify the number of contracts to
be awarded in any GSA. AHCCCSA anticipates awarding contracts as follows:

<TABLE>
<CAPTION>
GSA #:           County or Counties               Number of Contracts
------           ------------------               -------------------
<S>              <C>                              <C>

1.               Yuma                             Maximum of 2

2.               Mohave, LaPaz                    Maximum of 2

3.               Yavapai, Coconino                Maximum of 2

4.               Pinal, Gila                      Maximum of 2

5.               Pima                             Maximum of 4

6.               Maricopa                         Maximum of 6

7.               Graham, Greenlee                 Maximum of 2

8.               Apache, Navajo                   Maximum of 2

9.               Cochise, Santa Cruz              Maximum of 2
</TABLE>

An existing contractor in Maricopa or Pima county who is not awarded a new
contract may request to have its enrollment capped and to continue providing
services under the terms and conditions of this new RFP. AHCCCSA may, at its
sole option, want or deny such a request. If AHCCCSA approves such an enrollment
cap, the contractor would continue to serve its existing members but receive no
new ones. The enrollment cap will not be lifted during the term of this or any
subsequent contract period unless one of the following conditions exist:

<PAGE>

a.       Another health plan is terminated and increased member capacity is
         needed, or

b.       Legislative action creates a sudden and substantial increase in the
         overall AHCCCS population, or

c.       Extraordinary and unforeseen circumstances make such an action
         necessary and in the best interest of the State.

In the event two or more competing proposals are received, and one of the
proposals is from an incumbent health plan, AHCCCSA may, at its sole option and
in the interest of continuity of care, waive negligible differences in overall
evaluation scores and award the contract to the incumbent health plan.

Finally, in the event of significant non-compliance issues with a contractor in
a particular GSA, AHCCCSA may refer back to the results of the evaluation of
this solicitation and select another contractor for a particular GSA that is
considered to be in the best interest of the State.

10.      RFP MILESTONE DATES

The following is the schedule of events regarding the solicitation process:

<TABLE>
<CAPTION>
               Activity                                 Date(s)
               --------                                 -------

<S>                                                <C>
PMMIS Technical Interface Meeting                  February 21, 1997

Technical Assistance Questions Due                 February 26, 1997

Prospective Offerors Conference and                March 4, 1997
Technical Assistance Session

RFP Amendment Issued, if necessary                 March 19, 1997

Proposals Due                                      May 12, 1997 (3 p.m.)

Contracts Awarded on or about                      June 12, 1997
</TABLE>

11.      AHCCCSA BIDDER'S LIBRARY

The Bidders Library contains critical reference material on AHCCCS policies and
performance requirements. References are made throughout this solicitation to
material in the Bidder's Library and offerors are responsible for the contents
of such referenced material as if they were printed in full herein. All such
material is incorporated into the contract by reference. The Bidder's Library is
located at 701 E. Jefferson, Phoenix, AZ. Please contact Mark Renshaw at (602)
417-4577 for further information and appointment times.

<PAGE>

               SECTION I: EVALUATION FACTORS AND SELECTION PROCESS

AHCCCSA has established a scoring methodology which is designed to evaluate
fairly an offeror's ability to provide cost-effective, high-quality contract
services in a managed care setting. The following factors will be evaluated:

         1.       Provider Network

         2.       Capitation

         3.       Program

         4.       Organization

         5.       On-site review (for new Offerors only)

It is anticipated that capitation and the network development portion of
provider network will be scored by Geographic Service Area. The remaining
provider network management, organization and program are anticipated to be
scored statewide, not specific to any geographic service area. The scores
received for each of the four components will be weighted separately and
combined to derive a final score for the Offeror, by Geographic Service Area.
Contracts will be awarded to qualified offerors whose proposals are deemed to be
most advantageous to the State in accordance with Section H, Paragraph 9, Award
of Contract.

AHCCCSA will consider the past performance and experience of continuing offerors
as a factor in evaluating their proposals. In certain instances, as described in
Section H, a continuing offeror may be excused from certain submission
requirements. In these instances, a continuing offeror will receive "full
points" for a particular area if AHCCCSA has determined through experience that
the Offeror meets requirements in a particular area. Conversely, AHCCCSA may
deduct points based upon past performance and experience that is not, or was
not, in compliance with AHCCCSA requirements. In the event two or more competing
proposals are received for a particular GSA, and one of the proposals is from an
incumbent health plan, AHCCCSA may, at its sole option and in the interest of
continuity of care, waive negligible differences in overall evaluation scores
and award the contract to the incumbent health plan.

AHCCCSA reserves the right to waive immaterial defects or omissions in this
solicitation or submitted proposals. The Offeror should note that, if
successful, it must meet all AHCCCS requirements, irrespective of what is
requested and evaluated through this solicitation

--------------------------------------------------------------------------------

All of the components listed below will be evaluated against relevant statutes,
AHCCCSA rules, regulations and policies and the requirements contained in this
RFP. The Offeror's Checklist (Attachment L) contains RFP references for each of
these items:

1.       PROVIDER NETWORK

The provider network will be evaluated and scored with reference to the
Offeror's network development and network management. Network development is
defined as the process of developing contractual arrangements with a sufficient
number of providers capable of delivering all covered services to AHCCCS members
in accordance with AHCCCSA standards (e.g.,

<PAGE>

appointment times). AHCCCSA will use the Health Plan Provider Affiliation Tape
Submission and/or completed letters of intent with other required materials to
evaluate and score network development. The Offeror's network will be evaluated
by service and by site in each GSA bid by the Offeror. The Offeror should note
that Attachment B of this solicitation identifies minimum-geographic standards
for a provider network.

Network management is defined as the process by which the Offeror certifies,
monitors, evaluates and communicates with its network. AHCCCSA anticipates
evaluating and scoring the Offeror's submitted materials relative to the
following areas:

a.       Monitoring and control of network

b.       Network communications

c.       Network capacity issues and analysis

d.       Medical Director oversight

2.       CAPITATION

The Offeror shall submit initial capitation bids by rate code grouping within a
geographic service area. These initial bids will be evaluated and scored. The
lowest bid within each geographic service area and rate code grouping will
receive the maximum allowable points. If a bid is below the actuarial rate range
the bid will be evaluated as if it were at the bottom of the actuarial rate
range. No additional points will be given for bids below the actuarial rate
range. Conversely, the highest bid (within or above the actuarial rate range)
will receive the least number of points.

If AHCCCSA requests best and final offers, these will be scored using the same
methodology as was used to score the initial bids. The initial and final bids
will receive equal weighting for scoring. Offerors should note that AHCCCSA may
not offer the opportunity to submit best and final offers.

3.       PROGRAM

AHCCCSA will evaluate the Offeror's responsiveness to the requirements of this
solicitation and AHCCCSA policies. In particular, it is anticipated that the
Offeror's proposal regarding the following will be evaluated:

a.       Quality Management/Utilization Management

b.       Early Periodic Screening, Diagnosis and Treatment (EPSDT)

c.       Maternal/Women's Health

d.       Member Services

e.       Behavioral Health

<PAGE>

4.       ORGANIZATION

Organization refers to the Offeror's prospective ability to perform the
administrative tasks necessary to support the requirements identified in this
solicitation. It is anticipated that the following areas will be evaluated:

a.       Key personnel

b.       Claims payment, including third party collections

c.       Financial standards, including performance bond

d.       Liability management (Incurred But Not Reported claims and Received But
         Unpaid Claims)

e.       Encounter submission

f.       Grievance and appeals

g.       Fraud and abuse

h.       Model subcontracts

5.       NEW OFFEROR REVIEWS

AHCCCSA will conduct New Offeror Reviews prior to award of contracts. These
reviews will be approximately 6 hours in length and will be conducted on-site at
the Offeror's place of business. These reviews are anticipated to take place
between May 15, 1997 and June 6, 1997 and will be scored on a pass/fail basis. A
new offeror must meet substantially all of the requirements noted in the New
Offeror Review Guide (see Attachment J) in order to be further considered for
contract award. The areas anticipated to be reviewed during the on-site review
are as follows:

a.       Interviews and review of qualifications of key management staff

b.       Claims processing, including a review of remittance advices

c.       Review of management information system

d.       Review of quality management activities

e.       Review of accounting system, including calculations of IBNRs and RBUCs

f.       Tour of offices and facilities

New offerors should ensure that key personnel are available during the on-site
review. There will be no follow-up visits. New offerors must have the required
infrastructure in place in order for AHCCCS to conduct its review and be
eligible for further consideration for contract award.

                               [END OF SECTION I]

<PAGE>

ATTACHMENT A:  MINIMUM SUBCONTRACT PROVISIONS

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

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

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

2.       RECORDS AND REPORTS

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

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

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

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

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

The Subcontractor shall provide all reports requested by AHCCCSA, and all
information from records relating to the performance of the Subcontractor which
AHCCCSA may reasonably

<PAGE>

require. The Subcontractor reporting requirements may include, but are not
limited to, timely and detailed utilization statistics, information and reports.

The Subcontractor shall certify to the Contractor that it has not engaged in
conduct prohibited by ss.1128B of the Social Security Act (42 USC 1320a-7b).

3.       LIMITATIONS ON BILLING AND COLLECTION PRACTICES

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

4.       ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES

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

5.       APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS

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

6.       WARRANTY OF SERVICES

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

7.       SUBJECTION OF SUBCONTRACT

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

8.       AWARDS OF OTHER SUBCONTRACTS

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

<PAGE>

9.       INDEMNIFICATION BY SUBCONTRACTOR

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

10.      MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES

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

11.      COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS

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

12.      SEVERABILITY

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

13.      VOIDABILITY OF SUBCONTRACT

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

14.      CONFIDENTIALITY REQUIREMENT

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

<PAGE>

15.      GRIEVANCE PROCEDURES

Any grievances filed by the Subcontractor shall be adjudicated in accordance
with AHCCCS Rules.

16.      TERMINATION OF SUBCONTRACT

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

17.      PRIOR AUTHORIZATION AND UTILIZATION REVIEW

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

18.      NON-DISCRIMINATION REQUIREMENTS

If applicable, the Subcontractor shall comply with:

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

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

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

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

<PAGE>

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

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

g.       State Executive Order 75-5 and Federal Order 11246 which mandates that
         all persons, regardless of race, color, religion, sex, age, national
         origin or political affiliation, shall have equal access to employment
         opportunities.

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

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

19.      COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION

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

20.      CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION

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

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

By signing this subcontract, the Subcontractor certifies that it has not engaged
in any violation of the Medicare Anti-Kickback statute (42 USC ss.1320a-7b) or
the "Stark I" and "Stark II" laws governing related-entity referrals (PL 101-239
and PL 101-432) and compensation therefrom. If the Subcontractor provides
laboratory testing, it certifies that it has complied with 42 CFR ss.41 1.361
and has sent to AHCCCSA simultaneous copies of the information required by that
rule to be sent to the Health Care Financing Administration.

22.      CONFLICT IN INTERPRETATION OF PROVISIONS

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

<PAGE>

23.      ENCOUNTER DATA REQUIREMENT

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

24.      CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988

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

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

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

25.      INSURANCE

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

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

26.      FRAUD AND ABUSE

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

<PAGE>

ATTACHMENT B:     MINIMUM NETWORK STANDARDS

                          (By Geographic Service Area)

INSTRUCTIONS

Note: Offerors are permitted to bid only by Geographic Service Area. Please see
Section H, Paragraph 9, Award of Contracts, for further information on bidding
by Geographic Services Area.

Offerors shall have in place an adequate network of providers capable of meeting
contract requirements. The information that follows describes the minimum
network requirements by Geographic Service Area (GSA). The minimum bid is a
single entire GSA, as depicted on the following page.

In some GSA's there are required service sites located outside of the
geographical boundary of a GSA. The reason for this relates to practical access
to care. In certain instances, a member must travel a much greater distance to
receive services within their assigned GSA if the member were not allowed to
receive services in an adjoining GSA or state.

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

<TABLE>
<CAPTION>
       ZIP CODE     SPLIT BETWEEN           COUNTY ASSIGNED       ASSIGNED GSA
                    THESE COUNTIES               TO
       ------------------------------------------------------------------------
       <S>          <C>                     <C>                   <C>

         85220      Pinal and Maricopa        Maricopa                  6
         85242      Pinal and Maricopa        Maricopa                  6
         85292      Gila and Pinal            Gila                      4
         85342      Yavapai and Maricopa      Maricopa                  6
         85358      Yavapai and Maricopa      Maricopa                  6
         85390      Yavapai and Maricopa      Maricopa                  6
         85643      Graham and Cochise        Cochise                   9
         85645      Pima and Santa Cruz       Santa Cruz                9
         85943      Apache and Navajo         Navajo                    8
         86336      Coconino and Yavapai      Yavapai                   3
         86351      Coconino and Yavapai      Coconino                  3
         86434      Mohave and Yavapai        Yavapai                   3
</TABLE>
<PAGE>

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

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

Offerors bidding in GSA's other than GSA 5 and GSA 6 are encouraged to contract
with the hospitals in their provider network. However, AHCCCSA will not award
additional points in the evaluation process for hospital contracts in rural
areas. At a minimum, the Offeror shall have a physician with admitting and
treatment privileges with each hospital in its network. Offerors bidding in GSA
5 and/or GSA 6 must have at least one hospital contract in each service district
as depicted on the respective maps for GSA 5 and GSA 6. This requirement is part
of the Hospital Reimbursement Pilot Program. described more fully in Section D,
Paragraph 35, Hospital Reimbursement. For offerors' convenience, a list of
Phoenix and Tucson area hospitals are included on the reverse of the Phoenix and
Tucson maps which follow.

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

         H        Hospitals

         P        Primary Care Providers (physicians, certified nurse
                  practitioners and physician assistants)

         D        Dentists

         Ph       Pharmacies

<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 1

COUNTY: YUMA

Hospitals
         Yuma

Primary Care Providers
         Yuma
         Somerton
         Welton

Dentists
         Yuma

Pharmacies
         Yuma
         Welton

[MAP OF YUMA]
<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 2

COUNTIES: LA PAZ AND MOHAVE

Hospitals
         Bullhead City
         Kingman
         Lake Havasu City
         Parker
         St. George, Utah

Primary Care Providers
         Blythe
         Bullhead City
         Kanab, Utah
         Kingman
         Lake Havasu City
         Parker
         St. George, Utah

Dentists
         Blythe
         Bullhead City
         Kanab, Utah
         Kingman
         Lake Havasu City
         Parker
         St. George, Utah

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

[MAP OF LA PAZ AND MOHAVE COUNTIES]

<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 3

COUNTY: COCONINO AND YAVAPAI

Hospitals
         Cottonwood
         Flagstaff
         Kanab, Utah
         Kingman
         Page
         Payson
         Phoenix/Wickenburg
         Prescott
         Winslow

Primary Care Providers
         Camp Verde
         Cottonwood
         Flagstaff
         Kanab, Utah
         Kingman
         Page
         Payston
         Phoenix/Wickenburg
         Prescott
         Prescott Valley
         Sedona
         Williams
         Winslow

Dentists
         Camp Verde
         Cottonwood
         Flagstaff
         Kanab, Utah
         Kingman
         Page
         Payson
         Phoenix/Wickenburg
         Prescott
         Prescott Valley
         Sedona
         Williams
         Winslow
<PAGE>

Pharmacies
     Camp Verde
     Cottonwood
     Flagstaff
     Kanab, Utah
     Kingman
     Page
     Payston
     Phoenix/Wickenburg
     Prescott
     Prescott Valley
     Sedona
     Williams
     Winslow

[MAP OF COCONINO AND YAVAPAI COUNTIES]

<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 4

COUNTIES: GILA AND PINAL

Hospitals
     Casa Grande
     Claypool
     Mesa
     Payson

Primary Care Providers
     Apache Junction
     Casa Grande
     Coolidge/Florence
     Eloy
     Globe/Miami/Claypool
     Kearney
     Mammonth/San Manuel/Oracle
     Mesa
     Payson

Dentists
     Apache Junction
     Casa Grande
     Coolidge/Florence
     Eloy
     Globe/Miami/Claypool
     Hayden/Winkelman
     Kearney
     Mammonth/San Manuel/Oracle
     Mesa
     Payson

Pharmacies
     Apache Junction
     Casa Grande
     Coolidge/Florence
     Globe/Miami/Claypool
     Hayden/Winkelman
     Kearney
     Mammonth/San Manuel/Oracle
     Mesa
     Payson

[MAP OF GILA AND PINAL COUNTIES]

<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 5

COUNTIES: PIMA

Hospitals
         Tucson
                  Northwest Service Sector - Contract Requirement
                  Southwest Service Sector - Contract Requirement
         Nogales
                  Physician(s) with admit and treatment - privileges required

Primary Care Providers
         Ajo
         Catalina
         Green Valley/Continental
         Marana
         Nogales
         Oro Valley
         Tucson++

Dentists
         Ajo
         Catalina
         Green Valley/Continental
         Marana
         Nogales
         Oro Valley
         Tucson++

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

[MAP OF PIMA COUNTY]

++       Within Tucson, distance standards must be met as specified in
         Attachment B.

<PAGE>

[MAP OF METROPOLITAN TUCSON - ARTERIAL STREETS]

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

NORTHWEST DISTRICT

85719     Tucson General Hospital
          University Medical Center
85741     Columbia Northwest Hospital
85745     Carondelet St. Mary's Hospital

SOUTHEAST DISTRICT

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

<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 6

COUNTIES: MARICOPA

Hospitals
     Metropolitan Phoenix++
          Northwest Service Sector - Contract Required
          Central Service Sector - Contract Required
          Southeast Service Sector - Contract Required
     Wickenburg
          Physician(s) with admit and treatment - privileges required

Primary Care Providers
     Avondale/Goodyear/Litchfield Park/Tolleson
     Buckeye
     Gila Bend
     Metropolitan Phoenix++
     Queen Creek
     Wickenburg

Dentists
     Avondale/Buckeye/Goodyear/Litchfield Park/Tolleson
     Metropolitan Phoenix++
     Wickenburg

Pharmacies
     Avondale/Goodyear/Litchfield Park/Tolleson
     Buckeye
     Metropolitan Phoenix++
     Wickenburg

[MAP OF MARICOPA COUNTY]

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

<PAGE>
[MAP OF METROPOLITAN PHOENIX - ARTERIAL STREETS]

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

CENTRAL DISTRICT

85006     Good Samaritan Regional Medical Center
          Phoenix Children's Hospital
          St. Luke's Medical Center
85007     Phoenix Memorial Hospital
85008     Maricopa Medical Hospital
85013     St. Joseph's Hospital & Medical Center
85015     Community Hospital Medical Center
          Phoenix Baptist Hospital & Medical Center
85016     Columbia Medical Center Phoenix
85020     John C. Lincoln Hospital & Health Center
85027     Phoenix General Hospital & Medical Center

NORTHWEST DISTRICT

85031     Maryvale Samaritan Medical Center
85031     Columbia Paradise Valley Hospital
85306     Thunderbird Samaritan Medical Center
85308     Arrowhead Community Hospital & Medical Center
85351     Walter O. Boswell Memorial Hospital
85375     Del E. Webb Memorial Hospital

SOUTHWEST DISTRICT

85201     Mesa General Hospital Medical Center
          Mesa Lutheran Hospital
85202     Desert Samaritan Medical Center
85206     Valley Lutheran Hospital
85224     Chandler Regional Hospital
85251     Scottsdale Memorial Hospital - Osborn
85261     Scottsdale Memorial Hospital - North
85281     Tempe St. Luke's Hospital
<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 7

COUNTY: GRAHAM AND GREENLEE

Hospitals
         Safford

Primary Care Providers
         Morenci/Clifton
         Safford

Dentists
         Morenci/Clifton
         Safford

Pharmacies
         Morenci/Clifton
         Safford

{MAP OF GRAHAM AND GREENLEE COUNTIES]
<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 8

COUNTY: APACHE AND NAVAJO

Hospitals
         Gallup, NM
         Showlow
         Springerville
         Winslow

Primary Care Providers
         Gallup, NM
         Holbrook
         Showlow/Pinetop/Lakeside
         Snowflake/Taylor
         Springerville/Eager
         St. Johns
         Winslow

Dentists
         Gallup, NM
         Holbrook
         Showlow/Pinetop/Lakeside
         Snowflake/Taylor
         Springerville/Eager
         St. Johns
         Winslow

Pharmacies
         Gallup, NM
         Holbrook
         Showlow/Pinetop/Lakeside
         Snowflake/Taylor
         Springerville/Eager
         St. Johns
         Winslow

[MAP OF APACHE AND NAVAJO COUNTIES]
<PAGE>
                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 9

COUNTY: COCHISE AND SANTA CRUZ

Hospitals
     Benson
     Bisbee
     Douglas
     Nogales
     Sierra Vista
     Tucson
     Wilcox

Primary Care Providers
     Benson
     Bisbee
     Douglas
     Nogales
     Sierra Vista
     Tucson
     Wilcox

Dentists
     Benson/Wilcox
     Bisbee
     Douglas
     Nogales
     Sierra Vista
     Tucson

Pharmacies
     Benson
     Bisbee
     Douglas
     Nogales
     Sierra Vista
     Tucson
     Wilcox

[MAP OF COCHISE AND SANTA CRUZ COUNTIES]

<PAGE>
ATTACHMENT C: MANAGEMENT SERVICES SUBCONTRACTOR STATEMENT

INSTRUCTIONS: A Management Services Subcontractor is defined as a marketing
organization or any other organization or person agreeing to perform any
administrative function or service for the Contractor specifically related to
securing or fulfilling the Contractor's obligations to AHCCCSA. This includes,
but is not limited to, third-party administrators, firms or persons who manage
operations of the Contractor such as marketing, automatic data processing,
claims processing, quality management, utilization management, prior
authorization and other management functions.

All Management Services Subcontractors are required to have an annual financial
audit. A copy of this audit must be filed with AHCCCSA within 120 days of the
Subcontractor's fiscal year end. Failure to file a copy may result in withdrawal
of AHCCCSA approval.

Attach to this proposal a signed copy of the Management Subcontract for Contract
Year 97 (10/1/96 -9/30/97) in addition to all information requested below. If
the existing subcontract is for multiple terms, attach the original management
subcontract and all amendments. When making attachments to this section, please
refer to the question number and the item heading.

                                     ******

                   MANAGEMENT SERVICES SUBCONTRACTOR STATEMENT

NAME OF BUSINESS_______________________________________________________________

ADDRESS___________________________  CITY_________________ STATE____ ZIP_________

PHONE NO. ________________________

1.   TYPE OF BUSINESS (check appropriate box)

[ ] Individual             [ ] Partnership        [ ] Corporation
[ ] Joint Venture          [ ] Government         [ ] Other (Describe) ________

If a corporation, indicate type:____________________________________

2. INCORPORATED IN THE STATE OF:_______________________

If incorporated in a state other than Arizona, do you have a certificate to do
business in the State of Arizona? Yes____ No____. If yes, type of certificate
and with what agency or administration is it filed: _________________________

3.  WHO IS YOUR STATUTORY AGENT FOR THE STATE OF ARIZONA:

    Name________________________________________   Phone______________________

    Address____________________________ State:___________ Zip:________________
<PAGE>

4.   PARENT COMPANY AND EMPLOYER IDENTIFICATION NUMBER

     For the purpose of this RFP, a parent company is defined as one which
     either owns or controls the activities and basic business policies of the
     Management Services Subcontractor. To own another company means the parent
     company must own at least a majority (more than 50%) of the voting rights
     in the company. To control another company, such ownership is not required;
     if such company is able to formulate, determine, or veto business policy
     decisions of the Management Services Subcontractor, such other company is
     considered the parent company of the Management Services Subcontractor.

     Is the Management Services Subcontractor owned or controlled by a parent
     company as described above? Yes_____ No_____. If yes, insert in the space
     below the name and main office address of the parent company.

     Name______________________________________________________________________

     Address______________________________________ State ________ Zip__________

5.   ORGANIZATION CHART

     Attach a copy of your staff functional organizational chart, setting forth
     lines of authority, responsibility and communication which will pertain to
     this proposal.

6.       IF OTHER THAN A GOVERNMENT AGENCY, WHEN WAS YOUR ORGANIZATION FORMED?
         ____________________________

     If your organization is a corporation, attach a list of the names and
addresses of the Board of Directors.

7.   LICENSE/CERTIFICATION

     Attach a list of all licenses and certifications your organization is
required to maintain. Use a separate sheet of paper using the following format:

         SERVICE COMPONENT          LICENSE/REQUIREMENT         RENEWAL DATE
         -----------------          -------------------         ------------

     If any licenses have been denied, revoked or suspended within the past 10
years, please explain.

8.   ADMINISTRATIVE AGENTS

     Is your agency acting as the administrative agent for any other agency
     organization? Yes___ No___ If yes, describe the relationship in both legal
     and functional aspects.

9.   CIVIL RIGHTS COMPLIANCE DATA

     Has any federal or state agency ever made a finding of noncompliance with
     any relevant civil rights requirement with respect to your company? Yes____
     No____. If yes, please explain.

                                      C-2
<PAGE>

10.  PRIOR CONVICTIONS

     Are there any felony convictions of any key personnel (i.e., Chief
     Executive Officer, Plan Managers, Financial Officers, major stockholders or
     those with controlling interest. etc.) within the past 15 years?
     Yes _____ No _____. If yes, please explain.

11.  DOES YOUR COMPANY HAVE ANY OWNERSHIP OR CONTROL INTEREST OF 5% OR MORE
     (i.e., able to formulate, determine, vote or influence business policy
     decisions, etc.) in another organization? Yes_______ No_____. If yes, list
     each organization's name, address and the percentage of ownership and/or
     control.

                                                             PERCENT OF
         NAME                     ADDRESS                OWNERSHIP OR CONTROL

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

12.  DO THOSE WHO OWN OR CONTROL YOUR COMPANY HAVE ANY OWNERSHIP OR CONTROL
     INTEREST OF 5% OR MORE (i.e., able to formulate, determine, veto or
     influence business policy decisions, etc.) in another organization?
     Yes____ No____. If yes, list each organization's name and address, the
     percentage of ownership or control, and the names of those with the common
     ownership or control interest:

                                                             PERCENT OF
         NAME                     ADDRESS                OWNERSHIP OR CONTROL

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

13.  HAS YOUR COMPANY EVER BEEN SUSPENDED OR EXCLUDED FROM ANY FEDERAL PROGRAM
     FOR ANY REASON?
     Yes_____ No______. If yes, please attach explanation.

14.  SUBCONTRACTOR'S CUSTOMER DESCRIPTION: For each of your principal customers
     (i.e. one that generates 5% or more of Subcontractor's gross annual
     revenue), please provide the following information:

     a.  Customer's name and address
     b.  Customer's percentage of Subcontractor revenue
     c.  Percent of Subcontractor's time managing customer
     d.  Customer's principal business

                                      C-3
<PAGE>

15.  SUBCONTRACTOR'S PERSONNEL EXPERIENCE STATEMENT

     Please provide resumes for all key personnel describing professional
     experience and education including continuing educational courses taken
     during the last three years.

16.  SUBCONTRACTOR CONTROLLING INTEREST STATEMENT

     Please provide the name and address of any individuals or organizations
     with an ownership or controlling interest in the Subcontractor company
     (i.e., able to formulate, determine or veto business policy decisions,
     etc.). You may include those whose ownership or control interest is less
     than 5%.

                                                             PERCENT OF
         NAME                     ADDRESS                OWNERSHIP OR CONTROL

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

17.  SUBCONTRACTOR FINANCIAL STATEMENT

     a.  Is your accounting system based on a cash or accrual method?
         Cash     [ ]
         Accrual  [ ]
         Other    [ ] (Give a brief explanation.)

     b.   Does your organization prepare an annual financial statement?
          Yes_____ No______. If yes, provide a copy of the latest report.

     c.   Are interim financial statements prepared? Yes_____ No______. If yes,
          how often are they prepared? ___________________

          Are footnotes and supplementary schedules an integral part of the
          statements?
          Yes______ No______.

          Provide a copy of the latest statements including all necessary data
          to support your answers above.

     d.   Is your organization audited by an independent accounting firm or
          accountant?
          Yes_____ No____. If yes, how often are audits conducted?____________.

          By whom are they conducted? Provide name, address and telephone number
          and attach a copy of the latest audited financial statements.

     e.   Do you have any uncorrected audit exceptions? Yes_____ No______.

          If yes, please explain the action being taken to correct the
          exceptions.

                                      C-4
<PAGE>

     f.   Does your organization have an accounting manual? Yes_____ No_____.

          If no, please explain if you have proper accounting policies and
          procedures, and how you provide for the dissemination of such
          accounting policies and procedures within your organization and what
          controls exist to ensure the integrity of your financial information.
          The Subcontractor agrees to furnish copies of such written accounting
          policies and procedures for inspection upon request from AHCCCSA.

     g.   Are management letters on internal controls issued by the accounting
          firm? Yes_____ No_____.

          If yes, attach a copy of the management letter from the latest audit.
          This must be on the auditor's letterhead and the Subcontractor, by its
          submission, certifies the letter is unaltered.

          If no, please provide a comprehensive description of internal control
          systems. (You are responsible for instituting adequate procedures
          against irregularities and improprieties and enforcing adherence to
          generally accepted accounting principles.)

     h.   Does your organization have a formal basis to distribute or allocate
          costs reflected in your financial statement? Yes_____ No____. Please
          explain principal allocation techniques used or proposed to be used.
          Indicate the allocation base used for each type of cost allotment.

     i.   Indicate the types of liability insurance your organization maintains.
          State the amount of coverage and the name and address of the carrier.

     j.   Please attach a complete analysis of revenues and expenses by business
          segment (lines of business) and by geographic area (within Arizona and
          outside Arizona) for your company or your company's owners.

     k.   Are there any suits, judgments., tax deficiencies, or claims pending
          against your organization?
          Yes_____ No_____.

          If yes, briefly describe each item and indicate the dollar amount,
          either actual or estimated.

     l.   In the last 12 months has your firm or organization paid any bonuses,
          provided any gifts over a dollar value of $500, or in any other way
          provided a financial reward, over and above salary, to any staff
          member, board member or other personnel associated with the firm or
          organization? Yes_____ No_____. If yes, describe to whom it was given,
          the type of reward, its value and source(s) of revenue.

18.  SUBCONTRACTOR'S BACKGROUND CHECK INFORMATION

     All Management Services Subcontractors must provide sufficient information
     concerning key personnel to enable AHCCCSA to conduct background checks.
     Please provide a list of all key personnel giving the following information
     for each:

     a.  Name
     b.  All other names ever used
     c.  Social Security Account Number
     d.  Date of Birth

                                      C-5
<PAGE>

     e.  Place of Birth
     f.  All addresses for the last 10 years
     g.  Ever suspended from any federal program for any reason? If yes, please
         explain.

19.  SUBCONTRACTOR RESTRICTION OF COMPETITION STATEMENT

     In connection with the Management Services Subcontractor's participation in
     this procurement the Management Services Subcontractor (to include its
     employees) to the best of its knowledge and belief:

     a.   has not disclosed and will not knowingly disclose the prices, or any
          matter relating to such prices, to any other offeror, subcontractor or
          competitor,

     b.   has not attempted and will not make any attempt to induce any other
          person or firm to submit or not to submit a proposal for the purpose
          of restricting competition.

          ---------------------------------------------------------------------
          Management Services Subcontractor Signature

          ---------------------------------------------------------------------
          Print Name and Title

     The Management Services Subcontractor shall insert in the applicable space
     below, if the Management Services Offeror has no parent company, its own
     employer's identification number (Federal social security number used on
     employer's quarterly federal tax return, U.S. Treasury Department Form
     941), or, if the Subcontractor has a parent company, the employer's
     identification number of the parent company.

     Management Services Subcontractor
     Employer Identification No. ____________________________________

     Parent Company's
     Employer Identification No. ____________________________________

                                      C-6
<PAGE>

ATTACHMENT D: SAMPLE LETTER OF INTENT

(No alterations or changes are permitted. Provider must submit a separate letter
of intent for each service site or AHCCCS ID#. This letter is subject to
verification by AHCCCS.)

The provider signing below is willing to enter into contract negotiations with
[Offeror's name] for provision of covered services to AHCCCS members enrolled
with [Offeror's name]. This provider intends to sign a contract with [Offeror's
name] if [Offeror's name] is awarded an AHCCCS contract beginning 10/1/97 in the
provider's service area and an acceptable agreement can be reached between the
provider and [Offeror's name]. Signing this Letter of Intent does not obligate
the provider to sign a contract with [Offeror's name]; however, please do not
sign this Letter of Intent unless you seriously intend to enter into
negotiations with the above mentioned health plan.

The following information is furnished by the provider:

1.   AHCCCS IDENTIFICATION NUMBER _____________________________________________

2.   PROVIDER'S PRINTED NAME __________________________________________________

3.   ADDRESS (where services will be provided)_________________________________

     ________________________________________________ ZIP CODE ________________

4.   COUNTY______________   5. TELEPHONE_________________  6. FAX______________

7.   CHECK ALL THAT APPLY:

<TABLE>
<S>                                         <C>                       <C>
____ A. Primary Care Physician              ____ Family Practice      Services: ____ EPSDT
                                            ____ General Practice               ____ OB
                                            ____ Pediatrician                   ____ Family Planning

____ B. Primary Care Nurse Practitioner     ____ Family Practice      Services: ____ EPSDT
                                            ____ General Practice               ____ OB
                                            ____ Pediatric                      ____ Family Planning

____C.  Primary Care Physician's Assistant  ____ Family Practice      Services: ____ EPSDT
                                            ____ General Practice               ____ OB
                                            ____ Pediatrician                   ____ Family Planning
____ D. Physician - Specialist- (Specify) _____________________________________
____ E. Hospital
____ F. Pharmacy
____ G. Laboratory
____ H. Medical Imaging
____ I. Emergency Transportation (Air or Ground)
____ J. Medically Necessary Transportation
____ K. Nursing Facility
____ L. Dentist
____ M. Therapy (Specify Physical Therapy, Occupational Therapy, Speech, Respiratory)
____ N. Behavioral Health Provider (Specify) ______________________________________________
____ O. Podiatrist
____ P. Durable Medical Equipment
____ Q. Home Health Agency
____ R. Home Infusion Provider
____ S. Chiropractor
____ T. Optometrist/Optician
____ U. Other (Please Specify) ____________________________________________________________
</TABLE>

NOTICE TO PROVIDERS: This Letter of Intent will be used by Arizona Health Care
Cost Containment System Administration in its bid evaluation and contract award
process. You should only sign this Letter of Intent if you intend to enter into
contract negotiations with (offeror's name) it they receive a contract award. It
you are signing on behalf of a physician, please provide evidence of authority.

8.   PROVIDER SIGNATURE _____________________________TITLE_____________________

9.   PRINTED NAME OF SIGNER____________________________________________________

10.  DATE __________________________________
<PAGE>

--------------------------------------------------------------------------------
Subcontracts                             54.
--------------------------------------------------------------------------------
                                         55.
--------------------------------------------------------------------------------
                                         56.
--------------------------------------------------------------------------------
                                         57.
--------------------------------------------------------------------------------
                                         58.
--------------------------------------------------------------------------------
                                         59.
--------------------------------------------------------------------------------
                                         60.
--------------------------------------------------------------------------------
                                         61.
--------------------------------------------------------------------------------
Encounters                               62.
--------------------------------------------------------------------------------
                                         63.
--------------------------------------------------------------------------------
                                         64.
--------------------------------------------------------------------------------
                                         65.
--------------------------------------------------------------------------------
                                         66.
--------------------------------------------------------------------------------
                                         67.
--------------------------------------------------------------------------------
Claims/Third Party Liability             68.
--------------------------------------------------------------------------------
                                         69.
--------------------------------------------------------------------------------
                                         70.
--------------------------------------------------------------------------------
                                         71.
--------------------------------------------------------------------------------
                                         72.
--------------------------------------------------------------------------------
                                         73.
--------------------------------------------------------------------------------
                                         74.
--------------------------------------------------------------------------------
Financial Standards                      75.
--------------------------------------------------------------------------------
                                         76.
--------------------------------------------------------------------------------
                                         77.
--------------------------------------------------------------------------------
                                         78.
--------------------------------------------------------------------------------
                                         79.
--------------------------------------------------------------------------------
                                         80.
--------------------------------------------------------------------------------
Liability Management                     81.
--------------------------------------------------------------------------------
                                         82.
--------------------------------------------------------------------------------
                                         83.
--------------------------------------------------------------------------------
                                         84.
--------------------------------------------------------------------------------
Grievance and Appeals                    85.
--------------------------------------------------------------------------------
                                         86.
--------------------------------------------------------------------------------
                                         87.
--------------------------------------------------------------------------------
                                         88.
--------------------------------------------------------------------------------
                                         89.
--------------------------------------------------------------------------------
                                         90.
--------------------------------------------------------------------------------
                                         91.
--------------------------------------------------------------------------------

                                                          [END OF CHECKLIST]

                                      C-8
<PAGE>

Amend  14/97
                                     OFFEROR _________________________________

ATTACHMENT D:     NETWORK SUMMARY FORM

Summarize your network by County, by City, by provider type, by specialty and
PCP on this form.

     County ____________________            City __________________________

<TABLE>
<CAPTION>
                                                                                                                NUMBER OF:
                                                                                                                ----------
              AHCCCS PROVIDER TYPE                          PROV. TYPE            SPECIALTY (SPEC.)         SPEC.          PCPS
              --------------------                          ----------            -----------------         ----           ----
                                                              NUMBER
                                                            ----------
<S>                                                    <C>                    <C>                         <C>           <C>

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------    ---------     ---------

--------------------------------------------------     --------------------   ------------------------     ---------     ---------

                                                                               PCP TOTAL
</TABLE>

PLEASE DUPLICATE THIS FORM IF YOU NEED ADDITIONAL SPACE, AND NUMBER EACH PAGE
SEQUENTIALLY. PLEASE PROVIDE A DESCRIPTION OF ANY CODES USED.

PLEASE NOTE: THE SPECIALTY COLUMN ONLY NEEDS TO BE COMPLETED IF APPLICABLE.
<PAGE>
          ATTACHMENT E: INSTRUCTIONS FOR PREPARING CAPITATION PROPOSAL

INTRODUCTION:

All capitation proposals must be submitted to AHCCCSA on the AHCCCS Capitation
Rate Calculation Sheet (CRCS) Bid Disk. All best and final offers must also be
submitted on the AHCCCS CRCS Bid Disk. A CRCS must be completed for each rate
code in each Geographic Service Area (GSA) that the Offeror is bidding. The
Offeror must also use the CRCS Bid Disk to print and submit Section B,
Capitation Rates, of the Request for Proposal (RFP).

BID DISK CHANGES FROM CYE 95:

Several modifications have been made to the CRCS Bid Disk since the CYE 95 bid
year. The changes are summarized as follows:

a.       The "Prepared by" and "Preparation Date" have been deleted from the bid
         disk screens. Now the program will automatically print the current date
         when the Offeror prints the reports.
b.       MN/MI with Medicare and MN/MI without Medicare will be bid as one rate
         code: MN/MI.
c.       The TANF (previously AFDC) and CCP rate codes have been combined so
         that the Offeror will bid both populations under one rate code. In
         addition, the TANF/CCP rate code will be bid on an age/sex basis.
d.       Several service lines on the CRCS have been changed. "Hospital
         Outpatient" has been changed to "Outpatient Facility". The term
         "Surgical Service" has been removed. "Other Professional" has been
         added to account for services related to Physician Assistants, Nurse
         Midwives, Nurse Practitioners, etc. Finally, the "Family Planning" and
         "Mental Health" lines have been removed. These costs should now be
         reported as part of the "Other Costs - Miscellaneous" line item.
e.       Another change in rates code screens is the addition of the SOBRA
         Family Planning screens. Women whose SOBRA eligibility has been
         terminated are eligible only for family planning services for a maximum
         of 24 months under the SOBRA Family Planning Services Extension
         Program. Previously paid on a fee-for-service basis by AHCCCS, these
         services will now be paid on a capitated basis and the Offeror is
         required to complete a CRCS for these services.
f.       Screen 3 of 3 of the SOBRA Supplemental has been modified to add a line
         to show the capitation offset to the total cost of services related to
         SOBRA births. The program will automatically calculate this line item
         by taking 6 months (the average number of months of capitation
         typically paid a contractor for a SOBRA women) times the Offeror's bid
         per the CRCS for the TANF/CCP 14-44 year-olds (F) rate code.
g.       In accordance with Section H, Paragraph 9, Award of Contract, of the
         RFP, bid screens are presented by rate code and by Geographic Service
         Area, rather than by rate code and by county.

HELP SCREENS:

The CYE 98 CRCS Bid Disk has Help screens available to answer questions every
step of the way. The Offeror can access the Help screens at any time by pressing
the Fl key. In addition, the program contains on-screen instructions for each
screen.

GETTING STARTED:

The CYE 98 CRCS Bid Disk program requires approximately 525K bytes of available
main memory to run properly. Boot your machine to the DOS prompt. Insert the CYE
98 CRCS Bid Disk. Change the default drive to the disk drive containing the CYE
98 CRCS Bid Disk by typing "A:" or "B:" (whichever
<PAGE>

drive contains the CYE 98 Bid Disk) and press the [Enter] key. Type "CRCS98" and
press the [Enter] key. This will initiate the program and will bring up the main
menu.

MAIN MENU OPTIONS:

The main menu to the CYE 98 CRCS Bid Disk offers the following seven options:

1.   Bidding         Input or Edit capitation rate data.
2.   Summary         Display previously calculated net capitation rates for all
                     rate codes and all Geographic Service Areas.
3.   Print           Send detail and/or summary information to the printer.
4.   Submit/Copy     Copy capitation bids to diskette for submission of data to
                     AHCCCS.
5.   Supplement      Browse through sections of RFP directly related to this
                     bid program.
6.   Utilities       Set screen colors, change printer destination, bulk erase
                     data, etc.
7.   Exit            Leave this program.

FORMAT OF CAPITATION RATE CALCULATION SHEET:

The CRCS for all rate codes consists of three screens requiting data input. For
all rate codes, except SOBRA women and SOBRA Family Planning, screen 1 of 3
contains the following bid elements: 1) Hospital Inpatient, 2) Outpatient
Facility, 3) Emergency Roam, 4) Primary Care, 5) Referral Physician, 6) Other
Professional, and 7) Pharmacy. The Offeror will have to enter: annual
utilization units per 1,000 members, cost per unit, and co-pay amounts (where
applicable) for each of the seven bid elements listed above. The program will
automatically calculate the per member per month (PMPM) amount for each of these
bid elements.

Screen 2 of 3 for all rate codes, except SOBRA women and SOBRA Family Planning,
contains the following bid elements: 1) Lab, X-ray, and Medical Imaging, 2)
Physical Therapy, 3) DME and Oxygen, 4) NP and Home Health Care, 5) Ambulance
and Medically Necessary Transportation, 6) Dental, and 7) Miscellaneous. The
Offeror must enter the PMPM amount for each of these seven bid elements.

Screen 3 of 3 for all rate codes, except SOBRA women and SOBRA Family Planning,
contains the following bid elements: 1) Reinsurance, 2) Third Party Recoveries,
3) Administration Charges, 4) Profit and Contingencies. The Offeror must enter
the PMPM amount for each of these four bid elements. The program will
automatically calculate the Net Capitation Rate based on data entered.

The SOBRA women rate codes are capitated on a monthly basis at the TANF/CCP
capitation rate for the GSA of residence. The SOBRA CRCS to be completed by the
Offeror is for the SOBRA Supplement payment only. The Contractor will be
eligible to receive the SOBRA Supplement payment upon the birth of a child to a
SOBRA eligible women enrolled with the Contractor.

The CRCS for the SOBRA Supplement is comprised of 3 screens requiring data
input. Screen 1 of 3 for the SOBRA Supplement contains the following bid
elements: 1) Hospital Inpatient, 2) Lab and Testing, 3) Transportation, 4)
Pharmacy, 5) OB/GYN, 6) Specialist/Anesthesia, and 7) Other. Elements 1 through
4 require utilization units and unit costs to be entered for a vaginal delivery
and separately for a cesarean delivery. The program computes the amount per
birth automatically for these elements. The Offeror shall enter the per birth
amount directly for bid elements 5 through 7.

Screen 2 of 3 for the SOBRA Supplement contains the following bid elements: 1)
Third Party Recoveries, 2) Administration Charges, 3) Profit and Contingencies.
The Offeror shall enter the per birth amounts for vaginal and cesarean
deliveries for each of these bid elements. The Offeror must enter the percent of
<PAGE>

vaginal deliveries expected (must be between 50-100%). The program will
calculate the weighted average SOBRA Supplement bid automatically.

Screen 3 of 3 for the SOBRA Supplement details the calculation for the
Capitation Offset and Net Capitation Rate. The program will calculate both items
automatically.

The CRCS for SOBRA Family Planning is comprised of 3 screens requiring data
input. Screen 1 of 3 contains the following bid elements: 1) Outpatient
Facility, 2) Primary Care, 3) Referral Physician, 4) Other Professional, and 5)
Pharmacy. The Offeror must enter: annual utilization units per 1,000 members,
cost per unit, and co-pay amounts (where applicable) for each of the five bid
elements listed above. The program will automatically calculate the per member
per month (PMPM) amount for each of these bid elements.

Screen 2 of 3 for SOBRA Family Planning, contains the following bid elements: 1)
Lab, X-ray, and Medical Imaging, 2) Medically Necessary Transportation, and 3)
Miscellaneous. The Offeror shall enter the PMPM amount for each of these three
bid elements.

Screen 3 of 3 for SOBRA Family Planning, contains the following bid elements: 1)
Third Party Recoveries, 2) Administration Charges, 3) Profit and Contingencies.
The Offeror must enter the PMPM amount for each of these three bid elements. The
program will automatically calculate the Net Capitation rate based on data
entered.

TECHNICAL NOTES:

The following is a list of miscellaneous technical notes which may be helpful to
the Offeror:

a.   Decimal points must be entered manually.
b.   Help screens can be accessed at any time by pressing the F1 key.
c.   Before saving or copying data to a new disk make sure the new disk is
     formatted.
d.   Within the CRCS screens, the Page Up key will take you to the previous
     screen.
e.   Within the CRCS screens, the Page Down key will take you to the next
     screen.
f.   Use the up and down arrow keys to scroll vertically through the data entry
     fields within the CRCS screens.
g.   Use Tab and Shift Tab to Scroll horizontally through the data entry fields
     within the CRCS screens.
h.   Within the CRCS screens the F3 key takes you to the previous rate code far
     the GSA.
i.   Within the CRCS screens the F4 key takes you to the next rate code far the
     GSA.
j.   Within the CRCS screens the F7 key takes you to the previous GSA (same rate
     code).
k.   Within the CRCS screens the F8 key takes you to the next GSA (same rate
     code).
l.   Within the CRCS screens the F10 key will save the data that has been
     entered/edited and return to main CRCS menu.
M    The Esc key cancels the function or menu in progress.
n.   Calculations are rounded to 2 decimal places whenever a calculated result
     produces more than 2 decimal places.

INSTALLING CRCS BID DISK ON A NETWORK OR HARD DRIVE

The CRCS Bid Disk can be copied to a directory on a network or a local PC hard
drive merely by copying all of the files on the disk to a directory. If the
program is installed on a network, care must be taken to allow only one person
at a time to use the program or a loss of bid data could occur. To run the
program on a local PC hard drive, you must first switch over to the drive and
directory where the program is located before running the program for it to run
properly.
<PAGE>

LISTING OF FILES INCLUDED ON THE BID DISK:

The following files are included on the CRCS Bid Disk:

CRCS98.EXE                 The CRCS Bid Program.
R98.DAT                    Data file containing the section of the RFP that
                           directly pertains to
this bid disk. H98.DAT     Help file used by the bid program.
HP98.DAT                   Supplementary help file.
DATA98.DAT                 Data file  containing  your bids.  This file can be
                           copies to a diskette  manually or menu  option #4 in
                           the CRCS Bid  Program  will copy it for you.

If you have any technical questions relating to the operation or functions of
the CYE 98 CRCS Bid Disk call the AHCCCS/OMC customer technical support desk at
(602) 417-4564.
<PAGE>

ATTACHMENT F:  PERIODIC REPORT REQUIREMENTS

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
       REPORT                               WHEN DUE             SOURCE/REFERENCE               AHCCS CONTACT
------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                         <C>                            <C>
Monthly Financial Report             45 days after the end of    Reporting Guide                Financial Manager
                                     the month, as applicable
------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Report           60 days after the end of    Reporting Guide                Financial Manager
                                     the each quarter
------------------------------------------------------------------------------------------------------------------------
Draft Annual Audit Report            90 days after the end of    Reporting Guide                Financial Manager
                                     each fiscal year
------------------------------------------------------------------------------------------------------------------------
Draft Management Letter              90 days after the end of    Reporting Guide                Financial Manager
                                     each fiscal year
------------------------------------------------------------------------------------------------------------------------
Final Annual Audit Report            120 days after the end of   Reporting Guide                Financial Manager
                                     each fiscal year
------------------------------------------------------------------------------------------------------------------------
Final Management Letter              120 days after the end of   Reporting Guide                Financial Manager
                                     each fiscal year
------------------------------------------------------------------------------------------------------------------------
Accountant's Report on Compliance    120 days after the end of   Reporting Guide                Financial Manager
                                     each fiscal year
------------------------------------------------------------------------------------------------------------------------
Reconciliation--Annual Audit and     120 days after the end of   Reporting Guide                Financial Manager
Plan Year-to-Date Financial Report   each fiscal year
Information
------------------------------------------------------------------------------------------------------------------------
Financial Disclosure Report          120 days after the end of   Reporting Guide                Financial Manager
                                     each fiscal year
------------------------------------------------------------------------------------------------------------------------
Annual Analysis of Profitability     120 days after the end of   Reporting Guide                Financial Manager
by Major Rate Code (by County)       each fiscal year
------------------------------------------------------------------------------------------------------------------------
Provider Affiliation Tape            10 business days after      PMMIS Provider-to-Health       Health Plan Operations
                                     the beginning of each       Plan magnetic tape             Manager
                                     quarter                     submission and processing
------------------------------------------------------------------------------------------------------------------------
18-20 NON-SMI Status Report          15 days after the end of    Instructions on form           Behavioral Health
                                     each month                                                 Manager
------------------------------------------------------------------------------------------------------------------------
Encounter Data - Magnetic Tape       Monthly, according to       Encounter Manual               Encounter Administrator
Submission                           established schedule
------------------------------------------------------------------------------------------------------------------------
Corrected Pended Encounter Tape      Monthly, according to       Encounter Manual               Encounter Administrator
                                     established schedule
------------------------------------------------------------------------------------------------------------------------
New Day Tape                         Monthly, according to       Encounter Manual               Encounter Administrator
                                     established schedule
------------------------------------------------------------------------------------------------------------------------
Medical Records for Data Validation  6 weeks after the request   RFP, Section C, Paragraph 1    Data Validation Manager
                                     received from AHCCCSA
------------------------------------------------------------------------------------------------------------------------
Quarterly Grievance Report           45 days after the end of    RFP, Section D, Paragraph 26   Administrative
                                     each quarter                                               Assistant
------------------------------------------------------------------------------------------------------------------------
Comprehensive Dental Plan            Annually on November (1)    RFP, Section D, Paragraph 16   Acute Care Program
                                                                                                Manager
------------------------------------------------------------------------------------------------------------------------
EPSDT Progress Report - Quarterly    15 days after the end of    AMPM, Chapter 400              Acute Care Program
Update                               each quarter                                               Manager
------------------------------------------------------------------------------------------------------------------------
Quarterly Inpatient Hospital         15 days after the end of    State Medicaid Manual and      Acute Care Program
Showing                              each quarter                the AMPM, Chapter 900          manager
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

ATTACHMENT G: AUTO-ASSIGNMENT ALGORITHM

Members who do not have the right to choose a contractor or members who have the
right to choose but do not exercise this right are assigned to contractors
through an auto-assignment algorithm. The algorithm is a mathematical formula
used to distribute members to the various contractors in a manner that is
predictable and consistent with AHCCCSA goals.

The algorithm employs a data table and a formula to assign cases (a case may be
a member or a household of members) to contractors using the target percentages
developed. The algorithm data table consists of all the zip codes in the state,
all contractors serving each zip code area, and the target percentages by rate
code within each zip code.

The contractor farthest away from its target percentage within a zip code and
rate code, the largest negative difference, is assigned the next case for that
zip code. The equation used is:

         (t/T) - P = d

t = The total members assigned to the zip code per rate code category for the
    contractor
T = The total members assigned to the zip code per rate code category, all
    contractors combined
P = The target percentage of members for the rate code for the contractor
d = The difference

The algorithm is calculated after each assignment to give a new difference for
each contractor. When more than one contractor has the same difference, and
their differences are greater than all other contractors, the contractor with
the lowest Health Plan I.D. Number will be assigned the case.

The member population assigned by the algorithm includes:

1.   MN/MI members that are newly eligible to the AHCCCS program.
2.   Members that are categorically eligible (plus EAC and ELIC) that did not
     choose a contractor within the prescribed time limits.
3.   MN/MI members who have been enrolled with a contractor but have changed zip
     codes and the previous contractor is not available in the new zip code.
4.   MN/MI members with a break in eligibility of 90 days or greater.

All contractors, within a given geographic service area (GSA) and for each rate
code, will have a placement in the algorithm and will receive members
accordingly. A contractor with a more favorable target percentage in the
algorithm will receive proportionally more members. Conversely, a contractor
with a lower target percentage in the algorithm will receive proportionally
fewer members. The algorithm favors contractors with both lower final bids and
awarded rates. The algorithm also favors those contractors with programs that
score higher based on AHCCCSA's evaluation criteria.

DEVELOPMENT OF THE TARGET PERCENTAGES FOR CATEGORICAL MEMBERS (INCLUDING EAC AND
ELIC)

For the first year of the contract, the algorithm target percentages will be
developed using the methodology described below. However, for subsequent years,
AHCCCS reserves the right to change the algorithm methodology to assure
assignments are made in the best interest of the AHCCCS program and the state.
<PAGE>

For the categorical rate codes (plus EAC and ELIC), a contractor's placement in
the algorithm is based upon the following three factors which are weighted
equally (i.e., 33.33%):

1.   The final capitation rate bid submitted by the contractor. Final bids that
     are below the bottom of the rate range will be assigned to the bottom of
     the rate range for development of the target percentages.
2.   The contractor's final awarded rate from AHCCCSA.
3.   The contractor's score on the Program component of the proposal.

Points will be assigned to each contractor by rate code by GSA. Based on the
rankings of the final bids submitted and the final awarded rates, each
contractor will be assigned a number of points for each of these two components
separately as follows:

                           TABLE FOR FACTORS #1 AND #2
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
  Number of
  Awards in      Lowest     2nd Lowest   3rd Lowest   4th Lowest   5th Lowest   6th Lowest   7th Lowest   8th Lowest
    GSA            Rate         Rate         Rate         Rate         Rate         Rate         Rate         Rate
-----------------------------------------------------------------------------------------------------------------------
<S>              <C>        <C>          <C>          <C>          <C>          <C>          <C>          <C>
      2            60           40
-----------------------------------------------------------------------------------------------------------------------
      3            44           32           24
-----------------------------------------------------------------------------------------------------------------------
      4            35           28           22           15
-----------------------------------------------------------------------------------------------------------------------
      5            30           25           20           15           10
-----------------------------------------------------------------------------------------------------------------------
      6            26           23           19           15           11            6
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
</TABLE>

Contractors that have equal bids in a GSA for the same rate code will be given
an equal percentage of the points for all of the positions combined.

The third component of the calculation, program scores, will be assigned a
number of points based on where the contractor ranks among the scores. The
higher the score, the more points assigned. For this component, points will be
assigned as follows:

                               TABLE FOR FACTOR #3

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
  Number of
  Awards in     Program   2nd Highest   3rd Highest  4th Highest   5th Highest   6th Highest   7th Highest    8th Highest
     GSA         Score       Score         Score        Score         Score         Score          Score         Score
--------------------------------------------------------------------------------------------------------------------------
<S>             <C>       <C>           <C>          <C>           <C>           <C>           <C>            <C>
      2            60           40
--------------------------------------------------------------------------------------------------------------------------
      3            44           32           24
--------------------------------------------------------------------------------------------------------------------------
      4            35           28           22           15
--------------------------------------------------------------------------------------------------------------------------
      5            30           25           20           15           10
--------------------------------------------------------------------------------------------------------------------------
      6            26           23           19           15           11            6
--------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------
</TABLE>

Contractors that have equal program scores will be given an equal percentage of
the points for all of the positions combined.
<PAGE>

The points awarded for the three components will be combined as follows to give
the target percentage for each contractor by GSA by rate code.

Final Bid Points + Awarded Bid Points + Program Score Points = TARGET PERCENTAGE
------------------------------------------------------------
                         300

DEVELOPMENT OF THE TARGET PERCENTAGES FOR NON-CATEGORICAL MEMBERS (MN/MIS)

For the non-categorical rate codes, a contractor's placement in the algorithm is
based upon the final capitation rate awarded by AHCCCSA. The target percentages
will be assigned as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
  Number of      Lowest
  Awards in      Awarded     2nd Lowest   3rd Lowest   4th Lowest   5th Lowest   6th Lowest   7th Lowest   8th Lowest
    GSA            Rate         Rate         Rate         Rate         Rate         Rate         Rate         Rate
--------------------------------------------------------------------------------------------------------------------------
<S>              <C>         <C>          <C>          <C>          <C>          <C>          <C>          <C>
      2            55%          45%
--------------------------------------------------------------------------------------------------------------------------
      3            39%          32%          29%
--------------------------------------------------------------------------------------------------------------------------
      4            30%          26%          24%          20%
--------------------------------------------------------------------------------------------------------------------------
      5            26%          21%          19%          18%          16%
--------------------------------------------------------------------------------------------------------------------------
      6            22%          19%          17%          16%          14%          12%
--------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------
</TABLE>

Contractors that have equal bids in a GSA for the same rate code will be given
an equal percentage of the positions combined.
<PAGE>

ATTACHMENT H: GRIEVANCE PROCESS AND STANDARDS

The Contractor shall have in place a written grievance policy for members and
providers which defines their rights regarding any adverse action by the
Contractor. This written policy shall be in accordance with applicable federal
and State law and AHCCCS Rules and policy including, but not limited to, AHCCCS
Rules R9-22-512; R9-22-518(A); R9-22-802; and R9-22-804. It shall include the
following provisions:

a.     The grievance procedure will be provided to members upon enrollment, to
       all subcontractors at time of contract, and to non-contracting providers
       within 10 days of the date of receipt of the claim. For non-contracting
       providers, the grievance procedure may be mailed with the remittance
       advice provided the remittance is sent within 45 days of receipt of
       claim.
b.     Specific individual(s) are appointed with authority to require corrective
       action to administer the grievance policy.
c.     A log is maintained for all grievances containing sufficient information
       to identify the grievant, date of receipt, nature of the grievance and
       the date grievance is resolved.
d.     Within five working days of receipt, the grievant is informed by letter
       that the grievance has been received. The letter must also be in a second
       language when 200 members or 5% of the Contractor's enrolled population,
       whichever is greater, is non-English speaking.
e.     Each grievance is thoroughly investigated using the applicable statutory,
       regulatory and contractual provisions as well as the Contractor's
       policies and procedures, ensuring that facts are gathered from all
       parties.
f.     All documentation received and mailed by Contractor during the grievance
       process is dated.
g.     All grievances are filed in a secure, designated area and are retained
       for five years following the final decision, judicial appeal or close of
       a grievance.
h.     A copy of the Contractor's final decision will be either hand-delivered
       or delivered by certified mail to all parties whose interest has been
       adversely affected by the decision. The final decision shall be mailed to
       all other parties by regular mail. The date of the final decision shall
       be the date of personal delivery or, if mailed, the postmark date of the
       mailing. The final decision must include, and describe in detail, the
       following:
       1.     the nature of the grievance
       2.     the issues involved
       3.     the reasons supporting the Contractor's decision including
              references to applicable statute, rule and procedure
       4.     the grievant's right to appeal the Contractor's decision to
              AHCCCSA by filing the appeal to the Contractor no later than 15
              days alter the date of the Contractor's final decision. This must
              also be written in a second language, if applicable.
i.     If the Contractor's final decision is appealed, all supporting
       documentation must be received by AHCCCSA, Office of Grievance and
       Appeals no later than five working days from the date the Contractor
       receives the appeal or from the date of the oral or written request from
       AHCCCSA, Office of Grievance and Appeals.
       The appeal file must contain a cover letter that includes:
       1.     grievant's name
       2.     grievant's AHCCCS ID number
       3.     grievant's address
       4.     phone number (if available)
       5.     date of receipt of grievance and appeal
       6.     summary of the Contractor's actions undertaken to resolve the
              grievance and basis thereof
j.     The following material shall be included in the appeal file:
       1.     written request of the grievant asking for the appeal
<PAGE>

       2.     copies of the entire file which include the investigations and/or
              medical records; and the Contractor's grievance decision
       3.     other information used by the Contractor to resolve the grievance
              and that would be necessary to AHCCCSA to resolve the grievance.
k.     The Contractor may attempt to use alternative resolution procedures to
       resolve disputes presented to the Contractor verbally or in writing. If
       the Contractor elects to use an alternative resolution process, it must
       be administered and completed within 30 days from receipt of the dispute.
       If the matter is not resolved to the grievant's satisfaction within the
       30-day period, the dispute must then be adjudicated using the grievance
       standards contained above. However, the Contractor must render the
       written grievance decision within a maximum of 45 days from the date of
       the initial filing of the grievance or dispute unless a longer period was
       agreed to by the parties involved.
l.     For all disputes where an alternative resolution is proposed, the
       Contractor must inform the grievant of the Contractor's resolution and
       ask the grievant if the resolution is acceptable no later than 30 days
       from the date that the dispute is initially presented to the Contractor.
       If acknowledged as acceptable, the matter may be closed. If the member or
       provider states that the resolution is unacceptable, the Contractor must
       then treat the dispute as a formal grievance and abide by the standards
       contained above.
m.     For all disputes where an alternative resolution is proposed, the
       Contractor must maintain a separate log, complying with paragraphs c. and
       g. above.

HOSPITAL REIMBURSEMENT PILOT PROGRAM - MARICOPA AND PIMA COUNTIES ONLY (SEE
SECTION D, PARAGRAPH 35):
Arbitration may be used in lieu of the grievance and appeal procedure. If
arbitration is used, the hospital contract must identify:
a.     The parties agreement on arbitrating claims arising from the contract;
b.     Whether arbitration is non-binding or binding;
c.     Timeliness of arbitration;
d.     What contract provisions may be appealed;
e.     What rules will govern arbitrations;
f.     The number of arbitrators that will be used;
g.     How arbitrators will be selected; and
h.     How arbitrators will be compensated.
<PAGE>
ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed sanctions for noncompliance with encounter
submission requirements. AHCCCSA may also perform special reviews of encounter
data, such as comparing encounter reports to the Contractor's claims files. Any
findings of incomplete or inaccurate encounter data may result in the
imposition of sanctions or requirement of a corrective action plan.

PENDED ENCOUNTER CORRECTIONS

The Contractor must resolve all pended encounters within 100 days of the
original processing data. A sanction of $5.00 each month will be imposed for
each encounter pended for more than 100 days unless the pend is due to AHCCCSA
error. "AHCCCSA error" is defined as a pended encounter which (1) AHCCCSA
acknowledges to be the result of its own error, and (2) requires a change to the
system programming, an update to the database reference table, or further
research by AHCCCSA. AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA in writing that the resolution of a pended
encounter depends on AHCCCSA rather than the Contractor, AHCCCSA will respond in
writing within 30 days of receipt of such notification. The AHCCCSA response
will report the status of each pending encounter problem or issue in question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA reviews the
Contractor's notification and asks the Contractor to research the issue and
provide additional substantiating documentation, or if AHCCCSA disagrees with
the Contractor's claim of AHCCCSA error. If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error, the Contractor
may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor in writing of the
total number of encounters pended more than 100 days and the number of such
encounters not subject to sanction because of AHCCCSA error.

ENCOUNTER VALIDATION STUDIES

Per HCFA requirement, AHCCCSA will conduct encounter validation studies of the
Contractor's encounter submissions, and sanction the Contractor for
noncompliance with encounter submission requirements. The purpose of encounter
validation studies is to compare recorded utilization information from a medical
record or other source with the Contractor's submitted encounter data. Any and
all covered services may be validated as part of these studies. Encounter
validation studies will be conducted at least yearly.

The following reflects AHCCCSA's encounter validation study process and sanction
policy as of 10/1/97. AHCCCSA may revise study methodology, timelines, and
sanction amounts based on agency review or as a result of consultations with
HCFA. The Contractor will be notified in writing of any significant change in
study methodology.

AHCCCSA will conduct two encounter validation studies. Study "A" examines
non-institutional services (form HCFA 1500 encounters), and Study "B" examines
institutional services (form UB-92 encounters).

AHCCCSA will notify the Contractor in writing of the sanction amounts and of the
selected data needed for encounter validation studies. The Contractor will have
90 days to submit the requested data to

<PAGE>
AHCCCSA. In the case of medical records requests, the Contractor's failure to
provide AHCCCSA with the records requested within 90 days may result in a
sanction of $1,000 per missing medical record. If AHCCCSA does not receive a
sufficient number of medical records from the Contractor to select a
statistically valid sample for a study, the Contractor may be sanctioned up to
5% of its annual capitation payment.

The criteria used in encounter validation studies may include timeliness,
correctness, and omission of encounters. These criteria are defined as follows:

         Timeliness: The time elapsed between the date of service and the date
         that the encounter is received at AHCCCS. All encounters must be
         received by AHCCCSA no later than 240 days after the end of the month
         in which the service was rendered, or the effective date of enrollment
         with the Contractor, whichever is later. For all encounters for which
         timeliness is evaluated, a sanction per encounter error extrapolated to
         the population of encounters may be assessed if the encounter record is
         received by AHCCCSA more than 240 days after the date determined above.
         It is anticipated that the sanction amount will be $1.00 per error
         extrapolated to the population of encounters; however, sanction amounts
         may be adjusted if AHCCCSA determines that encounter quality has
         changed, or if HCFA changes sanction requirements. The Contractor will
         be notified of the sanction amount in effect for the studies at the
         time the studies begin. Timeliness will be evaluated through
         retrospective encounter validation studies for contract years through
         10/95-9/96, inclusive. Pending HCFA approval, for contract years
         10/97-9/98 and after, timeliness will be evaluated concurrently as
         encounters are received based on the difference between the receipt
         date at AHCCCS and the date of service.

         Correctness: A correct encounter contains a complete and accurate
         description of AHCCCS covered services provided to a member. A sanction
         per encounter error extrapolated to the population of encounters may be
         assessed if the encounter is incomplete or incorrectly coded. It is
         anticipated that the sanction amount will be $1.00 per error
         extrapolated to the population of encounters; however, sanction amounts
         may be adjusted if AHCCCSA determines that encounter quality has
         changed, or if HCFA changes sanction requirements. The Contractor will
         be notified of the sanction amount in effect for the studies at the
         time the studies begin.

         Omission of data: An encounter not submitted to AHCCCSA or an encounter
         inappropriately deleted from AHCCCSA's pending encounter file or
         historical files in lieu of correction of such record. For Study "A"
         and for Study "B", a sanction per encounter error extrapolated to the
         population of encounters may be assessed for an omission. It is
         anticipated that the sanction amount will be $5.00 per error
         extrapolated to the population of encounters for Study "A" and $10.00
         per error extrapolated to the population of encounters for Study "B";
         however, sanction amounts may be adjusted if AHCCCSA determines that
         encounter quality has changed, or if HCFA changes sanction
         requirements. The Contractor will be notified of the sanction amount in
         effect for the studies at the time the studies begin.

For encounter validation studies, AHCCCSA will select all approved and pended
encounters to be studied no earlier than 240 days after the end of the month in
which the service was rendered. Once AHCCCSA has selected the Contractor's
encounters for encounter validation studies, subsequent encounter submissions
for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters, or may select a
sample. The sample size, or number of encounters to be reviewed, will be
determined using statistical methods in order to accurately estimate the
Contractor's error rates. Error rates will be calculated by dividing the number
of errors found by the number of encounters reviewed. A 95% confidence interval
will be used to account

<PAGE>
for limitations caused by sampling. The confidence interval shows the range
within which the true error rate is estimated to be. If error rates are based on
a sample, the error rate used for sanction purposes will be the lower limit of
the confidence interval.

Encounter validation methodology and statistical formulas are provided in the
AHCCCS Encounter Data Validation Technical Document, which is available in the
Bidders Library. This document also provides examples which illustrate how
AHCCCSA determines study sample sizes, error rates, confidence intervals, and
sanction amounts.

Written preliminary results of all encounter validation studies will be sent to
the Contractor for review and comment. The Contractor will have a maximum of 30
days to review results and provide AHCCCSA with additional documentation that
would affect the final calculation of error rates and sanctions. AHCCCSA will
examine the Contractor's documentation and may revise study results if
warranted. Written final results of the study will then be sent to the
Contractor and communicated to HCFA, and any sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed by AHCCCSA not
more than 35 days after the Contractor receives final study results from
AHCCCSA. Challenges will be reviewed by AHCCCSA and a written decision will be
rendered no later than 60 days from the date of receipt of a timely challenge.
Sanctions shall not apply to encounter errors successfully challenged. A
challenge must be filed on a timely basis and a decision must be rendered by
AHCCCSA prior to filing a grievance pursuant to Article 8 of AHCCCS Rules.
Sanction amounts will be deducted from the Contractor's capitation payment.

<PAGE>

ATTACHMENT J: NEW OFFEROR REVIEW GUIDE

This document contains interview guides and worksheets for use in evaluating the
existing infrastructure and potential readiness of new offerors to participate
in the AHCCCS program. There are separate guides and worksheets for each of four
review areas, as well as a final section for recording summary findings. Each
evaluator will complete the readiness review guides and worksheets pertaining to
his/her section of the review and assign a grade (A, B, or C). In assigning the
grade, evaluators will determine whether the organization:

a.       Demonstrates full readiness to meet AHCCCS program standards as of the
         time of the review (i.e., has in place a core health plan
         infrastructure, as well as specific components relevant to a mandatory
         Medicaid managed care program); OR

b.       Demonstrates the existence of a core health plan infrastructure, as
         well as: l) an understanding of what modifications will be required to
         modify its system to meet AHCCCS program standards and 2) a reasonable
         plan for making such modifications; OR

c.       Fails to demonstrate the existence of a core health plan infrastructure
         and/or an understanding of what modifications will be required to meet
         AHCCCS program standards.

REVIEWER PREPARATION ACTIVITIES: The chart at the back of this section contains
a summary of the interviews to be conducted on-site, as well as the documents to
be examined by reviewers. Prior to the review, the new offeror should be
contacted for purposes of arranging the necessary interviews and confirming
availability of the requested documents. Note that some documents may be
included in offeror proposals. To the extent these are available prior to the
site visit, reviewers will examine them beforehand. Reviewers also will examine
the CYE 98 AHCCCS RFP and the new offeror's full proposal, again assuming it is
available prior to the visit.

POST REVIEW ACTIVITIES: Following the completion of on-site activities,
reviewers should record findings in the summary section of the guide, being
certain to document fully the basis for any "C" grades awarded to a plan. The
individual functional area findings then should be used by the review team's
leader to make a final judgment and recommendation to AHCCCS with respect to the
readiness of the new offeror to meet all program standards at the start of the
next contract cycle, if awarded a contract.

                       EVALUATION SCOPE SUMMARY BY SECTION
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
          SECTION                           INTERVIEWS                                DOCUMENT REVIEW
----------------------------------------------------------------------------------------------------------------------
<S>                           <C>                                      <C>
Administration and            a.   Health Plan CEO or Government       a.       Resumes for Key Staff
Management                         Programs Director                   b.       Implementation Plan
                              b.   AHCCCS Program Manger (if           c.       Financial Policies and Procedures
                                   identified)                         d.       Financial Reports
                              c.   Health Plan CFO
----------------------------------------------------------------------------------------------------------------------
Member Enrollment and         d.   Individual to be identified         e.       Member Enrollment/Services Policies
Services                           by plan                                      and Procedures
                                                                       f.       Customer Service Representative
                                                                                Reference Guides
                                                                       g.       New Employee Training Materials
----------------------------------------------------------------------------------------------------------------------
Quality Management/Medical    e.   Medical Director                    h.       Credentialling Policies & Procedures
Management                    f.   Quality Management/Medical          i.       Medical Management Policies &
                                   Management Director(s)                       Procedures
                                                                       j.       Quality Management Plan
----------------------------------------------------------------------------------------------------------------------
Claims/Encounters             g.   Claims Director                     k.       Claims Policies and Procedures
Processing/MIS                h.   MIS Director                        l.       Sampling of Claims/Remittance Advices
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

I.   ADMINISTRATION AND MANAGEMENT

INTERVIEW TOPICAL AREAS
1.       Experience with Managed Care (Commercial and Medicaid)
2.       General Implementation/Readiness Activities
3.       Proposed Infrastructure for AHCCCS Program Management
4.       Financial Management

DOCUMENT INSPECTION
1.       Resumes/Job Descriptions for Key Staff
2.       Implementation Plan for AHCCCS Program Management
a.       Financial Policies and Procedures
4.       Financial Reports

AM1. EXPERIENCE WITH MANAGED CARE

1.       Provide an overview of your organization's experience in managing full
         risk capitation products.
         a.       Commercial products outside of Arizona (where operate; years;
                  number of enrollees)
         b.       Commercial products within Arizona (where operate; years;
                  number of enrollees)
         c.       Medicaid products outside of Arizona (where operate; years;
                  number of enrollees)

2.       What do you see as the key differences between meeting the requirements
         of your existing contracts versus what would be required for
         demonstrating full compliance with AHCCCS standards?
         a.       Differentiation between commercial and Medicaid lines of
                  business (member education/sophistication; EPSDT requirements
                  for children; maternal health; large disabled population)
         b.       Differentiation between AHCCCS program and other Medicaid
                  programs in which offeror currently operates if applicable
                  (mandatory enrollment; inclusion of SSI beneficiaries; large
                  rural component; American Indian population)

AM2. GENERAL IMPLEMENTATION/READINESS ACTIVITIES

1.       Describe your hiring and intended training activities to prepare for
         participation in the AHCCCS program.
         a.       Key management slots (schedule for hiring)
         b.       Other staff (how were staffing numbers developed?)
         c.       Training (what general training will be required for all
                  employees, regardless of functional area?)

2.       Describe the status of network development activities.
         a.       Primary care (if awarded contract, timetable and plan for
                  converting LOIs to contracts)
         b.       Specialists
         c.       Hospitals
         d.       Other providers (pharmacies, transportation, behavioral
                  health, dental)

3.   Implementation Plan
         a.       Describe the status of your formal implementation plan.
         b.       What did you draw upon in setting timetables and resource
                  commitments (e.g., experience in other Medicaid programs)?
         c.       Who is accountable for the plan's timely execution and how
                  will its execution be monitored by senior management?
         d.       Have you previously undertaken any expansions similar in scope
                  to this one? Were they accomplished on-schedule? What were the
                  major operational issues confronted and how were they
                  resolved?

AM3. PROPOSED INFRASTRUCTURE FOR AHCCCS PROGRAM MANAGEMENT
1.       Where will your administrative offices for the program be located?

<PAGE>

         a.       Functions to be housed in-State (status -- has space been
                  acquired/leased; if bidding for multiple counties, what
                  functions will be established within each county and which
                  will be administered from a central State office?)
         b.       Functions to be housed out-of-State (how will these be linked
                  to your in-State operations; is this a model already used by
                  your organization for other programs?)

AM4. FINANCIAL MANAGEMENT

1.       Discuss your financial expectations with respect to the AHCCCS program.
         a.       Medical expense and administrative expense (how determined).
         b.       Discuss your experience in other Medicaid programs (if
                  applicable).
2.       Describe the methods used for tracking separate lines of business.
         a.       Medical expense
         b.       Corporate overhead (allocation methodology)
3.       Describe other components of your financial reporting system.
         a.       What types of financial management reports do you currently
                  generate? How often? Who reviews?
         b.       Describe IBNR/RBUC methodology.
         c.       What modifications, if any, do you see as necessary for the
                  AHCCCS program as it relates to financial management?
CHART AM-A: RESUMES/JOB DESCRIPTIONS FOR KEY STAFF
                  Instructions: Obtain resumes for existing staff and job
                  descriptions for unfilled positions. Fill-out chart for each
                  position. If no resume or job description available, note as
                  such. In all cases, review the resume or job description for
                  the individual who would be most directly responsible for the
                  AHCCCS contract (e.g., if the plan has a corporate Member
                  Services Director but will designate an AHCCCS Member Services
                  Manager, review the latter).

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                             RELEVANT MANAGED CARE     RELEVANT MEDICAID       EDUCATION/TRAINING/
                             EXPERIENCE (ACTUAL OR   EXPERIENCE (ACTUAL OR      LICENSE (ACTUAL OR
         POSITION                  REQUIRED)               REQUIRED)                REQUIRED)             COMMENTS
-----------------------------------------------------------------------------------------------------------------------------------
<S>     <C>                  <C>                     <C>                       <C>                        <C>
CEO or AHCCCS Program
Director
-----------------------------------------------------------------------------------------------------------------------------------
CFO
-----------------------------------------------------------------------------------------------------------------------------------
Medical Director
-----------------------------------------------------------------------------------------------------------------------------------
QM/MM Director
-----------------------------------------------------------------------------------------------------------------------------------
Claims Director
-----------------------------------------------------------------------------------------------------------------------------------
MIS Director
-----------------------------------------------------------------------------------------------------------------------------------
Member Svcs Director
-----------------------------------------------------------------------------------------------------------------------------------
Prov. Svcs. Dir.
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Additional Comments:

CHART AM-B: IMPLEMENTATION PLAN
                  Instructions: Obtain organization's implementation plan(s) for
                  preparing to participate in the AHCCCS program. Document
                  whether the identified major tasks are addressed within each
                  functional area and, if so, the expected completion date. Note
                  in comments section whether the workplan appears sufficiently
                  detailed, whether tasks are ordered appropriately, and whether
                  the timeline is both realistic and rapid enough to assure
                  readiness at the start of the next contract cycle. If no plan
                  exists for a particular functional area, or if all necessary
                  components already are in place, note this as well.

<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                                        TARGET
                                                                        ADDRESSED?     COMPLETION
   FUNCTIONAL AREA                IMPLEMENTATION ACTIVITY               (YES OR NO)       DATE           COMMENTS
--------------------------------------------------------------------------------------------------------------------
<S>                     <C>                                             <C>            <C>               <C>
Administration          Hiring Program Director
                        Obtaining office space, phone system

Enrollment and Member   Hiring a Member Services Director
Services                Hiring Member Services Staff
                        Developing AHCCCS-specific policies &
                        procedures
                        Developing AHCCCS-specific CSR reference
                        guides/scripts
                        Acquiring and installing CSR workstations
                        to accommodate AHCCCS enrollment
                        Training Member Services staff (CSRs)
                        Producing materials for new members
                        (handbook, other)

--------------------------------------------------------------------------------------------------------------------
Quality Mgt/Medical     Hiring a Medical Director
Mgt. (QM/MM)            Hiring a QM/MM Director(s)
                        Hiring other QM/MM staff
                        Creating/updating PA policies for AHCCCS
                        program
                        Creating/updating concurrent review
                        policies for AHCCCS
                        Creating/updating retro review policies for
                        AHCCCS

--------------------------------------------------------------------------------------------------------------------
Prov. Contracting and   Hiring a Provider Services Director
Services                Completing contracting and credentialling
                        activities
                        Completing provider training and
                        orientation of office staff

--------------------------------------------------------------------------------------------------------------------
Claims/Encounters       Hiring a Claims Director (or finalizing
                        out-sourcing)
                        Hiring other claims staff to accommodate
                        volume (Number of staff and position titles
                        (i.e., Medical Review, Data Entry, etc.))
                        Updating claims policies and procedures for
                        AHCCCS
                        Enhancing processing capacity for AHCCCS

--------------------------------------------------------------------------------------------------------------------
MIS                     Hiring an MIS Director (or finalizing
                        out-sourcing)
                        Hiring other MIS staff
                        Enhancing MIS capacity for AHCCCS
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional comments:

CHART AM-C: FINANCIAL POLICIES AND PROCEDURES; GENERAL LEDGER
         Instructions: Obtain and review financial policies and procedures and
         general ledger of accounts. Document the adequacy of each with respect
         to health plan management in general, and the AHCCCS program in
         particular. Also note any inconsistencies with interview comments.

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                              ADEQUACY WITH RESPECT
           REVIEW AREA                    ADEQUACY FOR GENERAL FINANCIAL MANAGEMENT           TO THE AHCCCS PROGRAM
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                                                 <C>
Medical expense tracking
Administrative cost allocation
IBNR/RBUC methodology
Financial Reports
----------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
II.  MEMBER ENROLLMENT AND SERVICES

INTERVIEW TOPICAL AREAS
1.       General Implementation/Readiness Activities
2.       Training of Member Services Staff (CSRs)
3.       Member Complaints

DOCUMENT INSPECTION
1.       Member Enrollment/Services Policies and Procedures
2.       CSR Reference Guides
3.       New Employee Training Materials

MS1. GENERAL IMPLEMENTATION/READINESS ACTIVITIES
1.       Describe your existing Member Services capacity and how it will be
         expanded/modified for participation in the AHCCCS program.
         a.       Existing capacity (staff, workstations)
         b.       Expansion/modifications intended for AHCCCS (how determined?)
2.       Describe how you do the following today (if applicable), your
         understanding of AHCCCS requirements in each area, and how your process
         will be modified for AHCCCS, if at all.
         a.       Contacting new members (methods and timeframes)
         b.       Assigning PCPs (timeframes and criteria)
         c.       Encouraging initial physician visits; EPSDT screens (for
                  children)
         d.       Identifying members with special health care needs (e.g.,
                  asthma, diabetes, pregnancy etc.) and linking them with
                  appropriate providers/services
         e.       Assisting non-English speaking members; visually and hearing
                  impaired members
         f.       Handling non-compliant members (missed appointments; high risk
                  behavior, unnecessary ER utilization)
         g.       Producing/distributing educational materials to members (what
                  exists today; reading level; commercial or Medicaid?)

MS2. TRAINING OF MEMBER SERVICES STAFF

1.       Describe your current training methods for new Member Services staff
         (CSRs) and how this will be modified for AHCCCS, if at all.
         a.       Current (orientations; training materials; time spent working
                  with senior CSRs)
         b.       AHCCCS
MS3. MEMBER COMPLAINTS
1.       Describe your current process for receiving and responding to
         complaints (if applicable), your understanding of AHCCCS requirements,
         and how your process will be modified for AHCCCS, if at all.
         a.       Current (who handles; logging; tracking; timeframes for
                  resolution--medical and other)
         b.       AHCCCS

CHART MS-A: MEMBER ENROLLMENT/SERVICES POLICIES AND PROCEDURES
                  Instructions: Review policies and procedures for completeness
                  and consistency with interview comments. Also indicate degree
                  to which policies conform to AHCCCS standards or will require
                  revision. If policies/procedures do not exist at all, note
                  this as well.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
           POLICY/PROCEDURE                  COMPLETENESS/CONSISTENCY            CONFORMANCE TO AHCCCS STANDARDS
--------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                                 <C>
Contracting new members
--------------------------------------------------------------------------------------------------------------------
Assigning PCPs
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S>                                          <C>                                 <C>
--------------------------------------------------------------------------------------------------------------------
Handling PCP change requests
--------------------------------------------------------------------------------------------------------------------
Assisting members to arrange
appointments
--------------------------------------------------------------------------------------------------------------------
Responding to member complaints
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional comments:

CHART MS-B: CSR REFERENCE GUIDES/SCRIPTS
         Instructions: Review CSR reference guides and telephone scripts for
         completeness and quality. Also indicate degree to which policies
         conform to AHCCCS standards or will require revision. If guides/scripts
         do not exist at all, note this as well.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
             GUIDE/SCRIPT                      COMPLETENESS/QUALITY              CONFORMANCE TO AHCCCS STANDARDS
--------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                               <C>
Assisting in PCP selection
--------------------------------------------------------------------------------------------------------------------
Handling PCP change requests
--------------------------------------------------------------------------------------------------------------------
Assisting members to arrange
appointments
--------------------------------------------------------------------------------------------------------------------
Addressing other member inquiries
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional comments:

MS-C:    NEW EMPLOYEE TRAINING MATERIALS
         Instructions: Review materials for completeness and consistency with
         interview comments. Also indicate degree to which policies conform to
         AHCCCS standards or will require revision. If materials do not exist at
         all, note this as well.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
            TRAINING AREA                    COMPLETENESS/CONSISTENCY            CONFORMANCE TO AHCCCS STANDARDS
--------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                                 <C>
AHCCCS Program or Medicaid Programs
in General
--------------------------------------------------------------------------------------------------------------------
Assigning PCPs
--------------------------------------------------------------------------------------------------------------------
Handling PCP change requests
--------------------------------------------------------------------------------------------------------------------
Assisting members to arrange
appointments
--------------------------------------------------------------------------------------------------------------------
Responding to member complaints
--------------------------------------------------------------------------------------------------------------------
</TABLE>

III. QUALITY MANAGEMENT/MEDICAL MANAGEMENT (QM/MM)

INTERVIEW TOPICAL AREAS
1.       General Implementation/Readiness Activities
2.       Understanding of Quality Management/Utilization Management (QM/UM)

DOCUMENT INSPECTION
1.       Credentialling Policies
2.       Medical Management Policies and Procedures

QM1. GENERAL IMPLEMENTATION/READINESS ACTIVITIES
1.       Describe your existing QM/MM structure and how it will be
         enhanced/modified for participation in the AHCCCS program.
         a.       Existing structure/capacity (clinical staff; other)
         b.       Enhancements/modifications intended for AHCCCS, including
                  staffing (how determined?)

<PAGE>
2.       Describe how the following medical management components are currently
         addressed (if applicable), your understanding of AHCCCS requirements in
         each area, and how these components/policies will be modified for
         AHCCCS, if at all.
         a.       Prior Authorization (what requires authorization; who reviews;
                  timeframe for reviews: appeal process for denials)
         b.       Concurrent review (who conducts; how often; protocols followed
                  for discharge planning)
         c.       Retrospective medical review (what is reviewed; who performs;
                  follow-up to identified issues)
         d.       Pharmacy benefits management (describe)

QM2. UNDERSTANDING OF QM/UM
1.       Describe how your QM/UM Plan addresses each of the following today,
         your understanding of QM requirements in each area, and how your QM/UM
         Plan will be modified to meet QM/AHCCCS standards.
         a.       Responsible body/parties for oversight of QM/UM Plan (e.g.,
                  board)
         b.       Quality Management Committee (composition; responsibilities;
                  meeting frequency)
         c.       Medical Director's role in QM/UM Plan development (FTE
                  commitment; development/review of medical policies and
                  protocols; involvement in medical management)
         d.       Addressing member rights and responsibilities, including
                  protection of confidential information
         e.       Defining and monitoring standards for service
                  availability/accessibility (PCP capacity; compliance with
                  appointment standards; after-hours availability)
         f.       Medical records standards
         g.       Monitoring for service over- and under-utilization among
                  physicians; acting on findings
         h.       Implementing effective case management and care coordination
                  systems, including methods for identifying members with
                  complex/chronic conditions and special health care needs
         i.       Selecting focused clinical study areas; performing same
         j.       Ensuring provision of EPSDT screens and immunizations
         k.       Performing provider credentialling and recredentialling (scope
                  of what is examined during credentialling; frequency of
                  recredentialling; oversight of delegated credentialling
                  activities)
         l.       Describe how findings of QM/UM Plan and QM/UM Committee will
                  be reviewed/responded to by Executive Committee (Board, etc.)

CHART QM-A: CREDENTIALLING/RECREDENTIALLING POLICIES AND PROCEDURES
         Instructions: Review credentialling policies for completeness and
         consistency with interview comments. If policies do not exist at all,
         note this as well:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                        POLICIES ADDRESS
                               CREDENTIALLING AREA                                        YES        NO      COMMENTS
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>          <C>     <C>
Separate policies for credentialling and recredentialling
----------------------------------------------------------------------------------------------------------------------
Practitioner must hold current license and DEA certificate, as applicable
----------------------------------------------------------------------------------------------------------------------
Work history and association with hospitals, HMQs, PHPs, and medical groups
examined
----------------------------------------------------------------------------------------------------------------------
National Practitioners Data Bank (NPDB) queried
----------------------------------------------------------------------------------------------------------------------
Holds current, adequate malpractice coverage
----------------------------------------------------------------------------------------------------------------------
Has not had medical staff privileges curtailed/suspended
----------------------------------------------------------------------------------------------------------------------
Has not had state license or DEA number revoked
----------------------------------------------------------------------------------------------------------------------
Has not been sanctioned by Medicare or Medicaid
----------------------------------------------------------------------------------------------------------------------
Applicant must list names and relevant information of providers who will serve
as on-call designees for provider (applies to non-staff group models only)
----------------------------------------------------------------------------------------------------------------------
Applicant attests to validity of information provided
----------------------------------------------------------------------------------------------------------------------
Site visit is made to practitioner's office
----------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                      POLICIES ADDRESS
                               CREDENTIALLING AREA                                      YES        NO      COMMENTS
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>          <C>     <C>
RECREDENTIALLING POLICIES AND PROCEDURES
----------------------------------------------------------------------------------------------------------------------
Conducted at least every two years
----------------------------------------------------------------------------------------------------------------------
NPDB is queried
----------------------------------------------------------------------------------------------------------------------
Member complaints reviewed
----------------------------------------------------------------------------------------------------------------------
Results of chart audits/quality reviews examined
----------------------------------------------------------------------------------------------------------------------
</TABLE>

CHART QM-B: MEDICAL MANAGEMENT POLICIES AND PROCEDURES
         Instructions: Review policies for completeness and consistency with
         interview comments. Also indicate degree to which policies conform to
         AHCCCS standards or will require revision. If policies do not exist at
         all, note this as well.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

        MEDICAL MANAGEMENT AREA                COMPLETENESS/CONSISTENCY             CONFORMANCE TO AHCCCS STANDARDS
--------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                                  <C>
Prior Authorization
-        services requiring
-        process for requesting
-        after hours process
-        timeliness
-        appeal process
--------------------------------------------------------------------------------------------------------------------
Concurrent Review
-        staff to perform
-        protocols used
-        frequency
--------------------------------------------------------------------------------------------------------------------
Retrospective Review
-        cases requiring
-        staff to perform
-        follow-up
--------------------------------------------------------------------------------------------------------------------
Additional comments:
</TABLE>

IV.  CLAIMS/INFORMATION SYSTEMS

INTERVIEW TOPICAL AREAS
1.       General Implementation/Readiness Activities

DOCUMENT INSPECTION
1.       Claims Sampling
2.       Claims Policies and Procedures

CL1. GENERAL IMPLEMENTATION/READINESS ACTIVITIES
1.       Describe your existing claims processing system and capacity and how it
         will be enhanced/modified for participation in the AHCCCS program.
         a.       Existing structure/capacity (age of system; in-house or
                  outsourced; staffing; claims volume)
         b.       Describe claims flow and timeliness of processing for hospital
                  claims, physician claims, and pharmacy claims
         c.       How will the claims system interface with the prior
                  authorization system and concurrent review system to ensure
                  claims are correctly paid?
         d.       If claims are processed by a subcontractor, describe any
                  modifications that will be necessary under the contract
                  pursuant to participating in the AHCCCS program.

<PAGE>
         e.       If claims are processed by an in-house system, describe any
                  enhancements/modifications intended for AHCCCS, including
                  staffing. (How determined?)
         f.       Do you process encounters, as opposed to claims, as part of
                  your current operations? How do you produce encounters and how
                  do you ensure their accuracy? Describe your understanding of
                  AHCCCS encounter reporting requirements and any
                  enhancements/modifications that will be necessary to meet
                  them.
2.       Describe your overall existing information system capacity and how it
         will be enhanced/modified for participation in the AHCCCS program.
         a.       Existing structure/capacity (age of system; how supported;
                  programmer staffing, ability/ experience in reporting HEDIS,
                  or AEDIS - like indicators/outcome measurements)
         b.       Enhancements/modifications intended for AHCCCS, including
                  staffing (how determined?)

CHART CL-A: CLAIMS TESTING
         Instructions: Pull a sample of hospital and physician claims, following
         the sampling methodology to be supplied under separate cover. Examine
         each claim for completeness, clarity of remittance advice (if
         applicable), and timeliness of adjudication.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
    CLAIM                                   DATE OF REM.        REMITTANCE      DATE OF PAYMENT OR
 NUMBER/TYPE           DATE OF RECEIPT      ADVICE ISSUE       ADVICE CLEAR?       FINAL DENIAL          COMMENTS
-----------------------------------------------------------------------------------------------------------------------
<S>                    <C>                  <C>                <C>              <C>                      <C>

-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
</TABLE>

CHART CL-B: CLAIMS POLICIES AND PROCEDURES
         Instructions: Review policies and procedures for completeness and
         timeliness and consistency with references. Also indicate degree to
         which policies conform to AHCCCS standards or will require revision. If
         policies/procedures do not exist at all, note this as well.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                                      CONFORMANCE TO AHCCCS
                  POLICY/PROCEDURE                       COMPLETENESS/TIMELINESS             STANDARDS
--------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                          <C>
Receipt and logging-in of claims
--------------------------------------------------------------------------------------------------------------------
Verification of prior authorization (if applicable)
--------------------------------------------------------------------------------------------------------------------
Edit/override authority for claims staff
--------------------------------------------------------------------------------------------------------------------
Claim matched against TPL information
--------------------------------------------------------------------------------------------------------------------
Remittance Advice information
--------------------------------------------------------------------------------------------------------------------
Payment/final adjudication timeframes
--------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

V.       SUMMARY OF FINDINGS
                  Instructions: Assign a grade of "A", "B", or "C" for each
                  review topical area and for each review section overall.
                  Consider documentation findings as appropriate in grading
                  related topical areas. Explain in detail the basis for any "C"
                  findings. Team leader is responsible for assigning total
                  grade, based on findings for the four review sections.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                  READINESS LEVEL
                        REVIEW AREA                                    A B C                       COMMENTS
<S>                     <C>                                       <C>                              <C>
---------------------------------------------------------------------------------------------------------------------
Administration and Management
---------------------------------------------------------------------------------------------------------------------
1.  Experience
---------------------------------------------------------------------------------------------------------------------
2.   General Implem./Readiness Activities
---------------------------------------------------------------------------------------------------------------------
3.   Proposed Infrastructure
---------------------------------------------------------------------------------------------------------------------
4.   Financial Management
---------------------------------------------------------------------------------------------------------------------
Overall Readiness - Admin. & Mgt.
---------------------------------------------------------------------------------------------------------------------
Member Enrollment and Services
---------------------------------------------------------------------------------------------------------------------
1.   General Implem./Readiness Activities
---------------------------------------------------------------------------------------------------------------------
2.   Training of Member Services Staff
---------------------------------------------------------------------------------------------------------------------
3.   Member Complaints
---------------------------------------------------------------------------------------------------------------------
Overall Readiness - Mbr. Enroll./Svcs.
---------------------------------------------------------------------------------------------------------------------
Quality Management and Medical Mgt.
---------------------------------------------------------------------------------------------------------------------
1.   General Implem./Readiness Activities
---------------------------------------------------------------------------------------------------------------------
2.   Understanding of QM/UM Plan (AHCCCS)
---------------------------------------------------------------------------------------------------------------------
Overall Readiness - QM/MM
---------------------------------------------------------------------------------------------------------------------
Claims/Information System
---------------------------------------------------------------------------------------------------------------------
1.       General Implem./Readiness Activities
---------------------------------------------------------------------------------------------------------------------
Overall Readiness - Claims/IS
---------------------------------------------------------------------------------------------------------------------

Overall Grade:

---------------------------------------------------------------------------------------------------------------------
Additional Comments:
</TABLE>
<PAGE>
ATTACHMENT K: EPSDT PERIODICITY SCHEDULE

<Table>
<Caption>
---------------------------------------------------------------------------------------------------------------------------------
                                                                                            EARLY                     MIDDLE
        PROCEDURES                               INFANCY                                  CHILDHOOD                  CHILDHOOD
                           ------------------------------------------------------------------------------------------------------
<S>                        <C>    <C>   <C>     <C>     <C>    <C>   <C>    <C>   <C>   <C>    <C>   <C>   <C>  <C>   <C>  <C> <C>
                           NEW    2-4   BY 1     2      4      6     9      12    15    18     24    3     4    5     6    8   10
                           BORN   DAY    MO      MO     MO     MO    MO     MO    MO    MO     MO    YR    YR   YR    YR   YR  YR

HISTORY INITIAL/INTERVAL    X      X      X      X      X      X     X      X     X      X     X     X     X    X     X    X   X
HEIGHT & WEIGHT             X      X      X      X      X      X     X      X     X      X     X     X     X    X     X    X   X
HEAD CIRCUMFERENCE          X      X      X      X      X      X     X      X     X      X     X
BLOOD PRESSURE                                                                                       X     X    X     X    X   X
NUTRITIONAL ASSESSMENT      X      X      X      X      X      X     X      X     X      X     X     X     X    X     X    X   X
VISION**
HEARING**/SPEECH
DEV./BEHAVIORAL ASSESS.     X      X      X      X      X      X     X      X     X      X     X     X     X    X     X    X   X
PHYSICAL EXAMINATION        X      X      X      X      X      X     X      X     X      X     X     X     X    X     X    X   X
IMMUNIZATION                X---  -----   ->     X      X      X           <-     X     ->                <-    X    ->        <-
TUBERCULIN TEST                                                             X     X      X     X     X     X    X     X    X   X
HEMATOCRIT/HEMOGLOBIN                     <-     <-    <-     <-     X
URINALYSIS                                                                                                      X
LEAD SCREEN                                                    X     ->                        X
ANTICIPATORY GUIDANCE       X      X      X      X      X      X     X      X     X      X     X     X     X    X     X    X   X
DENTAL REFERRAL**
---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>

----------------------------------------------------------------

        PROCEDURES                        ADOLESCENCE
                             -----------------------------------
                                12    14   16    18    20+ UP
                                YR    YR   YR    YR    TO 21  YR
                             -----------------------------------
<S>                            <C>    <C>  <C>   <C>   <C>
HISTORY INITIAL/INTERVAL         X     X    X      X       X
HEIGHT & WEIGHT                  X     X    X      X       X
HEAD CIRCUMFERENCE
BLOOD PRESSURE                   X     X    X      X       X
NUTRITIONAL ASSESSMENT           X     X    X      X       X
VISION**
HEARING**/SPEECH
DEV./BEHAVIORAL ASSESS.          X     X    X      X       X
PHYSICAL EXAMINATION             X     X    X      X       X
IMMUNIZATION                     X    ->    ->
TUBERCULIN TEST                  X     X    X      X       X
HEMATOCRIT/HEMOGLOBIN            <-    X    ->    ->      ->
URINALYSIS                       <-    X    ->    ->      ->
LEAD SCREEN
ANTICIPATORY GUIDANCE            X     X    X      X       X
DENTAL REFERRAL**
</TABLE>

THESE ARE MINIMUM REQUIREMENTS. IF AT ANY TIME OTHER PROCEDURES, TESTS, ETC. ARE
MEDICALLY INDICATED, THE PHYSICIAN IS OBLIGATED TO PERFORM THEM. IF A CHILD
COMES UNDER CARE FOR THE FIRST TIME AT ANY POINT ON THE SCHEDULE, OR IF ANY
ITEMS ARE NOT ACCOMPLISHED AT THE SUGGESTED AGE, THE SCHEDULE SHOULD BE BROUGHT
UP TO DATE AT THE EARLIEST POSSIBLE TIME.

KEY:  X   = TO BE COMPLETED        +    = TO BE PERFORMED FOR MEMBERS AT RISK

<-  X  -> = THE RANGE DURING WHICH A SERVICE MAY BE PROVIDED WITH THE
            X INDICATING THE PREFERRED AGE.

** SEE SEPARATE SCHEDULE FOR DETAIL.

<PAGE>

                   ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
                           DENTAL PERIODICITY SCHEDULE

<TABLE>
<CAPTION>

                   MONTHS                                          YEARS
PROCEDURE        BIRTH THRU        3      4      5        6        7        8        9       10      11       12       13       14
                 36 MONTHS
-----------------------------------------------------------------------------------------------------------------------------------
<S>              <C>               <C>    <C>    <C>     <C>       <C>      <C>      <C>    <C>      <C>      <C>      <C>      <C>
DENTAL               +             X      X      X        X        X        X        X       X        X        X        X        X
REFERRAL

<CAPTION>

                   MONTHS                                     YEARS
PROCEDURE        BIRTH THRU             15       16      17       18       19    20+ UP
                 36 MONTHS                                                        TO 21
---------------------------------------------------------------------------------------
<S>             <C>                     <C>      <C>     <C>      <C>     <C>     <C>
DENTAL               +                   X       X        X        X        X       X
REFERRAL
</TABLE>

REFERRALS FOR ROUTINE DENTAL VISITS SHOULD BEGIN AT AGE 3. EARLIER INITIAL
DENTAL EVALUATIONS MAY BE APPROPRIATE FOR SOME CHILDREN. SUBSEQUENT EXAMINATIONS
AS PRESCRIBED BY DENTIST.

KEY:     +  =  BIRTH TO 36 MONTHS IF INDICATED
         X = TO BE COMPLETED

<PAGE>
ATTACHMENT L:   OFFEROR'S CHECKLIST

INSTRUCTIONS:

a.       Offerors must submit all items below, except as noted. In the column
         titled "Offeror's Page #", the Offeror must enter the appropriate page
         numbers from its proposal where the AHCCCS Evaluation Panel may find
         the Offeror's response to that requirement.

b.       A continuing offeror must submit all items below unless the specific
         submission requirement is waived as described in Section H of this RFP.
         If a continuing offeror is claiming full compliance under this
         provision, the offeror must enter "PER REVIEW" in the column titled
         "Offeror's Page #".

I.       GENERAL MATTERS

<TABLE>
<CAPTION>
         ----------------------------------------------------------------------------------------------
                                                                DISCUSSED
                                                                IN SECTION/       RFP       OFFEROR'S
                                                                  PARA. #:       PAGE #:      PAGE #
         ----------------------------------------------------------------------------------------------
         <S>                                                    <C>              <C>        <C>
         Offeror's signature page                               (Front page)        1           N/A
         ----------------------------------------------------------------------------------------------
         Offeror's Checklist (this attachment)                      N/A            N/A
         ----------------------------------------------------------------------------------------------
         Certification of Accuracy of Information Provided          G.1            63           N/A
         ----------------------------------------------------------------------------------------------
         Certification of Non-Coercion                              G.2            63           N/A
         ----------------------------------------------------------------------------------------------
         Certification of Compliance/Anti-Kickback/Lab testing      G.3            63           N/A
         ----------------------------------------------------------------------------------------------
         Completion of all items in Section G of the RFP             G.           63-70
         ----------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------
</TABLE>

NOTE: The "Reqmt. #"shown below in Parts II, III, IV and V refers to the
numbered submission requirements outlined in Section H, Paragraph 1, pages 73-78
of this RFP.

II.      PROVIDER NETWORK

<TABLE>
<CAPTION>
                     ---------------------------------------------------------------------------------
                                                                                        OFFEROR'S
                     SUBJECT:                                        REQMT. #:           PAGE #:
                     ---------------------------------------------------------------------------------
                     <S>                                             <C>                <C>
                     Network Development                             1. (a, b)
                     ---------------------------------------------------------------------------------
                                                                        2.
                     ---------------------------------------------------------------------------------
                                                                        3.
                     ---------------------------------------------------------------------------------
                     Monitoring/Control of Network                      4.
                     ---------------------------------------------------------------------------------
                                                                        5.
                     ---------------------------------------------------------------------------------
                                                                        6.
                     ---------------------------------------------------------------------------------
                     Network Communication                              7.
                     ---------------------------------------------------------------------------------
                                                                        8.
                     ---------------------------------------------------------------------------------
                                                                        9.
                     ---------------------------------------------------------------------------------
                                                                        10.
                     ---------------------------------------------------------------------------------
                                                                        11.
                     ---------------------------------------------------------------------------------
                     Capacity Analysis                                  12.
                     ---------------------------------------------------------------------------------
                                                                        13.
                     ---------------------------------------------------------------------------------
                                                                        14.
                     ---------------------------------------------------------------------------------
</TABLE>

<PAGE>
           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                               CONTRACT AMENDMENT

                                                                          Page 1

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
AMENDMENT NUMBER:        CONTRACT NUMBER:         EFFECTIVE DATE OF AMENDMENT:         PROGRAM:
       1                   YH8-0001-05                 October 1, 1997                  ACUTE
-------------------------------------------------------------------------------------------------
<S>                      <C>                      <C>                                  <C>
CONTRACTOR'S NAME AND ADDRESS:

         Pat Levin, President
         Health Choice Arizona
         1600 W. Broadway, Ste 260
         Tempe, AZ 85282-1502
-------------------------------------------------------------------------------------------------
PURPOSE OF AMENDMENT: To add conditions to the establishment of the contract.
-------------------------------------------------------------------------------------------------
</TABLE>

THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

The attached pages describe certain conditions that the above Offeror/Contractor
must agree to in order to establish this contract. By signing, dating and
returning both originals of this amendment, the Offeror/Contractor is agreeing
to be bound by the new conditions contained herein.

NOTE. Please sign, date and return both originals to: Mark Renshaw
                                                      AHCCCS Contracts and
                                                      Purchasing
                                                      701 E. Jefferson
                                                      Phoenix, AZ 85034

<TABLE>
<Caption>
-------------------------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT REMAIN UNCHANGED
AND IN FULL EFFECT.
-------------------------------------------------------------------------------------------------
<S>                                               <C>
SIGNATURE OF AUTHORIZED REPRESENTATIVE:           SIGNATURE OF AHCCCSA CONTRACTING OFFICER:

         /s/ Pat Levin                                     /s/ Michael Veit
-------------------------------------------------------------------------------------------------
TYPED NAME:                                       TYPED NAME:
         Pat Levin                                         Michael Veit
-------------------------------------------------------------------------------------------------
TITLE:                                            TITLE:
         President                                         Contracts & Purchasing Administrator
-------------------------------------------------------------------------------------------------
DATE:                                             DATE:
         June 16, 1997                                     June 17, 1997
-------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                         SPECIAL PROVISIONS (YH8-0001)

                            HEALTH CHOICE OF ARIZONA

1.       MINIMUM NETWORK STANDARDS

         Contractor must have made significant progress toward signed
         subcontracts with the entire provider network by July 15, 1997, in
         order to participate in "Open Enrollment". Contractors must have their
         entire provider network contracted, with contracts that meet or exceed
         the applicable Geographic Service Area (GSA) Minimum Network Standards,
         as outlined in Attachment B of this contract, by August 15, 1997.
         Furthermore, the Contractor must have in place a sufficient number of
         contracts with providers to ensure that all covered services, as
         described in Section D, paragraph 1 (Scope of Services) of this
         contract, will be provided in accordance with Section D, paragraph 19
         (Appointment Standards) of this contract. Contractor must have a
         provider network that will be capable of serving the greater of your
         existing membership in a GSA or up to one quarter of the members in
         Pima County and one sixth of the members in Maricopa County, based on
         May 1997 members (see attached matrix of members to be covered by
         Network). Also attached is a matrix showing the contract awards by GSA,
         effective October 1, 1997.

         Failure to meet this provision may result in contract termination or
         the selection of an alternative contractor, financial sanctions, an
         enrollment cap, or other penalties in accordance with R9-22-405 and
         R9-22-406.

2.       COMPLIANCE WITH MARKETING POLICY

         Marketing materials can only list contracted providers. If Contractor
         is found to be in violation of the AHCCCS Health Plan Marketing Policy,
         Contractor may be subject to an enrollment cap in the applicable
         GSA(s) affected by the violation.

3.       REVISED FINANCIAL FORECASTS

         The contractor is required to supply AHCCCS with revised financial
         forecasts by 7/15/97 based on awarded rates, excluding prior period
         coverage revenues and expenses. On a statewide basis, provide financial
         forecasts including income statement and balance sheet for each year of
         the next three years. Any losses budgeted will require additional
         equity and performance bond coverage.

4.       PERFORMANCE BONDS

         Contractor must submit a detailed plan to meet the AHCCCS performance
         bond requirements to the Office of Managed Care by June 30, 1997. All
         performance bond account activity requires the advanced approval of
         AHCCCS. The performance bond must be posted within 15 days following
         notification by AHCCCSA of the amount required.

<PAGE>

5.       MINIMUM CAPITALIZATION REQUIREMENTS AND EQUITY PER MEMBER

         The capitalization requirement must be met by June 30, 1997. Please
         refer to Section D, paragraph 55, of the CYE `98 Contract, for the
         minimum capitalization requirements by GSA. Contractor must maintain
         unencumbered equity, in the amount of $150 per non-SOBRA Family
         Planning Extension Services members enrolled, with no liens or
         obligations against it. Failure to meet this standard may result in an
         enrollment cap being imposed in any or all contracted GSA's.

6.       READINESS ASSESSMENT

         As discussed in Section D, paragraph 32 of this contract, AHCCCS may
         conduct Operational and Financial Readiness Reviews on all successful
         offerors. A contractor will be permitted to commence operations only if
         the Readiness Review establishes the ability to comply with contractual
         requirements. AHCCCS may enforce provisions of R9-22-405 and R9-22-406
         if Contractor does not satisfy Readiness Review requirements.

7.       MANAGEMENT SERVICES SUBCONTRACTORS

         All proposed management services subcontracts and/or corporate cost
         allocation plans must be submitted to the Office of Managed Care for
         prior approval. Cost allocation plans must be submitted with the
         proposed management fee agreement. AHCCCSA reserves the right to
         perform a thorough review of actual management fees.charged and/or
         corporate allocations made. If the fees or allocations actually paid
         out are determined to be unjustified or excessive, amounts may be
         subject to repayment to the Contractor, the Contractor may be placed on
         monthly financial reporting, and/or financial sanctions may be imposed.
         Further, no changes can be made to the management agreements without
         AHCCCS' prior approval. Finally, all administrative costs, including
         management fees, allocated fees, can not exceed 10% annually.

8.       ADDITIONAL FINANCIAL REPORTING

         Contractor is a wholly owned subsidiary of OrNda HealthCorp, a Delaware
         corporation. Consequently , contractor must submit quarterly unaudited
         financial information of the parent or sponsoring organization (balance
         sheet and income statement only) within 60 days of quarter end, and
         audited financial statements of the parent or sponsoring organization
         no later than 120 days after fiscal year end.

9.       PRIOR PERIOD COVERAGE RATES

         AHCCCS acknowledges that the final offered prior period coverage rates
         have not been provided and will provide the Contractor with these rates
         as soon as possible.

<PAGE>

                       Members to be Covered by Network by Offerors

<TABLE>
<CAPTION>
            Offerors           GSA #1   GSA #2    GSA #3     GSA #4     GSA #5     GSA #6     GSA #7     GSA #8      GSA #9
---------------------------------------------------------------------------------------------------------------------------
<S>                            <C>      <C>       <C>        <C>        <C>        <C>        <C>        <C>         <C>
Access Blue Connection                   8,100    8,264       7,181                31,055
---------------------------------------------------------------------------------------------------------------------------
Arizona Physician IPA          12,459    7,190    9,019                 15,521     42,776      2,022      4,927      10,937
---------------------------------------------------------------------------------------------------------------------------
CIGNA Community Choice                                                             20,389
---------------------------------------------------------------------------------------------------------------------------
Doctor's Health Plan                                                                           2,545
---------------------------------------------------------------------------------------------------------------------------
Family Health Plan of NEAZ                                                                                3,431
---------------------------------------------------------------------------------------------------------------------------
Health Choice of Arizona                                                15,507     31,055
---------------------------------------------------------------------------------------------------------------------------
Maricopa Managed Care                                                              31,055
---------------------------------------------------------------------------------------------------------------------------
Mercy Care Plan                 7,994                                   15,507     39,126                            9,969
---------------------------------------------------------------------------------------------------------------------------
Phoenix Health Plan/C.C.                                     10,841                31,055
---------------------------------------------------------------------------------------------------------------------------
Pima Health Plan                                                        11,509
---------------------------------------------------------------------------------------------------------------------------
University Physicians                                                   15,507
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                               CONTRACT AMENDMENT

                                                                     Page 1 of 2

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
AMENDMENT NUMBER:        CONTRACT NUMBER:         EFFECTIVE DATE OF AMENDMENT:         PROGRAM:
       2                   YH8-0001-05                 October 1, 1997                  ACUTE
-------------------------------------------------------------------------------------------------
<S>                      <C>                      <C>                                  <C>
CONTRACTOR'S NAME AND ADDRESS:

         Pat Levin, President
         Health Choice Arizona
         1600 W. Broadway, Ste 260
         Tempe, AZ 85282-1502
-------------------------------------------------------------------------------------------------
PURPOSE OF AMENDMENT: To set prospective and prior period capitation rates.

-------------------------------------------------------------------------------------------------
</TABLE>

THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

         Effective 10/1/97, the Contractor will be paid prospective and prior
period capitation in accordance with the rates shown on the following page.

NOTE. Please sign, date and return both originals to: Mark Renshaw
                                                      AHCCCS Contracts and
                                                      Purchasing
                                                      701 E. Jefferson
                                                      Phoenix, AZ 85034

<TABLE>
<Caption>
-------------------------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT REMAIN UNCHANGED
AND IN FULL EFFECT.
-------------------------------------------------------------------------------------------------
<S>                                               <C>
SIGNATURE OF AUTHORIZED REPRESENTATIVE:           SIGNATURE OF AHCCCSA CONTRACTING OFFICER:

         /s/ Pat Levin                                     /s/ Michael Veit
-------------------------------------------------------------------------------------------------
TYPED NAME:                                       TYPED NAME:
         Pat Levin                                         Michael Veit
-------------------------------------------------------------------------------------------------
TITLE:                                            TITLE:
         President                                         Contracts & Purchasing Administrator
-------------------------------------------------------------------------------------------------
DATE:                                             DATE:
         August 19, 1997                                   August 25, 1997
-------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                                                     Page 2 of 2
HEALTH CHOICE ARIZONA

The new capitation rates effective 10/1/97 are as follows:

<TABLE>
<CAPTION>
                                  TANF
  GEOGRAPHIC          TANF        1-13,      TANF       TANF         TANF       SSI       SSI                        SOBRA
  SERVICE AREA       <1, M/F       M/F     14-44, F   14-44, M     45+, M/F    W/MED    W/O MED   MN/MI    SFP       KICK
----------------    ---------    ------    --------   --------     --------   -------   -------  -------  -----   ---------
<S>                 <C>          <C>       <C>        <C>          <C>        <C>       <C>      <C>      <C>     <C>
GSA #5 (Pima)
   Prospective:     $  313.04    $51.96    $ 158.72    $ 72.90     $193.75    $118.52   $292.32  $331.47  $8.82   $4,260.88
           PPC:     $1,004.80    $31.27    $ 130.31    $ 73.36     $173.48    $ 13.81   $ 60.66  $292.12    N/A         N/A

GSA #6 (Maricopa)
   Prospective:     $  326.82    $52.73    $ 164.11    $ 74.59     $206.59    $130.77   $291.62  $406.27  $9.22   $4,432.33
           PPC:     $1,004.80    $31.27    $ 130.11    $ 73.36     $173.48    $ 13.81   $ 60.66  $292.12    N/A         N/A
</TABLE>

PMPM amounts are based on a $35,000/$15,000 (MN/MI) reinsurance deductible
level. PPC MN/MI rate is a daily rate.

<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                             SOLICITATION AMENDMENT

================================================================================
AMENDMENT NUMBER:   CONTRACT NUMBER:     EFFECTIVE DATE OF AMENDMENT:  PROGRAM:
       2                YH8-0001                  10/1/97                ACUTE
================================================================================
CONTRACTOR'S NAME AND ADDRESS:

         Health Choice Arizona, Inc.
         1600 W. Broadway, Suit 260
         Tempe, Arizona  85282

================================================================================
PURPOSE OF AMENDMENT:        To make various changes in solicitation provisions.

================================================================================
THE SOLICITATION REFERENCED ABOVE IS AMENDED AS FOLLOWS:

         The following paragraphs have been revised to reflect changes in
capitation, reinsurance, best and final offer procedure, and bid evaluation:

                  Section D, Paragraph 22, Primary Care Provider Standards
                  Section D, Paragraph 23, Other Provider Standards
                  Section D, Paragraph 37, Compensation
                  Section D, Paragraph 39, Reinsurance
                  Section H, Paragraph 8, Best and Final Offers
                  Section 1, Paragraph 2, Capitation

NOTE TO OFFERORS: Please enter name and address above; enter name and title
below; sign below. A copy of this signature page only must be submitted with
your proposal.

================================================================================
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT
REMAIN UNCHANGED AND IN FULL EFFECT.
================================================================================
SIGNATURE OF AUTHORIZED REPRESENTATIVE:   SIGNATURE OF AHCCCSA CONTRACTING
                                          OFFICER:

         /s/ Patricia E. Levin                     /s/ Michael Veit
================================================================================
TYPED NAME:                               TYPED NAME:
         Patricia E. Levin                         Michael Veit
================================================================================
TITLE:                                    TITLE:
         President/CEO                             Contracts & Purchasing
                                                   Administrator
================================================================================
DATE:                                     DATE:
         May 12, 1997                              May 07, 1997
================================================================================

<PAGE>

SECTION D, PROGRAM REQUIREMENT:

22.      PRIMARY CARE PROVIDER STANDARDS

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

23.      OTHER PROVIDER STANDARDS

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

For specialty services, the Contractor shall ensure that:

a.       PCP referral shall be required for specialty physician services. Any
waiver of this requirement by the Contractor must be approved in advance by
AHCCCSA...."

37.      COMPENSATION

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

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

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

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

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund, as described in ARS ss.36-2913. An error discovered by the State with or
without an audit in the amount of fees paid to Contractor will be

                                       2
<PAGE>

subject to adjustment or repayment by Contractor making a corresponding decrease
in a current Contractor's payment or by making an additional payment by AHCCCSA
to the Contractor.

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

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

PRIOR PERIOD COVERAGE (PPC) CAPITATION: The Contractor will be paid capitation
for all PPC member months, including partial member months. This capitation
includes the cost of providing medically necessary covered services to members
during prior period coverage. The PPC capitation rates will be set by AHCCCSA
and will be paid to the Contractor along with the prospective capitation
described below. Contractors will not receive PPC capitation on newborns of
members who were enrolled at the time of delivery.

RECONCILIATION OF PPC COSTS TO REIMBURSEMENT: For the first year of the
contract, AHCCCSA will offer a reconciliation process for contractors whose
total PPC cost experience (i.e., for all capitation risk groups) is more than
10% higher than the reimbursement associated with PPC (capitation and
reinsurance). AHCCCSA will reimburse 100% of a Contractor's excess reasonable
costs. AHCCCSA may also require all Contractors to complete a reconciliation
process and recoup from any Contractor, profit amounts in excess of a 10% limit.

AHCCCSA will develop a detailed reconciliation policy which will be distributed
for review and comment at a later date.

PROSPECTIVE CAPITATION: The Contractor will be paid capitation for all
prospective member months, including partial member months. AHCCCSA will make
monthly capitation payments to the Contractor for each member enrolled with the
Contractor on the first of the month as payment in full for any and all covered
services provided to the member, Payment shall be made no later than the fifth
working day of the month for which payment is due. For members enrolled at any
time after the beginning of the month's payment cycle, capitation will be
prorated from the effective date of enrollment through the remainder of the
month of enrollment. These payments will be made by AHCCCS to Contractor on a
weekly basis.

SOBRA SUPPLEMENT: When the Contractor has an enrolled SOBRA woman who delivers
during a prospective enrollment period, the Contractor will be entitled to a
SOBRA payment. SOBRA Supplemental payments will not apply to SOBRA women who
deliver in a prior period

                                       3
<PAGE>

coverage time period. AHCCCSA reserves the right at any time during the term of
this contract to adjust the amount of this SOBRA payment for women who deliver
at home. The Contractor is responsible for meeting the newborn notification
requirements defined in AHCCCS Rule R9-22-342 before this payment will be made
to the Contractor.

HIV-AIDS SUPPLEMENT: In addition to the capitation payment described above, a
separate and additional payment will be made to the Contractor to help defray
costs for members receiving approved protease inhibitors and associated lab work
related to their treatment for HIV/AIDS. The list of AHCCCSA-approved protease
inhibitors is available in the Bidder's Library.

On a quarterly basis, the Contractor shall submit to AHCCCSA, Office of Managed
Care, an unduplicated monthly count of members, by rate code, who are using
approved protease inhibitors. The report shall be submitted, along with the
quarterly financial reporting package, within 60 days after the end of each
quarter. (A sample of this reporting form may be found in the Bidder's Library.)

The rate of reimbursement for this separate payment will $634.50 per month and
is subject to review during the term of the contract. Payment will be made
quarterly to the Contractor based on the reported eligible members for the
preceding quarter. AHCCCSA will review this HIV/AIDS-related data at least
annually as part of its Operational and Financial Review and reserves the right
to recoup any amounts paid for ineligible members as determined through this
review as well as an associated penalty for incorrect reporting.

39.      REINSURANCE

REGULAR ACUTE PROSPECTIVE REINSURANCE: Reinsurance is a stop-loss program
provided by AHCCCSA to the Contractor for the partial reimbursement of covered
inpatient facility medical services incurred for a member with an acute medical
condition beyond an annual deductible (AHCCCS Rule R9-22-503). Per diem rates
paid for nursing facility services, including room and board, provided in lieu
of hospitalization for up to 90 days in any contract year shall be eligible for
reinsurance coverage (see AHCCCS Rule R9-22-203 subsection B for excluded
services). Reinsurance for the Hospital Reimbursement Pilot Program (See Section
D, Paragraph 35, Hospital Reimbursement), will be paid in accordance with AHCCCS
Rule R9-22-503.

AHCCCSA is self-insured for the reinsurance program. The program is
characterized by an initial deductible level and a subsequent coinsurance
percentage. The coinsurance percent is the rate at which AHCCCSA will reimburse
the Contractor for inpatient covered services incurred above the deductible.
Prospective reinsurance coverage applies to prospective enrollment periods. The
deductible level is based on the Contractor's statewide AHCCCS acute care
enrollment as of October 1st each contract year for all rate codes and counties,
as shown in the following table. These deductible levels are subject to change
by AHCCCSA during the term of this contract.

                                       4
<PAGE>

REGULAR REINSURANCE:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Statewide Plan Enrollment   Deductible-MN/MI    Deductible - Others  Coinsurance %
<S>                         <C>                 <C>                  <C>
             0 - 19,999          $15,000               $20,000             75%
        20,000 - 49,999          $15,000               $35,000             75%
        50,000 and over          $15,000               $50,000             75%
-----------------------------------------------------------------------------------
</TABLE>

If a Contractor's actual non-MN/MI deductible is $35,000 or $50,000, AHCCCSA
will increase the Contractor's capitation rate awarded by defined amounts for
each capitation risk group. These specific capitation adjustments are available
in the Bidder's Library.

PRIOR PERIOD COVERAGE REINSURANCE: For the first two years of the contract
period, a separate reinsurance deductible and coinsurance percentage will apply
during prior period coverage. All Contractors, regardless of enrollment, will be
subject to a deductible level anticipated to be between $3,000 and $8,000. The
exact deductible level will be specified prior to award of contracts. The
coinsurance percentage for the prior period coverage reinsurance is 100%.
Expenses incurred during prior period coverage will not apply toward the
prospective reinsurance thresholds.

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

The Contractor shall be subject to utilization and other reviews by AHCCCSA of
care provided to a member which results in a reinsurance claim as referenced in
R9-22-503 (G.3).

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

                                       5
<PAGE>

CATASTROPHIC REINSURANCE: The reinsurance program also includes a special
Catastrophic Reinsurance program. This program encompasses members diagnosed
with hemophilia and members who receive covered organ and tissue transplantation
including bone marrow, heart and other organ transplantation. For additional
detail and restrictions see AHCCCS Rule R9-22-202. There is no deductible for
catastrophic reinsurance cases and AHCCCS will reimburse the Contractor at 85%
of the Contractor's covered costs. All catastrophic claims will be subject to
medical review by AHCCCSA.

HEMOPHILIA: When an eligible member is identified as being catastrophically
eligible by AHCCCSA due to a specific diagnosis of hemophilia (ICD9 286.0,
286.1, 286.2 and 286.4), all medically necessary covered services provided
during the contract year shall be eligible for reimbursement at 85% of the
Contract's paid amount. Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDA VP responders
that are dependent on Plasma Factor VIII. The Contractor must promptly notify
AHCCCS Office of the Medical Director Reinsurance Unit after diagnosis.
Catastrophic reinsurance will be paid for a maximum 30-day retroactive period
from the date of notification to AHCCCSA.

TRANSPLANTS: Bone grafts, kidney and cornea transplantation services are not
eligible for catastrophic reinsurance coverage but are eligible under the
regular (non-catastrophic) reinsurance program. Catastrophic reinsurance
coverage for transplants is limited to 85% of the AHCCCS contract amount for the
transplantation services rendered, or 85% of the Contractor-paid amount
whichever is lower. The AHCCCS contracted transplantation rates may be found in
the Bidder's Library.

Encounter data will not be used to determine catastrophic reinsurance benefits.
However, this does not relieve the Contractor of the responsibility for
submitting encounters for catastrophic reinsurance services. The initial claims
for reimbursement under the catastrophic reinsurance program must be filed no
later than June 30th of the year following the contract year. Catastrophic
reinsurance claims that are submitted within this time limit and are denied or
adjusted, may be corrected until September 30th of the year following the
contract year. All catastrophic reinsurance claims must be submitted in
accordance with the AHCCCS Reinsurance Policy/Procedure Manual.

 [FROM SECTION H, INSTRUCTIONS TO OFFERORS]

8.       BEST AND FINAL OFFERS

AHCCCSA reserves the right to accept any or all initial offers without further
negotiation and may choose not to request a best and final offer (BFO). Offerors
are therefore advised to submit their most competitive offers at the outset. If
it is considered in the best interest of the State, however, AHCCCSA may issue a
written request to all offerors for a best and final offer in a particular
geographic service area or areas. The purpose of a BFO request is to allow
offerors an opportunity to resubmit bids for rate codes not previously accepted
by AHCCCSA. This request will notify them of the date, time and place for the
submission of their offers. In addition,

                                       6
<PAGE>

AHCCCSA will disclose to each offeror which of its bid rates are acceptable
(within or below actuarial rate range), and which are not acceptable (above the
actuarial rate range). All offerors whose final bid rates fall below the bottom
of the actuarial rate range will have their rates increased to the bottom of
that rate range after the final BFO. If an offeror does not submit a notice of
withdrawal or a best and final offer, its immediate previous offer will be
considered its best and final offer.

All BFOs must be submitted on the computer disk provided by AHCCCSA. AHCCCSA
will limit the number of BFO rounds if it is in the best interest of the State.
Offerors will be permitted, within the restrictions and limitations defined
below, to adjust upward a capitation rate for a rate code that was previously
accepted to offset the reduction of a capitation rate in another rate code in
the first BFO round only. These restrictions and limitations include, but are
not limited to:

a.       An offeror will be allowed to adjust upward a previously accepted rate
         code bid only during the first BFO round;

b.       The weighted amount of BFO increase cannot exceed the weighted amount
         of BFO reduction. AHCCCSA will furnish the Offeror the enrollment
         percentages, by rate code, by GSA, to be used in determining the
         weighted amount. Should the weighted amount of the adjustment exceed
         the weighted amount of the BFO reduction, AHCCCSA shall reject the
         first BFO and the adjustment (costing the Offeror the loss of the first
         BFO round in that GSA). Since a rate code can only be adjusted during
         the first BFO round, the Offeror will lose the opportunity to make an
         upward capitation adjustment to previously accepted rate code bids in
         that GSA.

         For example, assume that MN/MI was the rate code where a BFO was needed
         and the offeror reduced this rate by $10. PMPM. Also assume the MN/MI
         rate code accounted for 9% of the members in the GSA.

         Weighted Average Capitation Reduction - 9% X $10.00 = $.90

         Assume the rate code adjusted upward was TANF and this rate code was
         increased by $2.00 PMPM. Also assume this rate code accounted for 50%
         of the members in the GSA.

         Weighted Average Capitation Increase - 50% X $2.00 =$1.00

         Therefore, the BFO would be rejected because the weighted amount of the
         BFO adjustment exceeded the weighted amount of the BFO reduction.

c.       Contractors will not be allowed to decrease a bid in a BFO round if the
         initial bid was below the bottom of the rate range. If such a BFO is
         submitted it will be rejected.

d.       If an adjustment during the initial BFO round causes the Offeror to
         exceed the upper range of any rate code, AHCCCSA will reject the
         adjustment and return the (adjusted)

                                       7
<PAGE>

         rate code to the initial capitation rate bid by the Offeror. Since a
         previously accepted rate code bid can only be adjusted during the first
         BFO round, the Offeror will lose the opportunity to make an upward
         capitation adjustment for this rate code.

e.       AHCCCSA reserves the sole right to accept or reject any adjustment. The
         Offeror by submitting an adjustment to a rate code is requesting
         approval by AHCCCSA; such approval shall not be automatic. If an
         initial bid is below the bottom of a rate range, it cannot be adjusted
         downward by the Offeror in a BFO round.

Capitation Rates Offered after the BFOs: As stated above AHCCCSA may limit the
number of BFO rounds. After the final BFO round is complete, provided it is in
the best interest of the state, AHCCCSA will cease issuing BFO requests. At this
point, should the Offeror have a rate code(s) without an accepted capitation
rate, AHCCCSA shall offer a capitation rate to the Offeror. The capitation rate
offered shall be somewhere in the bottom half of the rate range (specific
placement to be determined by AHCCCSA and its actuaries). Note that all rates
offered in this manner shall be identical for all offerors in the same GSA and
rate code.

[FROM SECTION I, EVALUATION FACTORS:]

2.       CAPITATION

The Offeror shall submit initial capitation bids by rate code grouping within a
geographic service area. These initial bids will be evaluated and scored. The
lowest bid within each geographic service area and rate code grouping will
receive the maximum allowable points. If a bid is below the actuarial rate
range, the bid will be evaluated as if it were at the bottom of the actuarial
rate range. No additional points will be given for bids below the actuarial rate
range. Conversely, the highest bid (within or above the actuarial rate range)
will receive the least number of points.

If AHCCCSA requests best and final offers, these will be scored using the same
methodology as was used to score the initial bids. The initial bid will be
weighted 20% and the final bid will be weighted 80% for scoring. Offerors should
note that AHCCCSA may not offer the opportunity to submit best and final offers.

                              [END OF AMENDMENT #2]

                                       8
<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                               CONTRACT AMENDMENT
                                                                     Page 1 of 1

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
AMENDMENT NUMBER:      CONTRACT NUMBER:     EFFECTIVE DATE OF AMENDMENT:     PROGRAM:
<S>                    <C>                  <C>                              <C>

        3                Y -0001-05               October 1, 1997             ACUTE
-------------------------------------------------------------------------------------
</TABLE>

CONTRACTOR'S NAME AND ADDRESS:

     Pat Levin, President
     Health Choice Arizona
     1600 W. Broadway, Ste 260
     Tempe, AZ 85282-1502

-------------------------------------------------------------------------------
PURPOSE OF AMENDMENT: To set prospective and prior period reinsurance
thresholds.

-------------------------------------------------------------------------------
THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

         Effective 10/1/97, the Contractor's prior period reinsurance threshold
         is $5,000 and its prospective reinsurance threshold is $35,000 ($15,000
         MN/MI).

NOTE:  Please sign, date and return both originals to:   Mark Renshaw
                                                         AHCCCS Contracts and
                                                           Purchasing
                                                         701 E. Jefferson
                                                         Phoenix, AZ 85034

--------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT
REMAIN UNCHANGED AND IN FULL EFFECT.
--------------------------------------------------------------------------------
SIGNATURE OF AUTHORIZED REPRESENTATIVE:        SIGNATURE OF AHCCCSA CONTRACTING
                                               OFFICER:

/s/ Pat Levin                                  /s/ Michael Veit

--------------------------------------------------------------------------------
TYPED NAME:     PAT LEVIN                      TYPED NAME:     MICHAEL VEIT

--------------------------------------------------------------------------------
TITLE:     PRESIDENT                           TITLE:     CONTRACTS & PURCHASING
                                                          ADMINISTRATOR

--------------------------------------------------------------------------------
DATE:                                          DATE:
10/28/97                                       Oct 31, 1997

--------------------------------------------------------------------------------

<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                               CONTRACT AMENDMENT
                                                                     Page 1 of 1
--------------------------------------------------------------------------------
AMENDMENT NUMBER:     CONTRACT NUMBER:    EFFECTIVE DATE OF AMENDMENT:  PROGRAM:

        4               YH8-0001-05               March 1, 1998          ACUTE
--------------------------------------------------------------------------------
CONTRACTOR'S NAME AND ADDRESS:

     Pat Levin, President
     Health Choice Arizona
     1600 W. Broadway, Ste 260
     Tempe, AZ 85282-1502
--------------------------------------------------------------------------------
PURPOSE OF AMENDMENT:  To re-number GSA's.

--------------------------------------------------------------------------------
THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

The Geographical Service Areas are re-numbered as follows:

         ORIGINAL DESIGNATION:              NEW DESIGNATION:

         GSA 1 (Yuma)                       GSA 2 (Yuma)
         GSA 2 (La Paz/Mohave)              GSA 4 (La Paz/Mohave)
         GSA 3 (Coconino/Yavapai)           GSA 6 (Coconino/Yavapai)
         GSA 4 (Gila/Pinal)                 GSA 8 (Gila/Pinal)
         GSA 5 (Pima)                       GSA 10 (Pima)
         GSA 6 (Maricopa)                   GSA 12 (Maricopa)
         GSA 7 (Graham/Greenlee)            GSA 14 (Graham/Greenlee)
         GSA 8 (Navajo/Apache)              GSA 16 (Navajo/Apache)
         GSA 9 (Cochise/Santa Cruz)         GSA 18 (Cochise/Santa Cruz)

NOTE:  Please sign, date and return both originals to:   Mark Renshaw
                                                         AHCCCS Contracts and
                                                           Purchasing
                                                         701 E. Jefferson
                                                         Phoenix, AZ 85034

--------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT
REMAIN UNCHANGED AND IN FULL EFFECT.
--------------------------------------------------------------------------------
SIGNATURE OF AUTHORIZED REPRESENTATIVE:     SIGNATURE OF AHCCCSA CONTRACTING
                                            OFFICER:

/s/  Pat Levin                              /s/ Michael Veit

--------------------------------------------------------------------------------
TYPED NAME:     PAT LEVIN                   TYPED NAME:     MICHAEL VEIT

--------------------------------------------------------------------------------
TITLE:     PRESIDENT                        TITLE:     CONTRACTS & PURCHASING
                                                       ADMINISTRATOR

--------------------------------------------------------------------------------
DATE:                                       DATE:
4/10/98                                     April 15, 1998

--------------------------------------------------------------------------------

<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                               CONTRACT AMENDMENT

                                                                     Page 1 of 2

--------------------------------------------------------------------------------
AMENDMENT NUMBER:    CONTRACT NUMBER:     EFFECTIVE DATE OF AMENDMENT:  PROGRAM:

        5               YH8-0001-05               October 1, 1998       ACUTE
--------------------------------------------------------------------------------
CONTRACTOR'S NAME AND ADDRESS:

     Pat Levin, President
     Health Choice Arizona
     1600 W. Broadway, Ste 260
     Tempe, AZ 85282-1502

--------------------------------------------------------------------------------
PURPOSE OF AMENDMENT:  To set prospective and prior period capitation rates.

--------------------------------------------------------------------------------
THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

         Effective 10/1/98, the Contractor will be paid prospective and prior
period capitation in accordance with the rates shown on the following page.

NOTE:  Please sign, date and return both originals to:   Mark Renshaw
                                                         AHCCCS Contracts and
                                                          Purchasing
                                                         701 E. Jefferson
                                                         Phoenix, AZ 85034

--------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT
REMAIN UNCHANGED AND IN FULL EFFECT.
--------------------------------------------------------------------------------
SIGNATURE OF AUTHORIZED REPRESENTATIVE:     SIGNATURE OF AHCCCSA CONTRACTING
                                            OFFICER:

/s/ Pat Levin                               /s/ Michael Veit

--------------------------------------------------------------------------------
TYPED NAME:     PAT LEVIN                   TYPED NAME:     MICHAEL VEIT

--------------------------------------------------------------------------------
TITLE:     PRESIDENT                        TITLE:     CONTRACTS & PURCHASING
                                                       ADMINISTRATOR

--------------------------------------------------------------------------------
DATE:                                       DATE:
9/15/98                                     Sep 18 1998

--------------------------------------------------------------------------------

<PAGE>

HEALTH CHOICE ARIZONA

The new capitation rates effective 10/1/98 are as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                             TANF      TANF        TANF      TANF       TANF        SSI       SSI                           SOBRA
GEOGRAPHIC SERVICE AREA    <1, M/F   1-13, M/F   14-44, F  14-44, M   45+, M/F     W/MED    W/O MED     MN/MI    SFP         KICK
-----------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>         <C>       <C>        <C>         <C>       <C>        <C>      <C>      <C>

GSA #10 (PIMA):
            Prospective:   $ 296.62     $57.49    $158.66    $81.00    $198.67    $128.45   $317.16    $370.10  $18.84   $4,033.39
                    PPC:   $1164.82     $32.70    $136.50    $76.91    $180.25    $ 14.50   $ 61.79    $306.73     N/A         N/A
              Kids Care:    $270.86     $70.17    $135.29    $80.71

GSA #12 (MARICOPA):
            Prospective:   $ 312.65     $59.07    $165.41    $83.47    $211.79    $141.79   $314.96    $454.70  $19.68   $4,188.89
                    PPC:   $1164.82     $32.70    $136.50    $76.91    $180.25    $ 14.50   $ 61.79    $306.73     N/A         N/A
              Kids Care:   $ 281.83     $72.23    $140.17    $81.01
</TABLE>

PMPM amounts are based on a $35,000/$15,000 (MN/MI) reinsurance deductible
level. PPC MN/MI rate is a daily rate.

<PAGE>
           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                               CONTRACT AMENDMENT

-------------------------------------------------------------------------------
AMENDMENT NUMBER:   CONTRACT NUMBER:    EFFECTIVE DATE OF AMENDMENT:   PROGRAM:

      6               YH8-0001-05             October 1, 1998             OMC
-------------------------------------------------------------------------------

CONTRACTOR'S NAME AND ADDRESS:

         Pat Levin, CEO
         Health Choice Arizona
         1600 W. Broadway, Ste 260
         Tempe, AZ 85282
-------------------------------------------------------------------------------

PURPOSE OF AMENDMENT: To extend the term of the contract for one year and to
amend Sections C, D, and E and Attachments F and I.

-------------------------------------------------------------------------------

THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

         The contract term is hereby extended for the period 10/1/98 - 9/30/99
         in accordance with Section D, Paragraph 50.

         The contract is hereby amended in accordance with Section E, Paragraph
         30. Section C, Definitions, and Section D, Contract Requirements, are
         hereby replaced in their entirety by the attached pages 3-56 Each new
         page is shown with the footer "Acute Care Renewal, Revised 10/1/98" in
         the lower right-hand corner. Page 57 contains changes to Section E,
         Contract Clauses. Pages 58-62 contain complete revisions of Attachment
         F, Periodic Report Requirements, and Attachment I, Encounter Submission
         Requirements.

         Immediately following this signature page is a 5-page summary of the
         changes effective with this renewal amendment. Items in the summary
         preceded by "Clarification only" are clarifications of already existing
         requirements. Shaded areas indicate changes made since the first
         Summary was distributed to the health plans in Flagstaff on July 29,
         1998.

         By signing this contract amendment, the Contractor is (1) agreeing to
         perform for an additional year according to the terms of the contract
         as amended, and (2) agreeing to the new and changed requirements
         contained herein.

         In addition to the text changes to Sections C, D and E and Attachments
         F and I contained herein, Attachment B (Minimum Network Requirements)
         is changed to delete the requirement for a pharmacy in Catalina and
         Wellton.

--------------------------------------------------------------------------------

EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT
REMAIN UNCHANGED AND IN FULL EFFECT. (AS AMENDED)

--------------------------------------------------------------------------------

SIGNATURE OF AUTHORIZED              SIGNATURE OF AHCCCSA CONTRACTING
REPRESENTATIVE:                      OFFICER:

    /S/ PAT LEVIN                         /S/ MICHAEL VEIT
--------------------------------------------------------------------------------

TYPED NAME:                          TYPED NAME:
   PAT LEVIN                              MICHAEL VEIT
--------------------------------------------------------------------------------

TITLE:                               TITLE:
   CHIEF EXECUTIVE OFFICER                CONTRACTS AND PURCHASING ADMINISTRATOR
--------------------------------------------------------------------------------

DATE:                                DATE:
   8/27/98                                OCTOBER 13, 1998
--------------------------------------------------------------------------------

<PAGE>

                 UPDATED SUMMARY OF CHANGES - ACUTE CARE CYE 99

This summary is provided as a convenience to the Contractor and is not to be
construed as superseding or limiting the revised text which follows. It is
believed to be an accurate and complete summary of changes which take effect
10/1/98; however, any conflict between the summary and the text will be resolved
in favor of the text.

All text revisions summarized below are considered either an actual change to
contract requirements or merely a clarification of existing requirements. The
latter are clearly identified throughout the summary. Finally, numerous
punctuation, grammar and style changes have been made throughout the revised
text which have no effect on the contract requirements and which may not be
otherwise identified.

Shaded areas below indicate changes made since the first Summary was distributed
to the health plans in Flagstaff on July 29, 1998.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Para #:         PARAGRAPH TITLE:                  SUMMARY OF CHANGE OR CLARIFICATION:                            Pg. #
-----------------------------------------------------------------------------------------------------------------------
<S>             <C>                               <C>                                                            <C>
N/A             [Throughout the document]         References to the Arizona Administrative Code provisions         N/A
                                                  pertaining to the new KidsCare program (Title XXI) have
                                                  been added as appropriate throughout the document.
-----------------------------------------------------------------------------------------------------------------------
N/A             [Throughout the document]         The term "categorical", referring to eligibility for             N/A
                                                  AHCCSA benefits throughout federal programs, has been
                                                  replaced by "Title XIX", "Title XXI", and/or
                                                  "state-only" eligibility, as appropriate.
-----------------------------------------------------------------------------------------------------------------------
N/A             [Throughout the document]         Test that refers to the initial proposal or negotiation          N/A
                                                  processes now shows as deleted text.
-----------------------------------------------------------------------------------------------------------------------
N/A             [Throughout the document]         Since acronym "EPSDT" refers to a specific federally-defined     N/A
                                                  group of services and protocols, this reference has
                                                  been replaced where KidsCare eligibility and services,
                                                  which are more limited, would make use of the term
                                                  "EPSDT" inaccurate.
-----------------------------------------------------------------------------------------------------------------------
C               Section C, Definitions            Seven new definitions have been added.                           3-8
-----------------------------------------------------------------------------------------------------------------------
                           "                      CLARIFICATION ONLY: "SOBRA" definition changed to clarify          7
                                                  that AHCCSA provides only Medicaid services to pregnant
                                                  women.
-----------------------------------------------------------------------------------------------------------------------
                           "                      Definitions of "clean claim" and "tribal facility" added.        3,8
-----------------------------------------------------------------------------------------------------------------------
D.1             Scope of Services                 CLARIFICATION ONLY: ALL treatment options are to be               10
                                                  discussed with the member, even if needed services are not
                                                  covered by the Contractor.
-----------------------------------------------------------------------------------------------------------------------
D.1                       "                       The Contractor is responsible for knowing and implementing        10
                                                  all requirements of the Balanced Budget Act of 1997, even
                                                  if not stated in this document.(*)
-----------------------------------------------------------------------------------------------------------------------
D.1                       "                       The Contractor is responsible for providing services, as          10
                                                  defined and limited throughout this document, to KidsCare
                                                  members.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       i

<PAGE>

<TABLE>
<Caption>
----------------------------------------------------------------------------------------------------------------------
Para #:        PARAGRAPH TITLE:                   SUMMARY OF CHANGE OR CLARIFICATION:                            Pg. #
----------------------------------------------------------------------------------------------------------------------
<S>            <C>                                <C>                                                           <C>
D.1                      "                        "12-month period of enrollment" changed to "contract year"        10
                                                  for all KidsCare references.
----------------------------------------------------------------------------------------------------------------------
D.1                      "                        Licensed midwives and home deliveries are NOT covered for     10, 18
                                                  KidsCare members and kidney-pancreas transplants are
                                                  covered ONLY for KidsCare members.
----------------------------------------------------------------------------------------------------------------------
D.1.           "Behavioral Health"                CLARIFICATION ONLY: For state-only members, AHCCCSA will         11
                                                  pay for only the first three days of emergency service.
                                                  The Contractor may continue to provide services as needed
                                                  but must seek additional reimbursement elsewhere.
----------------------------------------------------------------------------------------------------------------------
D.1           "Chiropractic Services"             Description of chiropractic services added.                       11
----------------------------------------------------------------------------------------------------------------------
D.1           "EPSDT"                             Distinctions made between services under Title XIX and            11
                                                  Title XXI.
----------------------------------------------------------------------------------------------------------------------
D.1           "Emergency Services"                Emergency services are covered without prior authorization        12
                                                  for up to 72 hours.(*)
----------------------------------------------------------------------------------------------------------------------
D.1                     "                         "Prudent layperson" standard added, as well as the                12
                                                  coordination of post-stabilization care.(*)
----------------------------------------------------------------------------------------------------------------------
D.1                     "                         Liability for payment of certain emergency services for           12
                                                  Native Americans is changed.
----------------------------------------------------------------------------------------------------------------------
D.1           "Family Planning"                   Contractor must notify AHCCCSA when a SOBRA woman is              12
                                                  sterilized to prevent inappropriate enrollment in the SOBRA
                                                  Family Planning Services Extension Program.
                                                  Notification may be made at the time the newborn is
                                                  reported or after the sterilization procedure is
                                                  completed.
----------------------------------------------------------------------------------------------------------------------
D.1           "Hospice"                           Hospice services are added for members under age 21.              13
----------------------------------------------------------------------------------------------------------------------
D.1           "Maternity"                         Home delivery and licensed  midwives are not covered under        14
                                                  KidsCare.
----------------------------------------------------------------------------------------------------------------------
D.1           "Maternity"                         A normal newborn may be granted an extended stay in the           14
                                                  hospital when the mother's stay is extended.
----------------------------------------------------------------------------------------------------------------------
D.1           "Nursing Facility"                  CLARIFICATION ONLY: Christian Science sanatoria are               14
                                                  covered under the nursing facility requirement.
----------------------------------------------------------------------------------------------------------------------
D.1           "Prescription Medications"          OTC medication may be prescribed when it is determined to         14
                                                  be a lower-cost alternative to prescription medication.
----------------------------------------------------------------------------------------------------------------------
D.1           "Transplantations"                  Kidney-pancreas transplants are covered only for KidsCare         15
                                                  members.
----------------------------------------------------------------------------------------------------------------------
D.1           "Transportation"                    KidsCare members are not entitled to non-emergency                15
                                                  transportation except for transfers between facilities.
----------------------------------------------------------------------------------------------------------------------
D.2           Behavioral Health Services          The Contractor must provide behavioral health screenings          16
                                                  for Title XIX and KidsCare members under age 21.
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       ii

<PAGE>

<TABLE>
<Caption>
-----------------------------------------------------------------------------------------------------------------------
Para #        PARAGRAPH TITLE:                    SUMMARY OF CHANGE OR CLARIFICATION:                             Pg. #
-----------------------------------------------------------------------------------------------------------------------
<S>           <C>                                 <C>                                                             <C>
D.2                   "                           CLARIFICATION ONLY: Details added on the Contractor's              16
                                                  responsibilities for referring members to ADHS and/or
                                                  the RBHA for behavioral health services.
-----------------------------------------------------------------------------------------------------------------------
D.2           "Service Plan"                      CLARIFICATION ONLY: Services shall be initiated within             16
                                                  30 days of the initial screening, not necessarily
                                                  completed within that time.
-----------------------------------------------------------------------------------------------------------------------
D.2           "Provider Network"                  CLARIFICATION ONLY: The Contractor would subcontract for           17
                                                  behavioral health services directly with a RBHA, not with
                                                  ADHS.
-----------------------------------------------------------------------------------------------------------------------
D.2           "Title XXI Members"                 Covered  behavioral health services for KidsCare members are    17-18
                                                  detailed.
-----------------------------------------------------------------------------------------------------------------------
D.2                  "                            "Psychotropic medication adjustment and monitoring" divided        18
                                                  into "Psychotropic  Medication" and Psychotropic medication
                                                  adjustment and monitoring."
-----------------------------------------------------------------------------------------------------------------------
D.2                  "                            "Basic and intensive" added to Partial Care                        18
-----------------------------------------------------------------------------------------------------------------------
D.2                  "                            "Case management" added.                                           18
-----------------------------------------------------------------------------------------------------------------------
D.2                  "                            CLARIFICATION ONLY: KidsCare members are entitled to a             18
                                                  total of 30 outpatient visits per contract year.
-----------------------------------------------------------------------------------------------------------------------
D.2                  "                            Screening services do not count toward the 30-visit maximum.       18
-----------------------------------------------------------------------------------------------------------------------
D.2                  "                            Group therapy and group counseling count as one-half an            18
                                                  outpatient visit.
-----------------------------------------------------------------------------------------------------------------------
D.2                  "                            Bed hold days are not covered under KidsCare.                      18
-----------------------------------------------------------------------------------------------------------------------
D.2           "State-Only Members"                CLARIFICATION ONLY: Reimbursement for state-only                   18
                                                  emergency behavioral health service limited to three
                                                  days per episode.
-----------------------------------------------------------------------------------------------------------------------
D.4           Vaccine for Children Program        CLARIFICATION ONLY: Vaccines for AHCCCSA members under             18
                                                  age 19 are provided by the federal government at no
                                                  cost to any immunization provider who is registered
                                                  with ADHS/VFC. The Contractor must not use AHCCCSA
                                                  funds to purchase such vaccines.
-----------------------------------------------------------------------------------------------------------------------
D.5           Denials or Reductions of Services   Notification requirements mandated by Perry v. Kelly have          19
                                                  been incorporated into the Arizona Administration Code and
                                                  are referenced here.
-----------------------------------------------------------------------------------------------------------------------
D.6           Enrollment and Disenrollment        List of groups for whom the Department of Economic Security        19
                                                  determined eligibility is updated.
-----------------------------------------------------------------------------------------------------------------------
D.6           "Health Plan Choice"                All members (except MN/MI) now receive a list of                   19
                                                  available health plans during the application process. Plan
                                                  selection and effective dates of enrollment are described.
-----------------------------------------------------------------------------------------------------------------------
D.6           "Newborns"                          Effective date of enrollment for newborns is detailed.          20-21
                                                  AHCCCSA can now receive newborn notifications 24-hours
                                                  per day, 7 days per week.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      iii

<PAGE>

<TABLE>
<Caption>
-----------------------------------------------------------------------------------------------------------------------
Para #:       PARAGRAPH TITLE:                    SUMMARY OF CHANGE OR CLARIFICATION:                             Pg. #
-----------------------------------------------------------------------------------------------------------------------
<S>           <C>                                 <C>                                                             <C>
-----------------------------------------------------------------------------------------------------------------------
D.6           "Enrollment Guarantees"             Enrollment guarantee for KidsCare is 12 months. Title              21
                                                  XIX remains at 5 months. Guarantee applies only one
                                                  time per eligibility category (i.e. KidsCare, Title
                                                  XIX, EAC).
-----------------------------------------------------------------------------------------------------------------------
D.6           "Native Americans"                  PL 93-638 tribal entities are added as a health plan choice        21
                                                  for Native Americans. Other details on health plan choice
                                                  for Native Americans added.
-----------------------------------------------------------------------------------------------------------------------
D.8           Member Information                  The reading grade level and evaluation methodology used to         22
                                                  determine  the reading level should be included with all
                                                  informational materials submitted to AHCCCSA.
-----------------------------------------------------------------------------------------------------------------------
D.8                   "                           Several new requirements to the Member Handbook have been       22-24
                                                  added, including what to do if the member is billed for
                                                  a covered service, descriptions of behavioral health
                                                  and dental services, reminder not to discard the ID
                                                  card, notification rights, fraud and abuse
                                                  responsibilities, member's right to receive certain
                                                  types of information from the Contractor, right to
                                                  non-discriminatory treatment, grievance period changed
                                                  from 35 to 60 days.
-----------------------------------------------------------------------------------------------------------------------
D.11          Annual Enrollment Choice            Open enrollment now occurs on each member's anniversary         24-24
                                                  date, rather than once per year for everyone in August.
-----------------------------------------------------------------------------------------------------------------------
D.13          Staff Requirements                  The Contractor shall not employ or contract with anyone            26
                                                  that has been debarred or prohibited from public
                                                  procurement activity.(*)
-----------------------------------------------------------------------------------------------------------------------
D.13                  "                           CLARIFICATION ONLY: The Behavioral Health Coordinator must         26
                                                  devote sufficient time to ensure AHCCCSA requirements are
                                                  met.
-----------------------------------------------------------------------------------------------------------------------
D.16          Performance Measures                Performance measures apply to all AHCCCSA members, whether         28
                                                  they are Title XIX, KidsCare or State-only members.
-----------------------------------------------------------------------------------------------------------------------
D.16                  "                           New performance measures have been added, including             28-30
                                                  well-child visits for children under 15 months
                                                  old, well-child visits for children 3, 4, 5 and 6 years
                                                  old, PCP visits for members under 21.
-----------------------------------------------------------------------------------------------------------------------
D.18          Physician Incentives                Details on submission to AHCCCSA of physician incentive            30
                                                  proposals have been added.
-----------------------------------------------------------------------------------------------------------------------
D.19          Appointment Standards               Maximum time for routine dental appointments has been              31
                                                  changed from 30 days to 45 days from date of request.
-----------------------------------------------------------------------------------------------------------------------
D.23          Other Provided Standards            CLARIFICATION ONLY: The Contractor's oversight of its              34
                                                  provided network must include provision and accessibility
                                                  of services to members with limited proficiency in English.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       iv

<PAGE>

<TABLE>
<Caption>
-----------------------------------------------------------------------------------------------------------------------
Para #:       PARAGRAPH TITLE:                    SUMMARY OF CHANGE OR CLARIFICATION:                             Pg. #
-----------------------------------------------------------------------------------------------------------------------
<S>           <C>                                 <C>                                                             <C>
D.24          Network Development                 Maximum travel distance requirement (PCP and pharmacy)             34
                                                  for Contractor's members has been changed from "all
                                                  members" to "95% of its members" to allow for the
                                                  practicalities of provider locations.
-----------------------------------------------------------------------------------------------------------------------
D.24                     "                        Reference to new hospital subcontracting requirements added.       34
-----------------------------------------------------------------------------------------------------------------------
D.24                     "                        In subcontracting and subcontractor reimbursement, the             34
                                                  Contractor shall not discriminate against providers based
                                                  on their type of licensure or certification.(*)
-----------------------------------------------------------------------------------------------------------------------
D.24                     "                        CLARIFICATION ONLY: Clarification added regarding Balanced         34
                                                  Budget Act requirements on subcontractor participation
                                                  and reimbursement. (See immediately above.)(*)
-----------------------------------------------------------------------------------------------------------------------
D.25          Network Management                  CLARIFICATION ONLY: The Contractor must have policies and          35
                                                  procedures related to the grievance process that ensure the
                                                  member's care is not compromised during the grievance
                                                  process.
-----------------------------------------------------------------------------------------------------------------------
D.26          Federally Qualified Health          New process for reasonable cost reimbursement has been             35
              Centers (FQHC)                      added.
-----------------------------------------------------------------------------------------------------------------------
D.34          Claims Payment System               90% of all clean claims must be paid within 30 days and 99%        39
                                                  must be paid within 90 days.(*)
-----------------------------------------------------------------------------------------------------------------------
D.35          Hospital Subcontracting and         References to AHCCCSA tiered per-diem rates must be deleted        40
              Reimbursement                       from all hospital subcontracts.
-----------------------------------------------------------------------------------------------------------------------
D.35          Hospital subcontracting and         The Contractor must obtain hospital subcontracts in all            40
              Reimbursement                       rural GSAs in which it is contracted with AHCCCSA. For
                                                  non-emergency patient-days, the Contractor must ensure
                                                  that 85% of its members use contracted hospitals.
                                                  AHCCCSA may require a contract at a particular hospital
                                                  if inpatient days become significant. The Contractor
                                                  must obtain at least one subcontract with a tertiary
                                                  care facility in one of the urban GSAs.
-----------------------------------------------------------------------------------------------------------------------
D.37          Compensation                        Process for reconciliation of Prior Period Costs has been          41
                                                  modified.
-----------------------------------------------------------------------------------------------------------------------
D.37                     "                        KidsCare capitation rates to be set by AHCCCSA and will be         42
                                                  reviewed after first year of program.
-----------------------------------------------------------------------------------------------------------------------
D.37                     "                        AHCCCSA policy on HIV/AIDS supplemental payment and                42
                                                  review is now available through AHCCCSA, Office of
                                                  Managed Care.
-----------------------------------------------------------------------------------------------------------------------
D.39          Reinsurance                         Modifications to reinsurance policy have been added.               43
-----------------------------------------------------------------------------------------------------------------------
D.39                     "                        Catastrophic reinsurance is available for members with             43
                                                  Gaucher's Disease
-----------------------------------------------------------------------------------------------------------------------
D.39                     "                        The Contractor must notify AHCCCSA within 30 days of (a)           43
                                                  initial diagnosis, (b) enrollment with the Contractor, and
                                                  (c) the beginning of each contract year.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       v

<PAGE>

<TABLE>
<Caption>
------------------------------------------------------------------------------------------------------------------------
Para #:       PARAGRAPH TITLE:                    SUMMARY OF CHANGE OR CLARIFICATION;                              Pg. #
------------------------------------------------------------------------------------------------------------------------
<S>           <C>                                 <C>                                                              <C>
D.39                     "                        The Contractor must notify AHCCCSA when a member is referred       44
                                                  to transplant facility for an AHCCCSA-covered organ transplant.
------------------------------------------------------------------------------------------------------------------------
D.40          COB/TPL                             Special Treatment Trusts added to list of types of TPL 46
                                                  cases for which the Contractor shall not seek reimbursement.
------------------------------------------------------------------------------------------------------------------------
D.40                     "                        Contractor is now responsible for payment of lien filing           47
                                                  fees in TPL recoveries.
------------------------------------------------------------------------------------------------------------------------
D.40                     "                        Contractor must report potential health insurance coverage         46
                                                  to AHCCCSA for determination of KidsCare eligibility.
                                                  Contractor must follow same cost avoidance and postpayment
                                                  recovery for KidsCare as for Title XIX and main separate
                                                  reporting system for each.
------------------------------------------------------------------------------------------------------------------------
D.41          Medicare Services and Cost          CLARIFICATION ONLY: For details on cost-sharing
              Sharing                             responsibilities, refer to the AHCCCSA Medicare Cost
                                                  Sharing Policy.
------------------------------------------------------------------------------------------------------------------------
D.47          Data Exchange Requirement           Contractor must begin appropriate planning for year 2000           51
                                                  compliance.
------------------------------------------------------------------------------------------------------------------------
D.56          Performance Bond Amt. of            Contractor may not change terms of performance bond without        56
D.57          Performance Bond                    prior AHCCCSA approval.
------------------------------------------------------------------------------------------------------------------------
D.58          Financial Viability Criteria        In calculating equity per member, the amount of the                57
                                                  on-balance sheet performance bond is deducted from total
                                                  equity.
------------------------------------------------------------------------------------------------------------------------
D.60          Sanctions                           CLARIFICATION ONLY: Sanctions may be imposed for failure           57
                                                  to meet encounter submission standards.
------------------------------------------------------------------------------------------------------------------------
D.60          Sanctions                           Sanction money collected by AHCCCSA may be redistributed           58
                                                  among acute health plans based on certain criteria.
------------------------------------------------------------------------------------------------------------------------
D.64          KidsCare                            Arizona has adopted a state version of the State Children's        58
                                                  Health Insurance Program, a federal health program.
------------------------------------------------------------------------------------------------------------------------
D.64                     "                        CLARIFICATION ONLY: Details added on service providers             58
                                                  under KidsCare.
------------------------------------------------------------------------------------------------------------------------
D.64                     "                        Title XXI Parent/Guardian Health Insurance Guidelines will         58
                                                  be available in the Bidder's Library.
------------------------------------------------------------------------------------------------------------------------
E.17          Suspension or Debarment             Contractor may not employ or contract with any person or           60
                                                  entity who has been debarred or excluded from federal
                                                  procurement activity.(*)
------------------------------------------------------------------------------------------------------------------------
E.19          Termination for Default             If Contractor requests a hearing prior to termination for          60
                                                  default, AHCCCSA must appoint temporary management.(*)
------------------------------------------------------------------------------------------------------------------------
Att. F        Periodic Report Requirements        One new report and several changes in reporting                    61
                                                  requirements.
------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       vi

<PAGE>

<TABLE>
<Caption>
Para #:       PARAGRAPH TITLE:                    SUMMARY OF CHANGE OR CLARIFICATION:                           Pg. #
---------------------------------------------------------------------------------------------------------------------
<S>           <C>                                 <C>                                                             <C>
Att. I        Encounter Requirements              Contractor must not delete pended encounters to avoid           63
                                                  sanctions for failure to correct.
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(*) New requirement mandated by the Balanced Budget Amendment of 1997

                                      vii

<PAGE>

                             SECTION C: DEFINITIONS

AAC                        See "Arizona Administrative Code".

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

AID TO FAMILIES WITH       A federal assistance program under Title IV-A of the
DEPENDENT CHILDREN         Social Security Act. Replaced by the Temporary
(AFDC)                     Assistance to Needy Families (TANF) program.

AHCCCS                     Arizona Health Care Cost Containment System as
                           defined by ARS 36-2901.

ARCCCSA                    Arizona Health Care Cost Containment System
                           Administration.

AHCCCS BENEFITS            See "COVERED SERVICES."

AHCCCS MEMBER              See "MEMBER."

ALTCS                      The Arizona Long Term Care System (ALTCS), a program
                           under AHCCCSA that delivers long term, acute and
                           behavioral health care services to members, as
                           authorized by ARS ss. 36-2931 et seq.

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

AMPM                       The AHCCCS Medical Policy Manual.

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

ARS                        Arizona Revised Statutes.

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

BIDDERS LIBRARY            As referred to in this RFP, a repository of manuals,
                           statutes, rules and other reference material located
                           at the AHCCCS office in Phoenix.

                                       1

<PAGE>

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

CAPITATION                 A method by which a contractor is paid to deliver
                           covered services for the duration of a contract to
                           members based on a fixed rate per member
                           notwithstanding (a) the actual number of members who
                           receive care from the contractor, and (b) the amount
                           of health care services provided to any member; a
                           cost containment alternative to fee-for-service
                           payments.

CATEGORICALLY              A member who is eligible for Medicaid.
ELIGIBLE MEMBER

CLEAN CLAIM                A claim that may be processed without obtaining
                           additional information from the provider or from a
                           third party; does not include claims under
                           investigation for fraud or abuse or claims under
                           review for medical necessity.

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

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

CONTRACT SERVICES          See "COVERED SERVICES".

CONTRACT YEAR (CY)         Corresponds to federal fiscal year (Oct. 1 through
                           Sept. 30). For example, Contract Year 98 is 10/1/97 -
                           9/30/98.

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

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

CO-PAYMENT                 An amount which the member pays directly to a
                           contractor or provider at the time covered services
                           are rendered.

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

                                       2

<PAGE>

COVERED SERVICES           Health care services to be delivered by a contractor
                           which are so designated in Section D of this contract
                           and also AHCCCS Rules R9-22-202 et seq. and R9-31-201
                           et seq.

CRS                        Children's Rehabilitative Services (See Section D,
                           Paragraph 1, Covered Services).

CY                         See "CONTRACT YEAR".

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

DAYS                       Calendar days unless otherwise specified.

DHS                        Arizona Department of Health Services.

DIRECTOR                   The Director of AHCCCSA.

DISCLOSING PARTY           An AHCCCS provider or a fiscal agent.

DME                        Durable Medical Equipment; sturdy, long-lasting items
                           and appliances that can withstand repeated use, are
                           designed to serve a medical purpose, and are not
                           generally useful to a person in the absence of a
                           medical condition, illness or injury.

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

DUAL ELIGIBLE QUALIFIED    A person who is entitled to Medicare Part A insurance
MEDICARE BENEFICIARY       and who meets certain income, resource and residency
                           requirements of the Qualified Medicare Beneficiary
                           program, and is categorically eligible for full
                           AHCCCS benefits.

EAC                        Eligible Assistance Child as defined in ARS
                           36-2905.03(B); an AHCCCS state program for children
                           under age 14 receiving food stamps.

ELIC                       Eligible Low-Income Child as defined in ABS
                           36-2905.05(C) and (D); an AHCCCS state program for
                           children under age 14 whose household income exceeds
                           the income limit for the MN/MI program but is less
                           than 100% of the federal poverty level.

ELIGIBLE PERSON            A person who meets all eligibility requirements for
                           the AHCCCS acute care program but who has not yet
                           been enrolled with an AHCCCS acute care contractor.

                                       3

<PAGE>

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

EMERGENCY MEDICAL          A medical condition manifesting itself by acute
CONDITION                  symptoms of sufficient severity (including severe
                           pain) such that the absence of immediate medical
                           attention could reasonably be expected to result in:
                           a) placing the patient's health in serious jeopardy;
                           b) serious impairment to bodily functions; or c)
                           serious dysfunction of any bodily organ or part.

EMERGENCY MEDICAL          Medical services provided for an emergency medical
SERVICE                    condition and resulting in an unscheduled or
                           unplanned visit, admission or other medical service
                           to assess, relieve and/or treat the emergent
                           condition.

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

ENROLLMENT                 The process by which a person who has been determined
                           eligible becomes a member with a contractor subject
                           to the Limitations specified in AHCCCS Rule
                           R9-22-333, R9-31-301 and R9-31-306

EPSDT                      Early and Periodic Screening, Diagnosis and
                           Treatment; these services provide comprehensive
                           health care, as defined in Rule R9-22-213 and
                           R9-31-213, through primary prevention, early
                           intervention, diagnosis and medically necessary
                           treatment of physical and behavioral health problems
                           for AHCCCS members under 21 years of age.

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

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

                                       4

<PAGE>

FFP                        Federal financial participation (FFP) refers to the
                           federal matching rate that the federal government
                           makes to the Title XIX and Title XXI program portions
                           of AHCCCS.

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

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

GEOGRAPHIC SERVICE AREA    A specific county or defined grouping of counties
(GSA)                      that are available for contract award. An offeror may
                           bid on any or all GSAs. See Section H, Paragraph 9,
                           Award of Contract.

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

HCFA                       Health Care Financing Administration, an organization
                           within the Department of Health and Human Services, a
                           federal agency with oversight responsibility for
                           Title XVIII (Medicare), Title XIX (Medicaid), and
                           Title XXI (CHIPS).

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

HEALTH PLAN                See "CONTRACTOR".

IBNR                       Incurred But Not Reported claims which is the
                           liability for services rendered for which claims have
                           not been received.

IHS                        Indian Health Service (IHS) is a division of the U.S.
                           Public Health Service. It administers a system of
                           hospitals and health centers providing health
                           services to Native Americans and Native Alaskans.

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

                                       5

<PAGE>

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

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

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

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

MEDICAID                   A Federal/State program authorized by Title XIX of
                           the Social Security Act, as amended, which provides
                           federal matching funds for a state-operated medical
                           assistance program for specified populations.

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

MEMBER                     For this solicitation, a person eligible for AHCCCS
                           who is enrolled with a Contractor. Medically Needy/
                           Medically Indigent; state program for individuals not
                           eligible for Medicaid but who meet the eligibility
                           requirements for the state program.

MN/MI                      Medically Needy/Medically Indigent; state program for
                           individuals not eligible for Medicaid but who meet
                           the eligibility requirements for the state program.

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

                                       6

<PAGE>

NON-CONTRACTING PROVIDER   A provider who has a contract or subcontract within
                           the AHCCCS system and renders covered services to an
                           eligible person or member to whom such provider bears
                           no contractual obligation.

OFFEROR                    The organization, entity or person which submits a
                           proposal in response to the AHCCCS Request for
                           Proposal. An offeror who is awarded a contract
                           becomes a Contractor.

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

PMMIS                      Pre-paid Medicaid Management Information System.

PRIMARY CARE PROVIDER      An individual responsible for the management of the
(PCP)                      member's health care that includes a physician who is
                           generally a family practitioner, general
                           practitioner, pediatrician, general internist,
                           obstetrician, gynecologist, certified nurse
                           practitioner or, under the supervision of a
                           physician, a physician's assistant. The PCP must be
                           an individual, not a group or association of persons,
                           such as a clinic.

PRIOR PERIOD               The period of time preceding the actual notification
                           to a health plan of a member's enrollment during
                           which the health plan is retroactively liable for
                           payment of all covered services received by the
                           member. It is generally the period from the first day
                           of the month of application up to the day of the
                           health plan's receipt of notification of the member's
                           enrollment. Prior period coverage also includes
                           updated eligibility that covers a retroactive time
                           period when the member was not previously enrolled
                           with AHCCCS. Prior period coverage does not apply to
                           Title XXI members and does not include prior quarter
                           coverage (see below).

PRIOR QUARTER              The three-month period immediately preceding the
                           month in which the member applies for Title XIX
                           benefits. If it is determined that the member would
                           have been eligible had the member applied in the
                           month in which services were provided, AHCCCSA may
                           pay for Title XIX services on a fee-for-service
                           basis. The Contractor is not liable for the prior
                           quarter period.

PROVIDER                   A person or entity who contracts with AHCCCSA or
                           subcontracts with an AHCCCS health plan to provide
                           AHCCCS covered services to members.

                                       7

<PAGE>

QUALIFIED MEDICARE         A Medicare cost-sharing program established by the
BENEFICIARY (QMB)          Medicare Catastrophic Coverage Act of 1988 in which
                           Medicaid pays the Medicare premiums, coinsurance and
                           deductibles for Medicare recipients meeting specific
                           eligibility requirements.

RATE CODE                  Eligibility classification for capitation payment
                           purposes.

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

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

RFP                        Request For Proposal document prepared by AHCCCSA
                           which describes the services required and which
                           instructs prospective offerors how to prepare a
                           response (proposal).

SCOPE OF SERVICES          See "COVERED SERVICES".

SERIOUSLY MENTALLY ILL     An adult whose emotional or behavioral functioning is
(SMI)                      so impaired as to interfere with his (or her)
                           capacity to remain in the community without
                           supportive treatment or services of a long-term or
                           indefinite duration. The mental disability is severe
                           and persistent and may result in a long-term
                           limitation of his capacities for primary activities
                           of daily living, interpersonal relationships,
                           home-making, self-care, employment or recreation.

SOBRA                      Refers to a federal law (Sixth Omnibus Budget and
                           Reconciliation Act) passed in 1986 and subsequently
                           amended, which establishes eligibility for pregnant
                           women and children based on a percentage of the
                           federal poverty level (FPL). Currently, AHCCCS
                           provides Medicaid services to pregnant women and
                           infants up to age one with income up to 140% of FPL,
                           children from 1 through 5 years with income up to
                           133% of FPL and children born on or after October 1,
                           1983 with income up to 100% of FPL.

                                        8

<PAGE>

STATE                      The State of Arizona.

STATE-ONLY MEMBER          A member who is not eligible for Medicaid but
                           is eligible for one of the state-funded eligibility
                           categories which include Medically Needy/Medically
                           Indigent (MN/MI), Eligible Assistance Children (EAC),
                           Eligible Low Income Children (ELIC), and SSI-related
                           non-qualified aliens.

STATE PLAN                 The written agreement between the State and HCFA
                           which describes how the AHCCCS program meets HCFA
                           requirements for participation in the Medicaid
                           program.

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

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

SUPPLEMENTAL SECURITY      A federal assistance program under Title XVI of the
INCOME (SSI)               Social Security Act.

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

                                       9

<PAGE>

THIRD PARTY                An individual, entity or program that is or may be
                           liable to pay all or part of the medical cost of
                           injury, disease or disability of an AHCCCS applicant
                           or member. Filing of liens is a method of securing
                           reimbursement from third parties.

THIRD PARTY LIABILITY      The resources available from a person or entity that
                           is, or may be, by agreement, circumstance or
                           otherwise. liable to pay all or part of the medical
                           expenses incurred by an AHCCCS applicant or eligible
                           person.

TITLE XIX MEMBER           Member eligible for Medicaid under Title XIX of the
                           Social Security Act including Temporary Assistance to
                           Needy Families (TANF), Sixth Omnibus Budget
                           Reconciliation Act (SOBRA), Supplemental Security
                           Income (SSI) or SSI-related groups.

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

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

YEAR                       See "Contract Year".

                              [END OF DEFINITIONS]

                                       10
<PAGE>

                         SECTION D: PROGRAM REQUIREMENTS

                                Table of Contents

<TABLE>
<S>   <C>                                                               <C>
 1.   Scope of Services...............................................  10
 2.   Behavioral Health Services......................................  16
 3.   AHCCCS Medical Policy Manual....................................  18
 4.   Vaccine for Children Program....................................  19
 5.   Denials or Reductions of Services...............................  19
 6.   Enrollment And Disenrollment....................................  19
 7.   Mainstreaming of AHCCCS Members.................................  21
 8.   Member Information..............................................  22
 9.   Member Surveys..................................................  24
 10.  Marketing Plans.................................................  24
 11.  Annual Enrollment Choice........................................  24
 12.  Transition of Members...........................................  24
 13.  Staff Requirements and Support Services.........................  25
 14.  Written Policies, Procedures and Job Descriptions...............  27
 15.  Advance Directives..............................................  27
 16.  Performance Measures............................................  27
 17.  Quality Management and Utilization Management (QM/UM)...........  29
 18.  Physician Incentives............................................  30
 19.  Appointment Standards...........................................  30
 20.  Referral Procedures and Standards...............................  31
 21.  Provider Manual.................................................  31
 22.  Primary Care Provider Standards.................................  32
 23.  Other Provider Standards........................................  33
 24.  Network Development.............................................  34
 25.  Network Management..............................................  34
 26.  Federally Qualified Health Centers (FQHC).......................  35
 27.  Provider Registration...........................................  36
 28.  Provider Affiliation Tape.......................................  36
 29.  Periodic Report Requirements....................................  36
 30.  Dissemination of Information....................................  37
 31.  Requests for Information........................................  37
 32.  Operational and Financial Readiness Reviews.....................  37
 33.  Operational and Financial Reviews...............................  37
 34.  Claims Payment System...........................................  38
 35.  Hospital Subcontracting and Reimbursement.......................  38
 36.  Nursing Facility Reimbursement..................................  39
 37.  Compensation....................................................  39
 38.  Capitation Adjustments..........................................  41
 39.  Reinsurance.....................................................  42
 40.  Coordination of Benefits/Third Party Liability..................  44
 41.  Medicare Services and Cost Sharing..............................  45
 42.  Copayments......................................................  46
 43   Records Retention...............................................  46
 44.  Medical Records.................................................  46
 45.  Advances, Distributions, Loans and Investments..................  47
 46.  Accumulated Fund Deficit........................................  47
 47.  Data Exchange Requirement.......................................  47
 48.  Encounter Data Reporting........................................  48
 49.  Monthly Roster Reconciliation...................................  49
 50.  Term Of Contract and Option To Renew............................  49
</TABLE>

                                       11
<PAGE>

<TABLE>
<S>   <C>                                                               <C>
 51.  Subcontracts....................................................  50
 52.  Specialty Contracts.............................................  51
 53.  Management Services Subcontractors..............................  51
 54.  Management Services Subcontractor Audits........................  52
 55.  Minimum Capitalization Requirements.............................  52
 56.  Performance Bond or Bond Substitute.............................  52
 57.  Amount of Performance Bond......................................  53
 58.  Financial Viability Criteria/Performance Measures...............  53
 59.  Merger, Reorganization and Change of Ownership..................  54
 60.  Sanctions.......................................................  54
 61.  Auto-Assignment Algorithm.......................................  55
 62.  Grievance Process and Standards.................................  55
 63.  Quarterly Grievance Report......................................  55
 64.  KidsCare........................................................  55
 65.  Pending Legislative Issues......................................  56
</TABLE>

                                       12
<PAGE>

                         SECTION D: PROGRAM REQUIREMENTS

1.       SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable federal, State and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R9-22-202 et seq., the AHCCCS Medical Policy
Manual, the AHCCCS Behavioral Health Policy Manual, and the document entitled
"AHCCCS Health Plan Performance Indicators", all of which are incorporated
herein by reference and may be found in the Bidder's Library. The covered
services are briefly described below. Covered services must be medically
necessary and provided by, or coordinated with, a primary care provider, except
for behavioral health and children's preventive dental services. Services must
be rendered by providers that are appropriately licensed, operating within their
scope of practice, and registered as an AHCCCS provider. The Contractor shall
provide the same standard of care for all members regardless of the member
eligibility category.

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

BALANCED BUDGET ACT OF 1997: This revision of the AHCCCS acute care contract is
believed to contain all of the new requirements mandated by the federal Balanced
Budget Act of 1997. The Contractor, however, shall be held liable for all
mandated requirements whether or not they appear in this renewal amendment.

KIDSCARE COVERED SERVICES: KidsCare members are eligible for the same services
covered for members under the Title XIX and state-only programs, with the
following differences, exclusions and/or limitations:

a.       Non-emergency transportation is not covered.

b.       Chiropractic services are not covered.

c.       Vision services are limited to one eye examination per contract year
         and one pair of glasses or contacts every contract year.

d.       EPSDT services are limited to those services specified in this
         contract.

e.       Behavioral health services are limited to 30 inpatient days and 30
         outpatient visits per contract year. (See details under Section D
         Paragraph 2, Behavioral Health Services.)

f.       Licensed midwives and home deliveries are not covered.

g.       Kidney-pancreas transplants are covered for Title XXI members only.

For further details regarding the KidsCare program, see Section D, Paragraph 64,
KidsCare, and the AHCCCS Medical Policy Manual (AMPM).

                                       13

<PAGE>

AMBULATORY SURGERY AND ANESTHESIOLOGY: The Contractor shall provide surgical
services for either emergency or scheduled surgeries when provided in an
ambulatory or outpatient setting such as a free-standing surgical center or a
hospital based outpatient surgical setting.

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

BEHAVIORAL HEALTH: The Contractor shall provide behavioral health services as
described in Section D), Paragraph 2, Behavioral Health Services. For state-only
members (MN/MI, EAC, ELIC) reimbursement for behavioral health services will not
exceed the first three days per episode of emergency/ crisis stabilization, not
to exceed 12 days per contract year. See also the AMPM and the AHCCCS Behavioral
Health Policy Manual for details on covered behavioral health services.

CHILDREN'S REHABILITATIVE SERVICES (CRS): The program for CRS-covered conditions
is administered by the Arizona Department of Health Services (ADHS) for children
who meet CRS eligibility criteria. The Contractor is responsible for referring
children to the CRS program who are potentially eligible for these services.
Eligibility criteria and the referral process are described in the CRS Policy
and Procedures Manual available in the Bidder's Library. The Contractor is also
responsible for providing primary medical care, including emergency services and
initial care of newborn infants, for members who are also CRS eligible, and to
require the member's Primary Care Provider (PCP) to coordinate their care with
the CRS program. All services provided must be included in the member's medical
record maintained by the PCP.

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

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

                                       14

<PAGE>

be found in the AMPM which is incorporated herein by reference and which may be
found in the Bidder's Library.

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

EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment for members
under age 21. The Contractor shall ensure that these members receive required
health screenings, including developmental/behavioral health, in compliance with
the AHCCCS periodicity schedule (included herein as Attachment K) and to submit
to the AHCCCS Office of the Medical Director/Acute Care Unit, all EPSDT reports
as required by AHCCCS medical policy. For Title XIX members under age 21,
chiropractic services shall be covered. The Contractor is required to meet
specific participation/utilization rates for members as described in Section D,
Paragraph 16, Performance Measures. Because the behavioral health benefit for
Title XIX and Title XXI members age 0-17 is provided through the ADHS/RBHA
system, the Contractor shall ensure the initiation and coordination of the
referral of these members to the RBHA. Referrals for behavioral health services
for Title XIX 18-, 19- and 20-year olds and Title XXI 18-year-old non-SMIs
shall be the responsibility of the Contractor's Behavioral Health Coordinator.

Title XXI members are not entitled to the all-encompassing EPSDT service package
required for Title XIX children. Title XXI children are entitled only to the
EPSDT and other covered services specified in this document and the Title XXI
State Plan.

EMERGENCY SERVICES: The Contractor shall have and/or provide the following as a
minimum:

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

                                       15

<PAGE>

         society requires of its members for the protection of their own
         interest and the interests of others. The phrase does not apply to a
         person's ability to reason, but rather the prudence with which he acts
         under a given set of circumstances.

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

c.       Emergency transportation

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

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

EYE EXAMINATIONS/ OPTOMETRY: The Contractor shall provide all medically
necessary emergency eye care, vision examinations, prescriptive lenses, and
treatments for conditions of the eye for all members under the age of 21, with
the exception of KidsCare members. See limitations for KidsCare members
described at the beginning of this section, titled "KidsCare Covered Services."
For members who are 21 years of age and older, the Contractor shall provide
emergency care for eye conditions which meet the definition of an emergency
medical condition, cataract removal, and/or medically necessary vision
examinations and prescriptive lenses if required following cataract removal and
other eye conditions as specified in the AMPM.

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

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

HEALTH RISK ASSESSMENT AND SCREENING: The Contractor shall provide these
services for non-hospitalized members 21 years of age and older. These services
include, but are not limited to, screening for hypertension, elevated
cholesterol, colon cancer, sexually-transmitted diseases, tuberculosis and
HIV/AIDS; mammograms and prostate screenings; physical examinations and
diagnostic work-ups; and immunizations. Assessment and screening services for
members under age 21 are based on the AHCCCS EPSDT periodicity schedule.

HOME HEALTH: The Contractor shall provide these services when members require
part-time or intermittent care but do not require hospital care under the daily
direction of a physician to

                                       16

<PAGE>

prevent re-hospitalization or institutionalization and may include skilled
nursing, therapies, supplies and home health aide services.

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

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

IMMUNIZATIONS: The Contractor shall provide immunizations for adults (21 years
of age and older) to include diphtheria-tetanus, influenza, pneumococcus,
rubella, measles and hepatitis-B. For all members under the age of 21,
immunization requirements include diphtheria, tetanus, pertussis vaccine (DPT),
oral polio vaccine, measles, mumps, rubella vaccine (MMR), H. influenza, type B
(HIB), hepatitis B (Hep B), combined 3-antigen rate (4 DPT, 3 OPV, 1 MMR) and
varicella vaccine. The Contractor is required to meet specific immunization
rates for members under the age of 21 which are described in Section D,
Paragraph 16, Performance Measures.

INDIAN HEALTH SERVICE: Effective October 1,1998, the Contractor shall not
reimburse IHS or a tribal facility for Title XIX, Title XXI or state-only
covered services, including emergency services, provided in the IHS facility or
tribal facility to Native American members enrolled with the Contractor. Subject
to approval from HCFA, AHCCCSA will allow IHS or the tribal facility to submit
Title XIX claims for such services directly to AHCCCSA. Details of the claims
and payment process will be determined after HCFA approval. At its option, the
Contractor may choose to subcontract with and pay an IHS facility or tribal
facility for covered services provided to members.

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

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

                                       17

<PAGE>

nurse practitioners certified in midwifery. Members may select or be assigned to
a PCP specializing in obstetrics. Circumcisions are covered if performed during
the newborn's hospital stay after birth, or on an outpatient basis within one
month of the infant's hospital discharge. Title XIX and state-only members
anticipated to have a low-risk delivery may elect to receive labor and delivery
services in their home from their maternity provider if this setting is included
in allowable settings for the Contractor, and the Contractor has providers in
its network that offer home labor and delivery services. Title XIX and
state-only members anticipated to have a low-risk prenatal course and delivery
may elect to receive maternity services of prenatal care, labor and delivery and
postpartum care provided by licensed midwives if they are in the Contractor's
provider network. All licensed midwife labor and delivery services must be
provided in the member's home since licensed midwives do not have admitting
privileges in hospitals or AHCCCS registered free-standing birthing centers.
Members receiving maternity services from a licensed midwife must also be
assigned to a PCP for other health care and medical services. Home delivery and
licensed midwives are not covered for Title XXI members.

The Contractor shall allow women and their newborns to receive up to 48 hours of
inpatient hospital care after a routine vaginal delivery and up to 96 hours of
inpatient care after a cesarean delivery. The attending health care provider, in
consultation with the mother, may discharge the mother or newborn prior to the
48-hour minimum length of stay. A normal newborn may be granted an extended stay
in the hospital of birth when the mother's continued stay in the hospital is
beyond the 48 or 96 hour stay.

MEDICALLY-NECESSARY ABORTIONS: These services are covered when the pregnancy
would endanger the life of the mother if the fetus were to be carried to term
and, for Title XIX and Title XXI members, if the pregnancy is the result of rape
or incest. Providers must document and submit to the Contractor a Certificate of
Medical Necessity for Pregnancy Termination and prior authorization is required.
If the procedure is performed on an emergency basis, documentation must be
submitted to the Contractor within two working days. Additional documentation,
outlined in the AMPM, is required for members under 18 years of age who seek
medically necessary abortion due to rape or incest.

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

NURSING FACILITY: The Contractor shall provide nursing facility services,
including Christian Science sanatoria, for members who require short-term
convalescent care not to exceed 90 days per contract year. Services must be
provided in a dually-certified Medicare/Medicaid facility which includes in the
per-diem rate: nursing services, basic patient care equipment and sickroom
supplies, dietary services, administrative physician visits, non-customized DME,
necessary maintenance rehabilitation therapies, over-the-counter medications,
social, recreational and spiritual activities, and administrative, operational
medical direction services. The Contractor

                                       18
<PAGE>

shall continue medically necessary nursing facility services for any member who
has not been determined ALTCS eligible but is currently residing in a nursing
facility and is eligible for services provided under this contract. If the
member becomes ALTCS eligible and is enrolled with an ALTCS Program Contractor
before the end of the maximum 90 days of nursing facility coverage, the
Contractor is only responsible for nursing facility coverage during the time the
member is enrolled with the Contractor.

NUTRITION: The Contractor shall provide nutritional assessment and nutritional
supplements including oral supplements for EPSDT members when medically
necessary. Total parenteral nutrition (TPN) is covered for all members when it
is the sole source of nutrition due to severe pathology of the alimentary tract.
TPN may also be used to supplement nutrition for EPSDT members when medically
necessary but need not be the member's sole source of nutrition.

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

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

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

PRIMARY CARE PROVIDER (PCP): PCP services are covered when provided by a
physician, physician assistant or nurse practitioner selected by, or assigned
to, the member. The PCP provides primary health care and serves as a gate-keeper
and coordinator in referring the member for specialty medical services,
behavioral health and dental services. The PCP is responsible for maintaining
the member's primary medical record which contains documentation of all health
risk assessments and health care services, including those provided by the PCP
and through referral.

RADIOLOGY AND MEDICAL IMAGING: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical condition. Services are
generally provided in hospitals, clinics, physician offices and other health
care facilities.

REHABILITATION THERAPY: The Contractor shall provide occupational, physical and
speech therapies. Therapies must be prescribed by the member's PCP or attending
physician for an acute condition and the member must have the potential for
improvement due to the rehabilitation. Occupational and speech therapies are
only covered on an inpatient basis for those 21 and over, physical therapy for
all members and occupational and speech therapies for members under the

                                       19
<PAGE>

age of 21 are covered on both an inpatient and outpatient basis if not used as a
maintenance regimen.

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

TRANSPLANTATION OF ORGANS AND TISSUE, AND RELATED IMMUNOSUPPRESSANT DRUGS: These
services include bone marrow, heart, lung, heart-lung, kidney, liver, and cornea
transplantations (all with related immunosuppressant medications), and are
covered within limitations defined in the AMPM for members diagnosed with
specified medical conditions. Kidney-pancreas transplants are covered for Title
XXI members only. Such limitations include whether the stage of the disease is
such that the transplant can affect the outcome; the member has no other
conditions which substantially reduce the potential for successful
transplantation; and whether the member will be able to comply with necessary
and required regimens of treatment. Bone grafts are also covered under this
service. Services include: pre-transplant inpatient or outpatient evaluation;
donor search; organ/tissue harvesting or procurement; preparation and
transplantation services; and convalescent care. In addition, if a member
receives a transplant covered by a source other than AHCCCS, medically necessary
non-experimental services are provided within limitations after the discharge
from the acute care hospitalization for the transplantation. AHCCCS has
contracted with transplantation providers for the Contractor's use or the
Contractor may select its own transplantation provider. However, the quality of
services must be equal to or exceed those from the AHCCCS provider and the rate
paid can not exceed the AHCCCS provider's negotiated rate. Transplantations for
the MN/MI population are subject to available funding.

TRANSPORTATION: These services include emergency and non-emergency medically
necessary transportation. Emergency transportation, including transportation
initiated by an emergency response system such as 911, may be provided by
ground, air or water ambulance to manage an AHCCCS member's emergency medical
condition at an emergency scene and transport the member to the nearest
appropriate medical facility. In an emergency, the member shall be taken to the
nearest appropriate emergency facility. Non-emergency transportation shall be
provided for Title XIX and state-only members who are unable to provide their
own transportation for medically necessary services. Title XXI members are not
eligible for non-emergency transportation services except for transfers between
facilities.

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

                                       20

<PAGE>
2.       BEHAVIORAL HEALTH SERVICES

The Contractor must provide developmental/behavioral health screenings as part
of the EPSDT program for Title XIX and Title XXI members under 21 years of age.
The Contractor is responsible for the provision of Title XIX covered behavioral
health services to members as described below:

TITLE XIX MEMBERS (TANF, SSI, SOBRA):

UNDER AGE 18; AGE 21 AND OVER; SMI: On and after the effective date of
enrollment, the Contractor is responsible for up to the first three days of
emergency behavioral health services provided to Title XIX members not enrolled
with ADHS. The Contractor shall immediately refer members receiving emergency
behavioral health services to the RBHA when it is determined that the member may
be eligible for ADHS enrollment. The Contractor is also responsible for
referring Title XIX eligible, children age 0-17, adults age 21 and older, and
SMI members age 18 and older to the Regional Behavioral Health Authorities
(RBHAs) for the provision of Title XIX covered behavioral health services. (The
RBHAs may, in turn, contract with local providers.) The Contractor is
responsible for ensuring that a medical record is established by the PCP when
information is received about an assigned member even if the PCP has not yet
seen the assigned member. The Contractor shall also communicate information
pertaining to ADHS enrolled members to the ADHS RBHAs including, but not limited
to, current diagnosis, medication, pertinent laboratory results, last PCP visit,
and last hospitalization. For prior period coverage, the Contractor is
responsible for payment of all claims for medically necessary covered behavioral
health services to eligible persons not enrolled with ADHS.

NON-SMI, AGE 18, 19 AND 20: The Contractor is responsible for providing Title
XIX covered behavioral health services to Title XIX eligible non-SMI members age
18, 19 and 20 in accordance with AHCCCS Rule R9-22-1204 and the AHCCCS
Behavioral Health Policy Manual Covered services include: inpatient hospital,
inpatient psychiatric facility for individuals under the age of 21, individual
therapy and counseling, group and/or family therapy and counseling, psychotropic
medication adjustment and monitoring, partial care, emergency crisis services,
behavior management, psychosocial rehabilitation, screening, evaluation and
diagnosis, case management, psychotropic medications, and medically necessary
transportation.

         REFERRALS: Title XIX-eligible members age 18, 19 and 20 may be referred
         directly for the provision of behavioral health services by the PCP,
         family members, self-referrals, schools, other service providers, and
         members of the community and State agencies as well as the Contractor's
         staff. The Contractor is responsible for identifying 18, 19 and 20 year
         old members who may meet the ADHS definition for Serious Mental Illness
         (SMI) and to refer these members to the RBHA for evaluation. The
         Contractor shall be responsible for all costs associated with
         conducting SMI evaluations in cases where a Title XIX 18, 19 or 20 year
         old member is determined by the R.BHA or their subcontractor not to
         meet the ADHS definition for SMI.

         SERVICE PLAN: The Contractor is responsible for developing a Service
         Plan for each Title XIX eligible non-SMI member age 18, 19 and 20
         requiring behavioral health services.

                                       21
<PAGE>

         Service Plans shall be developed within two weeks of assessment and
         services shall be authorized and initiated within 30 days from
         completion of the screening. The Service Plan is to be included as part
         of the member's medical record.

         CASE MANAGEMENT, CASE COORDINATION: The Contractor is responsible for
         providing case management services, when medically necessary. Case
         management services may vary in scope and frequency, depending on the
         eligible person's intensity of need. Case management services consist
         of a set of services and activities through which appropriate and
         cost-effective Title XIX covered services are identified, planned,
         coordinated, obtained, monitored and continuously evaluated. Case
         coordination is provided to Title XIX non-SMI members age 18, 19 and 20
         who are in need of behavioral health services but who do not require
         case management services which are more intensive. Case coordination is
         limited to Service Plan development, identification of service
         providers, monitoring, updates and follow-up, when necessary.

         QUALITY MANAGEMENT/UTILIZATION MANAGEMENT (QM/UM) REQUIREMENTS:
         Quality management QM/UM for behavioral health services must be
         integrated into the Contractor's QM/UM plans and must meet the QM/UM
         requirements established by AHCCCSA.

         PROVIDER NETWORK: The Contractor is responsible for contracting with
         behavioral health providers who meet ADHS licensure and/or
         certification standards and who are registered as a behavioral health
         provider with AHCCCSA. The Contractor may, at its option, contract with
         RBHAs for the provision of behavioral health services. The Contractor
         must ensure that a sufficient number of qualified behavioral health
         providers are in their provider network and that providers comply with
         subcontracting, appointment standards and other provider related
         requirements in this document.

         NOTIFICATION REQUIREMENTS: The Contractor is responsible for notifying
         AHCCCSA monthly of 18-, 19- and 20-year-old Title XIX, non-SMI members
         referred and receiving behavioral health services. The information is
         to be submitted to the AHCCCS Office of Managed Care using the
         reporting format developed by AHCCCSA and available in the Bidder's
         Library.

TITLE XXI (KIDSCARE) MEMBERS

On and after the effective date of enrollment, the Contractor is responsible for
up to the first three days of emergency behavioral health services provided to
Title XXI members not enrolled with ADHS. The Contractor shall immediately refer
members receiving emergency behavioral health services to the RBHA when it is
determined that the member may be eligible for ADHS enrollment. The Contractor
is also responsible for referring Title XXI eligible children age 0-17 (SMI and
non-SMI) and 18-year-old SMI members to the Regional Behavioral Health
Authorities (RBHAs) for the provision of Title XXI covered behavioral health
services. (The RBHAs may, in turn, contract with local providers.) The
Contractor is responsible for ensuring that a medical record is established by
the PCP when information is received about an assigned member even if the PCP
has not yet seen the assigned member. The Contractor shall also

                                       22
<PAGE>

communicate information pertaining to ADHS enrolled members to the ADHS RBHAs
including, but not limited to, current diagnosis, medication, pertinent
laboratory results, last PCP visit, and last hospitalization.

The Contractor is responsible for providing Title XXI covered behavioral health
services to 18-year-old non-SMI members. Covered services include:

a.       Inpatient hospital
b.       Inpatient psychiatric facility for persons under 21 years of age
c.       Individual therapy and counseling
d.       Group and/or family therapy and counseling
e.       Psychotropic medication
f.       Psychotropic medication adjustment and monitoring
g.       Partial care, basic and intensive
h.       Emergency crisis services
t.       Behavior management
j.       Psychosocial rehabilitation
k.       Evaluation and diagnosis
l.       Laboratory and radiology services for psychotropic medication
         regulation and diagnosis
m.       Emergency transportation
n.       Case management

Title XXI covered services are subject to the following limitations per contract
year. The Contractor shall ensure that services provided to Title XXI members
under this contract are monitored and counted against the applicable annual
limitations below:

a.       Inpatient behavioral health services provided in an inpatient hospital
         or inpatient psychiatric facility for persons under 21 years of age are
         limited to 30 days per contract year. Inpatient substance abuse
         services when combined with inpatient behavioral health services shall
         not exceed 30 days per contract year.

b.       If basic or intensive partial care is provided, each half-day of
         partial care shall equal one-fourth of an inpatient day and each full
         day of partial care shall equal one-half of an inpatient day.

c.       The following outpatient behavioral health services are limited to a
         total of 30 visits per contract year: behavior management, emergency
         crisis services, evaluation and diagnosis, group and/or family therapy
         and counseling, individual therapy and counseling and psychosocial
         rehabilitation.

d.       If group therapy and counseling is provided, the benefit shall count as
         one-half an outpatient visit.

e.       Screening services which are used to determine the need for further
         evaluation, diagnosis and treatment are not counted toward the 30-visit
         limitation.

                                       23
<PAGE>

f.       The following outpatient services are to be provided as medically
         necessary with no annual service limitation: Emergency transportation,
         case management, psychotropic medication, psychotropic medication
         monitoring, and laboratory and radiology services for psychotropic
         medication regulation and diagnosis.

g.       Bed hold days are not covered under the Title XXI program.

STATE-ONLY MEMBERS (MN/MI, EAC, ELIC):

For state-only members (MN/MI, EAC, ELIC) reimbursement for behavioral health
services will not exceed the first three days per episode of emergency/crisis
stabilization, not to exceed 12 days per contract year. This limitation of the
Contractor's financial liability is the same regardless of whether the member is
enrolled with a RBHA.

3.       AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference into
this contract. AHCCCSA will provide three copies of the AMPM to the Contractor
(for use by the CEO, Medical Director and Quality Management staff). Updates to
medical policies will be distributed quarterly. The Contractor is responsible
for maintaining the AMPM with these updates and for complying with the
requirements set forth therein.

4.       VACCINE FOR CHILDREN PROGRAM

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

5.       DENIALS OR REDUCTIONS OF SERVICES

When a covered service is denied, reduced, suspended or terminated, the
Contractor shall comply with the notice and continuation of benefits
requirements specified in 42 CFR 431.200 et seq., AAC R9-22, Article 13
outlining members' rights and responsibilities, and AHCCCS policy.

6.       ENROLLMENT AND DISENROLLMENT

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

                                       24
<PAGE>

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

Department of Economic Security (DES)   DES determines eligibility for the
                                        Temporary Assistance to Needy Families
                                        (TANF) program (formerly Aid to Families
                                        with Dependent Children), 1931 Group
                                        Medical Assistance Only (MAO) groups,
                                        SOBRA women and children, the Eligible
                                        Assistance Children state program (EAC),
                                        the Adoption Subsidy Program, Title IV-E
                                        foster care children, and the Federal
                                        Emergency Services program (FES) related
                                        to the TANF, 1931 Group, or SOBRA
                                        programs.

AHCCCSA                                 AHCCCSA determines eligibility for the
                                        SSI/MAO groups, including the FES
                                        program related to the SSI-Cash program
                                        (aged, disabled, blind), the Arizona
                                        Long-Term Care System (ALTCS), the
                                        Qualified Medicare Beneficiary program,
                                        and the Title XXI program.

Arizona's 15 Counties                   Each county determines eligibility for
                                        the Medically Needy/Medically Indigent
                                        (MN/MI), Eligible Low Income Children
                                        (ELIC), and the State Emergency Services
                                        state programs.

AHCCCS acute care members are enrolled with contractors in accordance with the
rules set forth in R9-22-333, R9-22-334, R9-22-335, R9-22-337, R9-22-339,
R9-22-340, R9-22-342 and R9-22-707.

HEALTH PLAN CHOICE

All members except for those eligible under the MN/MI program have a choice of
available health plans. A listing of the available health plans and their
telephone numbers will be given to each member applicant during the application
process for AHCCCS benefits. Also included are instructions to member applicants
to call the health plans directly with specific questions concerning the health
plan. If there is only one health plan available for the member applicant's
Geographical Service Area, no choice is offered. Members who do not choose prior
to AHCCCSA's being notified of their eligibility are automatically assigned to a
health plan based on family continuity or the auto-assignment algorithm.

                                       25
<PAGE>

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

AHCCCSA assigns MN/MI members to an available health plan based on family
continuity or through AHCCCSA's auto-assignment algorithm. These members do not
get a choice of available contractors until their annual enrollment choice
period.

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

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

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

PRIOR PERIOD COVERAGE: AHCCCS provides prior period coverage for Title XIX and
state-only members. For Title XIX members, prior period coverage starts from the
first day of the month of application, or first eligible month. The Contractor
is responsible for payment of all claims for medically necessary covered
services provided to Title XIX members during prior period coverage. For
state-only members (MN/MI, ELIC) prior period coverage is generally limited to
the two days prior to the date of AHCCCSA being notified of eligibility.
However, prior period coverage could include additional days prior to the date
of enrollment. The Contractor is responsible for payment of all claims for
medically necessary covered services provided on an emergency basis to
state-only members pursuant to ARS ss.36-2908 for the first two days of the
prior period coverage. Any additional prior period coverage for state-only
members will include all claims for medically necessary covered services. This
may include services provided prior to 10/1/97. (See Section D, Paragraph 37,
Compensation, for a description of the Contractor's reimbursement from AHCCCSA
for this eligibility time period.)

NEWBORNS: Newborns born to AHCCCS-eligible mothers, including Title XXI mothers,
who were enrolled at the time of the child's birth and whose newborn
notification was received by

                                       26
<PAGE>

AHCCCSA will be enrolled with the mother's health plan. The Contractor is
responsible for notifying AHCCCSA of a child's birth to an enrolled member.
Capitation to the Contractor will begin on the date notification is received by
AHCCCSA (except for cases of births during prior period coverage). The effective
date of AHCCCS eligibility will be the newborn's date of birth, and the
Contractor is responsible for all covered services to the newborn whether or
tint AHCCCSA has received notification of the child's birth. Note that AHCCCSA
is currently available to receive notification calls 24 hours a day, 7 days a
week. Title XIX and Title XXI eligible mothers of newborns are sent a letter
advising them of their right to choose a different contractor for their child;
otherwise the child will remain with the mother's contractor. Newborns of MN/MI
mothers are enrolled with the mother's contractor for a minimum of 30 days up to
a maximum of 60 days. Newborns of FES mothers are auto-assigned to a health plan
and mothers of these newborns are sent a letter advising them of their right to
choose a different health plan for their child. AHCCCS Rules R9-22-342,
R9-22-707, R9-31-303 and R9-31-306 contain additional information concerning
newborn enrollment and payment.

ENROLLMENT GUARANTEES: Upon initial capitated enrollment as a Title XIX-eligible
member, or as an Eligible Assistance Child (EAC), the member is guaranteed a
minimum of five full months of continuous enrollment. Upon initial capitated
enrollment as a Title XXI-eligible member, the member is guaranteed a minimum of
12 full months of continuous enrollment. Enrollment guarantees do not apply to
Native Americans who choose to obtain their covered services through Indian
Health Services (IHS) on a fee-for-service basis or children enrolled with
Department of Economic Security/Comprehensive Medical and Dental Program. The
enrollment guarantee applies a maximum of one time per member per eligibility
category for Title XIX, Title XXI and EAC members. If a member changes from one
contractor to another within the enrollment guarantee period, the remainder of
the guarantee period applies to the new contractor. The enrollment guarantee may
not be granted or may be terminated if the member is incarcerated or, if a minor
child, is adopted. AHCCCS Rule R9-22-337 and R9-31-307 describe other reasons
for which the enrollment guarantee may not apply.

NATIVE AMERICANS: Native Americans eligible under any coverage group other than
MN/MI, on or off-reservation, have a choice of Indian Health Services (IHS) or
any available contractor. If choice is not available or made within the
specified time limit, Native American Title XIX and state-only members living
on-reservation will be assigned to IHS and Native American Title XIX and
state-only members living off-reservation will be assigned to an available
contractor using AHCCCSA's family continuity policy and auto-assignment
algorithm. Native Americans may change from IHS or a PL 93-638 tribal entity to
a contractor or from a contractor to IHS or a PL 93-638 tribal entity at any
time. Native American Title XXI members must make a choice prior to being
determined eligible.

7.       MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take affirmative
action so that members are provided covered services without regard to payer
source, race, color, creed, sex, religion, age, national origin, ancestry,
marital status, sexual preference, or physical or

                                       27
<PAGE>

mental handicap, except where medically indicated. Examples of prohibited
practices include, but are not limited to, the following:

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

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

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

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

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

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

8.       MEMBER INFORMATION

All informational materials prepared by the Contractor shall be approved by
AHCCCSA prior to distribution to members. Information shall be submitted on
disk, saved as a text file (.txt) along with a hard copy printout. The reading
level and name of the evaluation methodology used should be included.
Information shall be provided in English and a second language when 200 members
or 5% of the Contractor's enrolled population, whichever is greater, are
non-English speaking. (AHCCCSA will advise the Contractor when and if this
requirement applies.) When there are program or service site changes
notification will be provided to the affected members at least 14 days before
implementation. The Contractor shall review and update the Member Handbook at
least once a year. The Handbook must be submitted to AHCCCSA Office of Managed
Care for approval by Sept. 1 of each contract year, or within four weeks of
receiving the annual renewal amendment, whichever is later.

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

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

                                       28
<PAGE>

I.       A MEMBER HANDBOOK which, at a minimum, shall include:
a.       A table of contents
b.       A general description of how managed care works, particularly in
         regards to member responsibilities, appropriate utilization of services
         and the PCP's role as gatekeeper of services
c.       A description of all available covered services and an explanation of
         any service limitations or exclusions from coverage and a notice
         stating that the Contractor will be liable only for those services
         authorized by the Contractor. The description should include a brief
         explanation of the Contractor's approval and denial process.
d.       Information on what to do when family size changes
e.       How to obtain a PCP
f.       How to change PCPs
g.       How to make, change and cancel appointments with a PCP or dentist
h.       List of applicable copayments (including a statement that care will not
         be denied due to lack of copayment). The member handbook must clearly
         state that members cannot be billed for covered services (other than
         applicable copayments), what to do if they are billed, and under what
         circumstances a member may be billed for non-covered services. Dual
         eligibility (i.e. Medicare and Medicaid); services received in and out
         of the Contractor's network; copayments. See Section D, Paragraph 41,
         Medicare Services and Cost Sharing.
j.       The process of referral to specialists and other providers, including
         access to behavioral health services provided by the ADHS RBHA system
         for members under age 18, 21 and older, and SMI members of any age.
k.       How to contact Member Services and a description of its function
1.       What to do in case of an emergency and instructions for receiving
         advice on getting care in case of an emergency. In a life-threatening
         situation, the member handbook should instruct members to use the
         emergency medical services (EMS) available and/or activate EMS by
         dialing 9-1-1. Handbook should contain information on proper emergency
         service utilization.
m.       How to obtain emergency transportation and medically necessary
         transportation.
n.       EPSDT services. Screenings include a comprehensive history and
         developmental/behavioral health screening, comprehensive unclothed
         physical examination, appropriate vision testing, hearing testing,
         laboratory tests, dental screening and immunizations.
o.       Maternity and family planning services
p.       Description of covered behavioral health services and how to access
         them
q.       Description of all covered dental services for members under 21 and how
         to access these services
r.       Out of county/out of state moves
s.       Grievance procedures, including a clear explanation of the member's
         right to file a grievance and to appeal any decision that affects the
         member's receipt of covered services.
t.       Contributions the member can make towards his/her own health, member
         responsibilities, appropriate and inappropriate behavior, and any other
         information deemed essential by the Contractor or AHCCCS. This shall
         include a statement that the member is responsible for protecting his
         or her ID card and that misuse of the card, including loaning, selling
         or

                                       29
<PAGE>

         giving it to others could result in loss of the member's eligibility
         and/or legal action. A sentence shall be included that stresses the
         importance of members keeping, not discarding, the swipe ID card.
u.       How to access after-hours care (urgent care).
v.       Advance directives for adults
w.       Use of other sources of insurance. See Section D, Paragraph 40,
         Coordination of Benefits.
x.       The last revision date
y.       Member's notification rights and responsibilities under AAC R9-22,
         Article 13 and AHCCCS policy
z.       A description of Fraud and Abuse including instructions on how to
         report suspected fraud or abuse. This shall include a statement that
         misuse of a member's identification card, including loaning, selling or
         giving it to others could result in loss of the member's eligibility
         and/or legal action against the member
aa.      A statement that informs the member of their right to request
         information on whether or not the health plan has Physician Incentive
         Plans (PIP) that affect the use of referral services, the right to know
         the types of compensation arrangements the plan uses, the right to know
         whether stop-loss insurance is required and the right to a summary of
         member survey results. (in accordance with PIP regulation).
bb.      Member's right to be treated fairly regardless of race, religion, sex,
         age or ability to pay.

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

Q.       What if I have any questions, problems or complaints about
         [Contractor's name]?
A.       If you have a question or problem, please call _______ and ask to talk
         to a Member Representative. They are there to help you.
A.       If you have a specific complaint about your medical care, the Member
         Representative will help you.
Q.       What if I'm not happy with the help given to me by the Member
         Representative?
A.       If you are unhappy with the answer you receive, you can tell the Member
         Representative you want to file a written or oral grievance. The
         grievance must be filed not later than 60 days after the date of the
         action, decision, or incident.
A.       [Contractor's name] will make a final decision for grievances within 30
         days of receiving your written or oral grievance. A letter will be
         mailed to you stating the health plan's decision and the reason for the
         decision. The letter will tell you how you can appeal the decision if
         you are still unhappy. You must let the health plan know you want to
         appeal the decision letter.
A.       If you are appealing the health plan's decision, [Contractor's name]
         will send your request for appeal to the AHCCCSA. You will receive
         information from AHCCCSA on how your appeal will be handled. AHCCCSA
         will then decide if the health plan's decision was correct under the
         circumstances.

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<PAGE>

II.      A LIST OF THE NAMES, TELEPHONE NUMBERS AND SERVICE SITE ADDRESSES OF
         PCPS available for selection by the member and a description of the
         selection process. Upon request by the member, the Contractor must make
         information available regarding provider qualifications.

9.       MEMBER SURVEYS

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

10.      MARKETING PLANS

The Contractor shall submit all proposed marketing plans and materials to
AHCCCSA for prior approval in accordance with the AHCCCS Health Plan Marketing
Policy, a copy of which is available in the Bidder's Library. The Contractor
must have signed contracts with hospitals (in Maricopa and Pima counties), PCPs,
specialists and pharmacies in order for them to be included in marketing
materials.

11.      ANNUAL ENROLLMENT CHOICE

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

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<PAGE>

12.      TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM standards for member transitions
between health plans or GSAs, to or from an ALTCS program contractor, IHS, a PL
93-638 tribal entity, or a Title XXI direct service provider and upon
termination or expiration of a contract. The Contractor shall develop and
implement policies and procedures which comply with AHCCCS medical policy to
address transition of:

1.       Members with significant medical conditions such as a high-risk
         pregnancy or pregnancy within the last 30 days, the need for organ or
         tissue transplantation, chronic illness resulting in hospitalization or
         nursing facility placement, etc.;
2.       Members who are receiving ongoing services such as behavioral health,
         dialysis, home health, chemotherapy and/or radiation therapy or who are
         hospitalized at the time of transition;
3.       Members who have received prior authorization for services such as
         scheduled surgeries, out-of-area specialty services, nursing home
         admission;
4.       Prescriptions, DME and medically necessary transportation ordered for
         the transitioning member by the relinquishing contractor; and
5.       Medical records of the transitioning member (the cost of reproducing
         and forwarding medical records shall be the responsibility of the
         relinquishing AHCCCS contractor).

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

The Contractor shall comply with the AHCCCS Behavioral Health Policy Manual for
transition of members in need of behavioral health services to be provided
through the ADHS RBHA system.

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

a.       Notification of subcontractors and members.
b.       Payment of all outstanding obligations for medical care rendered to
         members.
c.       Until AHCCCSA is satisfied that the Contractor has paid all such
         obligations, the Contractor shall provide the following reports to
         AHCCCSA:
         1)       A monthly claims aging report by provider/creditor including
                  IBNR amounts;

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<PAGE>

         2)       A monthly summary of cash disbursements;
         3)       Copies of all bank statements received by the Contractor.
         Such reports shall be due on the fifth day of each succeeding month for
         the prior month.
d.       In the event of termination or suspension of the contract by AHCCCSA,
         such termination or suspension shall not affect the obligation of the
         Contractor to indemnify AHCCCSA for any claim by any third party
         against the State or AHCCCSA arising from the Contractor's performance
         of this contract and for which the Contractor would otherwise be liable
         under this contract.
e.       Any dispute by the Contractor with respect to termination or suspension
         of this contract by AHCCCSA shall be exclusively governed by the
         provisions of Section E, Paragraph 26, Disputes.
f.       Any funds advanced to the Contractor for coverage of members for
         periods after the date of termination shall be returned to AHCCCSA
         within 30 days of termination of the contract.

HOSPITAL REIMBURSEMENT PILOT PROGRAM - MARICOPA AND PIMA COUNTIES ONLY: Members
transferred from non-contracting hospitals shall be done in accordance with the
AHCCCS Medical Policy pertaining to member transfers.

13.      STAFF REQUIREMENTS AND SUPPORT SERVICES

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

a.       A full-time ADMINISTRATOR who is available at all times to fulfill the
         responsibilities of the position and to oversee the entire operation of
         the health plan.
b.       A MEDICAL DIRECTOR who shall be an Arizona-licensed physician. The
         Medical Director shall be actively involved in all major clinical
         programs and QM/UM components of the Contractor's health plan. The
         Medical Director shall devote sufficient time to Contractor's health
         plan to ensure timely medical decisions, including after-hours
         consultation as needed.
c.       A full-time CHIEF FINANCIAL OFFICER who is available at all times to
         fulfill the responsibilities of the position and to oversee the budget
         and accounting systems implemented by the Contractor.
d.       A QUALITY MANAGEMENT/UTILIZATION MANAGEMENT COORDINATOR who is an
         Arizona-licensed registered nurse, physician or physician's assistant.
e.       A MATERNAL HEALTH/EPSDT COORDINATOR who shall be an Arizona-licensed
         registered nurse, physician or physician's assistant; or have a
         Master's degree in health services, public health or health care
         administration or other related field.
f.       A BEHAVIORAL HEALTH COORDINATOR who shall be a behavioral health
         professional as described in Health Services Rule R9-20-306.B. The
         Behavioral Health Coordinator shall devote sufficient time to ensure
         that the Contractor's behavioral health program is implemented per
         AHCCCSA requirements.

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<PAGE>

g.       PRIOR AUTHORIZATION STAFF to authorize medical care 24 hours per day, 7
         days per week. This staff shall include an Arizona-licensed registered
         nurse, physician or physician's assistant.
h.       CONCURRENT REVIEW STAFF to conduct inpatient concurrent review. This
         staff shall consist of an Arizona-licensed registered nurse, physician,
         physician's assistant or an Arizona-licensed practical nurse
         experienced in concurrent review and under the direct supervision of a
         registered nurse, physician or physician's assistant.
i.       MEMBER SERVICES MANAGER AND STAFF to coordinate communications with
         members and act as member advocates. There shall be sufficient Member
         Service staff to enable members to receive prompt resolution to their
         problems.
j.       PROVIDER SERVICES MANAGER AND STAFF to coordinate communications
         between the Contractor and its subcontractors. There shall be
         sufficient Provider Services staff to enable providers to receive
         prompt resolution to their problems or inquiries.
k.       A CLAIMS ADMINISTRATOR and CLAIMS PROCESSORS to ensure the timely and
         accurate processing of original claims, claims correction letters,
         re-submissions and overall adjudication of claims.
l.       ENCOUNTER PROCESSORS to ensure the timely and accurate processing and
         submission to AHCCCSA of encounter data and reports.
m.       A GRIEVANCE COORDINATOR who will manage and adjudicate member and
         provider grievances.
n.       CLERICAL AND SUPPORT STAFF to ensure appropriate functioning of the
         Contractor's operation.

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

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

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

14.      WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures shall be reviewed at least annually to ensure that the
Contractor's written policies reflect current practices. Reviewed policies shall
be dated and signed by the Contractor's appropriate manager, coordinator,
director or administrator. All medical and quality management policies must be
approved and signed by the Contractor's Medical Director. Job descriptions shall
be reviewed at least annually to ensure that current duties performed by the
employee reflect written requirements.

                                       34
<PAGE>

15.      ADVANCE DIRECTIVES

The Contractor shall specify in the contract or agreement with each hospital,
nursing facility, provider of home health care, hospice or personal care
services that the provider must comply with federal and State law regarding
advance directives for adult members. At a minimum, the providers (hospitals,
nursing facilities, home health care, hospice and personal services) shall:

a.       Maintain written policies for adult members receiving care through
         their organization regarding the member's right to make decisions about
         medical care, including the right to accept or refuse medical care and
         the right to execute an advance directive. The information must contain
         an explanation of any conscientious objection the provider may have in
         carrying out the advance directive. (The Contractor is not prohibited
         from making such objection when made pursuant to ARS 36-3205 (C.1)
b.       Provide written information to adult members regarding an individual's
         rights under State law to make decisions regarding medical care and the
         provider's written policies concerning advance directives.
c.       Require documentation in the member's medical record as to whether the
         adult member has executed an advance directive.
d.       Not condition the provision of care or discriminate against a member
         because of his or her decision to execute or not execute an advance
         directive.
e.       Provide education for staff on issues concerning advance directives.
f.       Ensure compliance with requirements of federal and State law regarding
         advance directives.

The Contractor shall also maintain policies and procedures on advance directives
with respect to all adult members. These policies and procedures must contain
the same information described immediately above.

16.      PERFORMANCE MEASURES

All performance measures described below apply to Title XIX, state-only, and
Title XXI member populations.

EPSDT PARTICIPATION: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program to at least 80% of all enrolled
members under age 21 during CYE 99. "Participation" is defined as at least one
initial and periodic screening or one preventive or treatment visit. AHCCCSA
will measure participation levels through encounter data and will not use
information from prior period coverage (see Paragraph D.6, Prior Period
Coverage) in evaluating the Contractor's performance.

If the Contractor has not achieved at least the statewide average
participation/utilization rates for EPSDT services by the end of the contract
year, as indicated through notification from AHCCCSA, the Contractor shall
submit a corrective action plan to AHCCCSA. The plan shall be submitted within
30 days of the Contractor's receipt of participation/utilization rate

                                       35
<PAGE>

notification from AHCCCSA. In addition, AHCCCSA may conduct one or more
follow-up on-site reviews to verify compliance with the corrective action plan.

If the Contractor's rate is higher than the statewide average for EPSDT
participation, but lower than 80%, AHCCCSA may require the Contractor to submit
a corrective action plan within specified time lines.

EPSDT IMMUNIZATIONS: The Contractor shall ensure members under age 21 receive
age-appropriate immunizations as specified in the AMPM. The AHCCCSA long range
goal is to reach or exceed the Healthy People Year 2000 goal of 90%
immunization for two year old members. During CYE 99, the Contractor shall meet
or exceed the following:

<TABLE>
<CAPTION>
                                                        Percentage of      Number of
         Immunization                                 Members Immunized      Doses
<S>                                                   <C>                  <C>
Diphtheria, Tetanus, Pertussis vaccine (DPT)                  80%               4
Oral Polio Vaccine                                            85%               3
Measles, Mumps, Rubella Vaccine (MMR)                         90%               1
H. Influenza, Type B (HIB)                                    90%               1
Hepatitis B (Hep B)                                           85%               3
Combined 3-Antigen Rate (4DPT, 3 OPV, 1MMR)                   80%             N/A
Combined All Antigens                                         70%             N/A
Varicella Vaccine                                            N/A              N/A
</TABLE>

The Contractor shall conduct an annual immunization audit based on random
sampling to assess and verify the immunization status of two year old members.
AHCCCSA will provide the Contractor, within two weeks after the end of the
contract year, the selected sample, specifications for conducting the audit, the
AHCCCSA reporting requirements, and technical assistance. The Contractor shall
identify the children's PCP, conduct the assessment, and report to AHCCCSA in
the required format all immunization rates for the sampled two-year-old children
no later than December 15 after the end of the contract year. If medical records
are missing for more than 5% of the sample group, the Contractor is subject to
sanctions by AHCCCSA. Health Services Advisory Group (HSAG) will conduct a study
to validate the Contractor's reported rates.

AHCCCSA will provide the statewide average immunization rates to the Contractor.
If the Contractor has not achieved at least these statewide averages by the end
of the contract year, the Contractor shall submit a corrective action plan to
AHCCCSA. The plan shall be submitted within 60 days of the Contractor's receipt
of utilization rate notification from AHCCCSA. In addition, AHCCCSA may conduct
one or more follow-up on-site reviews to verify compliance with the corrective
action plan.

If the Contractor's immunization rates are higher than the statewide average for
immunizations, but lower than the stated goals set forth in this contract,
AHCCCSA may require the Contractor to submit a corrective action plan within
specified time lines.

                                       36
<PAGE>

PERFORMANCE INDICATORS: The AHCCCS goal for quality of care is to meet or exceed
the Healthy People Year 2000 national goals. For CYE 99, the Contractor shall
comply with AHCCCS quality management requirements to improve performance of at
least the following established performance indicators: low birth weight;
mammography screening; and cervical cancer screening.

If the Contractor has not achieved at least the statewide average for each
performance indicator by the end of the contract year, it shall submit to
AHCCCS, Office of the Medical Director, Acute Care Unit, a quality improvement
plan. The plan shall be submitted within 60 days after the Contractor's receipt
of performance measurement notification from AHCCCSA.

A quality improvement plan may be required for each performance indicator in
which the Contractor's performance rate is above the statewide average for all
contractors but below the midpoint between the statewide average and the
best-performing health plan.

EPSDT/DENTAL SERVICES: The Contractor shall take affirmative steps to increase
utilization of dental services for members under age 21. At least 50% of all
enrolled members under age 21 shall have at least one dental visit during CYE
99. AHCCCSA will monitor utilization through reported encounter data.

If the Contractor has not achieved at least the statewide average rate for
utilization of dental services by the end of the contract year, as indicated
through notification from AHCCCSA, the Contractor shall submit a corrective
action plan to AHCCCSA. The plan shall be submitted within 30 days of the
Contractor's receipt of utilization rate notification from AHCCCSA. In addition,
AHCCCSA may conduct one or more follow-up on-site reviews to verify compliance
with the corrective action plan. If the Contractor's rate is higher than the
statewide average for EPSDT dental services, but lower than 50%, AHCCCSA may
require the Contractor to submit a corrective action plan within specified time
lines.

WELL-CHILD VISITS FOR CHILDREN UNDER THE AGE OF 15 MONTHS: The Contractor shall
ensure that members under the age of 15 months receive all recommended
Well-Child visits as specified in the AMPM. During CYE 99, the Contractor shall
ensure that a minimum of 60% of its members receive all recommended Well-Child
visits. If the Contractor has not achieved at the least the statewide average
rate of utilization by the end of the contract year as indicated through
notification from AHCCCSA, the Contractor shall submit a corrective action plan
to AHCCCSA, Office of the Medical Director within 30 days of receipt of the
notification. If the Contractor rate's is higher than the statewide average but
lower than 60%, AHCCCSA may require the Contractor to submit a corrective action
plan within a specified time limit.

WELL CHILD VISITS FOR CHILDREN 3,4,5 AND 6 YEARS OF AGE: The Contractor shall
ensure that children 3,4,5 and 6 years of age receive all recommended Well-Child
visits as specified in the AMPM. During CYE 99, the Contractor shall ensure that
a minimum of 60% of its members receive at least one Well-Child visit during the
contract year. If the Contractor has not achieved at least the state-wide
average rate for utilization by the end of the contract year as indicated
through notification from AHCCCSA, the Contractor shall submit a corrective
action plan to AHCCCSA, Office of the Medical Director within 30 days of receipt
of the notification. If the

                                       37
<PAGE>

Contractor rate's is higher than the statewide average for this indicator but
lower than 60%, AHCCCSA may require the Contractor to submit a corrective action
plan within a specified time limit.

PRIMARY CARE PROVIDER VISITS: The Contractor shall ensure that members under age
21 have access to primary care provider (PCP) services. During CYE 99, the
Contractor shall ensure that a minimum of 70% of members under age of 21 visit
their PCP at least once during the contract year. If the Contractor has not
achieved at the least the statewide average rate for utilization by the end of
the contract year as indicated through notification from AHCCCSA, the Contractor
shall submit a corrective action plan to AHCCCSA, Office of the Medical Director
within 30 days of receipt of the notification. If the Contractor's rate is
higher than the statewide average but lower than 70%, AHCCCSA may require the
Contractor to submit a corrective action plan within a specified time limit.

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

The Contractor shall provide to members quality medical care as described in the
AMPM, Chapter 900, regardless of payer source or eligibility category. The
Contractor shall institute processes to assess, plan, implement and evaluate
quality improvement activities. The Contractor shall conduct two clinical
studies each contract year as required in Chapter 900 of the AMPM AHCCCSA will
determine the subject matter and study methodology for one of the annual studies
and the Contractor shall submit to AHCCCSA by November 15 of each contract year
its proposed subject matter and methodology for the other. The results of the
studies shall be submitted to AHCCCS, Office of the Medical Director, within 90
days after the end of each contract year.

The Contractor must maintain a written QM/UM plan which details plans for
compliance with the AMPM. The Contractor shall incorporate in its QM/UM plan an
action plan for improving the performance rates for those indicators with
established baselines.

18.      PHYSICIAN INCENTIVES

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

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

                                       38
<PAGE>

1.       A complete copy of the contract
2.       A plan for the member satisfaction survey
3.       Details of the stop-loss protection provided
4.       A summary of the compensation arrangement that meets the substantial
         financial risk definition.

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

19.      APPOINTMENT STANDARDS

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

a.       Emergency PCP appointments - same day of request
b.       Urgent care PCP appointments - within two days of request
c.       Routine care PCP appointments - within 21 days of request

For specialty referrals, the Contractor shall be able to provide:
a.       Emergency appointments - within 24 hours of referral
b.       Urgent care appointments - within 3 days of referral
c.       Routine care appointments - within 30 days of referral

For dental appointments, the Contractor shall be able to provide:
a.       emergency appointments - within 24 hours of request
b.       urgent appointments - within 3 days of request
c.       routine care appointments - within 45 days of request

For maternity care, the Contractor shall be able to provide initial prenatal
care appointments for enrolled pregnant members as follows:
a.       First trimester - within 14 days of request
b.       Second trimester - within 7 days of request
c.       Third trimester - within 3 days of request
d.       High risk pregnancies - within 3 days of identification of high risk by
         the Contractor or maternity care provider, or immediately if an
         emergency exists

For behavioral health services to members 18-20 years of age, non-seriously
mentally ill, the Contractor shall be able to provide appointments as follows:
a.       Emergency screening and evaluation - within 24 hours of referral or
         request for services
b.       Routine Behavioral health screening - within seven days of referral
c.       Routine Non-emergency appointments - within 30 days of referral or
         behavioral health screening

                                       39
<PAGE>

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

The Contractor shall monitor the adequacy of its appointment processes and
reduce the unnecessary use of alternative methods such as emergency room visits.
The Contractor shall monitor and ensure that a member's waiting time for a
scheduled appointment at the PCP's or specialist's office is no more than 45
minutes, except when the provider is unavailable due to an emergency.

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

20.      REFERRAL PROCEDURES AND STANDARDS

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

a.       Use of referral forms clearly identifying the Contractor
b.       A system for resolving disputes regarding the referrals
c.       Having a process in place that ensures the member's PCP receives all
         specialist and consulting reports and a process to ensure PCP follow-up
         of all referrals including EPSDT referrals for behavioral health
         services
d.       A referral plan for any member who is about to lose eligibility and who
         requests information on low-cost or no-cost health care services
e.       Referral to Medicare HMO including payment of copayments

21.      PROVIDER MANUAL

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

a.       Introduction to the Contractor which explains the Contractor's
         organization and administrative structure
b.       Provider responsibility and the Contractor's expectation of the
         provider
c.       Overview of the Contractor's Provider Service department and function

                                       40
<PAGE>

d.       Listing and description of covered and non-covered services,
         requirements and limitations
e.       Emergency room utilization (appropriate and non-appropriate use of the
         emergency room)
f.       EPSDT Services - screenings include a comprehensive history,
         developmental/behavioral health screening, comprehensive unclothed
         physical examination, appropriate vision testing, hearing testing,
         laboratory tests, dental screenings and immunizations
g.       Dental services
h.       Maternity/Family Planning services
i.       Listing of behavioral health services
j.       The Contractor's policy regarding PCP assignments
k.       Referrals to specialists and other providers, including access to
         behavioral health services provided by the ADHS RBHA system for members
         under age 18, 21 and older, and SMI members of any age
l.       Grievance and appeal rights
m.       Billing and encounter submission information
         -        indicate which form, UB92, HCFA 1500, or Form C is to be used
                  for services
         -        indicate which fields are required for a claim to be
                  considered acceptable by the Contractor. A completed sample of
                  each form shall be included
n.       Contractor's written policies and procedures which affect the
         provider(s) and/or the provider network
o.       Claims re-submission policy and procedure
p.       Reimbursement, including reimbursement for dual eligibles (i.e.
         Medicare and Medicaid) or members with other insurance
q.       Explanation of remittance advice
r.       Prior authorization requirement
s.       Claims medical review
t.       Concurrent review
u.       Fraud and Abuse
v.       Formularies (with updates and changes provided in advance to providers,
         including pharmacies)
w.       AHCCCS appointment standards

22.      PRIMARY CARE PROVIDER STANDARDS

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

At a minimum, the Contractor's number of full-time equivalent PCPs to enrolled
members shall not exceed a ratio of 1:1800 for adults and 1:1200 for children
who are 12 or younger. If the PCP contracts with more than one AHCCCS health
plan, the ratio shall be adjusted by the Contractor to ensure the total number
of AHCCCS members does not exceed the above ratio. The Contractor should
consider the PCP's total patient panel size (i.e. AHCCCS and non-AHCCCS

                                       41
<PAGE>

patients) when assessing the PCP's ability to meet AHCCCS' appointment and other
standards. In addition, AHCCCS members shall not comprise the majority of the
PCP's panel of patients. The Contractor shall also reduce the number of members
assigned to its network PCPs as necessary to meet the appointment standards
specified in Section D, Paragraph 19, Appointment Standards. Any variation to
the above standards must be submitted to AHCCCSA, Office of the Medical Director
for prior approval. PCPs with assigned members diagnosed with AIDS or as
HIV-positive shall meet criteria and standards set forth in AHCCCS Medical
Policy and AHCCCS AIDS Advisory Committee Guidelines.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data regarding
PCP assignments is current. The Contractor is encouraged to assign members with
complex medical conditions who are age 12 and younger to Board-certified
pediatricians.

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

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

a.       Supervision, coordination and provision of care to each assigned member
b.       Initiation of referrals for medically necessary specialty care
c.       Maintaining continuity of care for each assigned member
d.       Maintaining the member's medical record, including documentation of all
         services provided to the member by the PCP, as well as any specialty or
         referral services.

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

23.      OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and procedures to:

                                       42
<PAGE>

a.       Recruit sufficient specialty physicians, dentists, health care
         professionals, health care institutions and support services to meet
         the medical needs of its members.
b.       Monitor the adequacy, accessibility and availability of its provider
         network to meet the needs of its members, including the provision of
         care to members with limited proficiency in English.

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

For specialty services, the Contractor shall ensure that:

a.       PCP referral shall be required for specialty physician services. Any
         waiver of this requirement by the Contractor must be approved in
         advance by AHCCCSA.
b.       Specialty physicians shall not begin a course of treatment for a
         medical condition other than that for which the member was referred,
         unless approved by the member's PCP.
c.       The specialty physicians shall provide to the member's PCP complete
         documentation of all diagnostic services including copies of test
         results if applicable, treatment services provided and the resulting
         outcome for each.

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

a.       Arizona licensed allopathic and/or osteopathic physicians who are
         general practitioners or specialize in family practice or obstetrics
b.       Certified nurse midwives
c.       Licensed midwives.

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

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

                                       43
<PAGE>

24.      NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is sufficient
to provide all covered services to AHCCCS members. It shall ensure covered
services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient professional and
paramedical personnel for the provision of covered services, including emergency
medical care on a 24-hour-a-day, 7-days-a-week basis. The proposed network shall
be sufficient to provide covered services within designated time and distance
limits. For Maricopa and Pima Counties only, this includes a network such that
95% of its members residing within the boundary area of metropolitan Phoenix and
Tucson do not have to travel more than 5 miles to see a PCP or pharmacy. 95% of
its members residing outside the boundary area must not have to travel more than
10 miles to see such providers. See Attachment B, Minimum Network Requirements,
for details on network requirements by Geographic Service Area. Also see Section
D, Paragraph 35, Hospital Subcontracting and Reimbursement, for details on
changes in hospital subcontracting effective October 1, 1998.

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

25.      NETWORK MANAGEMENT

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

a.       Communicate with the network regarding contractual and/or program
         changes and requirements
b.       Monitor and control network compliance with policies and rules of
         AHCCCSA and the Contractor, including compliance with all policies and
         procedures related to the grievance process and ensuring the member's
         care is not compromised during the grievance process.
c.       Evaluate the quality of services delivered by the network
d.       Provide or arrange for medically necessary covered services should the
         network become temporarily insufficient within the contracted service
         area
e.       Monitor network capacity to ensure that there are sufficient providers
         to handle the volume of members
f.       Ensure service accessibility, including monitoring appointment
         procedures standards, appointment waiting times, and service provision
         standards

                                       44
<PAGE>

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

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

26.      FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide covered services
and must comply with the federal mandates in OBRA 89 and OBRA 90. This
legislation gives FQHCs the option to require state Medicaid programs to
reimburse the FQHC at 100% of reasonable costs for the services delivered.
AHCCCSA and its contractors are required to comply with this legislation. The
following payment methodology for reasonable cost reimbursement was implemented
effective October 1, 1997.

If the FQHC elects reasonable cost reimbursement, the FQHC will receive a
quarterly payment per member per month from AHCCCSA. The initial capitation
amount will be $1.75 PMPM statewide. In accordance with the Balanced Budget Act
of 1997, this additional reimbursement will be phased out over a five-year
period beginning in contract year ending 2000:

<TABLE>
<CAPTION>
CONTRACT YEAR        PHASE-OUT PERCENTAGE         PMPM AMOUNT
<S>                  <C>                          <C>
1997 through 1999        No phase-out                $ 1.75
2000                              95%                $ 1.66
2001                              90%                $ 1.58
2002                              85%                $ 1.49
2003                              70%                $ 1.23
2004                             100%                $ 0.00
</TABLE>

Contractors are required to submit member month information for Title XIX
members for each FQHC on a quarterly basis to AHCCCS Office of Managed Care.
Contractors should refer to the Office of Managed Care's policy on FQHC
reimbursement for further guidance. The following FQHCs are currently recognized
by HCFA:

                                       45
<PAGE>

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

Any other clinics that subsequently become FQHCs will be subject to the
reimbursement methodology described above upon electing reasonable cost
reimbursement from AHCCCSA.

27.      PROVIDER REGISTRATION

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

28.      PROVIDER AFFILIATION TAPE

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

29.      PERIODIC REPORT REQUIREMENTS

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

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

                                       46
<PAGE>

b.       Accuracy: Reports or other required data shall be prepared in strict
         conformity with appropriate authoritative sources and/or AHCCCS defined
         standards.
c.       Completeness: All required information shall be fully disclosed in a
         manner that is both responsive and pertinent to report intent with no
         material omissions.

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

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

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

30.      DISSEMINATION OF INFORMATION

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

31.      REQUESTS FOR INFORMATION

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

32.      OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
successful offerors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business for the initial contract year beginning 10/1/97.
The purpose of Readiness Reviews is to assess new contractors' readiness and
ability to provide contract services to members at the start of the contract
year. A new contractor will be permitted to commence operations only if the
Readiness Review factors are met to AHCCCSA's satisfaction.

                                       47
<PAGE>
33.      OPERATIONAL AND FINANCIAL REVIEWS

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

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful, AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with AHCCCSA and the AHCCCSA Review Team by
forwarding in advance such policies, procedures, job descriptions, contracts,
logs and other information that AHCCCSA may request. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance by
AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor personnel as identified in advance shall be
available to the Review Team at all times during AHCCCSA on-site review
activities. While on-site, the Contractor shall provide the Review Team with
work space, access to a telephone, electrical outlets and privacy for
conferences. Certain documentation submission requirements may be waived at the
discretion of AHCCCSA if the Contractor has obtained accreditation from NCQA or
any other nationally recognized accrediting body. The Contractor must submit the
entire NCQA report to AHCCCSA for such waiver consideration.

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

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

34.      CLAIMS PAYMENT SYSTEM

The Contractor shall develop and maintain a claims payment system capable of
processing, cost-avoiding and paying claims in accordance with AHCCCS Rule
R9-22-705, a copy of which may be found in the Bidder's Library. In the absence
of a subcontract provision to the contrary,

                                       48
<PAGE>

claims submission deadlines shall be calculated from the date of service or the
effective date of enrollment, whichever is later. Remittance advices
accompanying the Contractor's payments to providers must contain, at a minimum,
adequate descriptions of all denials and adjustments, the reasons for such
denials and adjustments, the amount billed, the amount paid, and grievance
rights. The Contractor's claims payment system, as well as its prior
authorization and concurrent review process, must minimize the likelihood of
having to recoup already-paid claims. Any recoupment in excess of $50,000 per
provider within a contract year must be approved in advance by AHCCCSA, Office
of Managed Care.

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

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

35.      HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

Hospital subcontracts negotiated and/or renewed after October 1, 1998 shall not
contain any references to the AHCCCS tiered per-diem hospital rates.

MARICOPA AND PIMA COUNTIES ONLY: The Arizona Laws of 1996 Chapter 288 Section 20
sets forth the Hospital Reimbursement Pilot Program (Pilot), which is effective
from October 1, 1997, through September 30, 2000. The Pilot as defined by AHCCCS
Rule R9-22-718 requires hospital subcontracts to be negotiated between health
plans in Maricopa and Pima counties and hospitals to establish reimbursement
levels, terms and conditions. Subcontracts shall be negotiated by the Contractor
and hospitals to cover operational concerns, such as timeliness of claims
submission and payment, payment of discounts or penalties, legal resolution,
which may, as an option, include establishing arbitration procedures. These
negotiated subcontracts shall remain under close scrutiny by AHCCCSA to insure
availability of quality services within specific service districts, equity of
related party interests, reasonableness of rates, and only marketing of
contracted organizations. The general provisions of this program encompass acute
care hospital services and outpatient hospital services that result in an
admission. The Contractor shall submit all hospital subcontracts and any
amendments to AHCCCSA, Office of Managed Care, for prior approval. For
non-emergency patient-days, the Contractor shall ensure that at least 85% of its
members use contracted hospitals. AHCCCSA reserves the right to subsequently
adjust the 85% standard. Further, if in AHCCCSA's judgment the number of
emergency days at a particular non-contracted hospital becomes significant,
AHCCCSA may require a subcontract at that hospital. Hospitals and health
plans/program contractors outside of Maricopa and Pima

                                       49
<PAGE>

counties are not included in this Pilot. Offerors should refer to the
"Hospital Reimbursement Pilot Program Packet" for additional information and
requirements.

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

FOR OUT-OF-STATE HOSPITALS: The Contractor shall reimburse out-of-state
hospitals in accordance with AHCCCS Rule R9-22-705.

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

36.      NURSING FACILITY REIMBURSEMENT

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

37.      COMPENSATION

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

Subject to the availability of funds, AHCCCSA shall make payments to the
Contractor in accordance with the terms of this contact provided that the
Contractor's performance is in compliance with the terms and conditions of this
contact Payment must comply with requirements of ABS Title 36. AHCCCSA reserves
the option to
                           [INTENTIONALLY LEFT BLANK]

                                       50
<PAGE>

make payments to the Contractor by wire or NACHA transfer and will provide the
Contractor at least 30 days notice prior to the effective date of any such
change.

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

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

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund, as described in ARS ss.36-2913. An error discovered by the State with or
without an audit in the amount of fees paid to Contractor will be subject to
adjustment or repayment by Contractor making a corresponding decrease in a
current Contractor's payment or by making an additional payment by AHCCCSA to
the Contractor.

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

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

PRIOR PERIOD COVERAGE (PPC) CAPITATION: The Contractor will be paid capitation
for all PPC member months, including partial member months. This capitation
includes the cost of providing medically necessary covered services to members
during prior period coverage. The PPC capitation rates will be set by AHCCCSA
and will be paid to the Contractor along with the prospective capitation
described below. Contractors will not receive PPC capitation for newborns of
members who were enrolled at the time of delivery.

RECONCILIATION OF PPC COSTS TO REIMBURSEMENT: For CYE `98 and CYE `99, AHCCCSA
will offer a reconciliation process for contractors whose total PPC medical cost
experience (excluding administrative and non-operating expenses) is more than
10% higher than the reimbursement associated with PPC (PPC reinsurance and
"retro" portion of PPC capitation excluding administrative add-on). AHCCCSA will
reimburse 100% of a Contractor's excess reasonable costs. AHCCCSA may also
require Contractors to provide documentation to support an audit of the PPC
medical expenses and a reconciliation to audited medical expenses. AHCCCS may
recoup from any Contractor, profit amounts in excess of a 10% limit. Refer to
the Office of Managed Care's PPC Reconciliation Policy for further details of
the reconciliation process.

                                       51
<PAGE>

PROSPECTIVE CAPITATION: The Contractor will be paid capitation for all
prospective member months, including partial member months. AHCCCSA will make
monthly capitation payments to the Contractor for each member enrolled with the
Contractor on the first of the month as payment in full for any and all covered
services provided to the member. Payment shall be made no later than the fifth
working day of the month for which payment is due. For members enrolled at any
time after the beginning of the month's payment cycle, capitation will be
prorated from the effective date of enrollment through the remainder of the
month of enrollment. These payments will be made by AHCCCS to Contractor on a
weekly basis.

KIDSCARE CAPITATION: The Contractor will be paid capitation for KidsCare members
in the same manner as prospective capitation (see above). KidsCare capitation
rates will be set by AHCCCSA in conjunction with an independent actuary.
Following CYE 99, AHCCCSA will review the assumptions made in setting the
capitation rates and may, at its option, reconcile and/or adjust the rates.

SOBRA SUPPLEMENT: When the Contractor has an enrolled SOBRA woman who delivers
during a prospective enrollment period, the Contractor will be entitled to a
SOBRA payment. SOBRA Supplemental payments will not apply to SOBRA women who
deliver in a prior period coverage time period. AHCCCSA reserves the right at
any time during the term of this contract to adjust the amount of this SOBRA
payment for women who deliver at home. The Contractor is responsible for meeting
the newborn notification requirements defined in AHCCCS Rule R9-22-342,
R9-3l-309 and R9-31-707 before this payment will be made to the Contractor.

HIV-AIDS SUPPLEMENT: In addition to the capitation payment described above, a
separate and additional payment will be made to the Contractor to help defray
costs for members receiving approved protease inhibitors and associated lab work
related to their treatment for HIV/AIDS. The list of AHCCCSA-approved protease
inhibitors is available in the Bidder's Library.

On a quarterly basis, the Contractor shall submit to AHCCCSA, Office of Managed
Care, an unduplicated monthly count of members, by rate code, who are using
approved protease inhibitors. The report shall be submitted, along with the
quarterly financial reporting package, within 60 days after the end of each
quarter.

The rate of reimbursement for this separate payment will $634.50 per month and
is subject to review during the term of the contract. Payment will be made
quarterly to the Contractor based on the reported members for the preceding
quarter. AHCCCSA will review this HIV/AIDS-related data at least annually as
part of its Operational and Financial Review and reserves the right to recoup
any amounts paid for ineligible members as determined through this review as
well as an associated penalty for incorrect reporting.

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

                                       52
<PAGE>

38.      CAPITATION ADJUSTMENTS

Except for changes made specifically in accordance with this contract, the rates
set forth in Section B shall not be subject to re-negotiation or modification
during the contract period. AHCCCSA may, at its option, review the effect of a
program change and determine if a capitation adjustment is needed. In these
instances the adjustment will be prospective with assumptions discussed with the
Contractor prior to modifying capitation rates. The Contractor may request a
review of a program change if it believes the program change was not equitable;
AHCCCSA will not unreasonably withhold such a review.

If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the default. The Contractor shall reimburse AHCCCSA
and/or AHCCCSA may deduct from future monthly capitation for any portion of a
month during which the Contractor was not at risk due to, for example:

         a.       death of a member
         b.       member's incarceration (not eligible for AHCCCS benefits)
         c.       duplicate capitation to the same contractor

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

39.      REINSURANCE

REGULAR ACUTE PROSPECTIVE REINSURANCE: Reinsurance is a stop-loss program
provided by AHCCCSA to the Contractor for the partial reimbursement of covered
inpatient facility medical services incurred for a member with an acute medical
condition beyond an annual deductible (AHCCCS Rule R9-22-503 and R9-31-503). Per
diem rates paid for nursing facility services, including room and board,
provided in lieu of hospitalization for up to 90 days in any contract year shall
be eligible for reinsurance coverage Refer to the AHCCCS Reinsurance Claims
Processing Manual for further details on the Reinsurance Program. Reinsurance
for the Hospital Reimbursement Pilot Program (See Section D, Paragraph 35,
Hospital Reimbursement), will be paid in accordance with AHCCCS Rule R9-22-503
and R9-31-503.

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

                                       53
<PAGE>

<TABLE>
<CAPTION>
                                          PROSPECTIVE REINSURANCE                         PPC REINSURANCE
--------------------------------------------------------------------------------------------------------------
        STATEWIDE PLAN                MNMI            NON MNMI                        ALL RATE
          ENROLLMENT               DEDUCTIBLE        DEDUCTIBLE      COINSURANCE       CODES       COINSURANCE
  <S>                              <C>               <C>             <C>              <C>          <C>
  0-19,999                           $15,000           $20,000           75%           $5,000           100%
  20,000-49,999                      $15,000           $35,000           75%           $5,000           100%
  50,000 and over                    $15,000           $50,000           75%           $5,000           100%
--------------------------------------------------------------------------------------------------------------
</TABLE>

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

PRIOR PERIOD COVERAGE REINSURANCE: For CYE 98 and CYE 99, a separate reinsurance
deductible and coinsurance percentage will apply during prior period coverage.
As noted in the table above, all Contractors, regardless of enrollment, will be
subject to a $5,000 deductible level. The coinsurance percentage for the prior
period coverage reinsurance is 100%. Expenses incurred during prior period
coverage will not apply toward the prospective reinsurance thresholds.

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

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

Medical review on prospective and prior period coverage reinsurance cases will
be determined based on statistically valid random sampling. AHCCCSA, Office of
the Medical Director, will generate the sampling and will notify the Contractor
of documentation needed for the retrospective medical review process to occur at
the Contractor's offices. Reinsurance consideration will be given to inpatient
facility contracts, and hearing decisions rendered by the Office of Grievance
and Appeals. Pre-hearing and/or hearing penalties discoverable during the review
process will not be reimbursed under reinsurance. A recoupment of reinsurance
reimbursements made to the Contractor will occur based on the results of the
medical review sampling. The results of the medical review sampling will be
separately extrapolated to the entire prospective and prior period coverage
reinsurance reimbursement populations in the review time frame for the
Contractor. AHCCCSA will give the Contractor at least 45 days advance notice of
any on-site review. The Contractor shall have all requested medical records
on-site. Any

                                       54
<PAGE>

documents not requested in advance by AHCCCSA shall be made available upon
request of the Review Team during the course of the review. The Contractor
representative shall be available to the Review Team at all times during AHCCCSA
on-site review activities. While on-site, the Contractor shall provide the
Review Team with work space, access to a telephone, electrical outlets and
privacy for conferences. The Contractor will be furnished a copy of the
Reinsurance Review Report within 60 days of the onsite review and given an
opportunity to comment on any review findings.

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

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

HEMOPHILIA: When a member is identified as being catastrophically eligible by
AHCCCSA due to the specific diagnosis of hemophilia (ICD9 codes 286.0, 286.1,
286.2), all medically necessary covered services provided during the contract
year shall be eligible for reimbursement at 85% of the Contractor's paid amount.

VON WILLEBRAND'S DISEASE: Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDAVP responders and
dependent on Plasma Factor VIII. The Contractor must promptly notify AHCCCS
Office of the Medical Director Reinsurance Unit after diagnosis. All medically
necessary covered services provided during the contract year shall be eligible
for reimbursement at 85% of the Contractor's paid amount.

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

TRANSPLANTS: Bone grafts, kidney and cornea transplantation services are not
eligible for catastrophic reinsurance coverage but are eligible under the
regular (non-catastrophic) reinsurance program. Refer to the AMPM, Chapter 300
for covered services for organ and tissue transplants. Catastrophic reinsurance
coverage for transplants is limited to 85% of the AHCCCS contract amount for the
transplantation services rendered, or 85% of the Contractor's paid

                                       55
<PAGE>

amount, whichever is lower. The AHCCCS contracted transplantation rates may be
found in the Bidder's Library. When a member is referred to a transplant
facility for an AHCCCS-covered organ transplant, the Contractor shall notify
AHCCCSA, Office of the Medical Director.

Encounter data will not be used to determine catastrophic reinsurance benefits.
However, this does not relieve the Contractor of the responsibility for
submitting encounters for catastrophic reinsurance services. The initial claims
for reimbursement under the catastrophic reinsurance program must be filed no
later than June 30th of the year following the contract year. Catastrophic
reinsurance claims that are submitted within this time limit and are denied or
adjusted, may be corrected until September 30th of the year following the
contract year. All catastrophic reinsurance claims must be submitted in
accordance with the AHCCCS Reinsurance Claims Processing Manual.

40.      COORDINATION OF BENEFITS/ THIRD PARTY LIABILITY

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

COST AVOIDANCE: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires the member to pay any
copayment, coinsurance or deductible, the Contractor is responsible for making
these payments, even if the services are provided outside of the Contractor's
network. The Contractor's liability for coinsurance and deductibles is limited
to what the Contractor would have paid for the entire service pursuant to a
written contract with the provider or the AHCCCS fee-for-service rate, less any
amount paid by the third party. (The Contractor must decide whether it is more
cost-effective to provide the service within its network or pay coinsurance and
deductibles for a service outside its network. For continuity of care, the
Contractor may also choose to provide the service within its network.) If the
Contractor refers the member for services to a third-party insurer (other than
Medicare), and the insurer requires payment in advance of all copayments,
coinsurance and deductibles, the Contractor must make such payments in advance.

If the Contractor knows that the third party insurer will neither pay for nor
provide the covered service, and the service is medically necessary, the
Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so. (See also Section D, Paragraph 41,
Medicare Services and Cost Sharing.)

The requirement to cost-avoid applies to all AHCCCS covered services. For
pre-natal care and preventive pediatric services, AHCCCS may require the
Contractor to provide such service and then coordinate payment with the
potentially liable third party ("pay and chase"). In emergencies, the Contractor
shall provide the necessary services and then coordinate payment

                                       56
<PAGE>

with the third-party payer. The Contractor shall also provide medically
necessary transportation so the member can receive third-party benefits.
Further, if a service is medically necessary, the Contractor shall ensure that
its cost avoidance efforts do not prevent a member from receiving such service
and that the member shall not be required to pay any coinsurance or deductibles
for use of the other insurer's providers.

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

<TABLE>
<S>                                                  <C>
Uninsured/ underinsured motorist insurance           Adoption recovery
First and third-party liability insurance            Worker's Compensation
Tortfeasors                                          Estate recovery
Special Treatment Trusts recovery
</TABLE>

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

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

a.       Total collections received do not exceed the total amount of the
         Contractor's financial liability for the member
b.       There are no payments made by AHCCCS related to fee-for-service,
         reinsurance or administrative costs (i.e. lien filing, etc.)
c.       Such recovery is not prohibited by state or federal law

REPORTING: The Contractor may be required to report case level detail of
third-party collections and cost avoidance, including number of referrals on
total plan cases. The Contractor shall notify AHCCCSA's authorized
representative within five working days of the identification of a third-party
liability case with known reinsurance (often referred to as joint liability
cases). The Contractor shall communicate any known change in health insurance
information, including Medicare, to AHCCCS Administration, Division of Member
Services, not later than 10 days

                                       57
<PAGE>

from the date of discovery using the AHCCCS Third-Party Coverage Form found in
the Bidder's Library.

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

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

41.      MEDICARE SERVICES AND COST SHARING

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

42.      COPAYMENTS

The Contractor is responsible for the collection of copayments from members in
accordance with AHCCCS Rule R9-22-71l and R9-31-7ll.

43.      RECORDS RETENTION

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

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

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<PAGE>

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

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

44.      MEDICAL RECORDS

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

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

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

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

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

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

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

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<PAGE>

Information related to fraud and abuse may be released so long as protected
HIV-related information is not disclosed. (ARS ss.36-6641)

45.      ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

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

46.      ACCUMULATED FUND DEFICIT

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

47.      DATA EXCHANGE REQUIREMENT

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

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

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

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

                                       60
<PAGE>

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

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

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

ELECTRONIC DATA INTERCHANGE (EDI): In addition to the requirements outlined in
Section D, Paragraph 34, Claims Payment System, the Contractor will be required
to comply with all EDI standards which result from the Kennedy-Kassebaum
legislation. This law requires the Department of Health and Human Services to
provide national electronic submission standards for health care data and may
include compliance with National Provider Identifier requirements. The Secretary
has 18 months to develop these standards. As the standards are finalized,
AHCCCSA will phase in the implementation. Electronic standards which may be
implemented include, but are not limited to, encounters, enrollment and
capitation payments.

YEAR 2000 COMPLIANCE: The Contractor shall undertake all appropriate technical
planning measures to ensure timely compliance with all Year 2000 automated data
processing requirements.

48.      ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to the success of
the AHCCCS program. AHCCCSA uses encounter data to pay reinsurance benefits, set
fee-for-service and capitation rates, determine disproportionate share payments
to hospitals, and to determine compliance with performance measures. The
Contractor shall submit encounter data to AHCCCSA for all covered services for
which the Contractor incurred a financial liability,

                                       61
<PAGE>

including services provided during prior period coverage. This requirement is a
condition of the HCFA grant award.

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

49.      MONTHLY ROSTER RECONCILIATION

AHCCCSA produces daily roster updates identifying new members and changes to
members' demographic, eligibility and enrollment data which the Contractor shall
use to update its member records. The daily roster which is run prior to the
monthly roster is referred to as the "last daily" and will contain all rate code
changes made for the prospective month, as well as any new enrollments and
disenrollments.

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

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

50.      TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/97 through 9/30/98. In addition,
AHCCCSA reserves the sole option to extend the term of the contract, not to
exceed a total contracting period of five years. The terms and conditions of any
such contract extension shall remain the same as the original contract, as
amended. Any contract extension, however, shall not affect the maximum
contracting period of five years. All contract extensions shall be through
contract amendment. If, in conjunction with a contract extension, AHCCCSA elects
to increase the capitation rate for any rate code category, such increase will
not exceed the inflation rate recognized by the Arizona Legislature.

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

                                       62
<PAGE>

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

CONTRACTOR'S NOTICE OF INTENT NOT TO RENEW - If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the Contractor
provides AHCCCSA written notice of its intent not to renew this contract at
least 120 days before its expiration, this liability for transition costs may be
waived by AHCCCSA.

51.      SUBCONTRACTS

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

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

a.       Automated data processing
b.       Third-party administrators
c.       Management Services (See also Section D, Paragraphs 53 & 54)
d.       Model subcontracts
e.       Capitated or other risk subcontracts requiring claims processing by the
         subcontractor must be submitted to AHCCCSA, Office of Managed Care.

See also Section D, Paragraph 35, Hospital Reimbursement, regarding required
submission of hospital subcontracts.

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

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<PAGE>

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

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

a.       If a provider who provides services more than 25 times during the
         contract year refuses to enter into a written agreement with the
         Contractor, the Contractor shall submit documentation of such refusal
         to AHCCCS Office of Managed Care within seven days of its final attempt
         to gain such agreement.
b.       If a provider performs emergency services such as an emergency room
         physician or an ambulance company, a written agreement is not required.

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

a.       Full disclosure of the method and amount of compensation or other
         consideration to be received by the subcontractor. See Section D,
         Paragraph 35, Hospital Subcontracting and Reimbursement
b.       Identification of the name and address of the subcontractor.
c.       Identification of the population, to include patient capacity, to be
         covered by the subcontractor.
d.       The amount, duration and scope of medical services to be provided, and
         for which compensation will be paid.
e.       The term of the subcontract including beginning and ending dates,
         methods of extension, termination and re-negotiation.
f.       The specific duties of the subcontractor relating to coordination of
         benefits and determination of third-party liability.
g.       A provision that the subcontractor agrees to identify Medicare and
         other third-party liability coverage and to seek such Medicare or
         third-party liability payment before submitting claims to the
         Contractor/ Contractor.
h.       A description of the subcontractor's patient, medical and cost record
         keeping system.
i.       Specification that the subcontractor shall cooperate with quality
         assurance programs and comply with the utilization control and review
         procedures specified in 42 CFR Part 456, as implemented by AHCCCSA.
j.       A provision stating that a merger, reorganization or change in
         ownership of a subcontractor that is related to or affiliated with the
         Contractor shall require a contract amendment and prior approval of
         AHCCCSA.
k.       Procedures for enrollment or re-enrollment of the covered population.
l.       A provision that the subcontractor shall be fully responsible for all
         tax obligations, Worker's Compensation Insurance, and all other
         applicable insurance coverage obligations which arise under this
         subcontract, for itself and its employees, and that

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<PAGE>

         AHCCCSA shall have no responsibility or liability for any such taxes or
         insurance coverage.
m.       A provision that the subcontractor must obtain any necessary
         authorization from the Contractor or AHCCCSA for services provided to
         eligible and/or enrolled members.
n.       A provision that the subcontractor must comply with encounter reporting
         and claims submission requirements as described in the subcontract.

52.      SPECIALTY CONTRACTS

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

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

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

53.      MANAGEMENT SERVICES SUBCONTRACTORS

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

54.      MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

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

                                       65
<PAGE>

less than $50,000, AHCCCSA will waive the requirement for an audit of that
consultant or actuary.

55.      MINIMUM CAPITALIZATION REQUIREMENTS

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

<TABLE>
<CAPTION>
       ----------------------------------------------------------------------
       GEOGRAPHIC SERVICE AREA                     CAPITALIZATION REQUIREMENT
       <S>               <C>                       <C>
       GSA #2            Yuma                             $ 1,400,000
       GSA #4            Mohave, La Paz                     1,150,000
       GSA #6            Yavapai, Coconino                  1,250,000
       GSA #8            Pinal, Gila                        1,450,000
       GSA #10           Pima                               1,250,000
       GSA #12           Maricopa                           2,500,000
       GSA #14           Graham, Greenlee                     350,000
       GSA #16           Apache, Navajo                       650,000
       GSA #18           Cochise, Santa Cruz                1,450,000
       ----------------------------------------------------------------------
</TABLE>

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

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

56.      PERFORMANCE BOND OR BOND SUBSTITUTE

The Contractor shall be required to provide a performance bond of standard
commercial scope issued by a surety company doing business in this State, an
irrevocable letter of credit, or a cash

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<PAGE>

deposit ("Performance Bond") to AHCCCSA for as long as the Contractor has
AHCCCS-related liabilities of $50,000 or more outstanding, or 15 months
following the effective date of this contract, whichever is later, to guarantee:
(1) payment of the Contractor's obligations to providers, non-contracting
providers, and non-providers; and (2) performance by the Contractor of its
obligations under this contract. The Performance Bond shall be in a form
acceptable to AHCCCSA as described in the AHCCCS Performance Bond policy
available in the Office of Managed Care.

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

a.       Paying any damages sustained by providers, non-contracting providers
         and nonproviders by reason of a breach of the Contractor's obligations
         under this contract,
b.       Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of the
         Contractor, and
c.       Reimbursing AHCCCSA for any extraordinary administrative expenses
         incurred by reason of a breach of the Contractor's obligations under
         this contract, including, but not limited to, expenses incurred after
         termination of this contract for reasons other than the convenience of
         the State by AHCCCSA.

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

57.      AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110% of the total
capitation payment expected to be paid in the month of October, 1997, or as
determined by AHCCCSA. The total capitation amount shall include SOBRA
supplemental payments. This requirement must be satisfied by the Contractor not
later than 15 days after notification by AHCCCSA of the amount required.
Thereafter, AHCCCSA shall evaluate the enrollment statistics of the Contractor
on a monthly basis. If there is an increase in capitation payment that exceeds
10% of the performance bond amount, AHCCCSA may require an increase in the
amount of the Performance Bond. The Contractor shall have 15 days following
notification by AHCCCSA to increase the amount of the Performance Bond. The
Performance Bond amount that must be

                                       67
<PAGE>

maintained after the contract term shall be sufficient to cover all outstanding
liabilities and will be determined by AHCCCSA. The Contractor may not change the
amount of the performance bond without prior written approval from AHCCCSA,
Office of Managed Care.

58.      FINANCIAL VIABILITY CRITERIA/ PERFORMANCE MEASURES

AHCCCSA has established the following financial viability criteria/performance
goals:

<TABLE>
  <S>                                     <C>
  CURRENT RATIO                           Current assets divided by current
                                          liabilities. "Current assets"
                                          includes any long-term investments
                                          that can be converted to cash within
                                          24 hours without significant penalty
                                          (i.e., greater than 20%).
                                          STANDARD:         AT LEAST 1.00

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

  MEDICAL EXPENSE RATIO                   Total medical expenses (net of
                                          reinsurance, TPL, HIV/AIDS
                                          Supplement) divided by total
                                          capitation + SOBRA
                                          STANDARD: 85-90%

  ADMINISTRATIVE COST PERCENTAGE          Total administrative expenses
                                          (excluding income taxes), divided
                                          by total capitation + SOBRA +
                                          TPL + reinsurance + HIV/AIDS
                                          Supplement.
                                          STANDARD:         NO MORE THAN 10%

  RECEIVED BUT UNPAID CLAIMS              Received but unpaid claims
  (DAYS OUTSTANDING)                      divided by the average daily
                                          medical expenses for the period,
                                          net of sub-capitation expense
                                          STANDARD:         NO MORE THAN 30 DAYS
</TABLE>

59.      MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

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

                                       68
<PAGE>

AHCCCS programs are not adversely affected by such merger, reorganization or
change in ownership.

60.      SANCTIONS

AHCCCSA may suspend, deny, refuse to renew, or terminate this contract or any
related subcontracts in accordance with AHCCCS Rules R9-22-405 and R9-31-405 and
the terms of this contract and applicable law and regulations. AHCCCSA may, in
addition to these remedies, impose monetary sanctions if the Contractor violates
any provision stated in law or this contract in accordance with AHCCCS Rules
R9-22-406 and R9-31-406 and the provisions of this contract, applicable law and
regulations. Written notice will be provided to the Contractor specifying the
sanction to be imposed, the grounds for such sanction and either the length of
suspension or the amount of capitation prepayment to be withheld. The Contractor
may appeal the decision to impose a sanction in accordance with AHCCCS Rule
R9-22-804.

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

a.       Marketing violations
b.       Failure to meet AHCCCS financial viability standards
c.       Material deficiency in the Contractor's provider network
d.       Quality of care and quality management issues
e.       Failure to meet AHCCCS encounter standards

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

REDISTRIBUTION OF SANCTION DOLLARS: Monetary sanctions held by AHCCCSA may be
redistributed to participating acute care contractors based on criteria
described in the "AHCCCSA Special Performance Awards Policy", a copy of which
may be found in the Bidder's Library.

61.      AUTO-ASSIGNMENT ALGORITHM

Members who do not have the right to choose a contractor or members who have the
right to choose but do not exercise this right, are assigned to contractors
through an auto-assignment algorithm. The algorithm is a mathematical formula
used to distribute members to the various contractors in a manner that is
predictable and consistent with AHCCCSA goals. The algorithm favors those
contractors with lower capitation rates. For further details on the AHCCCS
Auto-Assignment Algorithm, refer to Attachment G. AHCCCSA may change the
algorithm at any

                                       69
<PAGE>

time during the term of the contract and frequently does so in response to
contractor-specific issues of non-compliance (e.g. imposition of an enrollment
cap). The Contractor should consider this in preparing its response to this RFP.
AHCCCSA is not obligated to adjust for any financial impacts this may have on
the Contractor.

62.      GRIEVANCE PROCESS AND STANDARDS

The Contractor shall have in place a written grievance policy for members and
providers which defines their rights regarding any adverse action by the
Contractor. This written policy shall be in accordance with applicable federal
and State law and AHCCCS Rules and policy including, but not limited to, AHCCCS
Rules R9-22-512; R9-22-518(A); R9-22-802; R9-31-802; R9-22-804 and R9-31-803.
The grievance process may not be delegated or subcontracted outside of the
health plan. Refer to Attachment H for a complete description of grievance
process requirements.

63.      QUARTERLY GRIEVANCE REPORT

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

64.      KIDSCARE

In May, 1998, the Arizona legislature approved Senate Bill 1008 authorizing the
implementation of a Title XXI Children's Health Insurance Program, now referred
to in Arizona as "KidsCare". KidsCare provides health care coverage statewide to
eligible children 18 and younger and will be provided through the existing
AHCCCS health plans, state employee HMOs that elect to participate, and tribal
facilities or Indian Health Service for Native Americans who elect to receive
services through them. Services will also be directly provided by participating
community health clinics and hospitals which predominantly serve low income
children.

The KidsCare service package will generally include all services provided to
state employees by the least expensive commercial HMO. Those services,
limitations and exclusions are described in Section D, Paragraph 1, Scope of
Services. Capitation rates payable to the Contractor for KidsCare members (age
18 and younger) will be set by AHCCCSA in conjunction with an independent
actuary.

TITLE XXI PARENT/GUARDIAN HEALTH INSURANCE COVERAGE: Title XXI legislation, ARS
ss.36.2984, mandates that the Contractor offer health insurance coverage to the
parent(s) or legal guardian(s) of a child who is eligible for Title XXI. The
Contractor shall establish rates for this coverage which must be approved by
AHCCCSA, Office of Managed Care, prior to implementation. Title XXI funds or any
other federal or state funds shall not be used to subsidize family coverage. The
full cost of the premium shall be paid by the parent or legal guardian who
elects this coverage. The Contractor may include provisions for pre-existing
conditions and any other medical underwriting considerations that are necessary
to protect it from adverse risk. For further

                                       70
<PAGE>

information, refer to the Title XXI Parent/Guardian Health Insurance Coverage
Guidelines on file in the Bidder's Library.

65.      PENDING LEGISLATIVE ISSUES

In addition to the requirements described in this RFP, there are several
legislative issues that could have an impact on services provided by the
Contractor on or after October 1, 1998. The following is a brief description of
the issues that AHCCCS is aware of at the time of the issuance of this renewal
amendment:

ELIGIBILITY BASED ON 100% OF THE FEDERAL POVERTY LEVEL (FPL): Through a
successful initiative effort, eligibility for AHCCCS has been expanded to allow
persons with income up to 100% of the FPL to become eligible for the Medicaid
program. Legislative action will be required to implement this new eligibility
guideline and HCFA must approve the expansion. If HCFA approval is granted,
there will be a significant number of new persons who will be eligible for the
program and enrolled with the health plans at some future date.

                               [END OF SECTION D]

                                       71
<PAGE>

                           SECTION E: CONTRACT CLAUSES

[Only two paragraphs from Section E have been revised. They are shown below with
changes indicated:]

17.      SUSPENSION OR DEBARMENT

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

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

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

19.      TERMINATION FOR DEFAULT

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

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

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

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

                                       72
<PAGE>

                   ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

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

<TABLE>
<CAPTION>
       REPORT                         WHEN DUE                    SOURCE/REFERENCE            AHCCCS CONTACT:
---------------------------------------------------------------------------------------------------------------------
<S>                          <C>                                <C>                          <C>
Monthly Financial Report     45 days after the end of           Reporting Guide              Financial Manager
                             the month, as applicable

Quarterly Financial Report   60 days after the end of each      Reporting Guide              Financial Manager
                             quarter

FQHC Supplemental Payment    60 days after the end of each      Reporting Guide              Financial Manager
                             quarter

HIV\AIDS Approved Protease   60 days after the end of each      Reporting Guide              Financial Manager
Inhibitor Reimbursement      quarter

Draft Annual Audit           90 days after the end of each      Reporting Guide              Financial Manager
                             fiscal year

Draft Management Letter      90 days after the end of each      Reporting Guide              Financial Manager
                             fiscal year

Final Annual Audit Report    120 days after the end of each     Reporting Guide              Financial Manager
                             fiscal year

Final Management Letter      120 days after the end of each     Reporting Guide              Financial Manager
                             fiscal year

Accountant's Report on       120 days after the end of each     Reporting Guide              Financial Manager
Compliance                   fiscal year

Reconciliation - Annual      120 days after the end of each     Reporting Guide              Financial Manager
Audit and Plan               fiscal year
Year-to-Date Financial
Report Information

Financial Disclosure Report  120 days after the end of each     Reporting Guide              Financial Manager
                             fiscal year

Annual Analysis of           120 days after the end of each     Reporting Guide              Financial Manager
Profitability by Major       fiscal year
Rate Code (by County)

Provider Affiliation Tape    10 business days after the         PMMIS Provider-to-Health     Health Plan Operations
                             beginning of each quarter          Plan magnetic tape           Manager
                                                                submission and processing

Monthly Title XIX and        30 days after the end of each      Instructions on form         Behavioral Health
Title XXI Behavioral         month                                                           Manager
Health Activity Report

Encounter Data - Magnetic    Monthly, according to              Encounter Manual             Encounter Administrator
Tape Submission              established schedule

Corrected Pended Encounter   Monthly, according to              Encounter Manual             Encounter Administrator
Tape                         established schedule

____ Day Tape                Monthly, according to              Encounter Manual             Encounter Administrator
                             established schedule

Medical Records for          6 weeks after the request          RFP, Section C,              Data Validation
Data Validation              received from AHCCCSA 90 days      Paragraph 1                  Manager
                             to  submit the requested data
                             to AHCCCSA
</TABLE>

                                       73
<PAGE>

<TABLE>
<CAPTION>
       REPORT                         WHEN DUE                    SOURCE/REFERENCE            AHCCCS CONTACT:
---------------------------------------------------------------------------------------------------------------------
<S>                          <C>                                <C>                          <C>
Quarterly Grievance Report   45 days after the end of each      RFP, Section D, Paragraph    Administrative Assistant
                             quarter                            26

Comprehensive Dental Plan    Annually on November 1             RFP, Section D, Paragraph    Acute Care Program
                                                                16                           Manager

EPSDT Progress Report -      15 days after the end of each      AMPM, Chapter 400            Acute Care Program
Quarterly Update             quarter                                                         Manager

Quarterly Inpatient          15 days after the end of each      State Medicaid Manual        Acute Care Program
Hospital Showing             quarter                            and the AMPM, Chapter 400    Manager

Quality                      Annually on November 15th          AMPM, Chapter 400            Acute Care Program
Management/Utilization                                                                       Manager
Management Plan Evaluation
and Revision

AIDS/HIV Reports             90 days after the end of each      AMPM, Chapter 400            Acute Care Program
                             contract year                                                   Manager

Acute Pharmacy Report        90 days within 90 days of the      AMPM, Chapter 400            Acute Care Program
                             end of each quarter                                             Manager

Monthly Pregnancy            End of the month following the     AMPM, Chapter 400            Acute Care Program
Termination Report           pregnancy termination                                           Manager

Maternity Care Plan          Annually on November 1st           AMPM, Chapter 400            Acute Care Program
                                                                                             Manager

Clinical Study Proposal      Annually on November 15th          AMPM, Chapter 400            Acute Care Program
                                                                                             Manager

Clinical Study Results       Annually within 90 days            AMPM, Chapter 400            Acute Care Program
                             following the end of each                                       Manager
                             contract year

Provider Fraud/Abuse Report  Immediately following discovery    AHCCCS Internal              Office of Managed Care:
                                                                Audit/Program                Member Fraud
                                                                Investigation Policy for     Investigations Unit
                                                                Prevention, Detection and
                                                                Reporting of Fraud and
                                                                Abuse

Eligible Person              Immediately following discovery    AHCCCS Internal              Office of Managed Care:
Fraud/Abuse Report                                              Audit/Program                Member Fraud
                                                                Investigation Policy for     Investigations Unit
                                                                Prevention, Detection and
                                                                Reporting of Fraud and
                                                                Abuse
</TABLE>

                                       74
<PAGE>

ATTACHMENT I:  ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed sanctions for noncompliance with encounter
submission requirements. AHCCCSA may also perform special reviews of encounter
data, such as comparing encounter reports to the Contractor's claims files. Any
findings of incomplete or inaccurate encounter data may result in the imposition
of sanctions or requirement of a corrective action plan.

Pended Encounter Corrections

The Contractor must resolve all pended encounters within 100 days of the
original processing data. A sanction of $5.00 each month will be imposed for
each encounter pended for more than 100 days unless the pend is due to AHCCCSA
error. "AHCCCSA error" is defined as a pended encounter which (1) AHCCCSA
acknowledges to be the result of its own error, and (2) requires a change to the
system programming, an update to the database reference table, or further
research by AHCCCSA. AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA in writing that the resolution of a pended
encounter depends on AHCCCSA rather than the Contractor, AHCCCSA will respond in
writing within 30 days of receipt of such notification. The AHCCCSA response
will report the status of each pending encounter problem or issue in question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA reviews the
Contractor's notification and asks the Contractor to research the issue and
provide additional substantiating documentation, or if AHCCCSA disagrees with
the Contractor's claim of AHCCCSA error. If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error, the Contractor
may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor in writing of the
total number of encounters pended more than 100 days and the number of such
encounters not subject to sanction because of AHCCCSA error.

Pended encounters shall not be deleted by the Contractor as a means of avoiding
sanctions for failure to correct encounters within 100 days. The Contractor
shall document deleted encounters and shall maintain a record of the deleted
CRNs with appropriate reasons indicated. The Contractor shall, upon request,
make this documentation available to AHCCCSA for review.

Encounter Validation Studies

Per HCFA requirement, AHCCCSA will conduct encounter validation studies of the
Contractor's encounter submissions, and sanction the Contractor for
noncompliance with encounter submission requirements. The purpose of encounter
validation studies is to compare recorded utilization information from a medical
record or other source with the Contractor's submitted encounter data. Any and
all covered services may be validated as part of these studies. Encounter
validation studies will be conducted at least yearly.

                                       75
<PAGE>

The following reflects AHCCCSA's encounter validation study process and sanction
policy as of 10/1/97. AHCCCSA may revise study methodology, timelines, and
sanction amounts based on agency review or as a result of consultations with
HCFA. The Contractor will be notified in writing of any significant change in
study methodology.

AHCCCSA will conduct two encounter validation studies. Study "A" examines
non-institutional services (form HCFA 1500 encounters), and Study "B" examines
institutional services (form UB-92 encounters).

AHCCCSA will notify the Contractor in writing of the sanction amounts and of the
selected data needed for encounter validation studies. The Contractor will have
90 days to submit the requested data to AHCCCSA. In the case of medical records
requests, the Contractor's failure to provide AHCCCSA with the records requested
within 90 days may result in a sanction of $1,000 per missing medical record. If
AHCCCSA does not receive a sufficient number of medical records from the
Contractor to select a statistically valid sample for a study, the Contractor
may be sanctioned up to 5% of its annual capitation payment.

The criteria used in encounter validation studies may include timeliness,
correctness, and omission of encounters. These criteria are defined as follows:

         Timeliness: The time elapsed between the date of service and the date
         that the encounter is received at AHCCCS. All encounters must be
         received by AHCCCSA no later than 240 days after the end of the month
         in which the service was rendered, or the effective date of enrollment
         with the Contractor, whichever is later. For all encounters for which
         timeliness is evaluated, a sanction per encounter error extrapolated to
         the population of encounters may be assessed if the encounter record is
         received by AHCCCSA more than 240 days after the date determined above.
         It is anticipated that the sanction amount will be $1.00 per error
         extrapolated to the population of encounters; however, sanction amounts
         may be adjusted if AHCCCSA determines that encounter quality has
         changed, or if HCFA changes sanction requirements. The Contractor will
         be notified of the sanction amount in effect for the studies at the
         time the studies begin.

         Correctness: A correct encounter contains a complete and accurate
         description of AHCCCS covered services provided to a member. A sanction
         per encounter error extrapolated to the population of encounters may be
         assessed if the encounter is incomplete or incorrectly coded. It is
         anticipated that the sanction amount will be $1.00 per error
         extrapolated to the population of encounters; however, sanction amounts
         may be adjusted if AHCCCSA determines that encounter quality has
         changed, or if HCFA changes sanction requirements. The Contractor will
         be notified of the sanction amount in effect for the studies at the
         time the studies begin.

         Omission of data: An encounter not submitted to AHCCCSA or an encounter
         inappropriately deleted from AHCCCSA's pending encounter file or
         historical files in lieu of correction of such record. For Study "A"
         and for Study "B", a sanction per encounter error extrapolated to the
         population of encounters may be assessed for an

                                       76
<PAGE>

         omission. It is anticipated that the sanction amount will be $5.00 per
         error extrapolated to the population of encounters for Study "A" and
         $10.00 per error extrapolated to the population of encounters for Study
         "B"; however, sanction amounts may be adjusted if AHCCCSA determines
         that encounter quality has changed, or if HCFA changes sanction
         requirements. The Contractor will be notified of the sanction amount in
         effect for the studies at the time the studies begin.

For encounter validation studies, AHCCCSA will select all approved and pended
encounters to be studied no earlier than 240 days after the end of the month in
which the service was rendered. Once AHCCCSA has selected the Contractor's
encounters for encounter validation studies, subsequent encounter submissions
for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters, or may select a
sample. The sample size, or number of encounters to be reviewed, will be
determined using statistical methods in order to accurately estimate the
Contractor's error rates. Error rates will be calculated by dividing the number
of errors found by the number of encounters reviewed. A 95% confidence interval
will be used to account for limitations caused by sampling. The confidence
interval shows the range within which the true error rate is estimated to be. If
error rates are based on a sample, the error rate used for sanction purposes
will be the lower limit of the confidence interval.

Encounter validation methodology and statistical formulas are provided in the
AHCCCS Encounter Data Validation Technical Document, which is available in the
Bidders Library. This document also provides examples which illustrate how
AHCCCSA determines study sample sizes, error rates, confidence intervals, and
sanction amounts.

Written preliminary results of all encounter validation studies will be sent to
the Contractor for review and comment. The Contractor will have a maximum of 30
days to review results and provide AHCCCSA with additional documentation that
would affect the final calculation of error rates and sanctions. AHCCCSA will
examine the Contractor's documentation and may revise study results if
warranted. Written final results of the study will then be sent to the
Contractor and communicated to HCFA, and any sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed by AHCCCSA not
more than 35 days after the Contractor receives final study results from
AHCCCSA. Challenges will be reviewed by AHCCCSA and a written decision will be
rendered no later than 60 days from the date of receipt of a timely challenge.
Sanctions shall not apply to encounter errors successfully challenged. A
challenge must be filed on a timely basis and a decision must be rendered by
AHCCCSA prior to filing a grievance pursuant to Article 8 of AHCCCS Rules.
Sanction amounts will be deducted from the Contractor's capitation payment.

                                       77
<PAGE>
           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE

                               CONTRACT AMENDMENT

                                                                     Page 1 of 2

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
AMENDMENT NUMBER:        CONTRACT NUMBER:         EFFECTIVE DATE OF AMENDMENT:         PROGRAM:
       7                   YH8-0001-05                 January 1, 1999                  ACUTE
-------------------------------------------------------------------------------------------------
<S>                      <C>                      <C>                                  <C>
CONTRACTOR'S NAME AND ADDRESS:

         Pat Levin, President
         Health Choice Arizona
         1600 W. Broadway, Ste 260
         Tempe, AZ 85282-1502
-------------------------------------------------------------------------------------------------
PURPOSE OF AMENDMENT:                     To adjust capitation rates effective Jan. 1, 1999.

-------------------------------------------------------------------------------------------------
THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

Effective January 1, 1999, compensation for TANF <1 year olds, TANF 14-44 Females, and SOBRA
Supplemental payments will be paid in accordance with the rates shown on the following page.

NOTE. Please sign, date and return both originals to:            Mark Renshaw
                                                                 AHCCCS Contracts and Purchasing
                                                                 701 E. Jefferson
                                                                 Phoenix, AZ 85034

-------------------------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT REMAIN UNCHANGED
AND IN FULL EFFECT.
-------------------------------------------------------------------------------------------------
SIGNATURE OF AUTHORIZED REPRESENTATIVE:           SIGNATURE OF AHCCCSA CONTRACTING OFFICER:

         /s/ Pat Levin                                     /s/ Michael Veit
-------------------------------------------------------------------------------------------------
TYPED NAME:                                       TYPED NAME:
         PAT LEVIN                                         MICHAEL VEIT
-------------------------------------------------------------------------------------------------
TITLE:                                            TITLE:
         PRESIDENT                                         CONTRACTS & PURCHASING
                                                           ADMINISTRATOR
-------------------------------------------------------------------------------------------------
DATE:    1/4/99                                   DATE:    JAN 11 1999

-------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                                                     Page 2 of 2

HEALTH CHOICE ARIZONA

The new capitation rates effective 1/1/99 are as follows:

<TABLE>
<CAPTION>
                               TANF         TANF       SOBRA
GEOGRAPHIC SERVICE AREA       <1, M/F      14-44,F     KICK
-----------------------       -------      -------     ---------
<S>                           <C>          <C>         <C>
GSA #10 (Pima):
         Prospective:         $309.00      $161.86     $4,237.07

GSA #12 (Maricopa):
         Prospective:         $325.07      $169.26     $4,434.78
</TABLE>

PMPM amounts are based on a $35,000/$15,000 (MN/MI) reinsurance deductible level

<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                             CONTRACT MODIFICATION

                                                              Page 1 of 2

<TABLE>
<CAPTION>
1. AMENDMENT NO.:   2. CONTRACT NO.:     3. EFFECTIVE DATE OF MODIFICATION:   4. PROGRAM:
-----------------   ----------------     ----------------------------------   -----------
<S>                 <C>                  <C>                                  <C>
        08            YH8-0001-05              Upon last signature below          OMC
-----------------------------------------------------------------------------------------
</TABLE>

5.       CONTRACTOR/PROVIDER NAME AND ADDRESS:

         Health Choice AZ
         1600 W. Broadway Suite 260
         TEMPE AZ 85282-1502

--------------------------------------------------------------------------------

6.       PURPOSE: To revise the method of compensation related to reconciliation
         of PPC Costs to Reimbursement, and to revise the PMPM Prior Period
         capitation.

--------------------------------------------------------------------------------

7.       The above referenced contract is hereby modified as follows:

A.       In Section D on page 40 of the October 1, 1998 revision of the contract
         the paragraph entitled "Reconciliation of PPC Costs to Reimbursement"
         is changed as follows:

         Continued on next page.

NOTE: Please sign, date and return both originals to: Doug Peeples
                                                      AHCCCS Contracts and
                                                      Purchasing
                                                      701 E. Jefferson,
                                                      Phoenix, AZ 85034

8.       EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
         CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN UNCHANGED AND IN
         FULL EFFECT.

         IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT.

--------------------------------------------------------------------------------

9.       NAME OF CONTRACTOR PROVIDER:        10.      ARIZONA HEALTH CARE COST
                                                      CONTAINMENT SYSTEM

             Health Choice AZ

--------------------------------------------------------------------------------

SIGNATURE OF AUTHORIZED INDIVIDUAL:          SIGNATURE:

         /s/ Pat Levin                                /s/ Michael Veit
-----------------------------------          -----------------------------------

TYPED NAME: PAT LEVIN                        TYPED NAME:   MICHAEL VEIT
            -----------------------                        ---------------------

TITLE:   PRESIDENT                           TITLE:    CONTRACTS AND PURCHASING
         --------------------------                    ADMINISTRATOR
                                                       -------------------------

DATE  5/14/99                                DATE:    MAY 03, 1999
      -----------------------------                   --------------------------
<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                             CONTRACT MODIFICATION

                                                                     Page 2 of 2

1. AMENDMENT NO.:08                          2. CONTRACT NO.: YH8-000l-05

Replace with:

         For CYE `98 and CYE `99, AHCCCSA will offer a reconciliation process
         for contractors whose total PPC medical cost experience (excluding
         administrative and non-operating expenses) is more than 10% higher than
         the reimbursement associated with PPC in two areas: the "retro" portion
         of the capitation rate for all rate categories, and the prospective
         three-day notification period for MNMI recipients only. Expenses for
         the retro period only will be net of reinsurance.

         AHCCCSA will reimburse 100% of a Contractor's excess reasonable costs
         as determined by reported encounters. AHCCCS may recoup from any.
         Contractor, profit amounts in excess of a 10% limit. Refer to the
         Office of Managed Care's PPC Reconciliation Policy for further
         details of the reconciliation process. AHCCCSA reserves the right to
         extend the reconciliation process into future contract years. AHCCCSA
         also reserves the right to adjust the risk-sharing arrangements in
         future years.

B.       Effective 10/1/98 the Contractor will be paid prospective and prior
         period capitation in accordance with the rates shown in the following
         table:

<TABLE>
                  <S>               <C>
                  Maricopa          $11,892.16
                  Pima              $16,841.57
                  Santa Cruz        $14,686.07
                  Yavapai           $16,841.57
</TABLE>

<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                               CONTRACT AMENDMENT

<TABLE>
<CAPTION>
===================================================================================================================================
AMENDMENT NUMBER:                   CONTRACT NUMBER:             EFFECTIVE DATE OF AMENDMENT:         PROGRAM:
             09                     YH8-0001-05                  OCTOBER 1, 1999                      OMC
===================================================================================================================================
<S>                                 <C>                          <C>                                  <C>
CONTRACTOR'S NAME AND ADDRESS:
HEALTH CHOICE AZ
1600 W. BROADWAY SUITE 260
TEMPE AZ 85282-1502

===================================================================================================================================
PURPOSE OF AMENDMENT: To extend the term of the contract for one year and to amend Sections C, D and Attachments B, F and H.

===================================================================================================================================
</TABLE>
THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

         A.   EXTENSION OF CONTRACT: In accordance with Section D, Paragraph
              50, Term of Contract and Option to Renew, this contract is
              extended for the period 10/1/99 - 9/30/00. The Contractor's
              response affirming or declining the extension must be received by
              AHCCCSA no later than 3:00 PM MST, September 17, 1999.

         B.   CONTRACT RESTATEMENT: This amendment consists of a complete
              restatement of Sections B, C, D and Attachments B, F, and H. No
              changes were made to Section E and Attachment A, which are
              provided for your information.

         C.   By signing this contract amendment, the Contractor is (1)
              agreeing to perform for an additional year according to the terms
              of the contract as amended, and (2) agreeing to the new and
              changed requirements contained herein.

NOTE: Please sign, date both and return one to:  Doug Peeples, MD 5700
                                                 AHCCCS Contracts and Purchasing
                                                 701 E Jefferson Street
                                                 Phoenix AZ 85034

<TABLE>
<CAPTION>
===================================================================================================================================
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN
UNCHANGED AND IN FULL EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
===================================================================================================================================
<S>                                                           <C>
Signature of Health Choice AZ Authorized Representative:      Signature of AHCCCSA Contracting Officer:

/s/ Pat Levin                                                 /s/ Michael Veit
===================================================================================================================================
Typed Name:   PAT LEVIN                                       Typed Name:       MICHAEL VEIT

===================================================================================================================================
Title:        PRESIDENT                                       Title:            CONTRACTS & PURCHASING
                                                                                ADMINISTRATOR
===================================================================================================================================
Date:                                                         DATE:
              9/24/99                                                           AUGUST 25, 1999
===================================================================================================================================
</TABLE>

<PAGE>

          ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                               CONTRACT AMENDMENT

<TABLE>
<CAPTION>
===================================================================================================================================
AMENDMENT NUMBER:                   CONTRACT NUMBER:             EFFECTIVE DATE OF AMENDMENT:         PROGRAM:
10                                  YH8-0001-05                  OCTOBER 1, 1999                      OMC
===================================================================================================================================
<S>                                 <C>                          <C>                                  <C>
CONTRACTOR'S NAME AND ADDRESS:
HEALTH CHOICE AZ
1600 W. BROADWAY SUITE 260
TEMPE AZ 85282-1136

===================================================================================================================================
PURPOSE OF AMENDMENT: To adjust capitation rates effective October 1, 1999.

===================================================================================================================================
</TABLE>

THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

CAPITATION RATES: The Contractor shall provide services as described in this
contract. In consideration for these services, the Contractor will be paid as
shown below for the term October 1, 1999 through September 3, 2000 (CYR 00).

                                CAPITATION RATES
                             (Per member per month)

                 See attached table for the Contractor's rates

NOTE: Please sign, date both and return one to:  Doug Peeples, MD 5700
                                                 AHCCCS Contracts and Purchasing
                                                 701 E Jefferson Street
                                                 Phoenix AZ 85034

<TABLE>
<CAPTION>
===================================================================================================================================
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN
UNCHANGED AND IN FULL EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
===================================================================================================================================
<S>                                                            <C>
Signature of Health Choice AZ Authorized Representative:       Signature of AHCCCSA Contracting Officer:

/s/ Pat Levin                                                  /s/ Michael Veit
===================================================================================================================================
Typed Name:       PAT LEVIN                                    Typed Name:       MICHAEL VEIT

===================================================================================================================================
Title:            PRESIDENT                                    Title:            CONTRACTS & PURCHASING
                                                                                 ADMINISTRATOR
===================================================================================================================================
Date:             9/8/99                                       Date:             SEPTEMBER 1, 1999

===================================================================================================================================
</TABLE>

<PAGE>

HEALTH CHOICE ARIZONA

The new capitation rates effective 10/1/99 are as follows:

<TABLE>
<CAPTION>
                                       TANF          TANF         TANF           TANF         TANF           SSI            SSI
GEOGRAPHIC SERVICE AREA              <1, M/F       1-13, /F      14-44, F      14-44, M      45+, M/F       W/MED         W/O MED
-----------------------              --------      --------      --------      --------      --------      --------      --------

<S>                                  <C>           <C>           <C>           <C>           <C>           <C>           <C>
GSA #10 (Pima):
                   Prospective:      $ 309.42      $  62.36      $ 108.53      $  88.76      $ 209.96      $ 139.08      $ 328.27
                           PPC:      $1164.82      $  32.70      $ 136.50      $  76.91      $ 180.25      $  14.50      $  61.79
                     Kids Care:      $ 270.86      $  70.17      $ 135.29      $  80.71           N/A           N/A           N/A

GSA #12 (Maricopa:)
                   Prospective:      $ 325.49      $  64.40      $  98.84      $  91.64      $ 223.13      $ 153.93      $ 324.90
                           PPC:      $1164.82      $  32.70      $ 136.50      $  76.91      $ 180.25      $  14.50      $  61.79
                     Kids Care:      $ 281.83      $  72.23      $ 140.17      $  81.01           N/A           N/A           N/A

<CAPTION>
                                                                 DELIVERY
                                      MN/MI          SFP           KICK
                                     --------      --------      ---------
<S>                                  <C>           <C>           <C>
GSA #10 (Pima):
                   Prospective:      $ 419.84      $  18.84      $4,929.51
                           PPC:      $ 581.32           N/A            N/A
                     Kids Care:           N/A           N/A      $4,929.51

GSA #12 (Maricopa:)
                   Prospective:      $ 516.44      $  19.68      $5,241.86
                           PPC:      $ 410.48           N/A            N/A
                     Kids Care:           N/A           N/A      $5,241.81
</TABLE>

PMPM amounts are based on a $35,000/$15,000 (MN/MI) reinsurance deductible
level. PPC MN/MI rate is a daily rate.

<PAGE>

ADDITIONAL REIMBURSEMENT

For the contract term October 1, 1999 through September 30, 2000, the
Contractor will be paid an HIV/AIDS supplemental payment of $634.50 PMPM for
members receiving approved protease inhibitors and associated lab work related
to their treatment for HIV/AIDS.

<PAGE>

                          SECTION B - CAPITATION RATES

The Contractor shall provide services as described in this contract. In
consideration for these services, the Contractor will be paid as shown below
for the term October 1, 1999 through September 30, 2000 (CYE 00).

                                CAPITATION RATES
                             (per member per month)

                    Capitation rates specific to contractor

<PAGE>

                             SECTION C: DEFINITIONS
<TABLE>
<S>                         <C>
ADHS                        Arizona Department of Health Services.

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

AHCCCS                      Arizona Health Care Cost Containment System as
                            defined by ARS ss.36-2901, et seq.

AHCCCS BENEFITS             See "COVERED SERVICES".

AHCCCS MEMBER               See "MEMBER".

AHCCCSA                     Arizona Health Care Cost Containment System
                            Administration.

ALTCS                       The Arizona Long Term Care System (ALTCS), a
                            program under AHCCCSA that delivers long term,
                            acute, behavioral health and case management
                            services to members, as authorized by ARS ss.
                            36-2931 et seq.

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

AMPM                        AHCCCS Medical Policy Manual.

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

ARS                         Arizona Revised Statutes.

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

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

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

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

CLEAN CLAIM                 A claim that may be processed without obtaining
                            additional information from the provider of service
                            or from a third party; but does not include claims
                            under investigation for fraud or abuse or claims
                            under review for medical necessity.

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

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

CONTRACT                    See "COVERED SERVICES".
SERVICES

CONTRACT YEAR               Corresponds to federal fiscal year (Oct. 1 through
(CY)                        Sept. 30). For example, Contract Year 99 is 10/1/98
                            - 9/30/99.
</TABLE>

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

                                       3
<PAGE>

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

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

CO-PAYMENT                  A monetary amount specified by the Director that
                            the member pays directly to a contractor or
                            provider at the time covered services are rendered.

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

COVERED                     Health care services to be delivered by a
SERVICES                    contractor which are designated in Section D of
                            this contract and also AHCCCS Rules R9-22-202 et
                            seq. and R9-3 1-201 et seq.

CRS                         Children's Rehabilitative Services.

CY                          See "CONTRACT YEAR".

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

DAYS                        Calendar days unless otherwise specified.

DIRECTOR                    The Director of AHCCCSA.

DISCLOSING                  An AHCCCS provider or a fiscal agent.
ENTITY

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

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

EAC                         Eligible Assistance Child as defined in ARS ss.
                            36-2905.03(B); an AHCCCS state program for children
                            under age 14 receiving food stamps.

ELIC                        Eligible Low-Income Child as defined in ARS ss.
                            36-2905.05(C) and (D); an AHCCCS state program for
                            children under age 14 whose household income
                            exceeds the income limit for the MN/MI program but
                            is less than 100% of the federal poverty level.

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

ELIGIBLE                    A person who meets all eligibility
PERSON                      requirements for the AHCCCS acute care program but
                            who has not yet been enrolled with an AHCCCS acute
                            care contractor.

EMERGENCY                   A medical condition manifesting itself by acute
MEDICAL                     symptoms of sufficient severity (including severe
CONDITION                   pain) such that a prudent layperson, who possesses
                            an average knowledge of health and medicine, could
                            reasonably expect the absence of immediate medical
                            attention to result in: a) placing the patient's
                            health in serious jeopardy; b) serious impairment
                            to bodily functions; or c) serious dysfunction of
                            any bodily organ or part. (42 USC 13960-2)

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

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

                                       4
<PAGE>

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

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

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

FAMILY PLANNING
SERVICES                    A program that provides family planning services
EXTENSION                   only for a maximum of 24 months to women whose
PROGRAM                     SOBRA eligibility has terminated.

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

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

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

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

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

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

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

HCFA                        Health Care Financing Administration, an
                            organization within the Department of Health and
                            Human Services, which administers the Medicare and
                            Medicaid, programs.

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

HEALTH PLAN                 See "CONTRACTOR".

IBNR                        Incurred But Not Reported claims which is the
                            liability for services rendered for which claims
                            have not been received.

IHS                         Indian Health Service.

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

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

                                       5
<PAGE>
<TABLE>
<S>                        <C>
MANAGED CARE               Systems that integrate the financing and delivery of
                           health care services to covered individuals by
                           means of arrangements with selected providers to
                           furnish comprehensive services to members;
                           establish explicit criteria for the selection of
                           health care providers; have significant financial
                           incentives for members to use providers and
                           procedures associated with the plan; and have
                           formal programs for quality assurance and
                           utilization review.

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

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

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

MEDICAID                   A Federal/State program authorized by Title XIX of
                           the Social Security Act, as amended, which provides
                           federal matching funds for a medical assistance
                           program for recipients.

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

MEMBER                     For this document, a person eligible for AHCCCS who
                           is enrolled with a Contractor.

MN/MI                      Medically Needy/Medically Indigent; state program
                           for individuals not eligible for Medicaid but who
                           meet the eligibility requirements for the state
                           program.

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

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

OFFEROR                    A person or other entity that submits a proposal to
                           the Administration in response to an REP.

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

PMMIS                      Pre-paid Medical Management Information System.

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

PRIOR PERIOD               The period of time preceding the actual notification
                           to a health plan of a member's enrollment during
                           which the health plan is retroactively liable for
                           payment of all covered services received by the
                           member. It is generally the period from the first
                           day of the month of application, or first eligible
                           month, up to the day of the health plan's receipt
                           of notification of the member's enrollment Prior
                           period coverage also includes updated eligibility
                           that covers a retroactive time period when the
                           member was not previously enrolled with AHCCCS.
                           Prior period coverage does not apply to Title XXI
                           members and does not include prior quarter coverage
                           (see below).
</TABLE>
                                                              Acute Care Renewal
                                                                 Revised 10/1/99
                                       6
<PAGE>
<TABLE>
<S>                         <C>
PRIOR QUARTER               The three-month period immediately proceeding the
                            month in which the member applies for Title XIX
                            benefits. If it is determined that the member would
                            have been eligible had the member applied in the
                            month in which services were provided, AHCCCSA may
                            pay for unpaid Title XIX services on a
                            fee-for-service basis. The Contractor is not liable
                            for the prior quarter period.

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

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

RATE CODE                   Eligibility classification for capitation payment
                            purposes.

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

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

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

RFP                         Request For Proposals which is a document prepared
                            by AHCCCSA which describes the services required and
                            which instructs prospective offerors how to prepare
                            a response (proposal).

SCOPE OF                    See "COVERED SERVICES".
SERVICES

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

STATE                       The State of Arizona.

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

STATE-ONLY                  A member who is not eligible for Title XIX or XXI
MEMBER                      but is eligible for one of the state-funded
                            eligibility categories which include Medically
                            Needy/Medically Indigent (MN/MI), Eligible
                            Assistance Children (EAC), Eligible Low Income
                            Children (ELIC), and SSI-related non-qualified
                            aliens.

</TABLE>

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

                                       7
<PAGE>
<TABLE>
<S>                         <C>
SUBCONTRACT                 Agreement entered into by Contractor with a provider
                            of health care services who agrees to furnish
                            covered services to members, or with a marketing
                            organization, or with any other organization or
                            person who agrees to perform any administrative
                            function or service for Contractor specifically
                            related to fulfilling Contractor's obligations to
                            AHCCCSA under the terms of this contract.

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

SUPPLEMENTAL                Federal cash assistance program under Title XVI of
SECURITY                    the Social Security Act.
INCOME (SSI)

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

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

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

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

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

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

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

YEAR                        See "Contract Year".
</TABLE>

                              [END OF DEFINITIONS]

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<PAGE>

                        SECTION D: PROGRAM REQUIREMENTS
                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                      <C>
1.    SCOPE OF SERVICES..............................................................................    10
2.    BEHAVIORAL HEALTH SERVICES.....................................................................    16
3.    AHCCCS MEDICAL POLICY MANUAL...................................................................    18
4.    VACCINE FOR CHILDREN PROGRAM...................................................................    18
5.    DENIALS OR REDUCTIONS OF SERVICES..............................................................    18
6.    ENROLLMENT AND DISENROLLMENT...................................................................    18
7.    MAINSTREAMING OF AHCCCS MEMBERS................................................................    20
8.    MEMBER INFORMATION.............................................................................    21
9.    MEMBER SURVEYS.................................................................................    23
10.   MARKETING PLANS................................................................................    23
11.   ANNUAL ENROLLMENT CHOICE.......................................................................    23
12.   TRANSITION OF MEMBERS..........................................................................    24
13.   STAFF REQUIREMENTS AND SUPPORT SERVICES........................................................    25
14.   WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS..............................................    26
15.   ADVANCE DIRECTIVES.............................................................................    26
16.   PERFORMANCE MEASUREMENT........................................................................    27
17.   QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)..........................................    29
18.   PHYSICIAN INCENTIVES...........................................................................    29
19.   APPOINTMENT STANDARDS..........................................................................    29
20.   REFERRAL PROCEDURES AND STANDARDS..............................................................    30
21.   PROVIDER MANUAL................................................................................    31
22.   PRIMARY CARE PROVIDER STANDARDS................................................................    32
23.   OTHER PROVIDER STANDARDS.......................................................................    32
24.   NETWORK DEVELOPMENT............................................................................    33
25.   NETWORK MANAGEMENT.............................................................................    34
26.   FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)......................................................    34
27.   PROVIDER REGISTRATION..........................................................................    35
28.   PROVIDER AFFILIATION TAPE......................................................................    35
29.   PERIODIC REPORT REQUIREMENTS...................................................................    35
30.   DISSEMINATION OF INFORMATION...................................................................    36
31.   REQUESTS FOR INFORMATION.......................................................................    36
32.   OPERATIONAL AND FINANCIAL READINESS REVIEWS....................................................    36
33.   OPERATIONAL AND FINANCIAL REVIEWS..............................................................    36
34.   CLAIMS PAYMENT SYSTEM..........................................................................    37
35.   HOSPITAL SUBCONTRACTING AND REIMBURSEMENT......................................................    37
36.   NURSING FACILITY REIMBURSEMENT.................................................................    38
37.   COMPENSATION...................................................................................    39
38.   CAPITATION ADJUSTMENTS.........................................................................    40
39.   REINSURANCE....................................................................................    41
40.   COORDINATION OF BENEFITS/THIRD PARTY LIABILITY.................................................    43
41.   MEDICARE SERVICES AND COST SHARING.............................................................    45
42.   COPAYMENTS.....................................................................................    45
43.   RECORDS RETENTION..............................................................................    45
44.   MEDICAL RECORDS................................................................................    45
45.   ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS.................................................    46
46.   ACCUMULATED FUND DEFICIT.......................................................................    46
47.   DATA EXCHANGE REQUIREMENT......................................................................    46
48.   ENCOUNTER DATA REPORTING.......................................................................    47
49.   MONTHLY ROSTER RECONCILIATION..................................................................    48
50.   TERM OF CONTRACT AND OPTION TO RENEW...........................................................    48
51.   SUBCONTRACTS...................................................................................    49
52.   SPECIALTY CONTRACTS............................................................................    50
53.   MANAGEMENT SERVICES SUBCONTRACTORS.............................................................    50
54.   MANAGEMENT SERVICES SUBCONTRACTOR AUDITS.......................................................    51
55.   MINIMUM CAPITALIZATION REQUIREMENTS............................................................    51
56.   PERFORMANCE BOND OR BOND SUBSTITUTE............................................................    51
57.   AMOUNT OF PERFORMANCE BOND.....................................................................    52
58.   FINANCIAL VIABILITY CRITERIA/PERFORMANCE MEASURES..............................................    52
59.   MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP.................................................    53
60.   SANCTIONS......................................................................................    53
61.   AUTO-ASSIGNMENT ALGORITHM......................................................................    54
62.   GRIEVANCE PROCESS AND STANDARDS................................................................    54
63.   QUARTERLY GRIEVANCE REPORT.....................................................................    54
64.   KIDSCARE.......................................................................................    54
65.   PENDING LEGISLATIVE ISSUES.....................................................................    55
</TABLE>

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<PAGE>

                        SECTION D: PROGRAM REQUIREMENTS

1.       SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable federal, State and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R9-22-202 et seq., the AHCCCS Medical
Policy Manual (AMPM), and the document entitled "AHCCCS Health Plan Performance
Indicators", all of which are incorporated herein by reference and may be found
in the Bidder's Library. The covered services are briefly described below.
Covered services must be medically necessary and provided by, or coordinated
with, a primary care provider, except for behavioral health and children's
preventive dental services. Services must be rendered by providers that are
appropriately licensed or certified, operating within their scope of practice,
and registered as an AHCCCS provider. The Contractor shall provide the same
standard of care for all members regardless of the member's eligibility
category.

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

BALANCED BUDGET ACT OF 1997: This version of the AHCCCS acute care contract is
believed to contain all of the requirements mandated by the federal Balanced
Budget Act of 1997. The Contractor, however, shall be held liable for all
mandated requirements whether or not they appear in this renewal amendment.

KIDSCARE COVERED SERVICES: KidsCare members are eligible for the same services
covered for members under the Title XIX and state-only programs, with the
following differences, exclusions and/or limitations:

a.       Non-emergency transportation is not covered.

b.       Chiropractic services are not covered.

c.       Vision services are limited to one eye examination per contract year
         and one pair of glasses or contacts every contract year.

d.       EPSDT services are limited to those services specified in this
         contract.

e.       Behavioral health services are limited to 30 inpatient days and 30
         outpatient visits per contract year.  (See details under Section D
         Paragraph 2, Behavioral Health Services.)

f.       Licensed midwives and home deliveries are not covered.

For further details regarding the KidsCare program, see Section D, Paragraph
64, KidsCare, and the AHCCCS Medical Policy Manual (AMPM).

AMBULATORY SURGERY AND ANESTHESIOLOGY: The Contractor shall provide surgical
services for either emergency or scheduled surgeries when provided in an
ambulatory or outpatient setting such as a free-standing surgical center or a
hospital based outpatient surgical setting.

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

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

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<PAGE>

CHILDREN'S REHABILITATIVE SERVICES (CRS): The program for children with
CRS-covered conditions is administered by the Arizona Department of Health
Services (ADHS) for children who meet CRS eligibility criteria. The Contractor
shall refer children to the CRS program who are potentially eligible for
services related to CRS covered conditions. Eligibility criteria and the
referral process are described in the CRS Policy and Procedures Manual
available in the Bidder's Library.

The Contractor is responsible for providing primary medical care and emergency
services not covered by CRS. The Contractor is also responsible for initial
care of newborn members, who are CRS eligible. The Contractor must require the
member's Primary Care Provider (PCP) to coordinate their care with the CRS
program. All services provided must be included in the member's medical record
maintained by the PCP.

A member with private insurance is not required to utilize CRS. If the member
uses their private insurance network for a CRS covered condition, and the
member is not enrolled with CRS, the Contractor is responsible for all
applicable deductibles and copays.

The Contractor remains ultimately responsible for the provision of all covered
services to its members. Therefore, if the Contractor becomes aware that CRS
has failed to meet the established appointment standards, the Contractor shall
provide the services.

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

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

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

EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment for members
under age 21. The Contractor shall ensure that these members receive required
health screenings, including developmental/behavioral health, in compliance
with the AHCCCS periodicity schedule (Exhibit 430-1 in the AMPM) and to submit
to the AHCCCS Office of the Medical Director/Acute Care Unit, all EPSDT reports
as required by AHCCCS medical policy. The Contractor is required to meet
specific participation/utilization rates for members as described in Section D,
Paragraph 16, Performance Measures. Because the behavioral health benefit for
Title XIX and Title XXI is provided through the ADHS/RBHA system, the
Contractor shall ensure the initiation and coordination of the referral of
these

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                                      11
<PAGE>

members to the RBHA and shall follow up with the RBHA to monitor whether
members have received behavioral health services. Title XXI members are not
entitled to the all-encompassing EPSDT service package required for Title XIX
children. Title XXI children are entitled only to the EPSDT and other covered
services specified in this document, the AMPM and the Title XXI State Plan.

EMERGENCY SERVICES: The Contractor shall have and/or provide the following as a
minimum:

a.     Emergency services facilities adequately staffed by qualified medical
       professionals to provide pre-hospital, emergency care on a
       24-hour-a-day, 7-day-a-week basis, for the sudden onset of a medically
       emergent condition as defined by AHCCCS Rule R9-22-101 and R9-31-101.
       Emergency medical services are covered without prior authorization. The
       Contractor is encouraged to contract with emergency service facilities
       for the provision of emergency services. The Contractor is encouraged to
       contract with or employ the services of non-emergency facilities (e.g.
       urgent care centers) to address member non-emergency care issues
       occurring after regular office hours or on weekends. The Contractor
       shall be responsible for educating members and providers regarding
       appropriate utilization of emergency room services including behavioral
       health emergencies. The Contractor shall monitor emergency services
       utilization (by both provider and member) and shall have guidelines for
       implementing corrective action for inappropriate utilization. For
       utilization review, the test for appropriateness of the request for
       emergency services shall be whether a prudent layperson, similarly
       situated, would have requested such services. For purposes of this
       contract, a "prudent layperson" is defined as a person without medical
       training who exercises those qualities of attention, knowledge,
       intelligence and judgment which society requires of its members for the
       protection of their own interest and the interests of others. The phrase
       does not apply to a person's ability to reason, but rather the prudence
       with which he acts under a given set of circumstances.

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

c.     Emergency transportation

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

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

EYE EXAMINATIONS/OPTOMETRY: The Contractor shall provide all medically
necessary emergency eye care, vision examinations, prescriptive lenses, and
treatments for conditions of the eye for all members under the age of 21, with
the exception of KidsCare members. See limitations for KidsCare members
described at the beginning of this section, titled "KidsCare Covered Services."
For members who are 21 years of age and older, the Contractor shall provide
emergency care for eye conditions which meet the definition of an emergency
medical condition, cataract removal, and/or medically necessary vision
examinations and prescriptive lenses if required following cataract removal and
other eye conditions as specified in the AMPM.

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

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

HEALTH RISK ASSESSMENT AND SCREENING: The Contractor shall provide these
services for non-hospitalized members 21 years of age and older. These services
include, but are not limited to, screening for hypertension,

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<PAGE>

elevated cholesterol, colon cancer, sexually transmitted diseases, tuberculosis
and HIV/AIDS; nutritional assessment in cases when the member has a chronic
debilitating disease affected by nutritional needs; mammograms and prostate
screenings; physical examinations and diagnostic work-ups; and immunizations.
Required assessment and screening services for members under age 21 are
included in the AHCCCS EPSDT periodicity schedule.

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

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

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

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

INDIAN HEALTH SERVICES (IHS): The Contractor may choose to subcontract with and
pay an IHS or tribal facility for covered services provided to members.
Effective October 1, 1999, the Contractor is responsible for reimbursement to
IHS or tribal facilities for emergency services provided to state-only and
Title XXI Native American members enrolled with the Contractor. The Contractor
has no responsibility for non-emergency services to state-only and Title XXI
Native American members unless the Contractor refers or prior authorizes the
service. Effective October 1, 1998, AHCCCSA will reimburse claims for services
that are medically necessary and eligible for 100% Federal reimbursement,
provided to Title XIX members in an IHS or tribal facility.

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

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

MATERNITY: The Contractor shall provide pre-conception counseling, pregnancy
identification, prenatal care, treatment of pregnancy related conditions, labor
and delivery services, and postpartum care for members.

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<PAGE>

Services may be provided by physicians, physician assistants or nurse
practitioners certified in midwifery. Members may select or be assigned to a
PCP specializing in obstetrics. Circumcisions are covered if performed during
the newborn's hospital stay after birth, or on an outpatient basis within one
month of the infant's hospital discharge. Title XIX and state-only members
anticipated to have a low-risk delivery may elect to receive labor and delivery
services in their home from their maternity provider if this setting is
included in allowable settings for the Contractor, and the Contractor has
providers in its network that offer home labor and delivery services. Title XIX
and state-only members anticipated to have a low-risk prenatal course and
delivery may elect to receive maternity services of prenatal care, labor and
delivery and postpartum care provided by licensed midwives if they are in the
Contractor's provider network. All licensed midwife labor and delivery services
must be provided in the member's home since licensed midwives do not have
admitting privileges in hospitals or AHCCCS registered free-standing birthing
centers. Members receiving maternity services from a licensed midwife must also
be assigned to a PCP for other health care and medical services. Home delivery
and licensed midwives are not covered for Title XXI members.

The Contractor shall allow women and their newborns to receive up to 48 hours
of inpatient hospital care after a routine vaginal delivery and up to 96 hours
of inpatient care after a cesarean delivery. The attending health care
provider, in consultation with the mother, may discharge the mother or newborn
prior to the 48-hour minimum length of stay. A normal newborn may be granted an
extended stay in the hospital of birth when the mother's continued stay in the
hospital is beyond the 48 or 96 hour stay.

MEDICALLY-NECESSARY ABORTIONS: This service is covered for a member if the
member suffers from a physical disorder, physical injury, or physical illness
including a life endangering physical condition caused by or rising from the
pregnancy itself, that would, as certified by a physician, place the member in
danger of death unless an abortion is performed. The service is also covered
for Title XIX and Title XXI members if the pregnancy is caused by rape or
incest. Providers must document and submit to the Contractor a Certificate of
Medical Necessity for Pregnancy Termination and prior authorization is
required. If the procedure is performed on an emergency basis, documentation
must be submitted to the Contractor within two working days. Additional
documentation, outlined in the AMPM, is required for members under 18 years of
age or are considered an incapacitated adult who seek a medically necessary
abortion due to rape or incest.

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

NURSING FACILITY: The Contractor shall provide nursing facility services,
including religious nonmedical health care institutions, for members who
require short-term convalescent care not to exceed 90 days per contract year.
In lieu of a nursing facility, the member may be placed in an alternative
living facility or receive home and community based services (HCBS) as defined
in R9-28, Article 1 that meet the provider standards described in R9-28,
Article 5.

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

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<PAGE>

with the Contractor shall be applied to the 90 day limitation. See Paragraph
36, Nursing Facility Reimbursement, for further details.

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

NUTRITION: Nutritional feeding through a non-oral method such as TPN or tube
feeding is covered for all members when it is the sole source of nutrition due
to severe pathology of the alimentary tract. Nutritional feeding may also be
used to supplement nutrition for members under age 21 when medically necessary
but need not be the member's sole source of nutrition. Medically necessary oral
nutritional supplements are covered only for members under the age 21 and only
when AHCCCS criteria are met. In addition, the Contractor shall provide
nutritional assessments as a part of EPSDT screening for all children. See the
AMPM for details.

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

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

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

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

RADIOLOGY AND MEDICAL IMAGING: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical condition. Services are
generally provided in hospitals, clinics, physician offices and other health
care facilities.

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

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

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

TRANSPORTATION: These services include emergency and non-emergency medically
necessary transportation. Emergency transportation, including transportation
initiated by an emergency response system such as 911, may be provided by
ground, air or water ambulance to manage an AHCCCS member's emergency medical
condition at an emergency scene and transport the member to the nearest
appropriate medical facility. Non-emergency transportation shall be provided for
Title XIX and state-only members who are unable to provide their own
transportation for medically necessary services. Title XXI members are not
eligible for non-emergency transportation services except for transfers between
facilities.

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

2.       BEHAVIORAL HEALTH SERVICES

Title XIX (1931 group, SSI, SOBRA) and Title XXI (KidsCare) members are eligible
for comprehensive behavioral health services. The behavioral health benefit for
these members is provided through the ADHS-Regional Behavioral Health Authority
(RBHA) system. The Contractor shall be responsible for member education
regarding these benefits; provision of limited emergency inpatient services; and
screening and referral to the RBHA system of members identified as requiring
behavioral health services.

MEMBER EDUCATION: The Contractor shall be responsible for educating members in
the member handbook and other printed documents about covered behavioral health
services and where and how to access services. Covered services for Title XIX
and Title XXI are similar with the exception that non-emergency transportation
is not covered for Title XXI members. For Title XXI members inpatient services
and specified outpatient services are limited to 30 days/30 visits per contract
year. Covered services include:

         a.       Inpatient services (Title XXI limited to 30 days per contract
                  year)

         b.       Individual, group and family therapy and counseling (limited
                  for Title XXI)

         c.       Psychotropic medication

         d.       Psychotropic medication adjustment and monitoring

         e.       Partial care, basic and intensive (limited for Title XXI)

         f.       Emergency crisis services

         g.       Behavior management (limited for Title XXI)

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<PAGE>

         h.       Psychosocial rehabilitation (limited for Title XXI)

         i.       Evaluation, screening and diagnosis (limited for Title XXI)

         j.       Laboratory and radiology services for psychotropic medication
                  regulation and diagnosis

         k.       Emergency and medically necessary transportation (Title XXI
                  members limited to emergency transportation only)

         l.       Case management services

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

The Contractor is responsible for referring other Title XIX and Title XXI
members identified as needing behavioral health treatment services to the RBHA
for evaluation and provision of covered services. Members may also access the
RBHA system for evaluation by self-referral or be referred by schools, State
agencies or other service providers. The Contractor is responsible for providing
transportation to Title XIX members first RBHA evaluation appointments if
members are unable to provide their own transportation.

EMERGENCY SERVICES: For Title XIX and Title XXI members not enrolled with ADHS,
the Contractor is responsible for up to three days of inpatient emergency
behavioral health services not to exceed 12 days per contract year.

For state-only members (MN/MI, EAC, ELIC): The Contractor is responsible for up
to three days of inpatient emergency behavioral health services not to exceed 12
days per contract year. For members who become eligible during an emergency
episode, the three (3) days of coverage for this hospital benefit are the first
three (3) days of eligibility. This limitation of the Contractor's financial
liability is the same regardless of whether the member is enrolled with a RBHA.

COORDINATION OF CARE: The Contractor is responsible for ensuring that a medical
record is established by the PCP when behavioral health information is received
from the RBHA or provider about an assigned member even if the PCP has not yet
seen the assigned member. The Contractor shall also respond to RBHA/provider
information requests pertaining to ADHS enrolled members including, but not
limited to, current diagnosis, medication, pertinent laboratory results, last
PCP visit, and last hospitalization. For prior period coverage, the Contractor
is responsible for payment of all claims for medically necessary covered
behavioral health services to members not enrolled with ADHS.

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

The Contractor shall ensure that training and education is available to PCPs
regarding behavioral health referral and consultation procedures. The Contractor
shall establish policies and procedures for referral and consultation and shall
include them in their provider manual. Also, Contractors shall inform PCPs about
the availability of training and education through the Regional Behavioral
Health Authorities regarding the diagnosis and treatment of behavioral health
disorders.

The Contractor shall ensure that its quality management and peer review programs
incorporate monitoring of the PCP's management of behavioral health disorders.

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<PAGE>

3.       AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference into
this contract. The Contractor is responsible for complying with the requirements
set forth within. The AMPM with search capability and linkages to AHCCCS rules,
Statutes and other resources is available to all interested parties through the
AHCCCS Home Page on the Internet (WWW.AHCCCS.STATE.AZ.US). A Contractor may also
request up to three copies (for use by the CEO, Medical Director and Quality
Management staff) in addition to Internet availability. AMPM updates will be
available through the Internet immediately upon adoption by AHCCCSA. Hard copy
updates will only be distributed quarterly. Contractors using one or more hard
copies of the AMPM are responsible for maintaining such copies current with
these updates.

4.       VACCINE FOR CHILDREN PROGRAM

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

5.       DENIALS OR REDUCTIONS OF SERVICES

When a covered service is denied, reduced, suspended or terminated, the
Contractor shall comply with the notice, appeal and continuation of benefits
requirements specified in 42 CFR 431.200 et seq., AAC R9-22, Article 13
outlining members' rights and responsibilities, and AHCCCS policy.

6.       ENROLLMENT AND DISENROLLMENT

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

<TABLE>

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

Department of Economic Security (DES)     DES determines eligibility for the Temporary Assistance to
                                          Needy Families (TANF) program (formerly Aid to Families
                                          with Dependent Children), 1931 Group Medical Assistance
                                          Only (MAO) groups, SOBRA women and children, the Eligible
                                          Assistance Children state program (EAC), the Adoption
                                          Subsidy Program, Title IV-E foster care children, and the
                                          Federal Emergency Services program (FES) related to the
                                          TANF, 1931 Group, or SOBRA programs.
</TABLE>

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<PAGE>

<TABLE>

<S>                                       <C>
AHCCCSA                                   AHCCCSA determines eligibility for the SSI/MAO groups,
                                          including the FES program related to the SSI-Cash program
                                          (aged, disabled, blind), the Arizona Long-Term Care System
                                          (ALTCS), the Qualified Medicare Beneficiary program and
                                          other Medicare cost sharing programs, and the Title XXI
                                          program.

Arizona's 15 Counties                     Each county determines eligibility for the Medically
                                          Needy/Medically Indigent (MN/MI), Eligible Low Income
                                          Children (ELIC), and the State Emergency Services state
                                          programs.
</TABLE>

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

HEALTH PLAN CHOICE

Acute members, except for those eligible under the MN/MI program have a choice
of available health plans. A listing of the available health plans and their
telephone numbers will be given to each applicant during the application process
for AHCCCS benefits. Also included are instructions to applicants to call the
health plans directly with specific questions concerning the health plan. If
there is only one health plan available for the applicant's Geographical Service
Area, no choice is offered. Members who do not choose prior to AHCCCSA's being
notified of their eligibility are automatically assigned to a health plan based
on family continuity or the auto-assignment algorithm.

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

AHCCCSA assigns MN/MI members to an available health plan, based on family
continuity or through AHCCCSA's auto-assignment algorithm. These members do not
get a choice of available contractors until their annual enrollment choice
period.

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

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

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

PRIOR PERIOD COVERAGE: AHCCCS provides prior period coverage for Title XIX and
state-only members. For Title XIX members, prior period coverage starts from the
first day of the month of application, or first eligible month. The Contractor
is responsible for payment of all claims for medically necessary covered
services

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<PAGE>

provided to Title XIX members during prior period coverage. For state-only EAC
members, prior period coverage does not apply. For state-only MN/MI and ELIC
members prior period coverage is generally limited to the two days prior to the
date of AHCCCSA being notified of eligibility. However, prior period coverage
could include additional days prior to the date of enrollment. The Contractor is
responsible for payment of all claims for medically necessary covered services
provided on an emergency basis to state-only members pursuant to ARS ss.36-2908
and ARS ss.36-2909 for the first two days of the prior period coverage. Any
additional prior period coverage for state-only members will include all claims
for medically necessary covered services. This may include services provided
prior to the contract year. (See Section D, Paragraph 37, Compensation, for a
description of the Contractor's reimbursement from AHCCCSA for this eligibility
time period.)

NEWBORNS: Newborns born to AHCCCS-eligible mothers, including Title XXI mothers,
who were enrolled at the time of the child's birth and whose newborn
notification was received by AHCCCSA will be enrolled with the mother's health
plan. The Contractor is responsible for notifying AHCCCSA of a child's birth to
an enrolled member. Capitation to the Contractor will begin on the date
notification is received by AHCCCSA (except for cases of births during prior
period coverage). The effective date of AHCCCS eligibility will be the newborn's
date of birth, and the Contractor is responsible for all covered services to the
newborn whether or not AHCCCSA has received notification of the child's birth.
Note that AHCCCSA is currently available to receive notification calls 24 hours
a day, 7 days a week. Title XIX and Title XXI eligible mothers of newborns are
sent a letter advising them of their right to choose a different contractor for
their child; otherwise the child will remain with the mother's contractor.
Newborns of MN/MI mothers are enrolled with the mother's contractor for a
minimum of 30 days up to a maximum of 60 days. Newborns of FES mothers are
auto-assigned to a health plan and mothers of these newborns are sent a letter
advising them of their right to choose a different health plan for their child.

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

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

7.       MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take affirmative
action so that members are provided covered services without regard to payer
source, race, color, creed, sex, religion, age, national origin, ancestry,
marital status, sexual preference, or physical or mental handicap, except where
medically indicated. Examples of prohibited practices include, but are not
limited to, the following:

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

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<PAGE>

b.       Providing to a member any covered service which is different, or is
         provided in a different manner or at a different time from that
         provided to other members, other public or private patients or the
         public at large except where medically necessary.
c.       Subjecting a member to segregation or separate treatment in any manner
         related to the receipt of any covered service; restricting a member in
         any way in his or her enjoyment of any advantage or privilege enjoyed
         by others receiving any covered service.
d.       The assignment of times or places for the provision of services on the
         basis of the race, color, creed, religion, age, sex, national origin,
         ancestry, marital status, sexual preference, income status, AHCCCS
         membership, or physical or mental handicap of the participants to be
         served.

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

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

8.       MEMBER INFORMATION

All informational materials prepared by the Contractor shall be approved by
AHCCCSA prior to distribution to members. The reading level and name of the
evaluation methodology used should be included when 200 members or 5% of the
Contractor's enrolled population, whichever is greater, speak a 2nd language,
the Contractor shall provide member information in that 2nd language. The
Contractor shall comply whenever it is aware that a population meets this
standard. When there are program or service site changes notification will be
provided to the affected members at least 14 days before implementation. The
Contractor shall review and update the Member Handbook at least once a year. The
Handbook must be submitted to AHCCCSA Office of Managed Care for approval by
Sept. 1 of each contract year, or within four weeks of receiving the annual
renewal amendment, whichever is later.

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

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

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

         a.       A table of contents
         b.       A general description of how managed care works, particularly
                  in regards to member responsibilities, appropriate utilization
                  of services and the PCP's role as gatekeeper of services
         c.       A description of all available covered services and an
                  explanation of any service limitations or exclusions from
                  coverage and a notice stating that the Contractor will be
                  liable only for those services authorized by the Contractor.
                  The description should include a brief explanation of the
                  Contractor's approval and denial process.
         d.       Information on what to do when family size changes
         e.       How to obtain a PCP
         f.       How to change PCPs
         g.       How to make, change and cancel appointments with a PCP or
                  dentist
         h.       List of applicable copayments (including a statement that care
                  will not be denied due to lack of copayment). The member
                  handbook must clearly state that members cannot be billed for
                  covered services (other than applicable copayments), what to
                  do if they are billed, and under what circumstances a member
                  may be billed for non-covered services.

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

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

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

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

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

         n.       EPSDT services. Screenings include a comprehensive history and
                  developmental/behavioral health screening, comprehensive
                  unclothed physical examination, appropriate vision testing,
                  hearing testing, laboratory tests, dental screening and
                  immunizations.

         o.       Maternity and family planning services

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

         q.       Description of all covered dental services for members under
                  21 and how to access these services

         r.       Out of county/out of state moves

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

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

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

         v.       Advance directives for adults

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

         x.       The last revision date

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

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

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

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

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

Regardless of the format chosen by the Contractor, the member handbook must be
printed in a type style and size which can easily be read by members with
varying degrees of visual impairment. At a minimum, the member handbook shall
also contain the following language regarding questions, problems and grievances
(Ref. AHCCCS Rule R9-22-518 and R9-31-518):
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                                       22
<PAGE>
Q.       What if I have any questions, problems or complaints about
         [Contractor's name]?

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

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

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

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

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

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

II.      A LIST OF THE NAMES, TELEPHONE NUMBERS AND SERVICE SITE ADDRESSES OF
         PCPS available for selection by the member and a description of the
         selection process. Upon request by the member, the Contractor must make
         information available regarding provider qualifications.

9.       MEMBER SURVEYS

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

10.      MARKETING PLANS

The Contractor shall submit all proposed marketing plans and materials to
AHCCCSA for prior approval in accordance with the AHCCCS Health Plan Marketing
Policy, a copy of which is available in the Bidder's Library. The Contractor
must have signed contracts with hospitals (in Maricopa and Pima counties), PCPs,
specialists and pharmacies in order for them to be included in marketing
materials.

11.      ANNUAL ENROLLMENT CHOICE

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

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<PAGE>
12.      TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM standards for member transitions
between health plans or GSAs, to or from an ALTCS program contractor, IHS, a PL
93-638 tribal entity, or a Title XXI direct service provider and upon
termination or expiration of a contract. The Contractor shall develop and
implement policies and procedures, which comply with AHCCCS medical policy to
address transition of:

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

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

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

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

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

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

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

a.       Notification of subcontractors and members.

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

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

         1)   A monthly claims aging report by provider/creditor including IBNR
              amounts;

         2)   A monthly summary of cash disbursements;

         3)   Copies of all bank statements received by the Contractor.

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

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

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

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

Members transferred from non-contracting hospitals in order to comply with the
Hospital Reimbursement Pilot Program in Maricopa and Pima Counties shall be
transferred in accordance with the AHCCCS Medical Policy.

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<PAGE>
Behavioral Health Transition: The Contractor shall fully cooperate with changes
mandated in Laws of 1999, Chapter 313 regarding the transition of Title XIX
non-SMI 18, 19 and 20 year old members and 18 year old Title XXI members to the
ADHS/RBHA system. The Contractor shall cooperate with ADHS, its subcontractors
and their providers in transitioning members' care. To ensure continuity of care
and avoid disruption of medically necessary services, the Contractor shall
adhere to the transition plan developed by AHCCCS.

13.      STAFF REQUIREMENTS AND SUPPORT SERVICES

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

a.       A full-time ADMINISTRATOR who is available at all times to fulfill the
         responsibilities of the position and to oversee the entire operation of
         the health plan.

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

c.       A full-time CHIEF FINANCIAL OFFICER who is available at all times to
         fulfill the responsibilities of the position and to oversee the budget
         and accounting systems implemented by the Contractor.

d.       A QUALITY MANAGEMENT/UTILIZATION MANAGEMENT COORDINATOR who is an
         Arizona-licensed registered nurse, physician or physician's assistant

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

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

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

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

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

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

k.       A CLAIMS ADMINISTRATOR AND CLAIMS PROCESSORS to ensure the timely and
         accurate processing of original claims, claims correction letters,
         re-submissions and overall adjudication of claims.

l.       ENCOUNTER PROCESSORS to ensure the timely and accurate processing and
         submission to AHCCCSA of encounter data and reports.

m.       A GRIEVANCE COORDINATOR who will manage and adjudicate member and
         provider grievances.

n.       CLERICAL AND SUPPORT STAFFS to ensure appropriate functioning of the
         Contractor's operation.

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<PAGE>

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

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

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

14.      WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures shall be reviewed at least annually to ensure that the
Contractor's written policies reflect current practices. Reviewed policies shall
be dated and signed by the Contractor's appropriate manager, coordinator,
director or administrator. All medical and quality management policies must be
approved and signed by the Contractor's Medical Director. Job descriptions shall
be reviewed at least annually to ensure that current duties performed by the
employee reflect written requirements.

15.      ADVANCE DIRECTIVES

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

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

         (1)      Maintaining written policies that address the rights of adult
                  members to make decisions about medical care, including the
                  right to accept or refuse medical care, and the right to
                  execute an advance directive. If the agency/organization has a
                  conscientious objection to carrying out an advance directive,
                  it must be explained in policies. (A health care provider is
                  not prohibited from making such objection when made pursuant
                  to ARS ss.36-3205.C.1.)
         (2)      Provide written information to adult members regarding each
                  individual's rights under State law to make decisions
                  regarding medical care, and the health care provider's written
                  policies concerning advance directives (including any
                  conscientious objections).
         (3)      Documenting in the member's medical record whether or not the
                  adult member has been provided the information and whether an
                  advance directive has been executed.
         (4)      Not discriminating against a member because of his or her
                  decision to execute or not execute an advance directive, and
                  not making it a condition for the provision of care.
         (5)      Providing education to staff on issues concerning advance
                  directives including notification of direct care providers of
                  services, such as home health care and personal care, of any
                  advanced directives executed by members to whom they are
                  assigned to provide services.

b.       Contractors shall encourage subcontracted PCPs to comply with the
         requirements of subparagraph a. (2) through (5) above. Contractors
         shall also encourage health care providers specified in subparagraph a.
         to

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<PAGE>

         provide a copy of the member's executed advanced directive, or
         documentation of refusal, to the member's PCP for inclusion in the
         member's medical record.

16.      PERFORMANCE MEASUREMENT

All performance measures described below apply to Title XIX, Title XXI, and
state-only member populations.

Contractors shall strive to meet the AHCCCS stated performance measure goals.
However, it is equally important that Contractors continually improve their
performance measure outcomes from year to year. Improvement in performance is to
be measured by a reduction in the health plan's adverse outcomes. AHCCCS
requires the Contractor to achieve a reduction of ten percent or more from the
previous year's adverse outcomes. The Contractor's performance will also be
evaluated against the adjusted AHCCCS statewide average performance level,
excluding the effect of the Contractor's data.

AHCCCS will require the Contractor to have a quality improvement plan in place
when:

a)       the Contractor has not achieved the AHCCCS statewide performance level
         for any measure but has shown significant improvement, or

b)       the Contractor's rate has declined but is at or above the AHCCCS
         statewide performance level for any measure.

The Contractor will be required to submit a corrective action plan and may be
subject to sanctions if:

a)       the Contractor has not achieved the AHCCCS statewide performance level
         for any measure and has failed to show adequate improvement, or

b)       if the Contractor's rate has declined and fallen below the AHCCCS
         statewide performance level for any measure.

Corrective action plans must be received by the Office of the Medical Director
within 30 days of receipt of notification from AHCCCS. AHCCCS may conduct one or
more follow-up on-site reviews to verify compliance with a corrective action
plan.

EPSDT PARTICIPATION: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program to at least 80% of all enrolled
members under age 21 during CYE 2000. The participant rate is the number of
children receiving at least one medical screen compared to the number of
children expected to receive at least one medical screen. The number of children
expected to receive at least one medical screen is based on the federal
periodicity schedule and the average period of eligibility.

AHCCCSA will measure participation levels through encounter data and will not
use information from prior period coverage (see Paragraph D.6, Prior Period
Coverage) in evaluating the Contractor's performance.

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EPSDT IMMUNIZATIONS: The Contractor shall ensure members under age 21 receive
age-appropriate immunizations as specified in the AMPM. During CYE 2000, the
Contractor shall meet or exceed the following:

<TABLE>
<CAPTION>
                Immunization                          Percentage of       Numbers of Doses
                                                         Members
                                                        Immunized
<S>                                                   <C>                 <C>
Diphtheria, Tetanus, Pertussis vaccine (DPT)                82%                   4
Oral/Inactivated Polio Vaccine                              87%                   3
Measles, Mumps, Rubella Vaccine (MMR)                       90%                   1
H. Influenza, Type B (HIB)                                  90%                   1
Hepatitis B (Hep B)                                         87%                   3
Combined 3-Antigen Rate (4 DPT, 3 OPV, 1 MMR)               82%                   8
Combined All Antigen                                        73%                  11
Varicella Vaccine                                           50%                   1
</TABLE>

The Contractor shall conduct an annual immunization audit based on random
sampling to assess and verify the immunization status of two-year-old members.
AHCCCSA will provide the Contractor, within two weeks after the end of the
contract year, the selected sample, specifications for conducting the audit, the
AHCCCSA reporting requirements, and technical assistance. The Contractor shall
identify each child's PCP, conduct the assessment, and report to AHCCCSA in the
required format all immunization data for the sampled two-year-old children no
later than December 15 after the end of the contract year. If medical records
are missing for more than 5% of the sample group, the Contractor is subject to
sanctions by AHCCCSA. The External Quality Review Contractor will conduct a
study to validate the Contractor's reported rates.

PERFORMANCE INDICATORS: For CYE 2000, the Contractor shall comply with AHCCCS
quality management requirements to improve performance for all AHCCCS
established performance indicators. Complete descriptions of these indicators
can be found in the document Health Plan Performance Indicators, User and
Technical Specifications. AHCCCS has established goals for the following
indicators: annual dental visits; well-child visits in the first 15 months of
life; and well-child visits in the 3rd, 4th, 5th and 6th years of life.

ANNUAL DENTAL VISITS: The Contractor shall take affirmative steps to increase
utilization of dental services for members under age 21. At least 55% of all
enrolled members between the ages of 3 to 21 shall have at least one dental
visit during CYE 2000. AHCCCSA will monitor utilization through reported
encounter data.

WELL CHILD VISITS IN THE FIRST 15 MONTHS OF LIFE: The Contractor shall ensure
that members under the age of 15 months receive all recommended well-child
visits as specified in the AMPM. During CYE 2000, the Contractor shall ensure
that a minimum of 64% of its members receive all recommended well-child visits.

WELL-CHILD VISITS IN THE 3RD, 4TH, 5TH AND 6TH YEARS OF LIFE: The Contractor
shall ensure that members 3, 4, 5 and 6 years of age receive all recommended
well-child visits as specified in the AMPM. During CYE 2000, the Contractor
shall ensure that a minimum of 64% of its members receive at least one
well-child visit during the contract year.

CHILDREN'S ACCESS TO PRIMARY CARE PRACTITIONERS: The Contractor shall ensure
that members under age 21 have access to primary care provider (PCP) services.
During CYE 2000, the Contractor shall ensure that a minimum of 70% of members
under age 21 visit their PCP at least once during the contract year.

ACCESS TO CARE: AHCCCSA will measure access to care through four new measures:
Provider Turnover, Board Certified/Residence Completed, Provider Compensation
and Availability of Languages. Baselines for these measures will be established
at the beginning of CYE 2000.

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<PAGE>
17.      QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)

The Contractor shall provide to members quality medical care as described in the
AMPM, Chapter 900, regardless of payer source or eligibility category. The
Contractor shall institute processes to assess, plan, implement and evaluate
quality improvement activities. The Contractor shall conduct two clinical
studies each contract year as required in Chapter 900 of the AMPM. AHCCCSA will
determine the subject matter and study methodology for one of the annual studies
and the Contractor shall submit to AHCCCSA by November 15 of each contract year
its proposed subject matter and methodology for the other. The results of the
studies shall be submitted to AHCCCS, Office of the Medical Director, within 180
days after the end of each contract year.

The Contractor must maintain a written QM/UM plan, which details plans for
compliance with the AMPM. The Contractor shall incorporate in its QM/UM plan an
action plan for improving the performance rates for those indicators with
established baselines.

18.      PHYSICIAN INCENTIVES

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

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

         1.       A complete copy of the contract

         2.       A plan for the member satisfaction survey

         3.       Details of the stop-loss protection provided

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

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

19.      APPOINTMENT STANDARDS

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

a.       Emergency PCP appointments -    same day of request

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

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

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

a.       Emergency appointments -        within 24 hours of referral

b.       Urgent care appointments -      within 3 days of referral

c.       Routine care appointments -     within 30 days of referral

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

a.       emergency appointments -        within 24 hours of request

b.       urgent appointments -           within 3 days of request

c.       routine care appointments -     within 45 days of request

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

a.       First trimester -               within 14 days of request

b.       Second trimester -              within 7 days of request

c.       Third trimester -               within 3 days of request

d.       High risk pregnancies -         within 3 days of identification of
                                         high risk by the Contractor or
                                         maternity care provider, or immediately
                                         if an emergency exists

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

The Contractor shall actively monitor the adequacy of its appointment processes
and reduce the unnecessary use of alternative methods such as emergency room
visits. The Contractor shall monitor and ensure that a member's waiting time for
a scheduled appointment at the PCP's or specialist's office is no more than 45
minutes, except when the provider is unavailable due to an emergency.

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

20.      REFERRAL PROCEDURES AND STANDARDS

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

a.       Use of referral forms clearly identifying the Contractor

b.       A system for resolving disputes regarding the referrals

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

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

e.       Referral to Medicare HMO including payment of copayments

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

         Clinical laboratory services
         Physical therapy services
         Occupational therapy services
         Radiology services
         Radiation therapy services and supplies

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<PAGE>
         Durable medical equipment and supplies
         Parenteral and enteral nutrients, equipment and supplies
         Prosthetics, orthotics and prosthetic devices and supplies
         Home health services
         Outpatient prescription drugs
         Inpatient and outpatient hospital services

21.      PROVIDER MANUAL

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

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

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

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

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

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

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

         g.       Dental services

         h.       Maternity/Family Planning services

         i.       The Contractor's policy regarding PCP assignments

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

         k.       Grievance and appeal rights

         l.       Billing and encounter submission information

                  -        indicate which form UB92, HCFA 1500, or Form C is to
                           be used for services

                  -        indicate which fields are required for a claim to be
                           considered acceptable by the Contractor. A completed
                           sample of each form shall be included

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

         n.       Claims re-submission policy and procedure

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

         p.       Explanation of remittance advice

         q.       Prior authorization requirement

         r.       Claims medical review

         s.       Concurrent review

         t.       Fraud and Abuse

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

         v.       AHCCCS appointment standards

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<PAGE>
22.      PRIMARY CARE PROVIDER STANDARDS

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

At a minimum, the Contractor's number of full-time equivalent PCPs to enrolled
members shall not exceed a ratio of 1:1800 for adults and 1:1200 for children
who are 12 or younger. If the PCP contracts with more than one AHCCCS health
plan, the ratio shall be adjusted by the Contractor to ensure the total number
of AHCCCS members does not exceed the above ratio. The Contractor should
consider the PCP's total patient panel size (i.e., AHCCCS and non-AHCCCS
patients) when assessing the PCP's ability to meet AHCCCS' appointment and other
standards. In addition, AHCCCS members shall not comprise the majority of the
PCP's panel of patients. The Contractor shall also reduce the number of members
assigned to its network PCPs as necessary to meet the appointment standards
specified in Section D, Paragraph 19, Appointment Standards. Any variation to
the above standards must be submitted to AHCCCSA, Office of the Medical Director
for prior approval. PCPs with assigned members diagnosed with AIDS or as
HIV-positive shall meet criteria and standards set forth in AHCCCS Medical
Policy and AHCCCS AIDS Advisory Committee Guidelines.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data regarding
PCP assignments is current. The Contractor is encouraged to assign members with
complex medical conditions who are age 12 and younger to Board-certified
pediatricians.

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

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

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

b.       Initiation of referrals for medically necessary specialty care

c.       Maintaining continuity of care for each assigned member

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

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

23.      OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and procedures to:

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

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

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

For specialty services, the Contractor shall ensure that:

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

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

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

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

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

b.       Certified nurse midwives

c.       Licensed midwives.

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

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

24.      NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is sufficient
to provide all covered services to AHCCCS members. It shall ensure covered
services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient professional and
paramedical personnel for the provision of covered services, including emergency
medical care on a 24-hour-a-day, 7-days-a-week basis. The proposed network shall
be sufficient to provide covered services within designated time and distance
limits. For Maricopa and Pima Counties only, this includes a network such that
95% of its members residing within the boundary area of metropolitan Phoenix and
Tucson do not have to travel more than 5 miles to see a PCP or pharmacy. 95% of
its members residing outside the boundary area must not have to travel more than
10 miles to see such providers. See Attachment B, Minimum Network Requirements,
for details on network requirements by Geographic Service Area. Also see Section
D, Paragraph 35, Hospital Subcontracting and Reimbursement, for details on
changes in hospital subcontracting effective October 1, 1998.

Under the Balanced Budget Act of 1997, the Contractor shall not discriminate
with respect to participation in the AHCCCS program, reimbursement or
indemnification against any provider based solely on the provider's type of
licensure or certification. This provision, however, does not prohibit the
Contractor from limiting provider

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<PAGE>
participation to the extent necessary to meet the needs of the Contractor's
members. This provision also does not interfere with measures established by the
Contractor to control costs consistent with its responsibilities under this
contract.

25.      NETWORK MANAGEMENT

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

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

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

c.       Evaluate the quality of services delivered by the network

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

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

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

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

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

26.      FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide covered services
and must comply with the federal mandates in OBRA 89 and OBRA 90. This
legislation gives FQHCs the option to require state Medicaid programs to
reimburse the FQHC at 100% of reasonable costs for the services delivered to
Title XIX members. AHCCCSA and its contractors are required to comply with this
legislation. The following payment methodology for reasonable cost reimbursement
was implemented effective October 1, 1997.

If the FQHC elects reasonable cost reimbursement, the FQHC will receive a
quarterly payment per Title XIX member per month from AHCCCSA. The initial
capitation amount will be $1.75 PMPM statewide. In accordance with the Balanced
Budget Act of 1997, this additional reimbursement will be phased out over a
five-year period beginning in contract year ending 2000:

<TABLE>
<CAPTION>
         CONTRACT YEAR                       PHASE-OUT PERCENTAGE                PMPM AMOUNT
         <S>                                 <C>                                 <C>
         1997 through 1999                       No phase-out                       $ 1.75
         2000                                            95%                        $ 1.66
         2001                                            90%                        $ 1.58
         2002                                            85%                        $ 1.49
         2003                                            70%                        $ 1.23
</TABLE>

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                                                                 Revised 10/1/99
                                       34
<PAGE>
<TABLE>
         <S>                                 <C>                                 <C>
         2004                                           100%                        $ 0.00
</TABLE>

Contractors are required to submit member month information for Title XIX
members for each FQHC on a quarterly basis to AHCCCS Office of Managed Care.
AHCCCSA will perform periodic audits of the member month information submitted.
Contractors should refer to the Office of Managed Care's policy on FQHC
reimbursement for further guidance. The following FQHCs are currently recognized
by HCFA:
            Clinica Adelante, Inc.
            El Rio Health Center
            Lake Powell Medical Center
            Mariposa Community Health Center, Inc.
            Mountain Park Health Center
            Sun Life Family Health Center
            United Community Health Center, Inc.
            Sunset Community Health Center (formerly Valley Health Center, Inc.)
            Inter-Tribal Health Care Center
            Native American Community Health Center, Inc.
            Native Americans for Community Action Family Health Center
            Chiricahua Community Health Centers, Inc.
            Marana Health Center
            North Country Community Health Center

Any other clinics that subsequently become FQHCs will be subject to the
reimbursement methodology described above upon electing reasonable cost
reimbursement from AHCCCSA.

27.      PROVIDER REGISTRATION

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

28.      PROVIDER AFFILIATION TAPE

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

29.      PERIODIC REPORT REQUIREMENTS

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

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

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

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

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                                       35
<PAGE>

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

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

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

30.      DISSEMINATION OF INFORMATION

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

31.      REQUESTS FOR INFORMATION

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

32.      OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
successful offerors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business for the initial contract year beginning 10/1/97.
The purpose of Readiness Reviews is to assess new contractors' readiness and
ability to provide contract services to members at the start of the contract
year. A new contractor will be permitted to commence operations only if the
Readiness Review factors are met to AHCCCSA's satisfaction.

33.      OPERATIONAL AND FINANCIAL REVIEWS

In accordance with HCFA requirements, AHCCCSA will conduct regular Operational
and Financial Reviews for the purpose of (but not limited to) ensuring
operational and financial program compliance. The Reviews will identify areas
where improvements can be made and make recommendations accordingly, monitor the
Contractor's progress towards implementing mandated programs and provide the
Contractor with technical assistance if necessary. The Contractor shall comply
with all other medical audit provisions as required by AHCCCS Rule R9-22-52l and
R9-31-521.

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful, AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with AHCCCSA and the AMCCCSA Review Team by
forwarding in advance such policies, procedures, job descriptions, contracts,
logs and other information that AHCCCSA may request. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance by
AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor personnel as identified in advance shall be
available to the Review Team at all times during AHCCCSA on-site review

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                                       36
<PAGE>
activities. While on-site, the Contractor shall provide the Review Team with
workspace, access to a telephone, electrical outlets and privacy for
conferences. Certain documentation submission requirements may be waived at the
discretion of AHCCCSA if the Contractor has obtained accreditation from NCQA or
any other nationally recognized accrediting body. The Contractor must submit the
entire NCQA report to AHCCCSA for such waiver consideration.

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

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

34.      CLAIMS PAYMENT SYSTEM

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

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

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

35.      HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

MARICOPA AND PIMA COUNTIES ONLY: Laws of 1996 Chapter 288 Section 20 authorizes
the Hospital Reimbursement Pilot Program (Pilot), which is effective from
October 1, 1997, through September 30, 2000. The Pilot as defined by AHCCCS Rule
R9-22-718 requires hospital subcontracts to be negotiated between health plans
in Maricopa and Pima counties and hospitals to establish reimbursement levels,
terms and conditions. Subcontracts shall be negotiated by the Contractor and
hospitals to cover operational concerns, such as timeliness of claims submission
and payment, payment of discounts or penalties, legal resolution, which may, as
an option, include establishing arbitration procedures. These negotiated
subcontracts shall remain under close scrutiny by AHCCCSA to insure availability
of quality services within specific service districts, equity of related party
interests, reasonableness of rates, and only marketing of contracted
organizations. The general provisions of this program encompass acute care
hospital services and outpatient

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

                                       37
<PAGE>

hospital services that result in an admission. The Contractor shall submit all
hospital subcontracts and any amendments to AHCCCSA, Office of Managed Care, for
prior approval. For non-emergency patient-days, the Contractor shall ensure that
at least 85% of its members use contracted hospitals. AHCCCSA reserves the right
to subsequently adjust the 85% standard. Further, if in AHCCCSA's judgment the
number of emergency days at a particular non-contracted hospital becomes
significant, AHCCCSA may require a subcontract at that hospital. Hospitals and
health plans/program contractors outside of Maricopa and Pima counties are not
included in this Pilot. Offerors should refer to the "Hospital Reimbursement
Pilot Program Packet" for additional information and requirements.

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

FOR OUT-OF-STATE HOSPITALS: The Contractor shall reimburse out-of-state
hospitals in accordance with AHCCCS Rule R9-22-705.

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

36.      NURSING FACILITY REIMBURSEMENT

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

The Contractor shall provide medically necessary nursing facility services for
any member who has a pending ALTCS application, who is currently residing in a
nursing facility and is eligible for services provided under this contract. If
the member becomes ALTCS eligible and is enrolled with an ALTCS Program
Contractor before the end of the maximum 90 days of nursing facility coverage,
the Contractor is only responsible for nursing facility coverage during the time
the member is enrolled with the Contractor. Nursing facility services covered by
a third party insurer (including Medicare) while the member is enrolled with the
Contractor shall be applied to the 90 day limitation.

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

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

                                       38
<PAGE>
37.      COMPENSATION

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

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

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

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

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund, as described in ARS ss.36-2913. An error discovered by the State with or
without an audit in the amount of fees paid to Contractor will be subject to
adjustment or repayment by Contractor making a corresponding decrease in a
current Contractor's payment or by making an additional payment by AHCCCSA to
the Contractor.

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

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

PRIOR PERIOD COVERAGE (PPC) CAPITATION: The Contractor will be paid capitation
for all PPC member months, including partial member months. This capitation
includes the cost of providing medically necessary covered services to members
during prior period coverage. The PPC capitation rates will be set by AHCCCSA
and will be paid to the Contractor along with the prospective capitation
described below. Contractors will not receive PPC capitation for newborns of
members who were enrolled at the time of delivery.

RECONCILIATION OF PPC COSTS TO REIMBURSEMENT: For CYE `98 and CYE `99, AHCCCSA
will offer a reconciliation process for contractors whose total PPC medical cost
experience (excluding administrative and non-operating expenses) is more than
10% higher than the reimbursement associated with PPC in two areas: the "retro"
portion of the capitation rate for all rate categories, and the prospective
three-day notification period for MNMI recipients only. Expenses for the retro
period only will be net of reinsurance.

AHCCCSA will reimburse 100% of a Contractor's excess reasonable costs in excess
of a 10% limit as determined by reported encounters. AHCCCS will recoup profit
amounts in excess of a 10% limit.

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<PAGE>
For contract years beginning with CYE `00, a full reconciliation to 0% profit or
loss will be done by AHCCCSA for the same eligibility time periods and risk
groups noted above. AHCCCSA will reimburse the health plans 100% of any excess
reasonable costs as determined by reported encounters, and all profits will be
recouped. Refer to the Office of Managed Care's PPC Reconciliation Policy for
further details of the reconciliation process.

KIDSCARE CAPITATION: The Contractor will be paid capitation for KidsCare members
in the same manner as prospective capitation (see above). KidsCare capitation
rates will be set by AHCCCSA in conjunction with an independent actuary.
Following CYE 99, AHCCCSA will review the assumptions made in setting the
capitation rates and may, at its option, reconcile and/or adjust the rates.

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

HIV-AIDS SUPPLEMENT: In addition to the capitation payment described above, a
separate and additional payment will be made to the Contractor to help defray
costs for members receiving approved protease inhibitors and associated lab work
related to their treatment for HIV/AIDS. The list of AHCCCSA-approved protease
inhibitors is available in the Bidder's Library.

On a quarterly basis, the Contractor shall submit to AHCCCSA, Office of Managed
Care, an unduplicated monthly count of members, by rate code, who are using
approved protease inhibitors. The report shall be submitted, along with the
quarterly financial reporting package, within 60 days after the end of each
quarter.

The rate of reimbursement for this separate per member per month payment is
specified in Section B and is subject to review during the term of the contract.
Payment will be made quarterly to the Contractor based on the reported members
for the preceding quarter. AHCCCSA will review this HIV/AIDS-related data at
least annually as part of its Operational and Financial Review and reserves the
right to recoup any amounts paid for ineligible members as determined through
this review as well as an associated penalty for incorrect reporting.

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

INCENTIVE FUND: AHCCCSA may retain a specified percentage of capitation
reimbursement in order to distribute to Contractors based on their performance
measure outcomes. AHCCCSA will notify Contractors 60 days prior to a new
contract year if this methodology will be implemented and will provide details
of the reimbursement methodology at that time. See Paragraph 16, Performance
Measurement for more details on the performance goals.

38.      CAPITATION ADJUSTMENTS

Except for changes made specifically in accordance with this contract, the rates
set forth in Section B shall not be subject to re-negotiation or modification
during the contract period. AHCCCSA may, at its option, review the effect of a
program change and determine if a capitation adjustment is needed. In these
instances the adjustment will be prospective with assumptions discussed with the
Contractor prior to modifying capitation rates. The Contractor may request a
review of a program change if it believes the program change was not equitable;
AHCCCSA will not unreasonably withhold such a review.

If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the default. The Contractor shall reimburse AHCCCSA
and/or AHCCCSA may deduct from future monthly capitation for any portion of a
month during which the Contractor was not at risk due to, for example:

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<PAGE>
a.       death of a member

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

c.       duplicate capitation to the same contractor

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

39.      REINSURANCE

REGULAR ACUTE PROSPECTIVE REINSURANCE: Reinsurance is a stop-loss program
provided by AHCCCSA to the Contractor for the partial reimbursement of covered
inpatient facility medical services incurred for a member with an acute medical
condition beyond an annual deductible (AHCCCS Rule R9-22-503 and R9-31-503). Per
diem rates paid for nursing facility services, including room and board,
provided in lieu of hospitalization for up to 90 days in any contract year shall
be eligible for reinsurance coverage. Refer to the AHCCCS Reinsurance Claims
Processing Manual for further details on the Reinsurance Program. Reinsurance
for the Hospital Reimbursement Pilot Program (See Section D, Paragraph 35,
Hospital Reimbursement), will be paid in accordance with AHCCCS Rule R9-22-503
and R9-31-503.

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

<TABLE>
<CAPTION>
                           PROSPECTIVE REINSURANCE                                       PPC REINSURANCE
---------------------------------------------------------------------------------------------------------------
   STATEWIDE PLAN           MNMI             NON-MNMI         COINSURANCE       ALL RATE CODES      COINSURANCE
     ENROLLMENT          DEDUCTIBLE         DEDUCTIBLE
---------------------------------------------------------------------------------------------------------------
<S>                      <C>                <C>               <C>               <C>                 <C>
0-19,999                   $15,000           $20,000              75%               $5,000              100%
---------------------------------------------------------------------------------------------------------------
20,000-49,999              $15,000           $35,000              75%               $5,000              100%
---------------------------------------------------------------------------------------------------------------
50,000 and over            $15,000           $50,000              75%               $5,000              100%
---------------------------------------------------------------------------------------------------------------
</TABLE>

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

PRIOR PERIOD COVERAGE REINSURANCE: A separate reinsurance deductible and
coinsurance percentage will apply during prior period coverage. As noted in the
table above, all Contractors, regardless of enrollment, will be subject to a
$5,000 deductible level. The coinsurance percentage for the prior period
coverage reinsurance is 100%. Expenses incurred during prior period coverage
will not apply toward the prospective reinsurance thresholds.

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

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

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

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

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

HEMOPHILIA: When a member is identified as being catastrophically eligible by
AHCCCSA due to the specific diagnosis of hemophilia (ICD9 codes 286.0, 286.1,
286.2), all medically necessary covered services provided during the contract
year shall be eligible for reimbursement at 85% of the Contractor's paid amount.

VON WILLEBRAND'S DISEASE: Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDAVP responders and
dependent on Plasma Factor VIII. The Contractor must promptly notify AHCCCS
Office of the Medical Director Reinsurance Unit after diagnosis. All medically
necessary covered services provided during the contract year shall be eligible
for reimbursement at 85% of the Contractor's paid amount.

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

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

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

All reinsurance claims must be submitted in accordance with R9-22-703 and the
AHCCCS Reinsurance Claims Processing Manual.

40.      COORDINATION OF BENEFITS/THIRD PARTY LIABILITY

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

COST AVOIDANCE: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires the member to pay any
copayment, coinsurance or deductible, the Contractor is responsible for making
these payments, even if the services are provided outside of the Contractor's
network. The Contractor's liability for coinsurance and deductibles is limited
to what the Contractor would have paid for the entire service pursuant to a
written contract with the provider or the AHCCCS fee-for-service rate, less any
amount paid by the third party. (The Contractor must decide whether it is more
cost-effective to provide the service within its network or pay coinsurance and
deductibles for a service outside its network. For continuity of care, the
Contractor may also choose to provide the service within its network.) If the
Contractor refers the member for services to a third-party insurer (other than
Medicare), and the insurer requires payment in advance of all copayments,
coinsurance and deductibles, the Contractor must make such payments in advance.

If the Contractor knows that the third party insurer will neither pay for nor
provide the covered service, and the service is medically necessary, the
Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so. (See also Section D, Paragraph 41,
Medicare Services and Cost Sharing.)

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

POSTPAYMENT RECOVERIES: Postpayment recovery is necessary in cases where the
Contractor was not aware of third-party coverage at the time services were
rendered or paid for, or was unable to cost-avoid. The

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<PAGE>
Contractor shall identify all potentially liable third parties and pursue
reimbursement from them except in the circumstances below. The Contractor shall
not pursue reimbursement in the following circumstances unless the case has been
referred to the Contractor by AHCCCSA or AHCCCSA's authorized representative:

<TABLE>
<S>                                                  <C>
Uninsured/underinsured motorist insurance            Adoption recovery
First-and third-party liability insurance            Worker's Compensation
Tortfeasors                                          Estate recovery
Special Treatment Trusts recovery
</TABLE>

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

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

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

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

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

REPORTING: The Contractor may be required to report case level detail of
third-party collections and cost avoidance, including number of referrals on
total plan cases. In addition, upon AHCCCS's request, the Contractor shall
provide an electronic extract of the Casualty cases, including open and closed
cases. Data elements include, but are not limited to: the member's first and
last name; AHCCCS ID; date of incident; claimed amount; paid/recovered amount;
and case status. The AHCCCSA TPL Section shall provide the format and reporting
schedule for this information to the Contractor. The Contractor shall notify
AHCCCSA's authorized representative within five working days of the
identification of a third-party liability case with known reinsurance (often
referred to as joint liability cases). The Contractor shall communicate any
known change in health insurance information, including Medicare, to AHCCCS
Administration, Division of Member Services, not later than 10 days from the
date of discovery using the AHCCCS Third-Party Coverage Form found in the
Bidder's Library.

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

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

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<PAGE>
41.      MEDICARE SERVICES AND COST SHARING

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

42.      COPAYMENTS

The Contractor is responsible for the collection of copayments from members in
accordance with AHCCCS Rule R9-22-711 and R9-31-711. In accordance with the
requirements mandated by the Balance Budget Act of 1997, the Contractor may not
collect copayments for family planning services.

43.      RECORDS RETENTION

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

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

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

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

b.       Records which relate to grievances, disputes, litigation or the
         settlement of claims arising out of the performance of this contract,
         or costs and expenses of this contract to which exception has been
         taken by AHCCCSA, shall be retained by the Contractor for a period of
         five years after the date of final disposition or resolution thereof.

44.      MEDICAL RECORDS

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

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

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

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

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

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

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

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

45.      ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

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

46.      ACCUMULATED FUND DEFICIT

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

47.      DATA EXCHANGE REQUIREMENT

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

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

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<PAGE>

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

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

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

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

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

ELECTRONIC DATA INTERCHANGE (EDI): IN addition to the requirements outlined in
Section D, Paragraph 34, Claims Payment System, the Contractor will be required
to comply with all EDI standards which result from the Kennedy-Kassebaum
legislation. This law requires the Department of Health and Human Services to
provide national electronic submission standards for health care data and may
include compliance with National Provider Identifier requirements. The Secretary
has 18 months to develop these standards. As the standards are finalized,
AHCCCSA will phase in the implementation. For encounter data transmissions, it
is anticipated that AHCCCS will make these standards available by March 1, 2000.
Effective October 1, 2000, the electronic standards will be required for
encounters. Electronic standards which may be implemented include, but are not
limited to, encounters, enrollment and capitation payments.

YEAR 2000 COMPLIANCE: The Contractor shall undertake all appropriate planning
measures to ensure timely compliance with all Year 2000 requirements. In
addition, the Contractor shall develop contingency plans addressing alternative
processes to ensure that operations continue in the event that systems fail.

48.      ENCOUNTER DATA REPORTING

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

Encounter data must be provided to AHCCCSA by electronic media and must be
submitted in the PMMIS AMCCCSA-supplied formats. Formatting and specific
requirements for encounter data are described in the

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<PAGE>
AHCCCS Encounter Reporting User Manual and the AHCCCS Technical Interface
Guidelines, copies of which may be found in the Bidder's Library. The Encounter
Submission Requirements are included herein as Attachment I.

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

49.      MONTHLY ROSTER RECONCILIATION

AHCCCSA produces daily roster updates identifying new members and changes to
members' demographic, eligibility and enrollment data, which the Contractor
shall use to update its member records. The daily roster which is run prior to
the monthly roster is referred to as the "last daily" and will contain all rate
code changes made for the prospective month, as well as any new enrollments and
disenrollments.

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

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

50.      TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/97 through 9/30/98. In addition,
AHCCCSA reserves the sole option to extend the term of the contract, not to
exceed a total contracting period of five years. The terms and conditions of any
such contract extension shall remain the same as the original contract, as
amended. Any contract extension, however, shall not affect the maximum
contracting period of five years. All contract extensions shall be through
contract amendment. If, in conjunction with a contract extension, AHCCCSA elects
to increase the capitation rate for any rate code category, such increase will
not exceed the inflation rate recognized by the Arizona Legislature.

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

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

CONTRACTOR'S NOTICE OF INTENT NOT TO RENEW: If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the Contractor
provides AHCCCSA written notice of its intent not to renew this contract at
least 120 days before its expiration, this liability for transition costs may be
waived by AHCCCSA.

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<PAGE>
51.      SUBCONTRACTS

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

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

a.       Automated data processing

b.       Third-party administrators

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

d.       Model subcontracts

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

See also Section D, Paragraph 35, Hospital Reimbursement, regarding required
submission of hospital subcontracts.

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

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

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

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

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

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

a.       Full disclosure of the method and amount of compensation or other
         consideration to be received by the subcontractor. See Section D,
         Paragraph 35, Hospital Subcontracting and Reimbursement

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

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

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

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<PAGE>
e.       The term of the subcontract including beginning and ending dates,
         methods of extension, termination and re-negotiation.

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

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

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

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

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

k.       Procedures for enrollment or re-enrollment of the covered population.

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

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

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

52.      SPECIALTY CONTRACTS

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

During the term of specialty contracts, AHCCCSA may act as an intermediary
between the Contractor and specialty contractors to enhance the cost
effectiveness of service delivery. AHCCCSA reserves the right to make direct
payments to specialty contractors on behalf of the Contractor. Adjudication of
claims related to such payments provided under specialty contracts shall remain
the responsibility of the Contractor. AHCCCSA may provide technical assistance
prior to the implementation of any specialty contracts. AHCCCSA shall provide at
least 60 days advance written notice to the Contractor prior to the
implementation of any specialty contract.

53.      MANAGEMENT SERVICES SUBCONTRACTORS

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

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<PAGE>
54.      MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

All management services subcontractors that have oversight responsibilities for
the Contractor's program operations (such as third-party administrators) are
required to have an annual financial audit. A copy of this audit shall be
submitted to AHCCCSA, Office of Managed Care, within 120 days of the
subcontractor's fiscal year end. If services billed by a consultant or actuary
are less than $50,000, AHCCCSA will waive the requirement for an audit of that
consultant or actuary.

55.      MINIMUM CAPITALIZATION REQUIREMENTS

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

Minimum capitalization requirements by GSA are as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Geographic Service Area                        Capitalization Requirement
<S>             <C>                            <C>
GSA #2          Yuma                                          $ 1,400,000
GSA #4          Mohave, La Paz                                  1,150,000
GSA #6          Yavapai, Coconino                               1,250,000
GSA #8          Pinal, Gila                                     1,450,000
GSA #10         Pima                                            1,250,000
GSA #12         Maricopa                                        2,500,000
GSA #14         Graham, Greenlee                                  350,000
GSA #16         Apache, Navajo                                    650,000
GSA #18         Cochise, Santa Cruz                             1,450,000
-------------------------------------------------------------------------
</TABLE>

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

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

56.      PERFORMANCE BOND OR BOND SUBSTITUTE

The Contractor shall be required to provide a performance bond of standard
commercial scope issued by a surety company doing business in this State, an
irrevocable letter of credit, or a cash deposit ("Performance Bond") to AHCCCSA
for as long as the Contractor has AHCCCS-related liabilities of $50,000 or more
outstanding, or 15 months following the effective date of this contract,
whichever is later, to guarantee: (1) payment of the

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Contractor's obligations to providers, non-contracting providers, and
non-providers; and (2) performance by the Contractor of its obligations under
this contract. The Performance Bond shall be in a form acceptable to AHCCCSA as
described in the AHCCCS Performance Bond policy available in the Office of
Managed Care.

In the event of a default by the Contractor, AHCCCSA shall, in addition to any
other remedies it may have under this contract, obtain payment under the
Performance Bond or substitute security for the purposes of the following:

a.       Paying any damages sustained by providers, non-contracting providers
         and nonproviders by reason of a breach of the Contractor's obligations
         under this contract,

b.       Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of the
         Contractor, and

c.       Reimbursing AHCCCSA for any extraordinary administrative expenses
         incurred by reason of a breach of the Contractor's obligations under
         this contract, including, but not limited to, expenses incurred after
         termination of this contract for reasons other than the convenience of
         the State by AHCCCSA.

In the event AHCCCSA agrees to accept substitute security in lieu of the
Performance Bond, irrevocable letter of credit or cash deposit, the Contractor
agrees to execute any and all documents and perform any and all acts necessary
to secure and enforce AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and necessary UCC filings
pursuant to the Arizona Uniform Commercial Code. In the event such substitute
security is agreed to and accepted by AHCCCSA, the Contractor acknowledges that
it has granted AHCCCSA a security interest in such substitute security to secure
performance of its obligations under this contract. The Contractor is solely
responsible for establishing the credit-worthiness of all forms of substitute
security. AHCCCSA may, after written notice to the Contractor, withdraw its
permission for substitute security, in which case the Contractor shall provide
AHCCCSA with a form of security described above. The Contractor may not change
the amount, duration or scope of the performance bond without prior written
approval from AHCCCSA, Office of Managed Care.

57.      AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110% of the total
capitation payment expected to be paid in the month of October 1997, or as
determined by AHCCCSA. The total capitation amount shall include SOBRA
supplemental payments. This requirement must be satisfied by the Contractor not
later than 15 days after notification by AHCCCSA of the amount required.
Thereafter, AHCCCSA shall evaluate the enrollment statistics of the Contractor
on a monthly basis. If there is an increase in capitation payment that exceeds
10% of the performance bond amount, AHCCCSA may require an increase in the
amount of the Performance Bond. The Contractor shall have 15 days following
notification by AHCCCSA to increase the amount of the Performance Bond. The
Performance Bond amount that must be maintained after the contract term shall be
sufficient to cover all outstanding liabilities and will be determined by
AHCCCSA. The Contractor may not change the amount of the performance bond
without prior written approval from AHCCCSA, Office of Managed Care.

58.      FINANCIAL VIABILITY CRITERIA/ PERFORMANCE MEASURES

AHCCCSA has established the following financial viability criteria/performance
goals:

CURRENT RATIO                      Current assets divided by current
                                   liabilities. "Current assets" includes any
                                   long-term investments that can be converted
                                   to cash within 24 hours without significant
                                   penalty (i.e., greater than 20%).

                                   STANDARD:  AT LEAST 1.00

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EQUITY PER MEMBER                  Equity, less on-balance sheet performance
                                   bond, divided by the number of non-SOBRA
                                   Family Planning Extension Services members
                                   enrolled at the end of the period.

                                   STANDARD: AT LEAST $150

                                   (Failure to meet this standard may result in
                                   an enrollment cap being imposed in any or all
                                   contracted GSA.)

MEDICAL EXPENSE RATIO              Total medical expenses (net of reinsurance,
                                   TPL, HIV/AIDS Supplement) divided by total
                                   capitation + SOBRA.

                                   STANDARD:  AT LEAST 85%

ADMINISTRATIVE COST                Total administrative expenses (excluding
PERCENTAGE:                        income taxes), divided by total capitation +
                                   SOBRA + TPL + reinsurance + HIV/AIDS
                                   Supplement

                                   STANDARD:  NO MORE THAN 10%

RECEIVED BUT UNPAID                Received but unpaid claims divided by the
CLAIMS (DAYS                       average daily medical expenses for the
OUTSTANDING)                       period, net of sub-capitation expense

                                   STANDARD:  NO MORE THAN 30 DAYS

59.      MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

A proposed merger, reorganization or change in ownership of the Contractor
health plan shall require prior approval of AHCCCSA and a subsequent contract
amendment. The Contractor must submit a detailed merger, reorganization and/or
transition plan to AHCCCSA Contracting Office for AHCCCSA review. The purpose of
the plan review is to ensure uninterrupted services to members, evaluate the new
entity's ability to support the provider network, ensure that services to
members are not diminished and that major components of the organization and
AHCCCS programs are not adversely affected by such merger, reorganization or
change in ownership.

60.      SANCTIONS

AHCCCSA may suspend, deny, refuse to renew, or terminate this contract or any
related subcontracts in accordance with AHCCCS Rules R9-22-405 and R9-31-405 and
the terms of this contract and applicable federal or State law and regulations.
AHCCCSA may, in addition to these remedies, impose monetary sanctions if the
Contractor violates any provision stated in law or this contract in accordance
with AHCCCS Rules R9-22-406 and R9-31-406 and the provisions of this contract,
applicable federal or State law and regulations. Written notice will be provided
to the Contractor specifying the sanction to be imposed, the grounds for such
sanction and either the length of suspension or the amount of capitation
prepayment to be withheld. The Contractor may appeal the decision to impose a
sanction in accordance with AHCCCS Rule R9-22-804.

In addition to the above remedies, AHCCCSA may, at its option, impose partial or
full enrollment caps on the Contractor. Among the contract violations that may
result in an enrollment cap are, but are not limited to, the following:

a.       Marketing violations

b.       Failure to meet AHCCCS financial viability standards

c.       Material deficiency in the Contractor's provider network

d.       Quality of care and quality management issues

e.       Failure to meet AHCCCS encounter standards

CURE NOTICE PROCESS: Prior to the imposition of a sanction for non-compliance,
AHCCCSA may provide a written cure notice to the Contractor regarding the
details of the non-compliance. The cure notice will specify the

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period of time during which the Contractor must bring its performance back into
compliance with contract requirements. If, at the end of the specified time
period, the Contractor has complied with the cure notice requirements, AHCCCSA
will take no further action. If, however, the Contractor has not complied with
the cure notice requirements, AHCCCSA will proceed with the imposition of
sanctions.

61.      AUTO-ASSIGNMENT ALGORITHM

Members who do not have the right to choose a contractor or members who have the
right to choose but do not exercise this right, are assigned to contractors
through an auto-assignment algorithm. The algorithm is a mathematical formula
used to distribute members to the various contractors in a manner that is
predictable and consistent with AHCCCSA goals. The algorithm favors those
contractors with lower capitation rates. For further details on the AHCCCS
Auto-Assignment Algorithm, refer to Attachment G. AHCCCSA may change the
algorithm at any time during the term of the contract and frequently does so in
response to contractor-specific issues of non-compliance (e.g. imposition of an
enrollment cap). The Contractor should consider this in preparing its response
to this RFP. AHCCCSA is not obligated to adjust for any financial impacts this
may have on the Contractor.

62.      GRIEVANCE PROCESS AND STANDARDS

The Contractor shall have in place a written grievance policy for members and
providers, which defines their rights regarding any adverse action by the
Contractor. This written policy shall be in accordance with applicable federal
and State law and AHCCCS Rules and policy including, but not limited to, AHCCCS
Rules R9-22-512; R9-22-518(A); R9-22-802; R9-31-802; R9-22-804 and R9-31-803.
The grievance process may not be delegated or subcontracted outside of the
health plan. Refer to Attachment H for a complete description of grievance
process requirements.

63.      QUARTERLY GRIEVANCE REPORT

The Contractor shall submit a Quarterly Grievance Report to AHCCCSA, Office of
Legal Assistance, using the Quarterly Grievance Report Format on file in the
Bidder's Library. The Quarterly Grievance Report must be received by the
AHCCCSA, Office of Legal Assistance, no later than 45 days from the end of the
quarter.

64.      KIDSCARE

On November 1, 1998, AHCCCSA implemented a Title XXI Children's Health Insurance
Program, referred to as "KidsCare". KidsCare provides health care coverage
statewide to eligible children 18 and younger and is provided through the
existing AHCCCS health plans, state employee HMOs that elect to participate, and
tribal facilities or Indian Health Service for Native Americans who elect to
receive services through them. Services will also be directly provided by
participating community health clinics and hospitals which predominantly serve
low income children.

The KidsCare service package is established by the legislature and approved by
HCFA through the State Plan. Services, limitations and exclusions are described
in Section D, Paragraph 1, Scope of Services. Capitation rates payable to the
Contractor for KidsCare members (age 18 and younger) will be set by AHCCCSA in
conjunction with an independent actuary.

Effective October 1,1999, KidsCare members in families with gross household
income over 150% and up to 200% of the federal poverty limit shall pay a premium
to AHCCCSA. The premium amount shall be based on the number of members in the
household and the gross family income in accordance with 9A.A.A.C., Article 14.

TITLE XXI PARENT/GUARDIAN HEALTH INSURANCE COVERAGE: ARS ss.36.2984 mandates
that the Contractor offer health insurance coverage to the parent(s) or legal
guardian(s) of a child who is eligible for Title XXI. The Contractor shall
establish rates for this coverage which must be approved by AHCCCSA, Office of
Managed

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Care, prior to implementation. Title XXI funds or any other federal or state
funds shall not be used to subsidize family coverage. The full cost of the
premium shall be paid by the parent or legal guardian who elects this coverage.
The Contractor may include provisions for pre-existing conditions and any other
medical underwriting considerations that are necessary to protect it from
adverse risk. For further information, refer to the Title XXI Parent/Guardian
Health Insurance Coverage Guidelines on file in the Bidder's Library.

65.      PENDING LEGISLATIVE ISSUES

In addition to the requirements described in this RFP, there are several
legislative issues that could have an impact on services provided by the
Contractor on or after October 1, 1998. The following is a brief description of
the issues that AHCCCS is aware of at the time of the issuance of this renewal
amendment:

ELIGIBILITY BASED ON 100% OF THE FEDERAL POVERTY LEVEL (FPL): Through a
successful initiative effort, eligibility for AHCCCS has been expanded to allow
persons with income up to 100% of the FPL to become eligible for the Medicaid
program. Legislative action will be required to implement this new eligibility
guideline and HCFA must approve the expansion. If HCFA approval is granted,
there will be a significant number of new persons who will be eligible for the
program and enrolled with the health plans at some future date.

                               [END OF SECTION D]

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                           SECTION E: CONTRACT CLAUSES
                                Table of Contents

<TABLE>
<S>                                                                                                    <C>
1    APPLICABLE LAW.....................................................................................57
2    AUTHORITY..........................................................................................57
3    ORDER OF PRECEDENCE................................................................................57
4    CONTRACT INTERPRETATION AND AMENDMENT..............................................................57
5    SEVERABILITY.......................................................................................57
6    RELATIONSHIP OF PARTIES............................................................................57
7    ASSIGNMENT AND DELEGATION..........................................................................58
8    GENERAL INDEMNIFICATION............................................................................58
9    INDEMNIFICATION -- PATENT AND COPYRIGHT............................................................58
10   COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS.............................................58
11   ADVERTISING AND PROMOTION OF CONTRACT..............................................................58
12   PROPERTY OF THE STATE..............................................................................58
13   THIRD PARTY ANTITRUST VIOLATIONS...................................................................58
14   RIGHT TO ASSURANCE.................................................................................58
15   TERMINATION FOR CONFLICT OF INTEREST...............................................................59
16   GRATUITIES.........................................................................................59
17   SUSPENSION OR DEBARMENT............................................................................59
18   TERMINATION FOR CONVENIENCE........................................................................59
19   TERMINATION FOR DEFAULT............................................................................60
20   TERMINATION - AVAILABILITY OF FUNDS................................................................60
21   RIGHT OF OFFSET....................................................................................60
22   NON-EXCLUSIVE REMEDIES.............................................................................60
23   NON-DISCRIMINATION.................................................................................60
24   EFFECTIVE DATE.....................................................................................60
25   INSURANCE..........................................................................................61
26   DISPUTES...........................................................................................61
27   RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS........................................................61
28   INCORPORATION BY REFERENCE.........................................................................62
29   COVENANT AGAINST CONTINGENT FEES...................................................................62
30   CHANGES............................................................................................62
31   TYPE OF CONTRACT...................................................................................62
32   AMERICANS WITH DISABILITIES ACT....................................................................62
33   WARRANTY OF SERVICES...............................................................................62
34   NO GUARANTEED QUANTITIES...........................................................................62
35   CONFLICT OF INTEREST ..............................................................................63
36   DISCLOSURE OF CONFIDENTIAL INFORMATION.............................................................63
37   COOPERATION WITH OTHER CONTRACTORS.................................................................63
38   ASSIGNMENT OF CONTRACT AND BANKRUPTCY..............................................................63
39   OWNERSHIP OF INFORMATION AND DATA..................................................................63
40   AHCCCSA RIGHT TO OPERATE CONTRACTOR................................................................64
41   AUDITS AND INSPECTIONS.............................................................................64
42   FRAUD AND ABUSE....................................................................................64
43   LOBBYING...........................................................................................64
</TABLE>

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                           SECTION E: CONTRACT CLAUSES

1.       APPLICABLE LAW

Arizona Law - The law of Arizona applies to this contract including, where
applicable, the Uniform Commercial Code, as adopted in the State of Arizona.

Implied Contract Terms - Each provision of law and any terms required by law to
be in this contract are a part of this contract as if fully stated in it.

2.       AUTHORITY

This contract is issued under the authority of the Contracting Officer who
signed this contract. Changes to the contract, including the addition of work or
materials, the revision of payment terms, or the substitution of work or
materials, directed by an unauthorized state employee or made unilaterally by
the Contractor are violations of the contract and of applicable law. Such
changes, including unauthorized written contract amendments, shall be void and
without effect, and the Contractor shall not be entitled to any claim under this
contract based on those changes.

3.       ORDER OF PRECEDENCE

The parties to this contract shall be bound by all terms and conditions
contained herein. For interpreting such terms and conditions the following
sources shall have precedence in descending order: The Constitution and laws of
the United States and applicable federal regulations; the terms of the HCFA 1115
waiver for the State of Arizona; the Constitution and laws of Arizona, and
applicable State rules; the terms of this contract, including all attachments
and executed amendments and modifications; AHCCCSA policies and procedures.

4.       CONTRACT INTERPRETATION AND AMENDMENT

No Parol Evidence - This contract is intended by the parties as a final and
complete expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term used in
this contract.

No Waiver - Either party's failure to insist on strict performance of any term
or condition of the contract shall not be deemed a waiver of that term or
condition even if the party accepting or acquiescing in the non-conforming
performance knows of the nature of the performance and fails to object to it.

Written Contract Amendments - The contract shall be modified only through a
written contract amendment within the scope of the contract signed by the
procurement officer on behalf of the State.

5.       SEVERABILITY

The provisions of this contract are severable to the extent that any provision
or application held to be invalid shall not affect any other provision or
application of the contract which may remain in effect without the invalid
provision or application.

6.       RELATIONSHIP OF PARTIES

The Contractor under this contract is an independent contractor. Neither party
to this contract shall be deemed to be the employee or agent of the other party
to the contract.

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7.       ASSIGNMENT AND DELEGATION

The Contractor shall not assign any right nor delegate any duty under this
contract without prior written approval of the Contracting Officer, who will not
unreasonably withhold such approval.

8.       GENERAL INDEMNIFICATION

The Contractor shall defend, indemnify and hold harmless the State from any
claim, demand, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation) arising out of or relating to injury, disease, or
death of persons or damage to or loss of property resulting from or in
connection with the negligent performance of this contract by the Contractor,
its agents, employees, and subcontractors or anyone for whom the Contractor may
be responsible. The obligations, indemnities and liabilities assumed by the
Contractor under this paragraph shall not extend to any liability caused by the
negligence of the State or its employees. The Contractor's liability shall not
be limited by any provisions or limits of insurance set forth in this contract.
The State shall reasonably notify the Contractor of any claim for which it may
be liable under this paragraph.

9.       INDEMNIFICATION - PATENT AND COPYRIGHT

The Contractor shall defend, indemnify and hold harmless the State against any
liability including costs and expenses for infringement of any patent, trademark
or copyright arising out of contract performance or use by the State of
materials furnished or work performed under this contract. The State shall
reasonably notify the Contractor of any claim for which it may be liable under
this paragraph.

10.      COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS

The materials and services supplied under this contract shall comply with all
applicable federal, state and local laws, and the Contractor shall maintain all
applicable licenses and permits.

11.      ADVERTISING AND PROMOTION OF CONTRACT

The Contractor shall not advertise or publish information for commercial benefit
concerning this contract without the prior written approval of the Contracting
Officer.

12.      PROPERTY OF THE STATE

Any materials, including reports, computer programs and other deliverables,
created under this contract are the sole property of AHCCCSA. The Contractor is
not entitled to a patent or copyright on those materials and may not transfer
the patent or copyright to anyone else. The Contractor shall not use or release
these materials without the prior written consent of AHCCCSA.

13.      THIRD PARTY ANTITRUST VIOLATIONS

The Contractor assigns to the State any claim for overcharges resulting from
antitrust violations to the extent that those violations concern materials or
services supplied by third parties to the Contractor toward fulfillment of this
contract.

14.      RIGHT TO ASSURANCE

If AHCCCSA, in good faith, has reason to believe that the Contractor does not
intend to perform or continue performing this contract, the procurement officer
may demand in writing that the Contractor give a written assurance of intent to
perform. The demand shall be sent to the Contractor by certified

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mail, return receipt required. Failure by the Contractor to provide written
assurance within the number of days specified in the demand may, at the State's
option, be the basis for terminating the contract.

15.      TERMINATION FOR CONFLICT OF INTEREST

AHCCCSA may cancel this contract without penalty or further obligation if any
person significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of AHCCCSA is, or becomes at any time while the
contract or any extension of the contract is in effect, an employee of, or a
consultant to, any other party to this contract with respect to the subject
matter of the contract The cancellation shall be effective when the Contractor
receives written notice of the cancellation unless the notice specifies a later
time.

16.      GRATUITIES

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that employment or a gratuity was offered or made by
the Contractor or a representative of the Contractor to any officer or employee
of the State for the purpose of influencing the outcome of the procurement or
securing the contract, an amendment to the contract, or favorable treatment
concerning the contract, including the making of any determination or decision
about contract performance. AHCCCSA, in addition to any other rights or
remedies, shall be entitled to recover exemplary damages in the amount of three
times the value of the gratuity offered by the Contractor.

17.      SUSPENSION OR DEBARMENT

The Contractor shall not employ, consult, subcontract or enter into any
agreement for Title XIX services with any person or entity who is debarred,
suspended or otherwise excluded from federal procurement activity. This
prohibition extends to any entity which employs, consults, subcontracts with or
otherwise reimburses for services any person substantially involved in the
management of another entity which is debarred, suspended or otherwise excluded
from federal procurement activity.

The Contractor shall not retain as a director, officer, partner or owner of 5%
or more of the Contractor entity, any person, or affiliate of such a person, who
is debarred, suspended or otherwise excluded from federal procurement activity.

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that the Contractor has been debarred, suspended or
otherwise lawfully prohibited from participating in any public procurement
activity.

18.      TERMINATION FOR CONVENIENCE

AHCCCSA reserves the right to terminate the contract in whole or in part at any
time for the convenience of the State without penalty or recourse. The
Contracting Officer shall give written notice by certified mail, return receipt
requested, to the Contractor of the termination at least 90 days before the
effective date of the termination. In the event of termination under this
paragraph, all documents, data and reports prepared by the Contractor under the
contract shall become the property of and be delivered to AHCCCSA. The
Contractor shall be entitled to receive just and equitable compensation for work
in progress, work completed and materials accepted before the effective date of
the termination.

19.      TERMINATION FOR DEFAULT

AHCCCSA reserves the right to terminate this contract in whole or in part due to
the failure of the Contractor to comply with any term or condition of the
contract or failure to take corrective action as

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required by AHCCCSA to comply with the terms of the contract. If the Contractor
is providing services under more than one contract with AHCCCSA, AHCCCSA may
deem unsatisfactory performance under one contract to be cause to require the
Contractor to provide assurance of performance under any and all other
contracts. In such situations, AHCCCSA reserves the right to seek remedies under
both actual and anticipatory breaches of contract if adequate assurance of
performance is not received. The Contracting Officer shall mail written notice
of the termination and the reason(s) for it to the Contractor by certified mail,
return receipt requested.

In the event the Contractor requests a hearing prior to termination, AHCCCSA is
required by the Balanced Budget Act of 1997 to oversee the operation of the
Contractor entity through appointment of temporary management prior to the
hearing.

Upon termination under this paragraph, all documents, data, and reports prepared
by the Contractor under the contract shall become the property of and be
delivered to AHCCCSA on demand.

AHCCCSA may, upon termination of this contract, procure, on terms and in the
manner that it deems appropriate, materials or services to replace those under
this contract. The Contractor shall be liable for any excess costs incurred by
AHCCCSA in re-procuring the materials or services.

20.      TERMINATION - AVAILABILITY OF FUNDS

Funds are not presently available for performance under this contract beyond the
current fiscal year. No legal liability on the part of AHCCCSA for any payment
may arise under this contract until funds are made available for performance of
this contract.

21.      RIGHT OF OFFSET

AHCCCSA shall be entitled to offset against any amounts due the Contractor any
expenses or costs incurred by AHCCCSA concerning the Contractor's non-conforming
performance or failure to perform the contract.

22.      NON-EXCLUSIVE REMEDIES

The rights and the remedies of AHCCCSA under this contract are not exclusive.

23.      NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 75-5, which mandates
that all persons, regardless of race, color, religion, sex, national origin or
political affiliation, shall have equal access to employment opportunities, and
all other applicable federal and state laws, rules and regulations, including
the Americans with Disabilities Act. The Contractor shall take positive action
to ensure that applicants for employment, employees, and persons to whom it
provides service are not discriminated against due to race, creed, color,
religion, sex, national origin or disability.

24.      EFFECTIVE DATE

The effective date of this contract shall be the date that the Contracting
Officer signs the award page (page 1) of this contract.

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25.      INSURANCE

A certificate of insurance naming the State of Arizona and AHCCCSA as the
"additional insured" must be submitted to AHCCCSA within 10 days of notification
of contract award and prior to commencement of any services under this contract.
This insurance shall be provided by carriers rated as "A+" or higher by the A.M.
Best Rating Service. The following types and levels of insurance coverage are
required for this contract:

a.       Commercial General Liability: Provides coverage of at least $1,000,000
         for each occurrence for bodily injury and property damage to others as
         a result of accidents on the premises of or as the result of operations
         of the Contractor.

b.       Commercial Automobile Liability: Provides coverage of at least
         $1,000,000 for each occurrence for bodily injury and property damage to
         others resulting from accidents caused by vehicles operated by the
         Contractor.

c.       Workers Compensation: Provides coverage to employees of the Contractor
         for injuries sustained in the course of their employment. Coverage must
         meet the obligations imposed by federal and state statutes and must
         also include Employer's Liability minimum coverage of $100,000.
         Evidence of qualified self-insured status will also be considered.

d.       Professional Liability (if applicable): Provides coverage for alleged
         professional misconduct or lack of ordinary skills in the performance
         of a professional act of service.

The above coverages may be evidenced by either one of the following:

a.       The State of Arizona Certificate of Insurance: This is a form with the
         special conditions required by the contract already pre-printed on the
         form. The Contractor's agent or broker must fill in the pertinent
         policy information and ensure the required special conditions are
         included in the Contractor's policy.

b.       The Accord form: This standard insurance industry certificate of
         insurance does not contain the pre-printed special conditions required
         by this contract. These conditions must be entered on the certificate
         by the agent or broker and read as follows:

                  The State of Arizona and Arizona Health Care Cost Containment
                  System are hereby added as additional insureds. Coverages
                  afforded under this Certificate shall be primary and any
                  insurance carried by the State or any of its agencies, boards,
                  departments or commissions shall be in excess of that provided
                  by the insured Contractor. No policy shall expire, be canceled
                  or materially changed without 30 days written notice to the
                  State. This Certificate is not valid unless countersigned by
                  an authorized representative of the insurance company.

26.      DISPUTES

The exclusive manner for the Contractor to assert any claim, grievance, dispute
or demand against AHCCCSA shall be in accordance with AHCCCS Rule R9-28-804(C).
Pending the final resolution of any disputes involving this contract, the
Contractor shall proceed with performance of this contract in accordance with
AHCCCSA's instructions, unless AHCCCSA specifically, in writing, requests
termination or a temporary suspension of performance.

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27.      RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS

AHCCCSA may, at reasonable times, inspect the part of the plant or place of
business of the Contractor or subcontractor which is related to the performance
of this contract, in accordance with ARS ss.41-2547.

28.      INCORPORATION BY REFERENCE

This solicitation and all attachments and amendments, the Contractor's proposal,
best and final offer accepted by AHCCCSA, and any approved subcontracts are
hereby incorporated by reference into the contract.

29.      COVENANT AGAINST CONTINGENT FEE

The Contractor warrants that no person or agency has been employed or retained
to solicit or secure this contract upon an agreement or understanding for a
commission, percentage, brokerage or contingent fee. For violation of this
warranty, AHCCCSA shall have the right to annul this contract without liability.

30.      CHANGES

AHCCCSA may at any time, by written notice to the Contractor, make changes
within the general scope of this contract. If any such change causes an increase
or decrease in the cost of, or the time required for, performance of any part of
the work under this contract, the Contractor may assert its right to an
adjustment in compensation paid under this contract. The Contractor must assert
its right to such adjustment within 30 days from the date of receipt of the
change notice. Any dispute or disagreement caused by such notice shall
constitute a dispute within the meaning of Section E, Paragraph 26, Disputes,
and be administered accordingly.

When AHCCCSA issues an amendment to modify the contract, the provisions of such
amendment will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the amendment has not been signed by the Contractor, unless
within that time the Contractor notifies AHCCCSA in writing that it refuses to
sign the amendment. If the Contractor provides such notification, AHCCCSA will
initiate termination proceedings.

31.      TYPE OF CONTRACT

Firm Fixed-Price

32.      AMERICANS WITH DISABILITIES ACT

People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling Doug Peeples at (602) 417-4538.

33.      WARRANTY OF SERVICES

The Contractor warrants that all services provided under this contract will
conform to the requirements stated herein. AHCCCSA's acceptance of services
provided by the Contractor shall not relieve the Contractor from its obligations
under this warranty. In addition to its other remedies, AHCCCSA may, at the
Contractor's expense, require prompt correction of any services failing to meet
the Contractor's warranty herein. Services corrected by the Contractor shall be
subject to all of the provisions of this contract in the manner and to the same
extent as the services originally furnished.

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                                                                 Revised 10/1/99

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<PAGE>
34.      NO GUARANTEED QUANTITIES

AHCCCSA does not guarantee the Contractor any minimum or maximum quantity of
services or goods to be provided under this contract.

35.      CONFLICT OF INTEREST

The Contractor shall not undertake any work that represents a potential conflict
of interest, or which is not in the best interest of AHCCCSA or the State
without prior written approval by AHCCCSA. The Contractor shall fully and
completely disclose any situation which may present a conflict of interest. If
the Contractor is now performing or elects to perform during the term of this
contract any services for any AHCCCS health plan, provider or Contractor or an
entity owning or controlling same, the Contractor shall disclose this
relationship prior to accepting any assignment involving such party.

36.      DISCLOSURE OF CONFIDENTIAL INFORMATION

The Contractor shall not, without prior written approval from AHCCCSA, either
during or after the performance of the services required by this contract, use,
other than for such performance, or disclose to any person other than AHCCCSA
personnel with a need to know, any information, data, material, or exhibits
created, developed, produced, or otherwise obtained during the course of the
work required by this contract. This nondisclosure requirement shall also
pertain to any information contained in reports, documents, or other records
furnished to the Contractor by AHCCCSA.

37.      COOPERATION WITH OTHER CONTRACTORS

AHCCCSA may award other contracts for additional work related to this contract
and Contractor shall fully cooperate with such other contractors and AHCCCSA
employees or designated agents, and carefully fit its own work to such other
contractors' work. Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor or by AHCCCSA
employees.

38.      ASSIGNMENT OF CONTRACT AND BANKRUPTCY

This contract is voidable and subject to immediate cancellation by AHCCCSA upon
Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or assigning rights or obligations
under this contract without the prior written consent of AHCCCSA.

39.      OWNERSHIP OF INFORMATION AND DATA

Any data or information system, including all software, documentation and
manuals, developed by Contractor pursuant to this contract, shall be deemed to
be owned by AHCCCSA. The federal government reserves a royalty-free,
nonexclusive, and irrevocable license to reproduce, publish, or otherwise use
and to authorize others to use for federal government purposes, such data or
information system, software, documentation and manuals. Proprietary software
which is provided at established catalog or market prices and sold or leased to
the general public shall not be subject to the ownership or licensing provisions
of this section.

Data, information and reports collected or prepared by Contractor in the course
of performing its duties and obligations under this contract shall be deemed to
be owned by AHCCCSA. The ownership provision is in consideration of Contractor's
use of public funds in collecting or preparing such data, information and
reports. These items shall not be used by Contractor for any independent project
of Contractor or publicized by Contractor without the prior written permission
of AHCCCSA. Subject to applicable state and federal laws and regulations,
AHCCCSA shall have full and complete rights to

                                                              Acute Care Renewal
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                                       63

<PAGE>
reproduce, duplicate, disclose and otherwise use all such information. At the
termination of the contract, Contractor shall make available all such data to
AHCCCSA within 30 days following termination of the contract or such longer
period as approved by AHCCCSA, Office of the Director. For purposes of this
subsection, the term "data" shall not include member medical records.

Except as otherwise provided in this section, if any copyrightable or patentable
material is developed by Contractor in the course of performance of this
contract, the federal government, AHCCCSA and the State of Arizona shall have a
royalty-free, nonexclusive, and irrevocable right to reproduce, publish, or
otherwise use, and to authorize others to use, the work for state or federal
government purposes. Contractor shall additionally be subject to the applicable
provisions of 45 CFR Part 74 and 45 CFR Parts 6 and 8.

40.      AHCCCSA RIGHT TO OPERATE CONTRACTOR

If, in the judgment of AHCCCSA, Contractor's performance is in material breach
of the contract or Contractor is insolvent, AHCCCSA may directly operate
Contractor to assure delivery of care to members enrolled with Contractor until
cure by Contractor of its breach, by demonstrated financial solvency or until
the successful transition of those members to other contractors.

41.      AUDITS AND INSPECTIONS

The Contractor shall comply with all provisions specified in applicable AHCCCS
Rule R9-22-519, -520 and -521 and AHCCCS policies and procedures relating to the
audit of Contractor's records and the inspection of Contractor's facilities.
Contractor shall fully cooperate with AHCCCSA staff and allow them reasonable
access to Contractor's staff, subcontractors, members, and records.

At any time during the term of this contract, the Contractor's or any
subcontractor's books and records shall be subject to audit by AHCCCSA and,
where applicable, the federal government, to the extent that the books and
records relate to the performance of the contract or subcontracts.

AHCCCSA and the federal government may evaluate through on-site inspection or
other means, the quality, appropriateness and timeliness of services performed
under this contract.

42.      FRAUD AND ABUSE

It shall be the responsibility of the Contractor to report all cases of
suspected fraud and abuse by subcontractors, members or employees. The
Contractor shall provide written notification of all such incidents to AHCCCSA.
The Contractor shall comply with the AHCCCS Health Plans and Program Contractors
Policy for Prevention, Detection and Reporting of Fraud and Abuse which is
available in the Bidder's Library and incorporated herein by reference.

As stated in ARS ss.13-2310, incorporated herein by reference, any person who
knowingly obtains any benefit by means of false or fraudulent pretenses,
representations, promises or material omissions is guilty of a class 2 felony.

43.      LOBBYING

No funds paid to the Contractor by AHCCCSA, or interest earned thereon, shall be
used for the purpose of influencing or attempting to influence an officer or
employee of any federal or State agency, a member of the United States Congress
or State Legislature, an officer or employee of a member of the United States
Congress or State Legislature in connection with awarding of any federal or
State contract, the making of any federal or State grant, the making of any
federal or State loan, the entering into of any

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                                                                 Revised 10/1/99

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<PAGE>
cooperative agreement, and the extension, continuation, renewal, amendment or
modification of any federal or State contract, grant, loan, or cooperative
agreement. The Contractor shall disclose if any funds other than those paid to
the Contractor by AHCCCSA have been used or will be used to influence the
persons and entities indicated above and will assist AHCCCSA in making such
disclosures to HCFA.

                               [END OF SECTION E]

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

                                       65
<PAGE>
ATTACHMENT A:  MINIMUM SUBCONTRACT PROVISIONS

[The following provisions must be included verbatim in every subcontract]

1.       EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES

The Arizona Health Care Cost Containment System Administration (AHCCCSA) or the
U.S. Department of Health and Human Services may evaluate, through inspection or
other means, the quality, appropriateness or timeliness of services performed
under this subcontract.

2.       RECORDS AND REPORTS

The Subcontractor shall maintain all forms, records, reports and working papers
used in the preparation of reports, files, correspondence, financial statements,
records relating to quality of care, medical records, prescription files,
statistical information and other records specified by AHCCCSA for purposes of
audit and program management. The Subcontractor shall comply with all
specifications for record-keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as shall properly reflect
each service provided and all net costs, direct and indirect, of labor,
materials, equipment, supplies and services, and other costs and expenses of
whatever nature for which payment is made to the Subcontractor. Such material
shall be subject to inspection and copying by the state, AHCCCSA and the U.S.
Department of Health and Human Services during normal business hours at the
place of business of the person or organization maintaining the records.

The Subcontractor agrees to make available at the office of the Subcontractor,
at all times reasonable times, any of its records for inspection, audit or
reproduction, by any authorized representative of the state or federal
governments.

The Subcontractor shall preserve and make available all records for a period of
five years from the date of final payment under this subcontract except as
provided in paragraphs a. and b. below:

a.       If this subcontract is completely or partially terminated, the records
relating to the work terminated shall be preserved and made available for a
period of five years from the date of any such termination.

b.       Records which relate to disputes, litigation or the settlement of
claims arising out of the performance of this subcontract, or costs and expenses
of this subcontract to which exception has been taken by the state, shall be
retained by the Subcontractor until such disputes, litigation, claims or
exceptions have been disposed of.

The Subcontractor shall provide all reports requested by AHCCCSA, and all
information from records relating to the performance of the Subcontractor which
AHCCCSA may reasonably require. The Subcontractor reporting requirements may
include, but are not limited to, timely and detailed utilization statistics,
information and reports.

The Subcontractor shall certify to the Program Contractor that it has not
engaged in conduct prohibited by ss. 1128B of the Social Security Act (42 USC
1320a-7b).

                                      A-1
<PAGE>

3.       LIMITATIONS ON BILLING AND COLLECTION PRACTICES

The Subcontractor shall not bill, nor attempt to collect payment directly or
through a collection agency from a person claiming to be AHCCCS eligible without
first receiving verification from AHCCCSA that the person was ineligible for
AHCCCS on the date of service, or that services provided were not AHCCCS covered
services. This provision shall not apply to patient contributions to the cost of
services delivered by nursing homes.

4.       ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES

No payment due the Subcontractor under this subcontract may be assigned without
the prior approval of AHCCCSA. No assignment or delegation of the duties of this
subcontract shall be valid unless prior written approval is received from
AHCCCSA.

5.       APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS

This subcontract is subject to prior approval by AHCCCSA. The Program Contractor
shall notify AHCCCSA in the event of any proposed amendment or termination
during the term hereof. Any such amendment or termination is subject to the
prior approval of AHCCCSA. Approval of the subcontract may be rescinded by the
Director of AHCCCSA for violation of federal or state laws or rules.

6.       WARRANTY OF SERVICES

The Subcontractor, by execution of this subcontract, warrants that it has the
ability, authority, skill, expertise and capacity to perform the services
specified in this contract.

7.       SUBJECTION OF SUBCONTRACT

The terms of this subcontract shall be subject to the applicable material terms
and conditions of the contract existing between the Program Contractor and
AHCCCSA for the provision of covered services.

8.       AWARDS OF OTHER SUBCONTRACTS

AHCCCSA and/or the Program Contractor may undertake or award other contracts for
additional or related work to the work performed by the Subcontractor and the
Subcontractor shall fully cooperate with such other contractors, subcontractors
or state employees. The Subcontractor shall not commit or permit any act which
will interfere with the performance of work by any other contractor,
subcontractor or state employee.

9.       INDEMNIFICATION BY SUBCONTRACTOR

The Subcontractor agrees to hold harmless the state, all state officers and
employees, AHCCCSA and other appropriate state agencies, and all officers and
employees of AHCCCSA and all AHCCCS eligible persons in the event of nonpayment
to the Subcontractor. The Subcontractor shall further indemnify and hold
harmless the state, AHCCCSA, other appropriate state agencies, AHCCCS
contractors, and their agents, officers and employees against all injuries,
deaths, losses, damages, claims, suits, liabilities, judgments, costs and
expenses which may, in any manner, accrue against the State, AHCCCSA or its

                                      A-2
<PAGE>

agents, officers or employees, or AHCCCS contractors, through the intentional
conduct, negligence or omission of the Subcontractor, its agent, officers or
employees.

10.      MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES

The Subcontractor shall be registered with AHCCCSA and shall obtain and maintain
all licenses, permits and authority necessary to do business and render service
under this subcontract and, where applicable, shall comply with all laws
regarding safety, unemployment insurance, disability insurance and worker's
compensation.

11.      COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS

The Subcontractor shall comply with all federal, State and local laws, rules,
regulations, standards and executive orders governing performance of duties
under this subcontract, without limitation to those designated within this
subcontract.

12.      SEVERABILITY

If any provision of these standard subcontract terms and conditions is held
invalid or unenforceable, the remaining provisions shall continue valid and
enforceable to the full extent permitted by law.

13.      VOIDABILITY OF SUBCONTRACT

This subcontract is voidable and subject to immediate termination by AHCCCSA
upon the Subcontractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or upon assignment or delegation of
the subcontract without AHCCCSA's prior written approval.

14.      CONFIDENTIALITY REQUIREMENT

Confidential information shall be safeguarded pursuant to 42 CFR Part 431,
Subpart F, ARS ss.36-107, 36-2903, 41-1959 and 46-135, and AHCCCS and/or ALTCS
Rules.

15.      GRIEVANCE PROCEDURES

Any grievances filed by the Subcontractor shall be adjudicated in accordance
with AHCCCS Rules.

16.      TERMINATION OF SUBCONTRACT

AHCCCSA may, by written notice to the Subcontractor, terminate this subcontract
if it is found, after notice and hearing by the State, that gratuities in the
form of entertainment, gifts, or otherwise were offered or given by the
Subcontractor, or any agent or representative of the Subcontractor, to any
officer or employee of the State with a view towards securing a contract or
securing favorable treatment with respect to the awarding, amending or the
making of any determinations with respect to the performance of the
Subcontractor; provided, that the existence of the facts upon which the state
makes such findings shall be in issue and may be reviewed in any competent
court. If the subcontract is terminated under this section, unless the Program
Contractor is a governmental agency, instrumentality or subdivision thereof,
AHCCCSA shall be entitled to a penalty, in addition to any other damages to
which it may be entitled by

                                      A-3

<PAGE>

law, and to exemplary damages in the amount of three times the cost incurred by
the Subcontractor in providing any such gratuities to any such officer or
employee.

17.      PRIOR AUTHORIZATION AND UTILIZATION REVIEW

The Program Contractor and Subcontractor shall develop, maintain and use a
system for Prior Authorization and Utilization Review which is consistent with
AHCCCS Rules and the Program Contractor's policies.

18.      NON-DISCRIMINATION REQUIREMENTS

If applicable, the Subcontractor shall comply with:

a.       The Equal Pay Act of 1963, as amended, which prohibits sex
         discrimination in the payment of wages to men and women performing
         substantially equal work under similar working conditions in the same
         establishment.

b.       Title VI of the Civil Rights Act of 1964, as amended, which prohibits
         the denial of benefits of, or participation in, contract services on
         the basis of race, color, or national origin.

c.       Title VII of the Civil Rights Act of 1964, as amended which prohibits
         private employees, state and local governments, and educational
         institutions from discriminating against their employees and job
         applicants on the basis of race, religion, color, sex, or national
         origin.

d.       Title I of the Americans with Disabilities Act of 1990, as amended,
         which prohibits private employers and state and local governments from
         discriminating against job applicants and employees on the basis of
         disability.

e.       The Civil Rights Act of 1991, which reverses in whole or in part,
         several recent Supreme Court decisions interpreting Title VII.

f.       The Age Discrimination in Employment Act (ARS Title 41-1461, et seq.);
         which prohibits discrimination based on age.

g.       State Executive Order 75-5 and Federal Order 11246 which mandates that
         all persons, regardless of race, color, religion, sex, age, national
         origin or political affiliation, shall have equal access to employment
         opportunities.

h.       Section 503 of the Rehabilitation Act of 1973, as amended, which
         prohibits discrimination in the employment or advancement of the
         employment of qualified persons because of physical or mental handicap.

i.       Section 504 of the Rehabilitation Act of 1973, as amended, which
         prohibits discrimination on the basis of handicap in delivering
         contract services.

                                      A-4
<PAGE>

19.      COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION

The Subcontractor shall comply with all applicable AHCCCS Rules and Audit Guide
relating to the audit of the Subcontractor's records and the inspection of the
Subcontractor's facilities. If the Subcontractor is an inpatient facility, the
Subcontractor shall file uniform reports and Title XVIII and Title XIX cost
reports with AHCCCSA.

20.      CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION

By signing this subcontract, the Subcontractor certifies that all
representations set forth herein are true to the best of its knowledge.

21.      CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING

By signing this subcontract, the Subcontractor certifies that it has not engaged
in any violation of the Medicare Anti-Kickback statute (42 USC ss.1320a-7b) or
the "Stark I" and "Stark II" laws governing related-entity referrals (PL 101-239
and PL 101-432) and compensation therefrom. If the Subcontractor provides
laboratory testing, it certifies that it has complied with 42 CFR ss.411.361 and
has sent to AHCCCSA simultaneous copies of the information required by that rule
to be sent to the Health Care Financing Administration.

22.      CONFLICT IN INTERPRETATION OF PROVISIONS

In the event of any conflict in interpretation between provisions of this
subcontract and the AHCCCS Minimum Subcontract Provisions, the latter shall take
precedence.

23.      ENCOUNTER DATA REQUIREMENT

If the Subcontractor does not bill the Program Contractor (e.g., Subcontractor
is capitated), the Subcontractor shall submit encounter data to the Program
Contractor in a form acceptable to AHCCCSA.

24.      CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988

The Clinical Laboratory Improvement Amendment (CLIA) of 1988 requires
laboratories and other facilities that test human specimens to obtain either a
CLIA Waiver or CLIA Certificate in order to obtain reimbursement from the
Medicare and Medicaid (AHCCCS) programs. In addition, they must meet all the
requirements of 42 CFR 493, Subpart A.

To comply with these requirements, AHCCCSA requires all clinical laboratories to
provide verification of CLIA Licensure or Certificate of Waiver during the
provider registration process. Failure to do so shall result in either a
termination of an active provider ID number or denial of initial registration.
These requirements apply to all clinical laboratories.

Pass-through billing or other similar activities with the intent of avoiding the
above requirements are prohibited. Program Contractor may not reimburse
providers who do not comply with the above requirements.

                                      A-5
<PAGE>

25.      INSURANCE

[This provision applies only if the Subcontractor provides services directly to
AHCCCS members]

The Subcontractor shall maintain for the duration of this subcontract a policy
or policies of professional liability insurance, comprehensive general liability
insurance and automobile liability insurance. The Subcontractor agrees that any
insurance protection required by this subcontract, or otherwise obtained by the
Subcontractor, shall not limit the responsibility of Subcontractor to indemnify,
keep and save harmless and defend the State and AHCCCSA, their agents, officers
and employees as provided herein. Furthermore, the Subcontractor shall be fully
responsible for all tax obligations, Worker's Compensation Insurance, and all
other applicable insurance coverage, for itself and its employees, and AHCCCSA
shall have no responsibility or liability for any such taxes or insurance
coverage.

26.      FRAUD AND ABUSE

If the Subcontractor discovers, or is made aware, that an incident of potential
fraud or abuse has occurred, the Subcontractor shall report the incident to the
Program Contractor, who shall proceed in accordance with the AHCCCS Health Plans
and Program Contractors Policy for Prevention, Detection and Reporting of Fraud
and Abuse. Incidents involving potential member eligibility fraud should be
reported to AHCCCSA, Office of Managed Care, Member Fraud Unit. All other
incidents of potential fraud should be reported to AHCCCSA, Office of the
Director, Office of Program Integrity. (See AHCCCS Rule R9-22-511.)

                                      A-6
<PAGE>
                     ATTACHMENT B: MINIMUM NETWORK STANDARDS

                          (By Geographic Service Area)

INSTRUCTIONS:

Note:    Offerors are permitted to bid only by Geographic Service Area. Please
see Section H, Paragraph 9, Award of Contracts, for further information on
bidding by Geographic Service Area.

Offerors shall have in place an adequate network of providers capable of meeting
contract requirements. The information that follows describes the minimum
network requirements by Geographic Service Area (GSA). The minimum bid is a
single entire GSA, as depicted on the following page.

In some GSA's there are required service sites located outside of the
geographical boundary of a GSA. The reason for this relates to practical access
to care. In certain instances, a member must travel a much greater distance to
receive services within their assigned GSA if the member were not allowed to
receive services in an adjoining GSA or state.

Split zip codes occur in some counties. Split zip codes are those which straddle
two different counties. Enrollment for members residing in these zip codes is
based upon the county and GSA to which the entire zip code has been assigned by
AHCCCS. The Offeror shall be responsible for providing services to members
residing in the entire zip code that is assigned to the GSA for which the
Offeror has agreed to provide services. The split zip codes GSA assignments are
as follows:

<TABLE>
<CAPTION>
    ZIP CODE          SPLIT BETWEEN           COUNTY            ASSIGNED
                      THESE COUNTIES         ASSIGNED TO           GSA
    --------------------------------------------------------------------
    <S>            <C>                       <C>                <C>
      85220        Pinal and Maricopa         Maricopa              12

      85242        Pinal and Maricopa         Maricopa              12

      85292        Gila and Pinal             Gila                   8

      85342        Yavapai and Maricopa       Maricopa              12

      85358        Yavapai and Maricopa       Maricopa              12

      85390        Yavapai and Maricopa       Maricopa              12

      85643        Graham and Cochise         Cochise               18

      85645        Pima and Santa Cruz        Santa Cruz            18

      85943        Apache and Navajo          Navajo                16

      86336        Coconino and Yavapai       Yavapai                6

      86351        Coconino and Yavapai       Coconino               6

      86434        Mohave and Yavapai         Yavapai                6
</TABLE>

                                                              Acute Care Renewal
                                                                 Revised 10/1/99
<PAGE>

If outpatient specialty services (OB, family planning, and pediatrics) are not
included in the primary care provider contract, at least one subcontract is
required for each of these specialties in the service sites specified. General
surgeons must be available within 50 miles of service sites.

In Tucson (GSA 10) and Metropolitan Phoenix (GSA 12), the Offeror must
demonstrate its ability to provide PCP, dental and pharmacy services so that
members don't need to travel more than 5 miles from their residence.
Metropolitan Phoenix is defined on the Minimum Network Standard page specific to
GSA #6.

Offerors bidding in GSA's other than GSA 10 and GSA 12 are encouraged to
contract with the hospitals in their provider network. However, AHCCCSA will not
award additional points in the evaluation process for hospital contracts in
rural areas. At a minimum, the Offeror shall have a physician with admitting and
treatment privileges with each hospital in its network. Offerors bidding in GSA
10 and/or GSA 12 must have at least one hospital contract in each service
district as depicted on the respective maps for GSA 10 and GSA 12. This
requirement is part of the Hospital Reimbursement Pilot Program, described more
fully in Section D, Paragraph 35, Hospital Reimbursement. For offerors'
convenience, a list of Phoenix and Tucson area hospitals are included on the
reverse of the Phoenix and Tucson maps which follow.

Provider categories required at various service delivery sites included in the
Service Area Minimum Network Standards are indicated as follows:

         H        Hospitals
         P        Primary Care Providers (physicians, certified nurse
                  practitioners and physician assistants)
         D        Dentists
         PH       Pharmacies

                                                              Acute Care Renewal
                                                                 Revised 10/1/99
<PAGE>

HOSPITALS IN PHOENIX METROPOLITAN AREA (BY SERVICE DISTRICT, BY ZIP CODE)

CENTRAL DISTRICT

85006    Good Samaritan Regional Medical Center
         Phoenix Children's Hospital
         St. Luke's Medical Center
85007    Phoenix Memorial Hospital
85008    Maricopa Medical Center
85013    St. Joseph's Hospital & Medical Center
85015    Community Hospital Medical Center
         Phoenix Baptist Hospital & Medical Center
85016    Phoenix Regional Medical Center
85020    John C. Lincoln Hospital & Health Center
85027    Phoenix General Hospital & Medical Center

NORTHWEST DISTRICT

85031    Maryvale Samaritan Medical Center
85031    Paradise Valley Hospital
85306    Thunderbird Samaritan Medical Center
85308    Arrowhead Community Hospital & Medical Center
85351    Walter O. Boswell Memorial Hospital
85375    Del E. Webb Memorial Hospital
85259    Mayo Clinic Hospital

SOUTHWEST DISTRICT

85201    Mesa General Hospital Medical Center
         Mesa Lutheran Hospital
85202    Desert Samaritan Medical Center
85206    Valley Lutheran Hospital
85224    Chandler Regional Hospital
85251    Scottsdale Memorial Hospital - Osborn
85261    Scottsdale Memorial Hospital - North
85281    Tempe St. Luke's Hospital

                                                              Acute Care Renewal
                                                                 Revised 10/1/99
<PAGE>

HOSPITALS IN TUCSON METROPOLITAN AREA (BY SERVICE DISTRICT, BY ZIP CODE)

NORTHWEST DISTRICT

85719    Tucson General Hospital
         University Medical Center
85741    Northwest Hospital
85745    Carondelet St. Mary's Hospital

SOUTHEAST DISTRICT

85711    Carondelet St.  Joseph's Hospital
85712    El Dorado Hospital
         Tucson Medical Center
85713    Kino Community Hospital

                                                              Acute Care Renewal
                                                                 Revised 10/1/99
<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 2

COUNTY:   YUMA

HOSPITALS
         Yuma

PRIMARY CARE PROVIDERS
         Yuma
         Somerton
         Wellton

DENTISTS
         Yuma

PHARMACIES
         Yuma
         Wellton

                          [Map of Yuma County, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST       PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 4

COUNTIES:  LA PAZ AND MOHAVE

HOSPITALS
         Bullhead City
         Kingman
         Lake Havasu City
         Parker
         St. George, Utah

PRIMARY CARE PROVIDERS
         Blythe
         Bullhead City
         Kanab, Utah
         Kingman
         Lake Havasu City
         Parker
         St. George, Utah/Mesquite

DENTISTS
         Blythe
         Bullhead City
         Kanab, Utah
         Kingman
         Lake Havasu City
         Parker
         St. George, Utah/Mesquite

PHARMACIES
         Blythe
         Bullhead City
         Kanab, Utah
         Kingman
         Lake Havasu City
         Parker
         St. George, Utah/Mesquite

                  [Map of La Paz and Mohave Counties, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 6

COUNTIES:  COCONINO AND YAVAPAI

HOSPITALS
         Cottonwood
         Flagstaff
         Kanab, Utah
         Kingman
         Page
         Payson
         Phoenix/Wickenburg
         Prescott
         Winslow

PRIMARY CARE PROVIDERS
         Camp Verde                 Sedona
         Cottonwood                 Williams
         Flagstaff                  Winslow
         Kanab, Utah
         Kingman
         Page
         Payson
         Phoenix/Wickenburg
         Prescott
         Prescott Valley

DENTISTS
         Camp Verde                 Sedona
         Cottonwood                 Williams
         Flagstaff                  Winslow
         Kanab, Utah
         Kingman
         Page
         Payson
         Phoenix/Wickenburg
         Prescott
         Prescott Valley

PHARMACIES
         Camp Verde                 Sedona
         Cottonwood                 Williams
         Flagstaff                  Winslow
         Kanab, Utah
         Kingman
         Page
         Payson
         Phoenix/Wickenburg
         Prescott
         Prescott Valley

                 [May of Coconino and Yavapai Counties, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                       GEOGRAPHIC SERVICE AREA 8

COUNTIES:  GILA AND PINAL

HOSPITALS
         Casa Grande
         Claypool
         Mesa
         Payson

PRIMARY CARE PROVIDERS
         Apache Junction
         Casa Grande
         Coolidge/Florence
         Eloy
         Globe/Miami/Claypool
         Hayden/Winkelman
         Kearney
         Mammoth/San Manuel/Oracle
         Mesa
         Payson

DENTISTS
         Apache Junction
         Casa Grande
         Coolidge/Florence
         Eloy
         Globe/Miami/Claypool
         Kearney
         Mammoth/San Manuel/Oracle
         Mesa
         Payson

PHARMACIES
         Apache Junction
         Casa Grande
         Coolidge/Florence
         Globe/Miami/Claypool
         Kearney
         Mammoth/San Manuel/Oracle
         Mesa
         Payson

                    [Map of Gila and Pinal Counties, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                      GEOGRAPHIC SERVICE AREA 10

COUNTY:  PIMA

HOSPITALS
         Tucson
            Northwest Service Sector
              Contract Requirement
         Southwest Service Sector
         Contract Requirement
         Nogales
            Physician[s] with admit and treatment
                   privileges required

PRIMARY CARE
PROVIDERS
         Ajo
         Catalina
         Green/Valley/Continental
         Marana
         Nogales
         Oro Valley
         Tucson++

DENTISTS
         Ajo
         Catalina
         Green Valley/Continental
         Nogales
         Ora Valley
         Tucson++

PHARMACIES
         Ajo
         Catalina
         Green Valley/Continental
         Nogales
         Ora Valley
         Tucson++

                          [Map of Pima County, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                      GEOGRAPHIC SERVICE AREA 12

COUNTY:  MARICOPA

HOSPITALS
         Metropolitan Phoenix++
           Northwest Service Sector
              Contract Requied
         Central Service Sector
              Contract Required
         Southeast Service Sector
              Contract Required
         Wickenburg
              Physician[s] with admit and treatment
              privileges required

PRIMARY CARE
PROVIDERS
         Avondale/Goodyear/Litchfield Park/Tolleson
         Buckeye
         Gila Bend
         Metropolitan Phoenix++
         Queen Creek
         Wickenburg

DENTISTS
         Avondale/Buckeye/Goodyear/Litchfield Park/Tolleson
         Metropolitan Phoenix++
         Wickenburg

PHARMACIES
         Avondale/Goodyear/Litchfield Park/Tolleson
         Buckeye
         Metropolitan Phoenix++
         Wickenburg
                        [Map of Maricopa County, Arizona]

         ++   For purposes of this RFP, Metropolitan Phoenix encompasses the
              following: Phoenix, Paradise Valley, Cave Creek/Carefree, Fountain
              Hills, Scottsdale, Glendale, Sun City/Sun City West, Tempe, Mesa,
              Gilbert, Chandler, Apache Junction, Peoria, El Mirage, Guadalupe,
              Surprise and Youngtown. Within this area, distance standards must
              be met as specified in Attachment B.

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                      GEOGRAPHIC SERVICE AREA 14

COUNTIES:  GRAHAM AND GREENLEE

HOSPITALS
         Safford

PRIMARY CARE
PROVIDERS
         Morenci/Clifton
         Safford

DENTISTS
         Morenci/Clifton
         Safford

PHARMACIES
         Morenci/Clifton
         Safford/Thatcher

                 [Map of Graham and Greenlee Counties, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                      GEOGRAPHIC SERVICE AREA 16

COUNTIES:  APACHE AND NAVAJO

HOSPITALS
         Gallup, NM
         Showlow
         Spingerville
         Winslow

PRIMARY CARE PROVIDERS
         Gallup, NM
         Holbrook
         Showlow/Pinetop/Lakeside
         Snowflake/Taylor
         Springerville/Eager
         St. Johns
         Winslow

DENTISTS
         Gallup, NM
         Holbrook
         Showlow/Pinetop/Lakeside
         Snowflake/Taylor
         Springerville/Eager
         St. Johns
         Winslow

PHARMACIES
         Gallup, NM
         Holbrook
         Showlow/Pinetop/Lakeside
         Snowflake/Taylor
         Springerville/Eager
         St. Johns
         Winslow

                  [Map of Apache and Navajo Counties, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

                                                                    ATTACHMENT B
                                                       MINIMUM NETWORK STANDARDS
                                                      GEOGRAPHIC SERVICE AREA 18

COUNTIES: COCHISE AND SANTA CRUZ

HOSPITALS
         Benson
         Bisbee
         Douglas
         Nogales
         Sierra Vista
         Tucson
         Willcox

PRIMARY CARE PROVIDERS
         Benson
         Bisbee
         Douglas
         Nogales
         Sierra Vista
         Tucson
         Willcox

DENTISTS
         Benson/Willcox
         Bisbee
         Douglas
         Nogales
         Sierra Vista
         Tucson

PHARMACIES
         Benson
         Bisbee
         Douglas
         Nogales
         Sierra Vista
         Tucson
         Willcox

                [Map of Cochise and Santa Cruz Counties, Arizona]

H = HOSPITAL     P = PRIMARY CARE PHYSICIAN      D = DENTIST      PH = PHARMACY

<PAGE>

ATTACHMENT F:  PERIODIC REPORT REQUIREMENTS

The following table is a summary of the periodic reporting requirements for
AHCCCS acute care contractors and is subject to change at any time during the
term of the contract. The table is presented for convenience only and should not
be construed to limit the Contractor's responsibilities in any manner.
"Reporting Guide" refers to the Reporting Guide for Acute Health Care
Contractors with the Arizona Health Care Cost Containment System.

<TABLE>
<CAPTION>
----------------------------------   -------------------------------   ---------------------------   ------------------
                                                                                                           AHCCCS
             REPORT                             WHEN DUE                    SOURCE/REFERENCE               CONTACT
----------------------------------   -------------------------------   ---------------------------   ------------------
<S>                                  <C>                               <C>                           <C>
Monthly Financial Report             45 days after the end of the      Reporting Guide               Financial Manager
                                     month, as applicable

Quarterly Financial Report           60 days after the end of each     Reporting Guide               Financial Manager
                                     quarter

Draft Annual Audit Report            90 days after the end of each     Reporting Guide               Financial Manager
                                     fiscal year

Draft Management Letter              90 days after the end of each     Reporting Guide               Financial Manager
                                     fiscal year

Final Annual Audit Report            120 days after the end of         Reporting Guide               Financial Manager
                                     each fiscal year

Final Management Letter              120 days after the end of         Reporting Guide               Financial Manager
                                     each fiscal year

Accountant's Report on Compliance    120 days after the end of         Reporting Guide               Financial Manager
                                     each fiscal year

Reconciliation - Annual Audit        120 days after the end of         Reporting Guide               Financial Manager
and Plan Year-to-Date Financial
Report Information

Financial Disclosure Report          120 days after the end of         Reporting Guide               Financial Manager
                                     each fiscal year

Annual Analysis of Profitability     120 days after the end of         Reporting Guide               Financial Manager
by Major Rate Code (by County)       each fiscal year

Provider Affiliation Tape            10 business days after the        PMMIS Provider-to-            Health Plan
                                     beginning of each quarter         Health Plan magnetic tape     Operations Manager
                                                                       submission and
                                                                       processing

18-20 NON-SMI Status Report          15 days after the end of          Instructions on form          Behavioral Health
                                     each month                                                      Manager

Encounter Data - Magnetic            Monthly, according to             Encounter Manual              Encounter
Tape Submission                      established schedule                                            Administrator

Corrected Pended Encounter           Monthly, according to             Encounter Manual              Encounter
Tape                                 established schedule                                            Administrator

New Day Tape                         Monthly, according to             Encounter Manual              Encounter
                                     established schedule                                            Administrator

Medical Records for Data             6 weeks after the request         RFP, Section C,               Data Validation
Validation                           received from AHCCSA              Paragraph 1                   Manager

Quarterly Grievance Report           45 days after the end of          RFP, Section D,               Administrative
                                     each quarter                      Paragraph 26                  Assistant

Comprehensive EPSDT Plan             Annually on December 1            RFP, Section D,               Acute Care Program
including Dental                                                       Paragraph 16                  Manager
</TABLE>

                                                              Acute Care Renewal
                                                                 Revised 10/1/99

<PAGE>
<TABLE>
<CAPTION>
----------------------------------   -------------------------------   ---------------------------   ------------------
                                                                                                           AHCCCS
             REPORT                             WHEN DUE                    SOURCE/REFERENCE               CONTACT
----------------------------------   -------------------------------   ---------------------------   ------------------
<S>                                  <C>                               <C>                           <C>
Update                                                                                               Manager

Quarterly Inpatient Hospital         15 day after the end of each      State Medicaid Manual         Acute Care Program
Showing                              quarter                           and the AMPM, Chapter 900     Manager

Quality Management/Utilization       Annually on November 15th         AMPM, Chapter 900             Acute Care Program
Management Plan Evaluation and                                                                       Manager
Revision

AIDS/HIV Reports                     90 days after the end of each     AMPM, Chapter 900             Acute Care Program
                                     contract year                                                   Manager

Acute Pharmacy Report                90 days after the end of each     AMPM, Chapter 900             Acute Care Program
                                     quarter, annually within 90                                     Manager
                                     days following the end of
                                     each contract year

Monthly Pregnancy                    End of the month following        AMPM, Chapter 400             Acute Care Program
Termination Report                   the pregnancy termination                                       Manager

Maternity Care Plan                  Annually on December 1st          AMPM, Chapter 400             Acute Care Program
                                                                                                     Manager

Clinical Study Proposal              Annually on November 15th         AMPM, Chapter 900             Acute Care Program
                                                                                                     Manager

Clinical Study Results               Annually within 90 days           AMPM, Chapter 900             Acute Care  Program
                                     following the end of each                                       Manager
                                     contract year

Provider Fraud/Abuse Report          Immediately following             AHCCCS Internal Audit/        Office of Program
                                     discovery                         Program Investigation         Integrity Manager
                                                                       Policy for Prevention,
                                                                       Detection and Reporting
                                                                       of Fraud and Abuse

Eligible Person Fraud/Abuse          Immediately following             AHCCCS Internal Audit/        Office of Program
Report                               discovery                         Program Investigation         Integrity Manager
                                                                       Policy for Prevention,
                                                                       Detection and Reporting
                                                                       of Fraud and Abuse

Non-Transplant Catastrophic -        Annually, within 30 days of       RFP, Section D,               OMD/FFS Unit
Reinsurance covered diseases         the beginning of the contract     Paragraph 39                  Reinsurance
                                     year, enrollment to the plan,                                   Manager
                                     and when newly diagnosed.
</TABLE>

                                                              Acute Care Renewal
                                                                 Revised 10/1/99
<PAGE>

ATTACHMENT H:  GRIEVANCE PROCESS AND STANDARDS

The Contractor shall have in place a written grievance policy for members and
providers which defines their rights regarding any adverse action by the
Contractor. The Contractor shall also ensure compliance with the Members' Rights
and Responsibilities Policy. The written grievance policy shall be in accordance
with applicable federal and State laws and AHCCCS Rules and policy including,
but not limited to, AHCCCS Rules R9-22-512; R9-22-518(A); R9-22-802; and
R9-22-804. The grievance policy shall include the following provisions:

a.       The grievance procedure will be provided all subcontractors at time of
         contract, and to non-contracting providers within 10 days of the date
         of receipt of the claim. For non-contracting providers, the grievance
         procedure may be mailed with the remittance advice provided the
         remittance is sent within 45 days of receipt of claim.

b.       Specific individual(s) are appointed with authority to require
         corrective action to administer the grievance policy.

c.       A log is maintained for all grievances containing sufficient
         information to identify the grievant, date of receipt, nature of the
         grievance and the date grievance is resolved. Separate logs must be
         maintained for provider and member grievances. The logs must contain
         sufficient information to identify the grievant, date of receipt,
         nature of the grievance and the date grievance is resolved.

d.       Within five working days of receipt, the grievant is informed by letter
         that the grievance has been received. The letter must also be in a
         second language when 200 members or 5% of the Contractor's population,
         whichever is greater speak the second language.

e.       Each grievance is thoroughly investigated using the applicable
         statutory, regulatory and contractual provisions as well as the
         Contractor's policies and procedures, ensuring that facts are gathered
         from all parties.

f.       All documentation received and mailed by Contractor during the
         grievance process is dated upon date of receipt.

g.       All grievances are filed in a secure, designated area and are
         retained for five years following the final decision, judicial appeal
         or close of a grievance.

h.       A copy of the Contractor's final decision will be either hand-delivered
         or delivered by certified mail to all parties whose interest has been
         adversely affected by the decision. The final decision shall be mailed
         to all other individuals by regular mail. The date of the final
         decision shall be the date of personal delivery or, if mailed, the
         postmark date of the mailing. The final decision must include, and
         describe in detail, the following:

                  1.       the nature of the grievance

                  2.       the issues involved

                  3.       the reasons supporting the Contractor's decision
                           including references to applicable statute, rule and
                           procedure

                  4.       the grievant's right to appeal the Contractor's
                           decision to AHCCCSA by filing the appeal to the
                           Contractor no later than 15 days after the date of
                           the Contractor's final decision. This must also be
                           written in a second language, if applicable.

i.       If the Contractor's final decision is appealed, all supporting
         documentation must be received by the AHCCCSA, Office of Legal
         Assistance no later than five working days from the date the Contractor
         receives the appeal or from the date of the oral or written request
         from AHCCCSA, Office of Legal Assistance. The appeal file must contain
         a cover letter that includes:

                  1.       grievant's name

                  2.       grievant's AHCCCS ID number

<PAGE>

                  3.       grievant's address

                  4.       phone number (if applicable)

                  5.       date of receipt of grievance and appeal

                  6.       summary of the Contractor's actions undertaken to
                           resolve the grievance and basis thereof

j.       The following material shall be included in the appeal file:

                  1.       written request of the grievant asking for the appeal

                  2.       copies of the entire file which include the
                           investigations and/or medical records; and the
                           Contractor's grievance decision

                  3.       other information used by the Contractor to resolve
                           the grievance and that would be necessary to AHCCCSA
                           to resolve the grievance.

k.       The Contractor may attempt to use alternative resolution procedures to
         resolve disputes presented to the Contractor verbally or in writing. If
         the Contractor elects to use an alternative resolution process, it must
         be administered and completed within 10 days from receipt of the
         dispute. If the matter is not resolved to the grievant's satisfaction
         within the 10 day period, the dispute must then be adjudicated using
         the grievance standards contained above. However, the Contractor must
         render the written grievance decision within a maximum of 30 days from
         the date of the initial filing of the grievance or dispute unless a
         longer period was agreed to by the parties involved.

l.       For all disputes where an alternative resolution is proposed, the
         Contractor must maintain a separate log, complying with paragraphs c.
         and g. above.

Hospital Reimbursement Pilot Program -- Maricopa and Pima counties only (See
Section D, Paragraph 35): Arbitration may be used in lieu of the grievance and
appeal procedure. If arbitration is used, the hospital contract must identify:

a.       The parties agreement on arbitrating claims arising from the contract;

b.       Whether arbitration is non-binding or binding;

c.       Timeliness of arbitration;

d.       What contract provisions may be appealed;

e.       What rules will govern arbitrations;

f.       The number of arbitrators that will be used;

g.       How arbitrators will be selected; and

h.       How arbitrators will be compensated.
<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                              CONTRACT MODIFICATION

                                                                     Page 1 of 1

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
1. Amendment No.:      2. Contract No.:      3. Effective Date of Modification:      4. Program:
        11                YH8-0001-05           UPON LAST SIGNATURE BELOW               OMC
------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>                                     <C>
5. Contractor/Provider Name and Address:
     HEALTH CHOICE AZ
     1600 W. BROADWAY SUITE 260
     TEMPE, AZ  85282-1502
------------------------------------------------------------------------------------------------
6. Purpose:  TO REVISE THE RECONCILIATION PROCESS DESCRIBED IN SECTION D, PARAGRAPH 37,
   COMPENSATION, RECONCILIATION OF PPC COSTS TO REIMBURSEMENT.
------------------------------------------------------------------------------------------------
</TABLE>

7.       The above referenced contract is hereby modified as follows:

In Section D, Program Requirements, on page 40 of the October 1, 1999 revision
of the contract the paragraph entitled "Reconciliation of PPC Costs to
Reimbursement" is changed as follows:

Reconciliation of PPC Costs to Reimbursement: For CYE '98 and CYE '99, AHCCCSA
will offer a reconciliation process for contractors whose total PPC medical cost
experience (excluding administrative and non-operating expenses) is more than
10% higher than the reimbursement associated with PPC in two areas: the "retro"
portion of the capitation rate for all rate categories, and the prospective
three-day notification period for MNMI recipients only. Expenses will be net of
reinsurance for both the retro and prospective periods.

AHCCCSA will reimburse 100% of a Contractor's excess reasonable costs in excess
of a 10% limit as determined by reported encounters. AHCCCS will recoup profit
amounts in excess of a 10% limit.

___ CYE '00, a full reconciliation to 0% profit or loss will be done by AHCCCSA
for the same eligibility time periods and risk group noted above. AHCCCSA will
reimburse the health plans 100% of any excess reasonable costs as determined by
reported encounters, and all profits will be recouped. Refer to the Office of
Managed Care's PPC Reconciliation Policy for further details of the
reconciliation process.

  NOTE: PLEASE SIGN, DATE AND RETURN             DOUG PEEPLES
        BOTH ORIGINALS TO:                       AHCCCS CONTRACTS AND PURCHASING
                                                 701 E. JEFFERSON STREET
                                                 PHOENIX, AZ 85034
<TABLE>

<S>   <C>
------------------------------------------------------------------------------------------------
8.    Except as provided for herein, all terms and conditions of the original contract not
      heretofore changed and/or amended remain unchanged and in full effect.

      In witness whereof the parties hereto sign their names in agreement
------------------------------------------------------------------------------------------------
9.    Contractor: HEALTH CHOICE AZ           10. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
------------------------------------------------------------------------------------------------
      Signature of Authorized Individual:        Signature:

      /s/ Carolyn Rose                           /s/ Michael Veit
------------------------------------------------------------------------------------------------
     Typed Name:  CAROLYN ROSE                    Typed Name:     MICHAEL VEIT
------------------------------------------------------------------------------------------------
     Title:       INTERIM CEO                     Title:  CONTRACTS AND PURCHASING ADMINISTRATOR
------------------------------------------------------------------------------------------------
     Date:        3/22/00                         Date:
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                               CONTRACT AMENDMENT

--------------------------------------------------------------------------------
AMENDMENT NUMBER:   CONTRACT NUMBER:   EFFECTIVE DATE OF AMENDMENT:     PROGRAM:

12                   YH8-0001-05              OCTOBER 1, 2000              OMC
--------------------------------------------------------------------------------
CONTRACTOR'S NAME AND ADDRESS:

                              HEALTH CHOICE ARIZONA
                          1600 WEST BROADWAY SUITE 260
                              TEMPE, AZ 85282-1502

--------------------------------------------------------------------------------
PURPOSE OF AMENDMENT: TO EXTEND THE TERM OF THE CONTRACT FOR ONE YEAR AND TO
INCORPORATE CHANGES TO CONTRACT REQUIREMENTS.
--------------------------------------------------------------------------------
THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

A.       EXTENSION OF CONTRACT: In accordance with Section D, Paragraph 50, Term
         of Contract and Option to Renew, this contract is extended for the
         period 10/01/00-- 09/30/01. The Contractor's response affirming or
         declining the extension must be received by AHCCCSA no later the 3 PM,
         SEPTEMBER 15, 2000.

B.       CONTRACT RESTATEMENT: this amendment consists of a complete restatement
         of Sections B, C, D, E and Attachments A, F, H and I with new or
         changed requirements.

C.       By signing this contract amendment, the Contractor is (1) agreeing to
         perform for an additional year according to the terms of the contract
         as amended, and (2) agreeing to the new and changed requirements
         contained herein.

<TABLE>
<S>                                                            <C>
NOTE: Please sign and date both and then return one to:        MICHAEL VEIT, MD 5700
                                                               AHCCCS CONTRACTS AND PURCHASING
                                                               701 EAST JEFFERSON STREET
                                                               PHOENIX, ARIZONA 85034
</TABLE>

--------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT
NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN UNCHANGED AND IN FULL EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
--------------------------------------------------------------------------------
SIGNATURE OF AUTHORIZED REPRESENTATIVE:         SIGNATURE OF AHCCCSA CONTRACTING
                                                OFFICER:

/s/ Carolyn Rose                                /s/ Michael Veit
--------------------------------------------------------------------------------
TYPED NAME:                                               TYPED NAME:
                 CAROLYN ROSE                                MICHAEL VEIT
--------------------------------------------------------------------------------
TITLE:                                                      TITLE:
              INTERIM CHIEF EXECUTIVE     CONTRACTS AND PURCHASING ADMINISTRATOR
OFFICER
--------------------------------------------------------------------------------
DATE:                                                       DATE:

9/6/00                                                      October 1, 2000
--------------------------------------------------------------------------------

                                       1
<PAGE>

                               [TABLE OF CONTENTS]

<TABLE>
<S>      <C>                                                                                                     <C>
TABLE OF CONTENTS..................................................................................................

SECTION B - CAPITATION RATES.......................................................................................

SECTION C: DEFINITIONS.............................................................................................

SECTION D: PROGRAM REQUIREMENTS....................................................................................

   1.    SCOPE OF SERVICES.......................................................................................12
   2.    BEHAVIORAL HEALTH SERVICES..............................................................................20
   3.    AHCCCS MEDICAL POLICY MANUAL............................................................................21
   4.    VACCINE FOR CHILDREN PROGRAM............................................................................22
   5.    DENIALS OR REDUCTIONS OF SERVICES.......................................................................22
   6.    ENROLLMENT AND DISENROLLMENT............................................................................22
   7.    MAINSTREAMING OF AHCCCS MEMBERS.........................................................................25
   8.    MEMBER INFORMATION......................................................................................26
   9.    MEMBER SURVEYS..........................................................................................28
   10.   MARKETING PLANS.........................................................................................29
   11.   ANNUAL ENROLLMENT CHOICE................................................................................29
   12.   TRANSITION OF MEMBERS...................................................................................29
   13.   STAFF REQUIREMENTS AND SUPPORT SERVICES.................................................................30
   14.   WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS.......................................................31
   15.   ADVANCE DIRECTIVES......................................................................................32
   16.   PERFORMANCE MEASUREMENT.................................................................................32
   17.   QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)...................................................35
   18.   PHYSICIAN INCENTIVES....................................................................................36
   19.   APPOINTMENT STANDARDS...................................................................................36
   20.   REFERRAL PROCEDURES AND STANDARDS.......................................................................37
   21.   PROVIDER MANUAL.........................................................................................38
   22.   PRIMARY CARE PROVIDER STANDARDS.........................................................................39
   23.   OTHER PROVIDER STANDARDS................................................................................40
   24.   NETWORK DEVELOPMENT.....................................................................................41
   25.   NETWORK MANAGEMENT......................................................................................42
   26.   FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)...............................................................43
   27.   PROVIDER REGISTRATION...................................................................................44
   28.   PROVIDER AFFILIATION TAPE...............................................................................44
   29.   PERIODIC REPORT REQUIREMENTS............................................................................44
   30.   DISSEMINATION OF INFORMATION............................................................................45
   31.   REQUESTS FOR INFORMATION................................................................................45
   32.   OPERATIONAL AND FINANCIAL READINESS REVIEWS.............................................................45
   33.   OPERATIONAL AND FINANCIAL REVIEWS.......................................................................45
   34.   CLAIMS PAYMENT SYSTEM...................................................................................46
   35.   HOSPITAL SUBCONTRACTING AND REIMBURSEMENT...............................................................47
   36.   NURSING FACILITY REIMBURSEMENT..........................................................................47
   37.   COMPENSATION............................................................................................48
   38.   INCENTIVE FUND..........................................................................................49
   39.   REINSURANCE.............................................................................................50
</TABLE>

                                       2
<PAGE>

<TABLE>
<S>      <C>                                                                                                     <C>
   40.   COORDINATION OF BENEFITS/THIRD PARTY LIABILITY..........................................................52
   41.   MEDICARE SERVICES AND COST SHARING......................................................................54
   42.   COPAYMENTS..............................................................................................55
   43.   RECORDS RETENTION.......................................................................................55
   44.   MEDICAL RECORDS.........................................................................................55
   45.   ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS..........................................................56
   46.   ACCUMULATED FUND DEFICIT................................................................................56
   47.   DATA EXCHANGE REQUIREMENT...............................................................................56
   48.   ENCOUNTER DATA REPORTING................................................................................58
   49.   MONTHLY ROSTER RECONCILIATION...........................................................................58
   50.   TERM OF CONTRACT AND OPTION TO RENEW....................................................................59
   51.   SUBCONTRACTS............................................................................................60
   52.   SPECIALTY CONTRACTS.....................................................................................61
   53.   MANAGEMENT SERVICES SUBCONTRACTORS......................................................................62
   54.   MANAGEMENT SERVICES SUBCONTRACTOR AUDITS................................................................62
   55.   MINIMUM CAPITALIZATION REQUIREMENTS.....................................................................62
   56.   PERFORMANCE BOND OR BOND SUBSTITUTE.....................................................................63
   57.   AMOUNT OF PERFORMANCE BOND..............................................................................64
   58.   FINANCIAL VIABILITY CRITERIA/PERFORMANCE MEASURES.......................................................64
   59.   MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP..........................................................65
   60.   SANCTIONS...............................................................................................65
   61.   AUTO-ASSIGNMENT ALGORITHM...............................................................................66
   62.   GRIEVANCE PROCESS AND STANDARDS.........................................................................66
   63.   QUARTERLY GRIEVANCE REPORT..............................................................................66
   64.   KIDSCARE................................................................................................66
   65.   PENDING LEGISLATIVE ISSUES..............................................................................67
   66.   SEPARATE INCORPORATION..................................................................................67
   67.   CULTURAL COMPETENCY.....................................................................................67
   68.   MEDICAID IN THE PUBLIC SCHOOLS..........................................................................68

SECTION E: CONTRACT CLAUSES

   1.    APPLICABLE LAW..........................................................................................72
   2.    AUTHORITY...............................................................................................72
   3.    ORDER OF PRECEDENCE.....................................................................................72
   4.    CONTRACT INTERPRETATION AND AMENDMENT...................................................................72
   5.    SEVERABILITY............................................................................................72
   6.    RELATIONSHIP OF PARTIES.................................................................................72
   7.    ASSIGNMENT AND DELEGATION...............................................................................73
   8.    GENERAL INDEMNIFICATION.................................................................................73
   9.    INDEMNIFICATION - PATENT AND COPYRIGHT..................................................................73
   10.   COMPLIANCE WITH APPLICABLE LAWS.........................................................................73
   11.   ADVERTISING AND PROMOTION OF CONTRACT...................................................................73
   12.   PROPERTY OF THE STATE...................................................................................73
   13.   THIRD PARTY ANTITRUST VIOLATIONS........................................................................74
   14.   RIGHT TO ASSURANCE......................................................................................74
   15.   TERMINATION FOR CONFLICT OF INTEREST....................................................................74
   16.   GRATUITIES..............................................................................................74
   17.   SUSPENSION OR DEBARMENT.................................................................................74
</TABLE>

                                       3
<PAGE>

<TABLE>
<S>      <C>                                                                                                     <C>
   18.   TERMINATION FOR CONVENIENCE.............................................................................75
   19.   TERMINATION FOR DEFAULT.................................................................................75
   20.   TERMINATION - AVAILABILITY OF FUNDS.....................................................................75
   21.   RIGHT OF OFFSET.........................................................................................76
   22.   NON-EXCLUSIVE REMEDIES..................................................................................76
   23.   NON-DISCRIMINATION......................................................................................76
   24.   EFFECTIVE DATE..........................................................................................76
   25.   INSURANCE...............................................................................................76
   26.   DISPUTES................................................................................................77
   27.   RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS.............................................................77
   28.   INCORPORATION BY REFERENCE..............................................................................77
   29.   COVENANT AGAINST CONTINGENT FEES........................................................................77
   30.   CHANGES.................................................................................................77
   31.   TYPE OF CONTRACT........................................................................................78
   32.   AMERICANS WITH DISABILITIES ACT.........................................................................78
   33.   WARRANTY OF SERVICES....................................................................................78
   34.   NO GUARANTEED QUANTITIES................................................................................78
   35.   CONFLICT OF INTEREST....................................................................................78
   36.   DISCLOSURE OF CONFIDENTIAL INFORMATION..................................................................78
   37.   COOPERATION WITH OTHER CONTRACTORS......................................................................79
   38.   ASSIGNMENT OF CONTRACT AND BANKRUPTCY...................................................................79
   39.   OWNERSHIP OF INFORMATION AND DATA.......................................................................79
   40.   AHCCCSA RIGHT TO OPERATE CONTRACTOR.....................................................................80
   41.   AUDITS AND INSPECTIONS..................................................................................81
   42.   FRAUD AND ABUSE.........................................................................................81
   43.   LOBBYING................................................................................................81
   44.   CHOICE OF FORUM.........................................................................................81

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS....................................................................A-1

   1.    EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES......................................A-1
   2.    RECORDS AND REPORTS....................................................................................A-1
   3.    LIMITATIONS ON BILLING AND COLLECTION PRACTICES........................................................A-2
   4.    ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES...............................................A-2
   5.    APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS...................................................A-2
   6.    WARRANTY OF SERVICES...................................................................................A-2
   7.    SUBJECTION OF SUBCONTRACT..............................................................................A-2
   8.    AWARDS OF OTHER SUBCONTRACTORS.........................................................................A-2
   9.    INDEMNIFICATION BY CONTRACTOR..........................................................................A-2
   10.   MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES........................................A-3
   11.   COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS............................................................A-3
   12.   SEVERABILITY...........................................................................................A-3
   13.   VOIDABILITY OF SUBCONTRACT.............................................................................A-3
   14.   CONFIDENTIALITY REQUIREMENT............................................................................A-3
   15.   GRIEVANCE AND REQUEST FOR HEARING PROCEDURES...........................................................A-3
   16.   TERMINATION OF SUBCONTRACT.............................................................................A-3
   17.   PRIOR AUTHORIZATION AND UTILIZATION REVIEW.............................................................A-4
</TABLE>

                                       4
<PAGE>

<TABLE>
<S>      <C>                                                                                                    <C>
   18.   NON-DISCRIMINATION REQUIREMENTS........................................................................A-4
   19.   COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION..........................................A-5
   20.   CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION........................................................A-5
   21.   CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING.....................................A-5
   22.   CONFLICT IN INTERPRETATION OF PROVISIONS...............................................................A-5
   23.   ENCOUNTER DATA REQUIREMENT.............................................................................A-5
   24.   CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988...............................................A-5
   25.   INSURANCE..............................................................................................A-6
   26.   FRAUD AND ABUSE........................................................................................A-6

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS......................................................................F-1

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS...........................................H-1

ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS.................................................................I-1
</TABLE>

                                       5
<PAGE>

                          SECTION B - CAPITATION RATES

The Contractor shall provide services as described in this contract. In
consideration for these services, the Contractor will be paid the attached rates
for the term October 1, 2000 through September 30, 2001
(CYE 01).

                                CAPITATION RATES
                             (per member per month)

                     Capitation rates specific to contractor

HEALTH CHOICE ARIZONA

The new capitation rates effective 10/01/00 are as follows:

GSA #10 (Pima)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
         RISK POOL               PROSPECTIVE                  PPC*                       KIDSCARE
                                                      MNMI IS A DAILY RATE
---------------------------------------------------------------------------------------------------
<S>                              <C>                  <C>                                <C>
TANF 45+M/F                         223.08                   180.25                        N/A
---------------------------------------------------------------------------------------------------
TANF 14-44 F                        112.35                   136.50                       128.04
---------------------------------------------------------------------------------------------------
TANF 14-44M                         90.15                     76.91                       80.71
---------------------------------------------------------------------------------------------------
MN/MI                               500.15                   784.78                        N/A
---------------------------------------------------------------------------------------------------
SB1O TANF/SOBRA                    4968.79                     N/A                         N/A
---------------------------------------------------------------------------------------------------
SB2O SSIW                          4968.79                     N/A                         N/A
---------------------------------------------------------------------------------------------------
SB21 SSIN                          4968.79                     N/A                         N/A
---------------------------------------------------------------------------------------------------
SB3O MN/MI                         4968.79                     N/A                         N/A
---------------------------------------------------------------------------------------------------
SB5O SOBRA F                       4968.79                     N/A                         N/A
---------------------------------------------------------------------------------------------------
SB6O KIDSCARE                        N/A                       N/A                       4968.79
---------------------------------------------------------------------------------------------------
SSI w/o MEDICARE                     346.72                    61.79                        N/A
---------------------------------------------------------------------------------------------------
SSI w/ MEDICARE                      155.68                    14.50                        N/A
---------------------------------------------------------------------------------------------------
TANF<1,M/F                          314.71                   1164.82                      270.86
---------------------------------------------------------------------------------------------------
TANF 1-13 M/F                       68.17                     32.70                       79.24
---------------------------------------------------------------------------------------------------
SFP                                 18.84                      N/A                         N/A
---------------------------------------------------------------------------------------------------
</TABLE>

GSA #12 (Maricopa)

<TABLE>
<S>                              <C>                  <C>                                <C>
---------------------------------------------------------------------------------------------------
        RISK POOL                PROSPECTIVE                 PPC*                       KIDSCARE
                                                     MNMI IS A DAILY RATE
---------------------------------------------------------------------------------------------------
TANF 45+M/F                        236.90                   180.25                        N/A
---------------------------------------------------------------------------------------------------
TANF 14-44 F                       103.02                   136.50                       118.58
---------------------------------------------------------------------------------------------------
TANF 14-44 M                        93.62                    76.91                        81.01
---------------------------------------------------------------------------------------------------
MN/MI                              612.63                   554.15                        N/A
---------------------------------------------------------------------------------------------------
SB1O TANF/SOBRA                    5315.01                    N/A                         N/A
---------------------------------------------------------------------------------------------------
SB2O SSIW                          5315.01                    N/A                         N/A
---------------------------------------------------------------------------------------------------
SB21 SSIN                          5315.01                    N/A                         N/A
---------------------------------------------------------------------------------------------------
SB3O MN/MI                         5315.01                    N/A                         N/A
---------------------------------------------------------------------------------------------------
SB5O SOBRA F                       5315.01                    N/A                         N/A
---------------------------------------------------------------------------------------------------
SB6O KIDSCARE                        N/A                      N/A                       5315.01
---------------------------------------------------------------------------------------------------
SSI w/o MEDICARE                   344.18                    61.79                        N/A
---------------------------------------------------------------------------------------------------
SSI w/ MEDICARE                    173.04                    14.50                        N/A
---------------------------------------------------------------------------------------------------
TANF<1, M/F                        333.30                   1164.82                      281.83
---------------------------------------------------------------------------------------------------
TANF 1-13 M/F                       71.06                    32.70                       82.56
---------------------------------------------------------------------------------------------------
SFP                                 19.68                     N/A                         N/A
---------------------------------------------------------------------------------------------------
</TABLE>

                                       1
<PAGE>

<TABLE>
<CAPTION>
                                          SECTION C: DEFINITIONS
<S>                   <C>
ADHS                       Arizona Department of Health Services, the
                           state agency mandated to serve the public health
                           needs of all Arizona citizens.

AGENT                      Any person who has been delegated the authority to
                           obligate or act on behalf of another person or
                           entity.

AHCCCS                     Arizona Health Care Cost Containment System, which is
                           composed of the Administration, contractors, and
                           other arrangements through which health care services
                           are provided to an eligible person, as defined by
                           A.R.S. ss. 36-2902, et seq.

AHCCCS BENEFITS            See "COVERED SERVICES"

AHCCCS MEMBER              See "MEMBER".

AHCCCSA                    Arizona Health Care Cost Containment System
                           Administration.

ALTCS                      The Arizona Long Term Care System (ALTCS), a program
                           under AHCCCSA that delivers long term, acute,
                           behavioral health and case management services to
                           members, as authorized by A.R.S. ss. 36-2932.

AMBULATORY                 Preventive, diagnostic and treatment services
CARE                       provided on an outpatient basis by physicians,
                           nurse practitioners, physician assistants and other
                           health care providers.

AMPM                       AHCCCS Medical Policy Manual.

ARIZONA                    State regulations established pursuant to relevant
ADMINISTRATIVE             statutes. For purposes of this solicitation, the
CODE                       relevant sections of the AAC are referred to
(A.A.C.)                   throughout this document as "AHCCCS Rules".

A.R.S.                     Arizona Revised Statutes.

AT RISK                    Refers to the period of time that a member is
                           enrolled with a contractor during which time the
                           Contractor is responsible to provide AHCCCS covered
                           services under capitation.

BIDDERS LIBRARY            A repository of manuals, statutes, rules and other
                           reference material located at the AHCCCS office in
                           Phoenix.

BOARD CERTIFIED            An individual who has successfully completed all
                           prerequisites of the respective specialty board and
                           successfully passed the required examination for
                           certification.
                      (2)

CAPITATION                 Payment to contractor by AHCCCSA of a fixed monthly
                           payment per person in advance for which the
                           contractor provides a full
</TABLE>

                                       2
<PAGE>

<TABLE>
<S>                   <C>
                           range of covered services as authorized under A.R.S.
                           ss. 36-2942 and ss. 36-2931.
                      (3)

CLEAN CLAIM                A claim that may be processed without obtaining
                           additional information from the provider of service
                           or from a third party; but does not include claims
                           under investigation for fraud or abuse or claims
                           under review for medical necessity, as defined by
                           A.R.S. ss. 36-2904.

                      (4)

COMPETITIVE BID            A state procurement system used to select contractors
PROCESS                    to provide covered  services on a geographic basis.
</TABLE>

                                       3
<PAGE>

CONTINUING                 An AHCCCS contractor during CYE 97 that submits a
OFFEROR                    proposal pursuant to this solicitation

                                       4
<PAGE>

<TABLE>
<S>                        <C>
CONTRACT                   See "COVERED SERVICES".
SERVICES

CONTRACT YEAR              Corresponds to federal fiscal year (Oct. 1 through
(CY)                       Sept. 30). For example, Contract Year 01 is
                           10/01/00-- 9/30/01.

CONTRACTOR                 A person, organization or entity agreeing through a
                           direct contracting relationship with AHCCCSA to
                           provide the goods and services specified by this
                           contract in conformance with the stated contract
                           requirements, AHCCCS statute and rules and federal
                           law and regulations.

CONVICTED                  A judgment of conviction has been entered by a
                           federal, state or local court, regardless of whether
                           an appeal from that judgment is pending.

CO-PAYMENT                 A monetary amount specified by the Director that the
                           member pays directly to a contractor or provider at
                           the time covered services are rendered, as defined in
                           R9-22-107.

COUNTRY                    Amount of funds contributed to the AHCCCS fund by
CONTRIBUTION               each Arizona county based on funding formulas
                           established by law.

COVERED SERVICES           Health care services to be delivered by a contractor
                           which are designated in Section D of this contract
                           and also AHCCCS Rules R9-22, Article 2 and R9-31,
                           Article 2.

CRS                        Children's Rehabilitative Services, as defined in
                           R9-22-114.

CY                         See "CONTRACT YEAR".

CYE                        Contract Year Ended; same as "CONTRACT YEAR".

DAYS                       Calendar days unless otherwise specified as defined
                           in the text, as defined in R9-22-101.

DIRECTOR                   The Director of AHCCCSA.

DISCLOSING ENTITY          An AHCCCS provider or a fiscal agent.

DME                        Durable Medical Equipment, which is an item, or
                           appliance that can withstand repeated use, is
                           designated to serve a medical purpose, and is not
                           generally useful to a person in the absence of a
                           medical condition, illness or injury as defined in
                           R9-22-102.

DUAL ELIGIBLE              A member who is eligible for both Medicare and
                           Medicaid.

EAC                        Eligible Assistance Child as defined in A.R.S.
                           ss. 36-2905.03(B); an AHCCCS state program for
                           children under age 14 receiving food stamps.
</TABLE>

                                       5
<PAGE>

<TABLE>
<S>                        <C>
ELIC                       Eligible Low-Income Child as defined in A.R.S.
                           ss. 36-2905.05(C) and (D); an AHCCCS state program
                           for children under age 14 whose household income
                           exceeds the income limit for the MN/MI program but is
                           less than 100% of the federal poverty level.

ELIGIBILITY                A process of determining, through a written
DETERMINATION              application, including required documentation,
                           whether an applicant meets the qualifications for
                           Title XIX, Title XXI and/or state-only eligibility.

EMERGENCY                  A medical condition manifesting itself by acute
MEDICAL                    symptoms of sufficient severity (including severe
CONDITION                  pain) such that a prudent layperson, who possess an
                           average knowledge of health and medicine, could
                           reasonably expect the absence of immediate medical
                           attention to result in: a) placing the patient's
                           health in serious jeopardy; b) serious impairment to
                           bodily functions; or c) serious dysfunction of any
                           bodily organ or part.

EMERGENCY                  Services provided after the sudden onset of a medical
MEDICAL SERVICE            condition manifesting itself by acute symptoms of
                           sufficient severity (including severe pain) that the
                           absence of immediate medical attention could
                           reasonably be expected to result in: a) placing the
                           patient's health in serious jeopardy; b) serious
                           impairment to bodily functions; or c) serious
                           dysfunction of any bodily organ or part, as defined
                           in R9-22-102.

ENCOUNTER                  A record of a medically related service rendered by a
                           provider or providers registered with AHCCCSA to a
                           member who is enrolled with a Contractor on the date
                           of service. It includes all services for which the
                           contractor incurred any financial liability.

ENROLLMENT                 The process by which an eligible person becomes a
                           member of a contractor's health plan.

EPSDT                      Early and Periodic Screening, Diagnosis and
                           Treatment; services for persons under 21 years of age
                           as described in AHCCCS rules R9-22, Article 2.

FAMILY PLANNING            A program that provides family planning services only
SERVICES                   for a maximum of 24 months to women whose pregnancy
EXTENSION SOBRA            has ended and the woman is not otherwise eligible for
                           PROGRAM Title XIX.
</TABLE>

                                       6
<PAGE>

<TABLE>
<S>                        <C>
FEDERALLY                  An entity which meets the requirements and receives a
QUALIFIED HEALTH           grant and funding pursuant to Section 330 of the
CENTER (FQHC)              Public Health Service Act. An FQHC includes an
                           outpatient health program or facility operated by a
                           tribe or tribal organization under the Indian
                           Self-Determination Act (PL 93-638) or an urban Indian
                           organization receiving funds under Title V of the
                           Indian Health Care Improvement Act.

FEE-FOR-SERVICE            A method of payment to registered providers on an
(FFS)                      amount-per service basis.

FFP                        Federal financial participation (FFP) refers to the
                           contribution that the federal government makes to the
                           Title XIX and Title XXI program portions of AHCCCS as
                           defined in 42 CFR 400.203.

FISCAL YEAR (FY)           The budget year - Federal Fiscal Year: October 1
                           through September 30; State fiscal year: July 1
                           through June 30.

GATEKEEPER                 Primary care provider who is primarily responsible
                           for all medical treatment rendered and who makes
                           referrals as necessary and monitors the member's
                           treatment.

GEOGRAPHIC                 A specific county or defined grouping of counties
SERVICE AREA (GSA)         designated by the Administration within which a
                           contractor of record provides, directly or through
                           subcontract, covered health care to members enrolled
                           with that contractor of record.

GROUP OF                   Two or more health care professionals who practice
PROVIDERS                  their profession at a common location (whether or not
                           they share facilities, supporting staff, or
                           equipment).

HCFA                       Health Care Financing Administration, an organization
                           within the U.S. Department of Health and Human
                           Services, which administers the Medicare and Medicaid
                           programs and Children's Health Insurance Program.

HEALTH                     Various forms of plan organization, including staff
MAINTENANCE                and group models, that meet the HMO licensing
ORGANIZATION               requirements of the federal and/or state government
(HMO)                      and offer a full array of health care services to
                           members on a capitated basis.

HEALTH PLAN                See "CONTRACTOR".

IBNR                       Incurred But Not Reported: Liability for services
                           rendered for which claims have not been received.

IHS                        Indian Health Service, authorized as a federal agency
                           pursuant to 25 U.S.C. 1661.

LIEN                       A legal claim filed with the County Recorder's office
                           in which a member resides and in the county an injury
                           was sustained for the
</TABLE>

                                       7
<PAGE>

<TABLE>
<S>                        <C>
                           purpose of ensuring that AHCCCS receives
                           reimbursement for medical services paid. The lien is
                           attached to any settlement the member may receive as
                           a result of an injury.

MANAGED CARE               Systems that integrate the financing and delivery of
                           health care services to covered individuals by means
                           of arrangements with selected providers to furnish
                           comprehensive services to members; establish explicit
                           criteria for the selection of health care providers;
                           have significant financial incentives for members to
                           use providers and procedures associated with the
                           plan; and have formal programs for quality assurance
                           and utilization review.

MANAGEMENT                 A person or organization that agrees to perform any
SERVICES                   administrative function or service for the Contractor
SUBCONTRACTOR              specifically related to securing or fulfilling the
                           Contractor's obligations to AHCCCSA under the terms
                           of the contract.

MANAGING EMPLOYEE          A general manager, business manager, administrator,
                           director, or other individual who exercises
                           operational or managerial control over, or who
                           directly or indirectly conducts the day-to-day
                           operation of, an institution, organization or agency.

MATERIAL                   A fact, data or other information excluded from a
OMISSION                   report, contract, etc. the absence of which could
                           lead to erroneous conclusions following reasonable
                           review of such report, contract, etc.

MEDICAID                   A Federal/State program authorized by Title XIX of
                           the Social Security Act, as amended.

MEDICARE                   A Federal program authorized by Title XVIII of the
                           Social Security Act, as amended.

MEMBER                     A person eligible who is enrolled in the system, as
                           defined in A.R.Sss. 36-2901.

MN/MI                      Medically Needy/Medically Indigent; state program for
                           individuals not eligible for Medicaid but who meet
                           the eligibility requirements for the state program.

NEW OFFEROR                The organization, entity or person which submits a
                           proposal in response to this solicitation and which
                           has not been an AHCCCS contractor during CYE 97.

NON-CONTRACTING            A person who provides services as prescribed in
                           A.R.S.ss.36-2939 and who does not have a subcontract
                           with an AHCCCS contractor.

OFFEROR                    A person or other entity that submits a proposal to
                           the Administration in response to an RFP, as defined
                           in R9-22-106.

PERFORMANCE                A set of standardized indicators designed to assist
MEASURES                   AHCCCS in evaluating, comparing and improving the
                           performance of its
</TABLE>

                                       8
<PAGE>

<TABLE>
<S>                        <C>
                           contractors. Specific descriptions of health services
                           measurement goals are found in Section D, Paragraph
                           16, Performance Measures.

PMMIS                      AHCCCSA's Prepaid Medical Management Information
                           System.

PRIMARY CARE               An individual who meets the requirements of
PROVIDER (PCP)             A.R.S.ss.36-2901, and who is responsible for the
                           management of a member's health care. A PCP may be a
                           physician defined as a person licensed as allopathic
                           or osteopathic physician according to A.R.S. Title
                           32, Chapter 13 or Chapter 17 or a practitioner
                           defined as a physician assistant licensed under
                           A.R.S. Title 32, Chapter 25, or a certified nurse
                           practitioner licensed under A.R.S. Title 32, Chapter
                           15.

PRIOR PERIOD               The period of time from the 1st day of the month of
                           application or the 1st eligible month whichever is
                           later to the day a member is enrolled with the
                           Contractor. The Contractor receives notification from
                           the Administration of the member's enrollment.

PRIOR QUARTER              The three-month period immediately proceeding the
                           month in which the member applies for Title XIX
                           benefits. If it is determined that the member would
                           have been eligible had the member applied in the
                           month in which services were provided, AHCCCSA may
                           pay for unpaid Title XIX services on a
                           fee-for-service basis. The Contractor is not liable
                           for the prior quarter period.

PROVIDER                   Any person who contracts with the Administration for
                           the provision of hospitalization and medical care to
                           members according to the provisions A.R.S.ss. 36-2901
                           or any subcontractor of provider delivering services
                           pursuant to A.R.S.ss. 36-2901.

QUALIFIED                  A person, eligible under A.R.S.ss.36-2971(4), who is
MEDICARE                   entitled to Medicare Part A insurance, meets certain
BENEFICIARY (QMB)          income, resource and residency requirements of the
                           Qualified Medicare Beneficiary program. A QMB who is
                           also categorically eligible for Medicaid is commonly
                           referred to as a QMB dual eligible.

RATE CODE                  Eligibility classification for capitation payment
                           purposes.

REGIONAL                   An organization under contract with ADHS to
BEHAVIORAL                 administer covered behavioral health services in a
HEALTH AUTHORITY           geographically specific area of the state. Tribal
(RBHA)                     governments, through an agreement with ADHS, may
                           operate a tribal regional behavioral health authority
                           (TRBHA) for the provision of behavioral health
                           services to Native American members living
                           on-reservation.

REINSURANCE                A risk-sharing program provided by the Administration
                           to contractors for the reimbursement of certain
                           contract service costs incurred by a member beyond a
                           certain monetary threshold.

RELATED PARTY              A party that has, or may have, the ability to control
                           or significantly
</TABLE>

                                       9
<PAGE>

<TABLE>
<S>                        <C>
                           influence a contractor, or a party that is, or may
                           be, controlled or significantly influenced by a
                           contractor. "Related parties" include, but are not
                           limited to, agents, managing employees, persons with
                           an ownership or controlling interest in the
                           disclosing entity, and their immediate families,
                           subcontractors, wholly-owned subsidiaries or
                           suppliers, parent companies, sister companies,
                           holding companies, and other entities controlled or
                           managed by any such entities or persons.

RFP                        Request For Proposals which is a document prepared by
                           AHCCCSA which describes the services required and
                           which instructs prospective offerors how to prepare a
                           response (proposal), as defined in R9-22-107.

SCOPE OF SERVICES          See "COVERED SERVICES".

SOBRA                      Section 9401 of the Sixth Omnibus Budget and
                           Reconciliation Act, 1986, amended by the Medicare
                           Catastrophic Coverage Act of 1988, 42 CFR U.S.C.
                           1396a(a)(10)(A)(ii)(IX), July 1, 1988. STATE The
                           State of Arizona.

STATE PLAN                 The written agreements between the State and HCFA
                           which describes how the AHCCCS program meets HCFA
                           requirements for participation in the Medicaid
                           program and the Children's Health Insurance Program.

STATE-ONLY                 A member who is not eligible for Title XIX or XXI but
MEMBER                     is eligible for one of the state-funded eligibility
                           categories which include Medically Needy/Medically
                           Indigent (MN/MI), Eligible Assistance Children (EAC),
                           Eligible Low Income Children (ELIC), and SSI-related
                           non-qualified aliens.

SUBCONTRACT                An agreement entered into by Contractor with a
                           provider of health care services who agrees to
                           furnish covered services to members, or with a
                           marketing organization, or with any other
                           organization or person who agrees to perform any
                           administrative function or service for Contractor
                           specifically related to fulfilling Contractor's
                           obligations to AHCCCSA under the terms of this
                           contract, as defined in R9-22-101.

SUBCONTRACTOR              (1) A person, agency or organization to that a
                           contractor has contracted with or delegated some of
                           its management functions or responsibilities to
                           provide covered services to its members; or (2) A
                           person, agency or organization that a fiscal agent
                           has entered into a contract, agreement, purchase
                           order or lease (or leases of real property) to obtain
                           space, supplies, equipment or services provided under
                           the AHCCCS agreement.

SUPPLEMENTAL               Federal cash assistance program under Title XVI of
SECURITY INCOME            the Social Security Act.
(SSI)
</TABLE>

                                       10
<PAGE>

<TABLE>
<S>                        <C>
TEFRA RISK HMO             A Health Maintenance Organization or Comprehensive
                           Medical Plan, which provides Medicare, services to
                           Medicare beneficiaries pursuant to a Medicare risk
                           contract with HCFA under ss. 1876 of the Social
                           Security Act.

TEMPORARY                  A Federal cash assistance program under Title IV-A
ASSISTANCE TO              of the Social Security Act. It replaced Aid To
NEEDY FAMILIES             Families With Dependent Children (AFDC).
(TANF)

THIRD PARTY                An individual, entity or program that is or may be
                           liable to pay all or part of the medical cost of
                           injury, disease or disability of an AHCCCS applicant
                           or member, as defined in R9-22-110.

THIRD PARTY                The resources available from a person or entity that
LIABILITY                  is, or may be, by agreement, circumstance or
                           otherwise, liable to pay all or part of the medical
                           expenses incurred by an AHCCCS applicant or member,
                           as defined in R9-22-110

TITLE XIX MEMBER           Member eligible for Medicaid under Title XIX of the
                           Social Security Act including those eligible under
                           1931 provisions of the Social Security Act
                           (previously AFDC), Sixth Omnibus Budget
                           Reconciliation Act (SOBRA), Supplemental Security
                           Income (SSI) or SSI-related groups.

TITLE XXI MEMBER           Member eligible for acute care services under
                           Title XXI of the Social Security Act, referred to in
                           federal legislation as the "State Children's Health
                           Insurance Program" (SCHIP). The Arizona version of
                           SCHIP is referred to as "KidsCare."

TRIBAL FACILITY            A facility that is operated by an Indian tribe and
(638 TRIBAL                that is authorized to provide services pursuant to
FACILITY)                  Public Law 93-638, as amended.

YEAR                       See "Contract Year".
</TABLE>

                              [END OF DEFINITIONS]

                                       11
<PAGE>

                         SECTION D: PROGRAM REQUIREMENTS

1.       SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable federal, State and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R9-22, Article 2, the AHCCCS Medical Policy
Manual (AMPM), and the document entitled "AHCCCS Health Plan Performance
Indicators", all of which are incorporated herein by reference and may be found
in the Bidder's Library. The covered services are briefly described below.
Covered services must be medically necessary and provided by, or coordinated
with, a primary care provider, except for behavioral health and children's
preventive dental services. Services must be rendered by providers that are
appropriately licensed or certified, operating within their scope of practice,
and registered as an AHCCCS provider. The Contractor shall provide the same
standard of care for all members regardless of the member's eligibility
category.

The Contractor shall ensure that its providers are not restricted or inhibited
in any way from communicating freely with members regarding the members' health
care, medical needs and treatment options even if needed services are not
covered by the Contractor.

KIDS CARE COVERED SERVICES: KidsCare members are eligible for the same services
covered for members under the Title XIX and state-only programs, with the
following differences, exclusions and/or limitations:

a.       Non-emergency transportation is not covered.
b.       Chiropractic services are not covered.
c.       Vision services are limited to one eye examination per contract year
         and one pair of glasses or contacts every contract year.
d.       EPSDT services are limited to those services specified in this
         contract.
e.       Behavioral health services are limited to 30 inpatient days and 30
         outpatient visits per contract year. (See details under Section D
         Paragraph 2, Behavioral Health Services.)
f.       Licensed midwives and home deliveries are not covered.

For further details regarding the KidsCare program, see Section D, Paragraph 64,
KidsCare, and the AHCCCS Medical Policy Manual (AMPM).

AMBULATORY SURGERY AND ANESTHESIOLOGY: The Contractor shall provide surgical
services for either emergency or scheduled surgeries when provided in an
ambulatory or outpatient setting such as a freestanding surgical center or a
hospital based outpatient surgical setting.

AUDIOLOGY: The Contractor shall provide audiology services to members under the
age of 21 including the identification and evaluation of hearing loss and
rehabilitation of the hearing loss through other than medical or surgical means
(i.e. hearing aids). Only the identification and evaluation of hearing loss are
covered for members 21 years of age and older unless the hearing loss is due to
an accident or injury-related emergent condition.

BEHAVIORAL HEALTH: The Contractor shall provide behavioral health services as
described in Section D, Paragraph 2, Behavioral Health Services.

                                       12
<PAGE>

CHILDRENS REHABILITATIVE SERVICES (CRS): The program for children with
CRS-covered conditions is administered by the Arizona Department of Health
Services (ADHS) for children who meet CRS eligibility criteria. The Contractor
shall refer children to the CRS program who are potentially eligible for
services related to CRS covered conditions, as specified in R9-22, Article 2
A.R.S. Title 36, Chapter 2, Article 3.. Eligibility criteria and the referral
process are described in the CRS Policy and Procedures Manual available in the
Bidder's Library.

The Contractor shall monitor referrals to CRS to ensure CRS covered services are
provided in a timely manner to eligible members. Referral to CRS does not
relieve the Contractor of the responsibility for providing medically necessary
services not covered by CRS to CRS eligible members. The Contractor is also
responsible for initial care of newborn members, who are CRS eligible. The
Contractor must require the member's Primary Care Provider (PCP) to coordinate
their care with the CRS program. All services provided must be included in the
member's medical record maintained by the PCP.

A member with private insurance is not required to utilize CRS. If the member
uses their private insurance network for a CRS covered condition, and the member
is not enrolled with CRS, the Contractor is responsible for all applicable
deductibles and copays.

The Contractor remains ultimately responsible for the provision of all covered
services to its members. If the Contractor becomes aware that CRS has failed to
meet the established appointment standards, or has failed to provide medically
necessary CRS covered services, the Contractor shall immediately notify AHCCCSA,
Office of Medical Management, of the occurrence. In accordance with AHCCCS
policy, the Contractor may seek reimbursement from CRS for providing CRS covered
services.

CHIROPRACTIC SERVICES: The Contractor shall provide chiropractic services to
Title XIX members under age 21 when prescribed by the member's PCP and approved
by the Contractor in order to ameliorate the member's medical condition.
Medicare approved chiropractic services shall also be covered, subject to
limitations specified in CFR 410.22, for Qualified Medicare Beneficiaries if
prescribed by the member's PCP and approved by the Contractor.

DENTAL: The Contractor shall provide all members under the age of 21 with all
medically necessary dental services including emergency dental services; dental
screening and preventive services in accordance with the AHCCCS periodicity
schedule; therapeutic dental services; dentures; and pretransplantation dental
services. The Contractor shall monitor compliance with the EPSDT periodicity
schedule for dental screening services and ensure that dental service reports
are included in the member's medical record maintained by the PCP. The
Contractor is required to meet specific utilization rates for members as
described in Section D, Paragraph 16, Performance Measures. The Contractor shall
ensure that members are notified when dental screenings are due if the member
has not been scheduled for a visit. If no dental screening is received by the
member, a second notice must be sent. Members under the age of 21 may request
dental services without referral and may choose a dental provider from the
Contractor's provider network. For members who are 21 years of age and older,
the Contractor shall provide emergency dental care, medically necessary dentures
and dental services for transplantation services as specified in the AMPM.
Dental standards may be found in the AMPM, Section 310, which is incorporated
herein by reference and which may be found in the Bidder's Library.

                                       13
<PAGE>

DIALYSIS: The Contractor shall provide medically necessary dialysis, supplies,
diagnostic testing and medication for all members when provided by
Medicare-certified hospitals or Medicare-certified end stage renal disease
(ESRD) providers. Services may be provided on an outpatient basis, or on an
inpatient basis if the hospital admission is not solely to provide chronic
dialysis services.

EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment to correct or
ameliorate defects and physical or mental illness discovered by the screenings
for members under age 21. The Contractor shall ensure that these members receive
required health screenings, including developmental/behavioral health, in
compliance with the AHCCCS periodicity schedule (Exhibit 430-1 in the AMPM) and
to submit to the AHCCCS Office of Medical Management, all EPSDT reports as
required by AHCCCS medical policy. The Contractor is required to meet specific
participation/utilization rates for members as described in Section D, Paragraph
16, Performance Measures. Because the behavioral health benefit for Title XIX
and Title XXI is provided through the ADHS/RBHA system, the Contractor shall
ensure the initiation and coordination of the referral of these members to the
RBHA and shall follow up with the RBHA to monitor whether members have received
behavioral health services. Title XXI members are not entitled to the
all-encompassing EPSDT service package required for Title XIX children. Title
XXI children are entitled only to the EPSDT and other covered services specified
in this document, the AMPM and the Title XXI State Plan.

EMERGENCY SERVICES: The Contractor shall have and/or provide the following as a
minimum:

a.       Emergency services facilities adequately staffed by qualified medical
         professionals to provide prehospital, emergency care on a
         24-hour-a-day, 7-day-a-week basis, for the sudden onset of a medically
         emergent condition as defined by AHCCCS Rule R9-22-101 and R9-31-101.
         Emergency medical services are covered without prior authorization. The
         Contractor is encouraged to contract with emergency service facilities
         for the provision of emergency services. The Contractor is encouraged
         to contract with or employ the services of non-emergency facilities
         (e.g. urgent care centers) to address member non-emergency care issues
         occurring after regular office hours or on weekends. The Contractor
         shall be responsible for educating members and providers regarding
         appropriate utilization of emergency room services including behavioral
         health emergencies. The Contractor shall monitor emergency service
         utilization (by both provider and member) and shall have guidelines for
         implementing corrective action for inappropriate utilization. For
         utilization review, the test for appropriateness of the request for
         emergency services shall be whether a prudent layperson, similarly
         situated, would have requested such services. For purposes of this
         contract, a "prudent layperson" is a person who possesses an average
         knowledge of health and medicine.
b.       All medical services necessary to rule out an emergency condition
c.       Emergency transportation
d.       Member access by telephone to a physician, registered nurse, physician
         assistant or nurse practitioner for advice in emergent or urgent
         situations, 24 hours per day, 7 days per week.
e.       The Contractor shall comply with guidelines regarding the coordination
         of post-stabilization care.

                                       14
<PAGE>

EYE EXAMINATIONS/OPTOMETRY: The Contractor shall provide all medically necessary
emergency eye care, vision examinations, prescriptive lenses, and treatments for
conditions of the eye for all members under the age of 21, with the exception of
KidsCare members. See limitations for KidsCare members described at the
beginning of this section, titled "KidsCare Covered Services." For members who
are 21 years of age and older, the Contractor shall provide emergency care for
eye conditions which meet the definition of an emergency medical condition,
cataract removal, and/or medically necessary vision examinations and
prescriptive lenses if required following cataract removal and other eye
conditions as specified in the AMPM.

FAMILY PLANNING: The Contractor shall provide family planning services in
accordance with the AMPM, Section 420 for all members who choose to delay or
prevent pregnancy. These include medical, surgical, pharmacological and
laboratory services, as well as contraceptive devices. Information and
counseling necessary to allow the members to make informed decisions regarding
family planning methods shall also be included. If the Contractor does not
provide family planning services, it must contract for these services through
another health care delivery system, which allows members freedom of choice in
selecting a provider. A prospective offeror may discuss arrangements for family
planning services only with other prospective offerors during the RFP process
for the purpose of making arrangements for the provision of family planning
services.

The Contractor shall provide services to members enrolled in the Family Planning
Services Extension Program; a program that provides only family planning
services for a maximum of 24 months to women whose SOBRA eligibility has
terminated. The Contractor is also responsible for notifying AHCCCSA when a
SOBRA woman is sterilized to prevent inappropriate enrollment in the SOBRA
Family Planning Services Extension Program. Notification may be made at the time
the newborn is reported or after the sterilization procedure is completed.

HEALTH RISK ASSESSMENT AND SCREENING: The Contractor shall provide these
services for non-hospitalized members 21 years of age and older. These services
include, but are not limited to, screening for hypertension, elevated
cholesterol, colon cancer, sexually transmitted diseases, tuberculosis and
HIV/AIDS; nutritional assessment in cases when the member has a chronic
debilitating disease affected by nutritional needs; mammograms and prostate
screenings; physical examinations and diagnostic work-ups; and immunizations.
Required assessment and screening services for members under age 21 are included
in the AHCCCS EPSDT periodicity schedule.

HOME HEALTH: The Contractor shall provide part-time or intermittent care for
members who do not require hospital care. This service is provided under the
direction of a physician to prevent re-hospitalization or institutionalization
and may include nursing, therapies, supplies and home health aide services.

HOSPICE. These services are covered for members under 21 years of age who are
certified by a physician as being terminally ill and having six months or less
to live. See the AMPM for details on covered hospice services.

HOSPITAL. Inpatient services include semi-private accommodations for routine
care, intensive and coronary care, surgical care, obstetrics and newborn
nurseries, and behavioral health emergency/crisis services. If the member's
medical condition requires isolation; private inpatient accommodations are
covered. Nursing services, dietary services and ancillary services such as

                                       15
<PAGE>

laboratory, radiology, pharmaceuticals, medical supplies, blood and blood
derivatives, etc. are also covered. Outpatient services include any of the above
services, which may be provided on an outpatient or ambulatory basis (i.e.
laboratory, radiology, therapies, ambulatory surgery, etc.). Observation
services may be provided on an outpatient basis for up to 24 hours if determined
reasonable and necessary to decide whether the member should be admitted for
inpatient care. Observation services include the use of a bed and periodic
monitoring by hospital nursing staff and/or other staff to evaluate, stabilize
or treat medical conditions of a significant degree of instability and/or
disability.

IMMUNIZATIONS. The Contractor shall provide immunizations for adults (21 years
of age and older) to include diphtheria-tetanus, influenza, pneumococcus,
rubella, measles and hepatitis-B. For all members under the age of 21,
immunization requirements include diphtheria, tetanus, pertussis vaccine (DPT),
oral/inactivated polio vaccine (OPV/IPV), measles, mumps, rubella vaccine (MMR),
H. influenza, type B (HIB), hepatitis B (Hep B), and varicella vaccine. The
Contractor is required to meet specific immunization rates for members under the
age of 21, which are described in Section D, Paragraph 16, Performance Measures.

INDIAN HEALTH SERVICES (IHS): The Contractor may choose to subcontract with and
pay an IHS or 638 tribal facility as part of their provider network for covered
services provided to members. Effective October 1, 1999, the Contractor is
responsible for reimbursement to IHS or tribal facilities for emergency services
provided to state-only and Title XXI Native American members enrolled with the
Contractor. The Contractor has no responsibility for non-emergency services to
state-only and Title XXI Native American members unless the Contractor refers or
prior authorizes the service. AHCCCSA will reimburse claims for acute care
services that are medically necessary and eligible for 100% Federal
reimbursement, provided to Title XIX members in an IHS or a 638 tribal facility.

LABORATORY: Laboratory services for diagnostic, screening and monitoring
purposes are covered when ordered by the member's PCP, other attending physician
or dentist, and provided by a CLIA (Clinical Laboratory Improvement Act)
approved free standing laboratory or hospital laboratory, clinic, physician
office or other health care facility laboratory.

Upon written request, a Contractor may obtain laboratory test data on members
from a laboratory or hospital based laboratory subject to the requirements
specified in A.R.S. ss. 36-2903(R) and (S). The data shall be used exclusively
for quality improvement activities and health care outcome studies required
and/or approved by the Administration.

MATERNITY. The Contractor shall provide pre-conception counseling, pregnancy
identification, prenatal care, treatment of pregnancy related conditions, labor
and delivery services, and postpartum care for members. Services may be provided
by physicians, physician assistants or nurse practitioners certified in
midwifery. Members may select or be assigned to a PCP specializing in
obstetrics. Circumcisions are covered as described in the AMPM. Title XIX and
state-only members anticipated to have a low-risk delivery may elect to receive
labor and delivery services in their home from their maternity provider if this
setting is included in allowable settings for the Contractor, and the Contractor
has providers in its network that offer home labor and delivery services. Title
XIX and state-only members anticipated to have a low-risk prenatal course and
delivery may elect to receive maternity services of prenatal care, labor and
delivery and postpartum care provided by licensed midwives if they are in the
Contractor's provider network. All licensed midwife labor and delivery services
must be provided in the

                                       16
<PAGE>

member's home since licensed midwives do not have admitting privileges in
hospitals or AHCCCS registered freestanding birthing centers. Members receiving
maternity services from a licensed midwife must also be assigned to a PCP for
other health care and medical services. Home delivery and licensed midwives are
not covered for Title XXI members.

The Contractor shall allow women and their newborns to receive up to 48 hours of
inpatient hospital care after a routine vaginal delivery and up to 96 hours of
inpatient care after a cesarean delivery. The attending health care provider, in
consultation with the mother, may discharge the mother or newborn prior to the
48-hour minimum length of stay. A normal newborn may be granted an extended stay
in the hospital of birth when the mother's continued stay in the hospital is
beyond the 48 or 96 hour stay.

The Contractor shall inform all assigned AHCCCS pregnant women of voluntary
prenatal HIV testing and the availability of medical counseling if the test is
positive. The Contractor shall provide information in the member handbook and
annually in the member newsletter to encourage pregnant women to be tested and
instructions on where to be tested. Semi-annually, the Contractor shall report
to AHCCCS the number of pregnant women who have been identified as HIV/AIDS
positive. This report is due no later than 30 days after the end of the second
and fourth quarters of the contract year.

MEDICAL FOODS: Medical foods are covered within limitations defined in the AMPM
for members diagnosed with a metabolic condition included under the ADHS Newborn
Screening Program and specified in the AMPM. The medical foods, including
metabolic formula and modified low protein foods, must be prescribed or ordered
under the supervision of a physician.

MEDICALLY-NECESSARY ABORTIONS. This service is covered for a member if the
member suffers from a medical condition or disorder, physical injury, or illness
caused by or rising from the pregnancy. The service is also covered for Title
XIX and Title XXI members if the pregnancy is caused by rape or incest.
Physician certification of the condition, disorder, illness or injury must be
provided to the Contractor. In addition, providers must submit to the Contractor
a Certificate of Medical Necessity for Pregnancy Termination. Prior
authorization is required. If the procedure is performed on an emergency basis,
documentation must be submitted to the Contractor within two working days.
Additional documentation, outlined in the AMPM, is required for members under 18
years of age or members who are considered an incapacitated adult who seek a
medically necessary abortion due to rape or incest.

MEDICAL SUPPLIES, DURABLE MEDICAL EQUIPMENT (DME), ORTHOTIC AND PROSTHETIC
DEVICES: These services are covered when prescribed by the member's PCP,
attending physician or practitioner, or by a dentist. Medical equipment may be
rented or purchased only if other sources are not available which provide the
items at no cost. The total cost of the rental must not exceed the purchase
price of the item. Reasonable repairs or adjustments of purchased equipment are
covered to make the equipment serviceable and/or when the repair cost is less
than renting or purchasing another unit.

NURSING FACILITY: The Contractor shall provide nursing facility services,
including religious nonmedical health care institutions, for members who require
short-term convalescent care not to exceed 90 days per contract year. In lieu of
a nursing facility, the member may be placed in an alternative living facility
or receive home and community based services (HCBS) as defined in

                                       17
<PAGE>

R9-22, Article 2 and R9-28, Article 2 that meet the provider standards described
in R9-28, Article 5, and subject to the limitations set forth in Chapter 1200 of
the AMPM.

Nursing facility services must be provided in a dually-certified
Medicare/Medicaid facility which includes in the per-diem rate: nursing
services, basic patient care equipment and sickroom supplies, dietary services,
administrative physician visits, non-customized DME, necessary maintenance
rehabilitation therapies, over-the-counter medications, social, recreational and
spiritual activities, and administrative, operational medical direction
services. The Contractor shall provide medically necessary nursing facility
services for any member who has a pending ALTCS application, who is currently
residing in a nursing facility and is eligible for services provided under this
contract. If the member becomes ALTCS eligible and is enrolled with an ALTCS
Program Contractor before the end of the maximum 90 days of nursing facility
coverage, the Contractor is only responsible for nursing facility coverage
during the time the member is enrolled with the Contractor. Nursing facility
services covered by a third party insurer (including Medicare) while the member
is enrolled with the Contractor shall be applied to the 90 day limitation. See
Paragraph 36, Nursing Facility Reimbursement, for further details.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application and to prepare for potential fee-for-service coverage if the stay
goes beyond the 90-day maximum.

NUTRITION: Nutritional assessments may be conducted as a part of the EPSDT
screenings for members under age 21, and to assist members 21 years of age and
older whose health status may improve with nutritional intervention. Assessment
of nutritional status on a periodic basis may be provided as determined
necessary, and as a part of the health risk assessment and screening services
provided by the member's PCP. AHCCCS covers nutritional therapy on an enteral,
parenteral or oral basis, when determined medically necessary to provide either
complete daily dietary requirements, or to supplement a member's daily
nutritional and caloric intake and when AHCCCS criteria specified in the AMPM
are met.

PHYSICIAN: The Contractor shall provide physician services to include medical
assessment, treatments and surgical services provided by licensed allopathic or
osteopathic physicians.

PODIATRY: The Contractor shall provide podiatry services to include
bunionectomies, casting for the purpose of constructing or accommodating
orthotics, medically necessary orthopedic shoes that are an integral part of a
brace, and medically necessary routine foot care for patients with a severe
systemic disease which prohibits care by a nonprofessional person.

PRESCRIPTION MEDICATIONS AND PHARMACY: Medications ordered by a PCP, attending
physician or dentist and dispensed under the direction of a licensed pharmacist
are covered subject to limitations related to prescription supply amounts,
Contractor formularies and prior authorization requirements, as well as
restrictions for immunosuppressant drugs addressed in AHCCCS medical policies
for transplantations. Over-the-counter medication may be prescribed when it is
determined to be a lower-cost alternative to prescription medication.

PRIMARY CARE PROVIDER (PCP): PCP services are covered when provided by a
physician, physician assistant or nurse practitioner selected by, or assigned
to, the member. The PCP provides primary health care and serves as a gatekeeper
and coordinator in referring the member

                                       18
<PAGE>

for specialty medical services, behavioral health and dental services. The PCP
is responsible for maintaining the member's primary medical record, which
contains documentation of all health risk assessments and health care services
of which they are aware whether or not they were provided by the PCP.

RADIOLOGY AND MEDICAL IMAGING: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical condition. Services are
generally provided in hospitals, clinics, physician offices and other health
care facilities.

REHABILITATION THERAPY: The Contractor shall provide occupational, physical and
speech therapies. Therapies must be prescribed by the member's PCP or attending
physician for an acute condition and the member must have the potential for
improvement due to the rehabilitation. Occupational and speech therapies are
only covered on an inpatient basis for those members who are 21 and over;
physical therapy for all members and occupational and speech therapies for
members under the age of 21 are covered on both an inpatient and outpatient
basis if not used as a maintenance regimen.

RESPIRATORY THERAPY: This therapy is covered on an inpatient or outpatient basis
when prescribed by the member's PCP or attending physician and is necessary to
restore, maintain or improve respiratory functioning.

TRANSPLANTATION OF ORGANS AND TISSUE, AND RELATED IMMUNOSUPPRESSANT DRUGS: These
services are covered within limitations defined in the AMPM for members
diagnosed with specified medical conditions. Such limitations include whether
the stage of the disease is such that the transplant can affect the outcome; the
member has no other conditions that substantially reduce the potential for
successful transplantation; and whether the member will be able to comply with
necessary and required regimens of treatment. Bone grafts are also covered under
this service. Services include pre-transplant inpatient or outpatient
evaluation; donor search; organ/tissue harvesting or procurement; preparation
and transplantation services; and convalescent care. In addition, if a member
receives a transplant covered by a source other than AHCCCS, medically necessary
non-experimental services are provided within limitations after the discharge
from the acute care hospitalization for the transplantation. AHCCCS has
contracted with transplantation providers for the Contractor's use or the
Contractor may select its own transplantation provider. However, the quality of
services must be equal to or exceed those of the AHCCCS provider and the rate
paid can not exceed the AHCCCS provider's negotiated rate.
Transplantations for the MN/MI population are subject to available funding.

TRANSPORTATION: These services include emergency and non-emergency medically
necessary transportation. Emergency transportation, including transportation
initiated by an emergency response system such as 911, may be provided by
ground, air or water ambulance to manage an AHCCCS member's emergency medical
condition at an emergency scene and transport the member to the nearest
appropriate medical facility. Non-emergency transportation shall be provided for
Title XIX and state-only members who are unable to provide their own
transportation for medically necessary services. Title XXI members are not
eligible for non-emergency transportation services except for transfers between
facilities.

TRIAGE/SCREENING AND EVALUATION: These are covered services when provided by
acute care hospitals, IHS facilities and urgent care centers to determine
whether or not an emergency exists,

                                       19
<PAGE>

assess the severity of the member's medical condition and determine services
necessary to alleviate or stabilize the emergent condition. The provider must
notify the Contractor within 12 hours of the member's registration with the
facility for emergency services. Supporting documentation for services rendered
must be provided when reporting or billing a service. Triage/screening services
must be reasonable, cost effective and meet the criteria for severity of illness
and intensity of service.

2.       BEHAVIORAL HEALTH SERVICES

Title XIX and Title XXI members are eligible for comprehensive behavioral health
services. The behavioral health benefit for these members is provided through
the ADHS - Regional Behavioral Health Authority (RBHA) system. The Contractor
shall be responsible for member education regarding these benefits; provision of
limited emergency inpatient services; and screening and referral to the RBHA
system of members identified as requiring behavioral health services.

MEMBER EDUCATION: The Contractor shall be responsible for educating members in
the member handbook and other printed documents about covered behavioral health
services and where and how to access services. Covered services for Title XIX
and Title XXI are similar with the exception that non-emergency transportation
is not covered for Title XXI members. For Title XXI members inpatient services
and specified outpatient services are limited to 30 days/30 visits per contract
year. Covered services include:
a.       Inpatient services (Title XXI limited to 30 days per contract year)
b.       Individual, group and family therapy and counseling (limited for Title
         XXI)
c.       Psychotropic medication
d.       Psychotropic medication adjustment and monitoring
e.       Partial care, basic and intensive (limited for Title XXI)
f.       Emergency crisis services
g.       Behavior management (limited for Title XXI)
h.       Psychosocial rehabilitation (limited for Title XXI)
i.       Evaluation, screening and diagnosis (limited for Title XXI)
j.       Laboratory and radiology services for psychotropic medication
         regulation and diagnosis
k.       Emergency and medically necessary transportation (Title XXI members
         limited to emergency transportation only)
l.       Case management services
m.       Respite

REFERRALS: As specified in Section D, Paragraph 1, EPSDT, the Contractor must
provide developmental/behavioral health screenings for members up to 21 years of
age in compliance with the AHCCCS periodicity schedule. The Contractor shall
ensure the initiation and coordination of behavioral health referrals of these
members to the RBHA when determined necessary through the screening process.

The Contractor is responsible for RBHA referral and follow-up collaboration, as
necessary, for other Title XIX and Title XXI members identified as needing
behavioral health evaluation and treatment. Members may also access the RBHA
system for evaluation by self-referral or be referred by schools, State agencies
or other service providers. The Contractor is responsible for providing
transportation to Title XIX members first RBHA evaluation appointments if
members are unable to provide their own transportation.

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<PAGE>
EMERGENCY SERVICES: For Title XIX and Title XXI members not enrolled with ADHS,
the Contractor is responsible for up to three days of inpatient behavioral
health services per emergency episode not to exceed 12 days per contract year. A
referral to the RBHA for evaluation and enrollment should be initiated as soon
as possible after admission.

For state-only members (MN/MI, EAC, ELIC): The Contractor is responsible for up
to three days of inpatient emergency behavioral health services not to exceed 12
days per contract year regardless of whether the member is enrolled with a RBHA.
For members who become eligible during an emergency episode, the three (3) days
of coverage for this hospital benefit are the first three (3) days of
eligibility.

Coordination of Care: The Contractor is responsible for ensuring that a medical
record is established by the PCP when behavioral health information is received
from the RBHA or provider about an assigned member even if the PCP has not yet
seen the assigned member. The Contractor shall require the PCP to respond to
RBHA provider information requests pertaining to ADHS enrolled members
including, but not limited to, current diagnosis, medication, pertinent
laboratory results, last PCP visit, and last hospitalization. For prior period
coverage, the Contractor is responsible for payment of all claims for medically
necessary covered behavioral health services to members not enrolled with ADHS.

MEDICATION MANAGEMENT SERVICES: The Contractor shall allow PCPs to provide
medication management services (prescriptions, medication monitoring visits,
laboratory and other diagnostic tests necessary for diagnosis and treatment of
behavioral disorders) to members with diagnoses of depression, anxiety and
attention deficit hyperactivity disorder. The Contractor shall make available,
on the Contractor's formulary, medications for the treatment of these disorders.

The Contractor shall ensure that training and education is available to PCPs
regarding behavioral health referral and consultation procedures. The Contractor
shall establish policies and procedures for referral and consultation and shall
include them in their provider manual. Also, Contractors shall inform PCPs about
the availability of resource information through the Maricopa Integrated Health
System's Psychiatric Residency Training Program and the Arizona Medical
Association regarding the diagnosis and treatment of behavioral health
disorders.

The Contractor shall ensure that its quality management and peer review programs
incorporate monitoring of the PCP's management of behavioral health disorders.

3.       AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference into
this contract. The Contractor is responsible for complying with the requirements
set forth within. The AMPM with search capability and linkages to AHCCCS rules,
Statutes and other resources is available to all interested parties through the
AHCCCS Home Page on the Internet (www.ahcccs.state.az.us). Upon adoption by
AHCCCSA, AMPM updates will be available through the Internet at the beginning of
each month. If required, the Contractors may receive one hard copy of the AMPM,
free of charge, from AHCCCSA, Office of Medical Management, however, the
Contractor shall be responsible for maintaining such copies current with these
updates.

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<PAGE>

4.       VACCINE FOR CHILDREN PROGRAM

Federal legislation passed in 1993 (OBRA 93) amended Title XIX of the Social
Security Act and created the Vaccine for Children (VFC) program which became
effective 10/1/94. Through this program, the federal and state governments
purchase, and make available to providers free of charge, vaccines for AHCCCS
children under age 19. Therefore, the Contractor shall not utilize AHCCCS
funding to purchase vaccines for members under the age of 19. Any provider,
licensed by the State to administer immunizations, may register with ADHS as a
"VFC provider" and receive free vaccines. The Contractor shall comply with all
VFC requirements and monitor its providers to ensure that, if providing
immunizations to AHCCCS members under the age of 19, the providers are
registered with ADHS/VFC.

5.       DENIALS OR REDUCTIONS OF SERVICES

When a covered service is denied, reduced, suspended or terminated, the
Contractor shall comply with the notice, appeal and continuation of benefits
requirements specified in the Office of Managed Care Member Rights and
Responsibilities Policy.

6.       ENROLLMENT AND DISENROLLMENT

AHCCCSA has the exclusive authority to enroll and disenroll members. The
Contractor shall not disenroll any member for any reason unless directed to do
so by AHCCCSA. Eligibility for the various AHCCCS coverage groups is determined
by one of the following agencies:

Social Security Administration (SSA)    SSA determines eligibility for the
                                        Supplementary Security Income (SSI) cash
                                        program. SSI Cash recipients are
                                        automatically eligible for AHCCCS
                                        coverage.

Department of Economic Security (DES)   DES determines eligibility for the
                                        Temporary Assistance to Needy Families
                                        (TANF) program (formerly Aid to Families
                                        with Dependent Children), 1931 Group
                                        Medical Assistance Only (MAO) groups,
                                        SOBRA women and children, the Eligible
                                        Assistance Children state program (EAC),
                                        the Adoption Subsidy Program, Title IV-E
                                        foster care children, Young Adults
                                        Transition Insurance Program, and the
                                        Federal Emergency Services program (FES)
                                        related to the TANF, 1931 Group, or
                                        SOBRA programs.

AHCCCSA                                 AHCCCSA determines eligibility for the
                                        SSI/MAO groups, including the FES
                                        program related to the SSI-Cash program
                                        (aged, disabled, blind), the Arizona
                                        Long-

                                       22
<PAGE>

                                        Term Care System (ALTCS), the Qualified
                                        Medicare Beneficiary program and other
                                        Medicare cost sharing programs, and the
                                        Title XXI program.

Arizona's 15 Counties                   Each county determines eligibility for
                                        the Medically Needy/Medically Indigent
                                        (MN/MI), Eligible Low Income Children
                                        (ELIC), and the State Emergency Services
                                        state programs.

AHCCCS acute care members are enrolled with contractors in accordance with the
rules set forth in R9-22, Article 17.

HEALTH PLAN CHOICE

Acute members, except for those eligible under the MN/MI program have a choice
of available health plans. A listing of the available health plans and their
telephone numbers will be given to each applicant during the application process
for AHCCCS benefits. Also included are instructions to applicants to call the
health plans directly with specific questions concerning the health plan. If
there is only one health plan available for the applicant's Geographical Service
Area, no choice is offered. Members who do not choose prior to AHCCCSA' s being
notified of their eligibility are automatically assigned to a health plan based
on family continuity or the auto-assignment algorithm.

Title XXI members must select a health plan prior to being determined eligible
and therefore, will not be auto-assigned. When a member is transferred from
Title XIX to Title XXI and has not made a health plan choice for Title XXI, the
member will remain with the Title XIX health plan and a choice notice will be
sent to the member. The member may then change plans no later than 16 days from
the date the choice notice is sent.

AHCCCSA assigns MN/MI members to an available health plan based on family
continuity or through AHCCCSA's auto-assignment algorithm. These members do not
get a choice of available contractors until their annual enrollment choice
period.

Exceptions to the above enrollment policies for Title XIX and state-only members
include: previously enrolled members who have been disenrolled for less than 90
days will be automatically enrolled with the same contractor, if that contractor
is still available. Also, women who are eligible for the Family Planning
Services Extension Program will automatically remain assigned to the same health
plan. The Family Planning Services Extension Program provides a maximum of 24
months of family planning services.

The effective date of enrollment for a new Title XIX or state-only member with
the Contractor will generally be the day prior to the date the Contractor
receives notification from AHCCCSA via the daily roster. However, the Contractor
is responsible for payment of medically necessary covered services retroactive
to the member's beginning date of eligibility, excluding any prior quarter
coverage period.

                                       23
<PAGE>

The effective date of enrollment for a Title XXI member will be the first day of
the month following notification to the health plan. If a Title XXI member is
determined eligible by the 25th of the month, the member will be enrolled with
the health plan as of the 1st of the following month. If the member is
determined eligible AFTER the 25th of the month, the member will be enrolled
with the health plan as of the 1st of the second following month.

PRIOR PERIOD COVERAGE: AHCCCS provides prior period coverage for Title XIX and
state-only members. For Title XIX members, prior period coverage starts from the
first day of the month of application, or first eligible month, whichever is
later. The Contractor is responsible for payment of all claims for medically
necessary covered services provided to Title XIX members during prior period
coverage. For state-only EAC members, prior period coverage does not apply. For
state-only MN/MI and ELIC members prior period coverage is generally limited to
the two days prior to the date of AHCCCSA being notified of eligibility.
However, prior period coverage could include additional days prior to the date
of enrollment. The Contractor is responsible for payment of all claims for
medically necessary covered services provided on an emergency basis to
state-only members pursuant to A.R.S. ss. 36-2908 and A.R.S. ss. 36-2909 for the
first two days of the prior period coverage. Any additional prior period
coverage for state-only members will include all claims for medically necessary
covered services. This may include services provided prior to the contract year.
(See Section D, Paragraph 37, Compensation, for a description of the
Contractor's reimbursement from AHCCCSA for this eligibility time period.)

NEWBORNS: Newborns born to AHCCCS-eligible mothers, including Title XXI mothers,
who were enrolled at the time of the child's birth and whose newborn
notification was received by AHCCCSA will be enrolled with the mother's health
plan. The Contractor is responsible for notifying AHCCCSA of a child's birth to
an enrolled member. Capitation to the Contractor will begin on the date
notification is received by AHCCCSA (except for cases of births during prior
period coverage). The effective date of AHCCCS eligibility will be the newborn's
date of birth, and the Contractor is responsible for all covered services to the
newborn whether or not AHCCCSA has received notification of the child's birth.
Note that AHCCCSA is currently available to receive notification calls 24 hours
a day, 7 days a week. Title XIX and Title XXI eligible mothers of newborns are
sent a letter advising them of their right to choose a different contractor for
their child; otherwise the child will remain with the mother's contractor.
Newborns of MN/MI mothers are enrolled with the mother's contractor for a
minimum of 30 days up to a maximum of 60 days.

Newborns of FES mothers are auto-assigned to a health plan and mothers of these
newborns are sent a letter advising them of their right to choose a different
health plan for their child. In the event the FES mother chooses a different
health plan, AHCCCS will recoup all capitation paid to the originally assigned
plan and the baby will be enrolled retroactive to the date of birth in the
second plan. The second plan will receive prior period capitation from the date
of birth to the day before assignment and prospective capitation from the date
of assignment forward. The second contractor will be responsible for all covered
services to the newborn from date of birth.

ENROLLMENT GUARANTEES: Upon initial capitated enrollment as a Title XIX-eligible
member, or as an Eligible Assistance Child (EAC), the member is guaranteed a
minimum of five full months of continuous enrollment. Upon initial capitated
enrollment as a Title XXI-eligible member, the member is guaranteed a minimum of
12 full months of continuous enrollment. Enrollment guarantees do not apply to
Native Americans who choose to obtain their covered services through Indian
Health Services (IHS) on a fee-for-service basis or children enrolled with

                                       24
<PAGE>

Department of Economic Security/Comprehensive Medical and Dental Program. The
enrollment guarantee applies a maximum of one time per member per eligibility
category for Title XIX, Title XXI and EAC members. If a member changes from one
contractor to another within the enrollment guarantee period, the remainder of
the guarantee period applies to the new contractor. The enrollment guarantee may
not be granted or may be terminated if the member is incarcerated or, if a minor
child is adopted. AHCCCS Rule R9-22, Article 17 and R9-31, Article 3 describes
other reasons for which the enrollment guarantee may not apply.

NATIVE AMERICANS. Native Americans eligible under any coverage group other than
MN/MI, on or off-reservation, have a choice to receive services from Indian
Health Service (IHS), a PL 93-638 tribal facility or any available contractor.
If choice is not available or made within the specified time limit, Native
American Title XIX and state-only members living on-reservation will be assigned
to IHS and Native American Title XIX and state-only members living
off-reservation will be assigned to an available contractor using AHCCCSA's
family continuity policy and auto-assignment algorithm. Native Americans may
change from IHS to a contractor or from a contractor to IHS at any time. Native
American Title XXI members must make a choice prior to being determined
eligible.

7.       MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take affirmative
action so that members are provided covered services without regard to payer
source, race, color, creed, sex, religion, age, national origin, ancestry,
marital status, sexual preference, or physical or mental handicap, except where
medically indicated. Contractors must take into account a member's culture, when
addressing members and their concerns, and must take reasonable steps to
encourage subcontractors to do the same. The Contractor must make interpreters
available for members to ensure appropriate delivery of covered services.

Examples of prohibited practices include, but are not limited to, the following:

a.       Denying or not providing a member any covered service or access to an
         available facility.
b.       Providing to a member any covered service which is different, or is
         provided in a different manner or at a different time from that
         provided to other members, other public or private patients or the
         public at large except where medically necessary.
c.       Subjecting a member to segregation or separate treatment in any manner
         related to the receipt of any covered service; restricting a member in
         any way in his or her enjoyment of any advantage or privilege enjoyed
         by others receiving any covered service.
d.       The assignment of times or places for the provision of services on the
         basis of the race, color, creed, religion, age, sex, national origin,
         ancestry, marital status, sexual preference, income status, AHCCCS
         membership, or physical or mental handicap of the participants to be
         served.

If the Contractor knowingly executes a subcontract with a provider with the
intent of allowing or permitting the subcontractor to implement barriers to care
(i.e. the terms of the subcontract act to discourage the full utilization of
services by some members), the Contractor will be in default of its contract.

                                       25
<PAGE>

If the Contractor identifies a problem involving discrimination by one of its
providers, it shall promptly intervene and implement a corrective action plan.
Failure to take prompt corrective measures may place the Contractor in default
of its contract.

8.       MEMBER INFORMATION

All informational materials prepared by the Contractor shall be approved by
AHCCCSA prior to distribution to members. The reading level and name of the
evaluation methodology used should be included when 200 members or 5% of the
Contractor's enrolled population, whichever is greater, speak a 2nd language,
the Contractor shall provide member information in that 2nd language. The
Contractor shall comply whenever it is aware that a population meets this
standard. When there are program or service site changes notification will be
provided to the affected members at least 14 days before implementation. The
Contractor shall review and update the Member Handbook at least once a year. The
Handbook must be submitted to AHCCCSA Office of Managed Care for approval by
Sept. 1 of each contract year, or within four weeks of receiving the annual
renewal amendment, whichever is later.

The Contractor shall make every effort to ensure that all information prepared
for distribution to members is written at a 4th grade level.

The Contractor shall produce and provide the following printed information to
each member or family within 10 days of receipt of notification of the
enrollment date:

I.       A Member Handbook which, at a minimum, shall include the following
         items that are also listed in the Office of Managed Care, Operations
         Policy #404, Member Information Policy:

         a.       A table of contents
         b.       A general description of how managed care works, particularly
                  in regards to member responsibilities, appropriate utilization
                  of services and the PCP's role as gatekeeper of services
         c.       A description of all available covered services and an
                  explanation of any service limitations or exclusions from
                  coverage and a notice stating that the Contractor will be
                  liable only for those services authorized by the Contractor.
                  The description should include a brief explanation of the
                  Contractor's approval and denial process.
         d.       Information on what to do when family size changes
         e.       How to obtain a PCP
         f.       How to change PCPs
         g.       How to make, change and cancel appointments with a PCP or
                  dentist
         h.       List of applicable copayments (including a statement that care
                  will not be denied due to lack of copayment). The member
                  handbook must clearly state that members cannot be billed for
                  covered services (other than applicable copayments), what to
                  do if they are billed, and under what circumstances a member
                  may be billed for non-covered services.
         i.       Dual eligibility (i.e. Medicare and Medicaid); services
                  received in and out of the Contractor's network; copayments.
                  See Section D, Paragraph 41, Medicare Services and Cost
                  Sharing.
         j.       The process of referral to specialists and other providers,
                  including access to behavioral health services provided by the
                  ADHS RBHA system.

                                       26
<PAGE>

         k.       How to contact Member Services and a description of its
                  function
         l.       What to do in case of an emergency and instructions for
                  receiving advice on getting care in case of an emergency. In a
                  life-threatening situation, the member handbook should
                  instruct members to use the emergency medical services (EMS)
                  available and/or activate EMS by dialing 9-1-1. Handbook
                  should contain information on proper emergency service
                  utilization.
         m.       How to obtain emergency transportation and medically necessary
                  transportation.
         n.       EPSDT services. A description of the purpose and benefits of
                  EPSDT services, including the required components of EPSDT
                  screenings and the provision of all medically necessary
                  services to treat a physical or mental illness discovered by
                  the screenings. Screenings include a comprehensive history and
                  developmental/behavioral health screening, comprehensive
                  unclothed physical examination, appropriate vision testing,
                  hearing testing, laboratory tests, dental screening and
                  immunizations.
         o.       Maternity and family planning services
         p.       Description of covered behavioral health services and how to
                  access them
         q.       Description of all covered dental services for members under
                  21 and how to access these services
         r.       Out of county/out of state moves
         s.       Grievance and request for hearing procedures, including a
                  clear explanation of the member's right to file a grievance
                  and request for hearing and to appeal any decision that
                  affects the member's receipt of covered services.
         t.       Contributions the member can make towards his/her own health,
                  member responsibilities, appropriate and inappropriate
                  behavior, and any other information deemed essential by the
                  Contractor or AHCCCS. This shall include a statement that the
                  member is responsible for protecting his or her ID card and
                  that misuse of the card, including loaning, selling or giving
                  it to others could result in loss of the member's eligibility
                  and/or legal action. A sentence shall be included that
                  stresses the importance of members keeping, not discarding,
                  the swipe ID card.
         u.       How to access after-hours care (urgent care).
         v.       Advance directives for adults
         w.       Use of other sources of insurance. See Section D, Paragraph
                  40, Coordination of Benefits.
         x.       The last revision date
         y.       Member's notification rights and responsibilities under AAC
                  R9-22, Article 13 and AHCCCS policy
         z.       A description of Fraud and Abuse including instructions on how
                  to report suspected fraud or abuse. This shall include a
                  statement that misuse of a member's identification card,
                  including loaning, selling or giving it to others could result
                  in loss of the member's eligibility and/or legal action
                  against the member
         aa.      A statement that informs the member of their right to request
                  information on whether or not the health plan has Physician
                  Incentive Plans (PIP) that affect the use of referral
                  services, the right to know the types of compensation
                  arrangements the plan uses, the right to know whether
                  stop-loss insurance is required and the right to a summary of
                  member survey results. (in accordance with PIP regulation).
         bb.      Member's right to be treated fairly regardless of race,
                  religion, sex, age or ability to pay.

                                       27
<PAGE>

         cc.      Instructions for obtaining culturally competent materials,
                  including translated member materials.

         dd.      A description of the criteria and procedures for requesting a
                  health plan change.

         ee.      Information regarding prenatal HIV testing and counseling
                  services.

Regardless of the format chosen by the Contractor, the member handbook must be
printed in a type style and size, which can easily be read by members with
varying degrees of visual impairment. At a minimum, the member handbook shall
also contain the following language regarding questions, problems, grievances
and requests for hearings (Ref. AHCCCS Rule R9-22-518 and R9-31-518):

Q.       What if I have any questions, problems or complaints about
         [Contractor's name]?
A.       If you have a question or problem, please call _________ and ask to
         talk to a Member Representative. They are there to help you.
A.       If you have a specific complaint about your medical care, the Member
         Representative will help you.

Q.       What if I'm not happy with the help given to me by the Member
         Representative?
A.       If you are unhappy with the answer you receive, you can tell the Member
         Representative you want to file a written or oral grievance. The
         grievance must be filed not later than 60 days after the date of the
         action, decision, or incident.

A.       [Contractor's name] will make a final decision for grievances within 30
         days of receiving your written or oral grievance. A letter will be
         mailed to you stating the health plan's decision and the reason for the
         decision. The letter will tell you how you can appeal the decision if
         you are still unhappy. You must let the health plan know you want to
         appeal the decision letter.
A.       If you are appealing the health plan's decision, [Contractor's name]
         will send your request for appeal to the AHCCCSA. You will receive
         information from AHCCCSA on how your appeal will be handled. AHCCCSA
         will then decide if the health plan's decision was correct under the
         circumstances.

I.       A list of the names, telephone numbers and service site addresses of
         PCPs available for selection by the member and a description of the
         selection process. Upon request by the member, the Contractor must make
         information available regarding provider qualifications.

9.       MEMBER SURVEYS

AHCCCSA may periodically conduct a survey of a representative sample of the
Contractor's membership. AHCCCSA will design a questionnaire to assess
accessibility, availability and continuity of care with PCPs; communication
between members and the Contractor; and general member satisfaction with the
AHCCCS program. To ensure comparability of results, the questions to the members
will be the same for all contractors. AHCCCSA will consider suggestions from the
Contractor for questions to be included in each survey. The results of these
surveys will become public information and available to all interested parties
upon request. In addition, unless waived by AHCCCSA, the Contractor shall
perform its own annual general or focused member survey. All such contractor
surveys must be approved in advance by AHCCCSA.

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<PAGE>

10.      MARKETING PLANS

The Contractor shall submit all proposed marketing plans and materials to
AHCCCSA for prior approval in accordance with the AHCCCS Health Plan Marketing
Policy, a copy of which is available in the Bidder's Library. The Contractor
must have signed contracts with hospitals (in Maricopa and Pima counties), PCPs,
specialists and pharmacies in order for them to be included in marketing
materials.

11.      ANNUAL ENROLLMENT CHOICE

AHCCCSA conducts an Annual Enrollment Choice (AEC) for members on their annual
anniversary date. AHCCCSA may hold an open enrollment on a limited basis as
deemed necessary. During AEC, members may change contractors subject to the
availability of other contractors within their Geographic Service Area. Members
are mailed a printed enrollment form and may choose a new contractor by
contacting AHCCCSA to complete the enrollment process. If the member does not
participate in the AEC, no change of contractor will be made (except for
approved changes under the Change of Plan Policy) during the new anniversary
year. This holds true if the Contractor's contract is renewed and the member
continues to live in the Contractor's service area. The Contractor shall comply
with the Office of Managed Care Member Transition for Annual Enrollment Choice
and Other Plan Changes policy.

12.      TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM, and the Office of Managed Care Member
Transition for Annual Enrollment Choice and Other Plan Changes standards for
member transitions between health plans or GSAs, to or from an ALTCS program
contractor, IHS, a PL 93-638 tribal entity, or a Title XXI direct service
provider and upon termination or expiration of a contract. The Contractor shall
develop and implement policies and procedures, which comply with AHCCCS medical
policy to address transition of:

1.       Members with significant medical conditions such as a high-risk
         pregnancy or pregnancy within the last 30 days, the need for organ or
         tissue transplantation, chronic illness resulting in hospitalization or
         nursing facility placement, etc.;
2.       Members who are receiving ongoing services such as dialysis, home
         health, chemotherapy and/or radiation therapy or who are hospitalized
         at the time of transition;
3.       Members who have received prior authorization for services such as
         scheduled surgeries, out-of-area specialty services, nursing home
         admission;
4.       Prescriptions, DME and medically necessary transportation ordered for
         the transitioning member by the relinquishing contractor; and
5.       Medical records of the transitioning member (the cost of reproducing
         and forwarding medical records shall be the responsibility of the
         relinquishing AHCCCS contractor).

When relinquishing members, the Contractor is responsible for timely
notification of the receiving contractor regarding pertinent information related
to any special needs of transitioning members. The Contractor, when receiving a
transitioning member with special needs, is responsible to coordinate care with
the relinquishing contractor in order that services not be interrupted, and for
providing the new member with health plan and service information, emergency
numbers and instructions of how to obtain services.

                                       29
<PAGE>

In the event the contract, or any portion thereof, is terminated for any reason,
or expires, the Contractor shall assist AHCCCSA in the transition of its members
to other contractors, and shall abide by standards and protocols set forth
above. In addition, AHCCCSA reserves the right to extend the term of the
contract on a month-to-month basis to assist in any transition of members. The
Contractor shall make provision for continuing all management and administrative
services until the transition of all members is completed and all other
requirements of this contract are satisfied. The Contractor shall be responsible
for providing all reports set forth in this contract and necessary for the
transition process and shall be responsible for the following:

a.       Notification of subcontractors and members.
b.       Payment of all outstanding obligations for medical care rendered to
         members.
c.       Until AHCCCSA is satisfied that the Contractor has paid all such
         obligations, the Contractor shall provide the following reports to
         A1{CCCSA:
d.       A monthly claims aging report by provider/creditor including IBNR
         amounts;
e.       A monthly summary of cash disbursements;
f.       Copies of all bank statements received by the Contractor.
g.       Such reports shall be due on the fifth day of each succeeding month for
         the prior month.
h.       In the event of termination or suspension of the contract by AHCCCSA,
         such termination or suspension shall not affect the obligation of the
         Contractor to indemnify AHCCCSA for any claim by any third party
         against the State or AHCCCSA arising from the Contractor's performance
         of this contract and for which the Contractor would otherwise be liable
         under this contract.
i.       Any dispute by the Contractor with respect to termination or suspension
         of this contract by AHCCCSA shall be exclusively governed by the
         provisions of Section E, Paragraph 26, Disputes.
j.       Any funds advanced to the Contractor for coverage of members for
         periods after the date of termination shall be returned to AHCCCSA
         within 30 days of termination of the contract.

13.      STAFF REQUIREMENTS AND SUPPORT SERVICES

The Contractor shall have in place the organization, management and
administrative systems capable of fulfilling all contract requirements. For the
purposes of this contract, the Contractor shall not employ or contract with any
individual that has been debarred, suspended or otherwise lawfully prohibited
from participating in any public procurement activity. At a minimum, the
following staff is required.

a.       A full-time ADMINISTRATOR/CEO/COO who is available at all times to
         fulfill the responsibilities of the position and to oversee the entire
         operation of the health plan. The Administrator shall devote sufficient
         time to the Contractor's operations to ensure adherence to program
         requirements and timely response to AHCCCS Administration.
b.       A MEDICAL DIRECTOR who shall be an Arizona-licensed physician. The
         Medical Director shall be actively involved in all-major clinical
         programs and QM/UM components of the Contractor's health plan. The
         Medical Director shall devote sufficient time to Contractor's health
         plan to ensure timely medical decisions, including after-hours
         consultation as needed.
c.       A CHIEF FINANCIAL OFFICER/CFO who is available at all times to fulfill
         the responsibilities of the position and to oversee the budget and
         accounting systems implemented by the Contractor.

                                       30
<PAGE>

d.       A QUALITY MANAGEMENT/UTILIZATION MANAGEMENT COORDINATOR who is an
         Arizona-licensed registered nurse, physician or physician's assistant.
e.       A MATERNAL HEALTH/EPSDT COORDINATOR who shall be an Arizona-licensed
         registered nurse, physician or physician's assistant; or have a
         Master's degree in health services, public health or health care
         administration or other related field.
f.       A BEHAVIORAL HEALTH COORDINATOR who shall be a behavioral health
         professional as described in Health Services Rule R9-20. The Behavioral
         Health Coordinator shall devote sufficient time to ensure that the
         Contractor's behavioral health referral and coordination activities are
         implemented per AHCCCSA requirements.
g.       PRIOR AUTHORIZATION STAFF to authorize medical care 24 hours per day, 7
         days per week. This staff shall include an Arizona-licensed registered
         nurse, physician or physician's assistant.
h.       CONCURRENT REVIEW STAFF to conduct inpatient concurrent review. This
         staff shall consist of an Arizona-licensed registered nurse, physician,
         physician's assistant or an Arizona-licensed practical nurse
         experienced in concurrent review and under the direct supervision of a
         registered nurse, physician or physician's assistant.
i.       MEMBER SERVICES MANAGER AND STAFF to coordinate communications with
         members and act as member advocates. There shall be sufficient Member
         Service staff to enable members to receive prompt resolution to their
         problems, and to meet the Contractor's standards for telephone
         abandonment rates and telephone hold times.
j.       PROVIDER SERVICES MANAGER AND STAFF to coordinate communications
         between the Contractor and its subcontractors. There shall be
         sufficient Provider Services staff to enable providers to receive
         prompt resolution to their problems or inquiries.
k.       A CLAIMS ADMINISTRATOR AND CLAIMS PROCESSORS to ensure the timely and
         accurate processing of original claims, claims correction letters,
         re-submissions and overall adjudication of claims.
l.       ENCOUNTER PROCESSORS to ensure the timely and accurate processing and
         submission to AHCCCSA of encounter data and reports.
m.       A GRIEVANCE COORDINATOR who will manage and adjudicate member and
         provider grievances.
n.       CLERICAL AND SUPPORT STAFF to ensure appropriate functioning of the
         Contractor's operation.

The Contractor shall inform AHCCCSA, Office of Managed Care, in writing and
provide a resume within seven days of staffing changes in the following key
positions:

<TABLE>
         <S>                                         <C>
         Administrator                               Member Services Manager
         Medical Director                            Provider Services Manager
         Chief Financial Officer                     Claims Administrator
         Maternal Health/EPSDT Coordinator           Quality Management/Utilization
                                                     Management Coordinator
         Grievance Coordinator                       Behavioral Health Coordinator
</TABLE>

The Contractor shall ensure that all staff has appropriate training, education,
experience and orientation to fulfill the requirements of the position. See the
AMPM, Chapter 600 for specific position requirements.

                                       31
<PAGE>

14.      WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures shall be reviewed at least annually to ensure that the
Contractor's written policies reflect current practices. Reviewed policies shall
be dated and signed by the Contractor's appropriate manager, coordinator,
director or administrator. All medical and quality management policies must be
approved and signed by the Contractor's Medical Director. Job descriptions shall
be reviewed at least annually to ensure that current duties performed by the
employee reflect written requirements.

15.      ADVANCE DIRECTIVES

The Contractor shall maintain policies and procedures addressing advanced
directives for adult members that specify:

a.       Each contract or agreement with a hospital, nursing facility, home
         health agency, hospice or organization responsible for providing
         personal care must comply with federal and State law regarding advance
         directives for adult members. Requirements include:

         (1)      Maintaining written policies that address the rights of adult
                  members to make decisions about medical care, including the
                  right to accept or refuse medical care, and the right to
                  execute an advance directive. If the agency/organization has a
                  conscientious objection to carrying out an advance directive,
                  it must be explained in policies. (A health care provider is
                  not prohibited from making such objection when made pursuant
                  to A.R.S. ss. 36-3205.C.1.)
         (2)      Provide written information to adult members regarding each
                  individual's rights under State law to make decisions
                  regarding medical care, and the health care provider's written
                  policies concerning advance directives (including any
                  conscientious objections).
         (3)      Documenting in the member's medical record whether or not the
                  adult member has been provided the information and whether an
                  advance directive has been executed.
         (4)      Not discriminating against a member because of his or her
                  decision to execute or not execute an advance directive, and
                  not making it a condition for the provision of care.
         (5)      Providing education to staff on issues concerning advance
                  directives including notification of direct care providers of
                  services, such as home health care and personal care, of any
                  advanced directives executed by members to whom they are
                  assigned to provide services.

a.       Contractors shall encourage subcontracted PCPs to comply with the
         requirements of subparagraph a. (2) through (5) above. Contractors
         shall also encourage health care providers specified in subparagraph a.
         to provide a copy of the member's executed advanced directive, or
         documentation of refusal, to the member's PCP for inclusion in the
         member's medical record.

                                       32
<PAGE>

16.      PERFORMANCE MEASUREMENT

All performance measures described below apply to Title XIX, Title XXI, and
state-only member populations.

Effective October 1, 2000, AHCCCS will require Contractors to adopt the Quality
Improvement System for Managed Care (QISMC). AHCCCS will work with the
Contractors to develop quality improvement projects that will meet the QISMC
guidelines. Compliance with this requirement will become a part of the
Operational and Financial Review after October 1, 2001.

Contractors shall strive to meet the AHCCCS stated performance measure goals.
However, it is equally important that Contractors continually improve their
performance measure outcomes from year to year. Improvement in performance is to
be measured by a reduction in the health plan's adverse outcomes. AHCCCS
requires the Contractor to achieve a reduction of ten percent or more from the
previous year's adverse outcomes. The Contractor's performance will also be
evaluated against the adjusted AHCCCS statewide average performance level,
excluding the effect of the Contractor's data.

                                       33
<PAGE>

AHCCCS will require the Contractor to have a quality improvement plan in place
when:

(a)      the Contractor has not achieved the AHCCCS statewide performance level
         for any measure but has shown significant improvement, or
(b)      the Contractor's rate has declined but is at or above the AHCCCS
         statewide performance level for any measure.

The Contractor will be required to submit a corrective action plan and may be
subject to sanctions if:

(a)      the Contractor has not achieved the AHCCCS statewide performance level
         for any measure and has failed to show adequate improvement, or
(b)      if the Contractor's rate has declined and fallen below the AHCCCS
         statewide performance level for any measure.

Corrective action plans must be received by the Office of Medical Management
within 30 days of receipt of notification from AHCCCS. AHCCCS may conduct one or
more follow-up on-site reviews to verify compliance with a corrective action
plan.

EPSDT PARTICIPATION: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program to at least 80% of all enrolled
members under age 21 during CYE 2001. The participant rate is the number of
children receiving at least one medical screen compared to the number of
children expected to receive at least one medical screen. The number of children
expected to receive at least one medical screen is based on the federal
periodicity schedule and the average period of eligibility.

AHCCCSA will measure participation levels through encounter data and will not
use information from prior period coverage (see Paragraph D.6, Prior Period
Coverage) in evaluating the Contractor's performance.

EPSDT IMMUNIZATIONS: The Contractor shall ensure members under age 21 receive
age-appropriate immunizations as specified in the AMPM. During CYE 2001, the
Contractor shall meet or exceed the following:

<TABLE>
<CAPTION>
Immunization                                        Percentage of     Number of Doses
                                                       Members
                                                      Immunized
<S>                                                 <C>               <C>
Diphtheria, Tetanus, Pertussis vaccine (DPT)             82%                 4
Oral/Inactivated Polio Vaccine                           88%                 3
Measles, Mumps, Rubella Vaccine (MMR)                    90%                 1
H. Influenza, Type B (2 HIB)                             90%                 2
Hepatitis B (Hep B)                                      87%                 3
Combined 3-Antigen Rate (4 DPT, 3 OPV, 1 MMR)            82%                 8
Combined All Antigen                                     73%                13
Varicella Vaccine                                        67%                 1
</TABLE>

                                       34
<PAGE>

The Contractor shall participate in an annual immunization audit based on random
sampling to assess and verify the immunization status of two-year-old members.
AHCCCSA will provide the Contractor, within two weeks after the end of the
contract year, the selected sample, specifications for conducting the audit, the
AHCCCSA reporting requirements, and technical assistance. The Contractor shall
identify each child's PCP, conduct the assessment, and report to AHCCCSA in the
required format all immunization data for the sampled two-year-old children no
later than December 15 after the end of the contract year. If medical records
are missing for more than 5% of the sample group, the Contractor is subject to
sanctions by AHCCCSA. The External Quality Review Contractor will conduct a
study to validate the Contractor's reported rates.

PERFORMANCE INDICATORS: For CYE 2001, the Contractor shall comply with AHCCCS
quality management requirements to improve performance for all AHCCCS
established performance indicators. Complete descriptions of these indicators
can be found in the document Health Plan Performance Indicators, User and
Technical Specifications. AHCCCS has established goals for the following
indicators: annual dental visits; well-child visits in the first 15 months of
life; and well-child visits in the 3rd, 4th, 5th and 6th years of life.

ANNUAL DENTAL VISITS: The Contractor shall take affirmative steps to increase
utilization of dental services for members under age 21. At least 55% of all
enrolled members between the ages of 3 to 21 shall have at least one dental
visit during CYE 2001. AHCCCSA will monitor utilization through reported
encounter data.

WELL CHILD VISITS IN THE FIRST 15 MONTHS OF LIFE: The Contractor shall ensure
that members under the age of 15 months receive all recommended well-child
visits as specified in the AMPM. During CYE 2001, the Contractor shall ensure
that a minimum of 64% of its members receive all recommended well-child visits.

WELL-CHILD VISITS IN THE 3RD, 4TH, 5TH AND 6TH YEARS OF LIFE: The Contractor
shall ensure that members 3, 4, 5 and 6 years of age receive all recommended
well-child visits as specified in the AMPM. During CYE 2001, the Contractor
shall ensure that a minimum of 64% of its members receive at least one
well-child visit during the contract year.

CHILDREN'S ACCESS TO PRIMARY CARE PRACTITIONERS. The Contractor shall ensure
that members under age 21 have access to primary care provider (PCP) services.
During CYE 2001, the Contractor shall ensure that a minimum of 70% of members
under age 21 visit their PCP at least once during the contract year.

ACCESS TO CARE: During the contract year AHCCCSA will be developing and
establishing baseline information for three new measures: Provider Turnover,
Board Certification/Residency Completion and Availability of Language
Interpretation Services.

17.      QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)

The Contractor shall provide to members quality medical care as described in the
AMPM, Chapter 900, regardless of payer source or eligibility category. The
Contractor shall institute processes to assess, plan, implement and evaluate
quality improvement activities. The Contractor shall conduct two clinical
studies each contract year as required in Chapter 900 of the AMPM. AHCCCSA will
determine the subject matter and study methodology for one of the annual

                                       35
<PAGE>

studies and the Contractor shall submit to AHCCCSA by November 15 of each
contract year its proposed subject matter and methodology for the other. The
results of the studies shall be submitted to AHCCCS, Office of Medical
Management, within 180 days after the end of each contract year.

The Contractor must maintain a written QM/UM plan, which details plans for
compliance with the AMPM. The Contractor shall incorporate in its QM/UM plan an
action plan for improving the performance rates for those indicators with
established baselines.

18.      PHYSICIAN INCENTIVES

The Contractor must comply with all applicable physician incentive requirements
and conditions defined in 42 CFR 417.479. These regulations prohibit physician
incentive plans that directly or indirectly make payments to a doctor or a group
as an inducement to limit or refuse medically necessary services to a member.
The Contractor is required to disclose all physician incentive agreements to
AHCCCSA and to AHCCCS members who request them.

The Contractor shall not enter into contractual arrangements that place
providers at significant financial risk as defined in CFR 417.479 unless
specifically approved in advance by the Office of Managed Care. In order to
obtain approval, the following must be submitted to the Office of Managed Care
45 days prior to the implementation of the contract:

1.       A complete copy of the contract
2.       A plan for the member satisfaction survey
3.       Details of the stop-loss protection provided
4.       A summary of the compensation arrangement that meets the substantial
         financial risk definition.

The Contractor shall disclose to AHCCCSA the information on physician incentive
plans listed in 42 CFR 417.479(h)(1) through 417.479(I) upon contract renewal,
prior to initiation of a new contract, or upon request from AHCCCSA or HCFA.
Please refer to the "Physician Incentive Guidelines" in the Bidder's Library for
details on providing required disclosures.

19.      APPOINTMENT STANDARDS

For purposes of this section, "urgent" is defined as an acute but not
necessarily severe disorder, which, if not attended to, could endanger the
patient's health. The Contractor shall have procedures in place that ensure the
following standards are met:

a.       Emergency PCP appointments         -        same day of request
b.       Urgent care PCP appointments       -        within two days of request
c.       Routine care PCP appointments      -        within 21 days of request

                                       36
<PAGE>

For SPECIALTY REFERRALS, the Contractor shall be able to provide:

a.       Emergency appointments     -       within 24 hours of referral
b.       Urgent care appointments   -       within three days of referral
c.       Routine care appointments  -       within 30 days of referral

For DENTAL APPOINTMENTS, the Contractor shall be able to provide:

a.       emergency appointments     -       within 24 hours of request
b.       urgent appointments        -       within three days of request
c.       routine care appointments  -       within 45 days of request

For MATERNITY CARE, the Contractor shall be able to provide initial prenatal
care appointments for enrolled pregnant members as follows:

a.       First trimester   -  within 14 days of request
b.       Second trimester  -  within 7 days of request
c.       Third trimester   -  within three days of request
d.                            High risk pregnancies - within three days of
                              identification of high risk by the Contractor
                              or maternity care provider, or immediately if
                              an emergency exists

If a member needs medically-necessary transportation, the Contractor shall
require its transportation provider to schedule the transportation so that the
member arrives no sooner than one hour before the appointment; does not have to
wait more than one hour after making the call to be picked up; nor have to wait
for more than one hour after conclusion of the appointment for transportation
home.

The Contractor shall actively monitor the adequacy of its appointment processes
and reduce the unnecessary use of alternative methods such as emergency room
visits. The Contractor shall actively monitor and ensure that a member's waiting
time for a scheduled appointment at the PCP's or specialist's office is no more
than 45 minutes, except when the provider is unavailable due to an emergency.

The Contractor shall have written policies and procedures about educating its
provider network about appointment time requirements. The Contractor must assign
a specific staff member or unit within its organization to monitor compliance
with appointment standards and shall require a corrective action plan when
appointment standards are not met. Appointment standards shall be included in
the Provider Manual.

20.      REFERRAL PROCEDURES AND STANDARDS

The Contractor shall have adequate written procedures regarding referrals to
specialists to include, at a minimum, the following:

a.       Use of referral forms clearly identifying the Contractor
b.       A system for resolving disputes regarding the referrals

                                       37
<PAGE>

c.       Having a process in place that ensures the member's PCP receives all
         specialist and consulting reports and a process to ensure PCP follow-up
         of all referrals including EPSDT referrals for behavioral health
         services
d.       A referral plan for any member who is about to lose eligibility and who
         requests information on low-cost or no-cost health care services
e.       Referral to Medicare HMO including payment of copayments

The Contractor shall comply with all applicable physician referral requirements
and conditions defined in Sections 1903(s) and 1877 of the Social Security Act.
Upon finalization of the regulations, the Contractor shall comply with all
applicable physician referral requirements and conditions defined in 42 CFR Part
411, Part 424, Part 435 and Part 455. Sections 1903(s) and 1877 of the Act
prohibits physicians from making referrals for designated health services to
health care entities with which the physician or a member of the physician's
family has a financial relationship. Designated health services include:

         Clinical laboratory services
         Physical therapy services
         Occupational therapy services
         Radiology services
         Radiation therapy services and supplies
         Durable medical equipment and supplies
         Parenteral and enteral nutrients, equipment and supplies
         Prosthetics, orthotics and prosthetic devices and supplies
         Home health services
         Outpatient prescription drugs
         Inpatient and outpatient hospital services

21.      PROVIDER MANUAL

The Contractor shall develop, distribute and maintain a provider manual. The
Contractor shall ensure that each contracted provider is issued a copy of the
provider manual and is encouraged to distribute a provider manual to any
individual or group that submits claim and encounter data. The Contractor
remains liable for ensuring that all providers, whether contracted or not, meet
the applicable AHCCCS requirements such as covered services, billing, etc. At a
minimum, the Contractor's provider manual must contain information on the
following:

a.       Introduction to the Contractor which explains the Contractor's
         organization and administrative structure
b.       Provider responsibility and the Contractor's expectation of the
         provider
c.       Overview of the Contractor's Provider Service department and function
d.       Listing and description of covered and non-covered services,
         requirements and limitations including behavioral health services
e.       Emergency room utilization (appropriate and non-appropriate use of the
         emergency room)
f.       EPSDT Services - screenings include a comprehensive history,
         developmental/behavioral health screening, comprehensive unclothed
         physical examination, appropriate vision testing, hearing testing,
         laboratory tests, dental screenings and immunizations
g.       Dental services
h.       Maternity/Family Planning services

                                       38
<PAGE>

i.       The Contractor's policy regarding PCP assignments
j.       Referrals to specialists and other providers, including access to
         behavioral health services provided by the ADHS/RBHA system.
k.       Grievance and request for hearing rights
l.       Billing and encounter submission information
         - indicate which form UB92, HCFA 1500, or Form C is to be used for
           services
         - indicate which fields are required for a claim to be considered
           acceptable by the Contractor. A completed sample of each form shall
           be included
m.       Contractor's written policies and procedures which affect the
         provider(s) and/or the provider network
n.       Claims re-submission policy and procedure
o.       Reimbursement, including reimbursement for dual eligibles (i.e.
         Medicare and Medicaid) or members with other insurance
p.       Explanation of remittance advice
q.       Prior authorization requirement
r.       Claims medical review
s.       Concurrent review
t.       Fraud and Abuse
u.       Formularies (with updates and changes provided in advance to providers,
         including pharmacies)
v.       AHCCCS appointment standards
w.       Americans with Disabilities Act (ADA) requirements, as applicable
x.       Eligibility verification
y.       Cultural competency information.

22.      PRIMARY CARE PROVIDER STANDARDS

The Contractor shall include in its provider network a sufficient number of PCPs
to meet the requirements of this contract. Health care providers designated by
the Contractor as PCPs shall be licensed in Arizona as allopathic or osteopathic
physicians who generally specialize in family practice, internal medicine,
obstetrics, gynecology, or pediatrics; certified nurse practitioners or
certified nurse midwifes; or physician's assistants.

At a minimum, the Contractor's number of full-time equivalent PCPs to enrolled
members shall not exceed a ratio of 1:1800 for adults and 1:1200 for children
who are 12 or younger. If the PCP contracts with more than one AHCCCS health
plan, the ratio shall be adjusted by the Contractor to ensure the total number
of AHCCCS members does not exceed the above ratio. The Contractor should
consider the PCP's total patient panel size (i.e. AHCCCS and non-AHCCCS
patients) when assessing the PCP's ability to meet AHCCCS' appointment and other
standards. In addition, AHCCCS members shall not comprise the majority of the
PCP's panel of patients. The Contractor shall also reduce the number of members
assigned to its network PCPs as necessary to meet the appointment standards
specified in Section D, Paragraph 19, Appointment Standards. Any variation to
the above standards must be submitted to AHCCCSA, Office of Medical Management
for prior approval. PCPs with assigned members diagnosed with AIDS or as
HIV-positive shall meet criteria and standards set forth in AHCCCS Medical
Policy and AHCCCS AIDS Advisory Committee Guidelines.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data regarding
PCP assignments is current. The

                                       39
<PAGE>

Contractor is encouraged to assign members with complex medical conditions
who are age 12 and younger to Board-certified pediatricians.

To the extent required by this contract, the Contractor shall offer members
freedom of choice in selecting a PCP. When a new member has been assigned to the
Contractor, the Contractor shall inform the member in writing of his enrollment
and of his PCP assignment within 10 days of the Contractor's receipt of
notification of assignment by AHCCCSA. The Contractor shall include with the
enrollment notification a list of all the Contractor's available PCPs and the
process for changing the PCP assignment, should the member desire to do so. The
Contractor shall confirm any PCP change in writing to the member. Members may
make both their initial PCP selection and any subsequent PCP changes either
verbally or in writing.

At a minimum, the Contractor shall hold the PCP responsible for the following
gatekeeping activities:

a.       Supervision, coordination and provision of care to each assigned member
b.       Initiation of referrals for medically necessary specialty care
c.       Maintaining continuity of care for each assigned member
d.       Maintaining the member's medical record, including documentation of all
         services provided to the member by the PCP, as well as any specialty or
         referral services.

The Contractor shall establish and implement policies and procedures to monitor
PCP gatekeeping activities and to ensure that PCPs are adequately notified of,
and receive documentation regarding, specialty and referral services provided to
assigned members by specialty physicians, dentists and other health care
professionals. Contractor policies and procedures shall be subject to approval
by AHCCCSA, Office of Managed Care, and shall be monitored through operational
audits. PCPs and specialists who provide inpatient services to the Contractor's
members shall have admitting and treatment privileges in a minimum of one
general acute care hospital that is located within the Contractor's service
area.

23.      OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and procedures to:

a.       Recruit sufficient specialty physicians, dentists, health care
         professionals, health care institutions and support services to meet
         the medical needs of its members.
b.       Monitor the adequacy, accessibility and availability of its provider
         network to meet the needs of its members, including the provision of
         care to members with limited proficiency in English.

Contractor policies shall be subject to approval by AHCCCSA, Office of Managed
Care, and shall be monitored through operational audits.

                                       40
<PAGE>

For specialty services, the Contractor shall ensure that:

a.       PCP referral shall be required for specialty physician services, except
         that women shall have direct access to GYN providers without a referral
         for preventive and routine services. Any waiver of this requirement by
         the Contractor must be approved in advance by AHCCCSA.
b.       Specialty physicians shall not begin a course of treatment for a
         medical condition other than that for which the member was referred,
         unless approved by the member's PCP.
c.       The specialty physicians shall provide to the member's PCP complete
         documentation of all diagnostic services including copies of test
         results if applicable, treatment services provided and the resulting
         outcome for each.

The Contractor shall ensure that a maternity care provider is designated for
each pregnant member for the duration of her pregnancy and postpartum care and
that maternity services are provided in accordance with the AMPM. The Contractor
may include in its provider network the following maternity care providers:

a.       Arizona licensed allopathic and/or osteopathic physicians who are
         general practitioners or specialize in family practice or obstetrics
b.       Certified nurse midwives
c.       Licensed midwives.

Members may choose, or be assigned, a PCP who provides obstetric care (physician
or certified nurse midwife). Such assignment shall be consistent with the
freedom of choice requirements for selecting health care professionals while
ensuring that the continuity of care is not compromised. Members who choose to
receive maternity services from a licensed midwife shall also be assigned to a
PCP for medical care as primary care is not within the scope of practice for
licensed midwives.

All physicians and certified nurse midwives who perform deliveries shall have OB
hospital privileges. Licensed midwives perform deliveries only in the member's
home. Labor and delivery services may also be provided in the member's home by
physicians and certified nurse practitioners and certified nurse midwives who
include such services within their practice.

24.      NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is sufficient
to provide all covered services to AHCCCS members. It shall ensure covered
services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient personnel for the
provision of covered services, including emergency medical care on a
24-hour-a-day, 7-days-a-week basis. The proposed network shall be sufficient to
provide covered services within designated time and distance limits. For
Maricopa and Pima Counties only, this includes a network such that 95% of its
members residing within the boundary area of metropolitan Phoenix and Tucson do
not have to travel more than 5 miles to see a PCP or pharmacy. 95% of its
members residing outside the boundary area must not have to travel more than 10
miles to see such providers. See Attachment B, Minimum Network Requirements, for
details on network requirements by Geographic Service Area. Also see Section D,
Paragraph 35, Hospital Subcontracting and Reimbursement, for details on changes
in hospital subcontracting effective October 1, 1998.

                                       41
<PAGE>

Under the Balanced Budget Act of 1997, the Contractor shall not discriminate
with respect to participation in the AHCCCS program, reimbursement or
indemnification against any provider based solely on the provider's type of
licensure or certification. This provision, however, does not prohibit the
Contractor from limiting provider participation to the extent necessary to meet
the needs of the Contractor's members. This provision also does not interfere
with measures established by the Contractor to control costs consistent with its
responsibilities under this contract.

25.      NETWORK MANAGEMENT

The Contractor shall have policies and procedures in place that pertains to all
service specifications described in the AMPM Chapters 300, 600 and 900. In
addition, the Contractor shall have policies on how the Contractor will:

a.       Communicate with the network regarding contractual and/or program
         changes and requirements
b.       Monitor and control network compliance with policies and rules of
         AHCCCSA and the Contractor, including compliance with all policies and
         procedures related to the grievance process and ensuring the member's
         care is not compromised during the grievance process.
c.       Evaluate the quality of services delivered by the network
d.       Provide or arrange for medically necessary covered services should the
         network become temporarily insufficient within the contracted service
         area
e.       Monitor network capacity to ensure that there are sufficient providers
         to handle the volume of members
f.       Ensure service accessibility, including monitoring appointment
         procedures standards, appointment waiting times, and service provision
         standards

All material changes in the Contractor's provider network must be approved in
advance by AHCCCSA, Office of Managed Care. A material change is defined as one,
which affects, or can reasonably be foreseen to affect, the Contractor's ability
to meet the performance and network standards as described in this contract. The
Office of Managed Care must be notified of planned material changes in the
provider network before the change process has begun, for example before issuing
a 60-day termination notice to a provider. The notification shall be made within
one working day if the change is unexpected. AHCCCSA will assess proposed
changes in the Contractor's provider network for potential impact on members'
health care and provide a written response to the Contractor within 14 days of
receipt of request. For emergency situations, AHCCCSA will expedite the approval
process.

The Contractor shall notify AHCCCSA, Office of Managed Care, within one working
day of any unexpected changes that would impair its provider network. This
notification shall include (1) information about how the change will affect the
delivery of covered services, and (2) the Contractor's plans for maintaining the
quality of member care if the provider network change is likely to result in
deficient delivery of covered services.

                                       42
<PAGE>

26.      FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide covered services
and must comply with the federal mandates. This legislation gives FQHCs the
option to require state Medicaid programs to reimburse the FQHC at 100% of
reasonable costs for the services delivered to Title XIX members. AHCCCSA and
its contractors are required to comply with this legislation. The following
payment methodology for reasonable cost reimbursement was implemented effective
October 1, 1997.

If the FQHC elects reasonable cost reimbursement, the FQHC will receive a
quarterly payment per Title XIX member per month from AHCCCSA. The initial
capitation amount will be $1.75 PMPM statewide. In accordance with the Balanced
Budget Act of 1997 and BBA Refinements Legislation, this additional
reimbursement will be phased out over a five-year period beginning in contract
year ending 2000:

<TABLE>
<CAPTION>
          Contract Year             Phase-Out           PMPM
                                   Percentage          Amount
          <S>                      <C>                 <C>
          1997 through 1999        No phase-out         $ 1.75
          2000                         95%              $ 1.66
          2001                         95%              $ 1.66
          2002                         95%              $ 1.66
          2003                         90%              $ 1.58
          2004                         85%              $ 1.49
          2005                          0%              $ 0.00
</TABLE>

Contractors are required to submit member month information for Title XIX
members for each FQHC on a quarterly basis to AHCCCS Office of Managed Care.
AHCCCSA will perform periodic audits of the member month information submitted.
Contractors should refer to the Office of Managed Care's policy on FQHC
reimbursement for further guidance. The following FQHCs are currently recognized
by HCFA:

         Ajo Community Health Center
         Chiricahua Community Health Centers, Inc.
         Clinica Adelante, Inc.
         El Rio Health Center
         Inter-Tribal Health Care Center
         Lake Powell Medical Center
         Marana Health Center
         Mariposa Community Health Center, Inc.
         Mountain Park Health Center
         Native American Community Health Center, Inc.
         Native Americans for Community Action Family Health Center
         North Country Community Health Center
         Sun Life Family Health Center
         Sunset Community Health Center (formerly Valley Health Center, Inc.)
         United Community Health Center, Inc.

                                       43
<PAGE>

Any other clinics that subsequently become FQHCS will be subject to the
reimbursement methodology described above upon electing reasonable cost
reimbursement from AHCCCSA.

27.      PROVIDER REGISTRATION

The Contractor shall ensure that all of its subcontractors register with AHCCCSA
as an approved service provider and receive an AHCCCS Provider ID Number. A
Provider Participation Agreement must be signed with each provider who does not
already have a current AHCCCS ID number. The original shall be forwarded to
AHCCCSA. This provider registration process must be completed in order for the
Contractor to report services a subcontractor renders to enrolled members and
for the Contractor to be paid reinsurance.

28.      PROVIDER AFFILIATION TAPE

The Contractor shall submit information quarterly regarding its provider
network. This information shall be submitted in the format described in the
Provider Affiliation Tape User Manual on October 15, January 15, April 15, and
July 15 of each contract year. The Manual may be found in the Bidder's Library.

29.      PERIODIC REPORT REQUIREMENTS

AHCCCSA, under the terms and conditions of its HCFA grant award, requires
periodic reports, encounter data, and other information from the Contractor. The
submission of late, inaccurate, or otherwise incomplete reports shall constitute
failure to report subject to the penalty provisions described in this contract.
Standards applied for determining adequacy of required reports are as follows:

a.       Timeliness:       Reports or other required data shall be received on
                           or before scheduled due dates.

b.       Accuracy:         Reports or other required data shall be prepared in
                           strict conformity with appropriate authoritative
                           sources and/or AHCCCS defined standards.

c.       Completeness:     All required information shall be fully disclosed
                           in a manner that is both responsive and pertinent
                           to report intent with no material omissions.

AHCCCS requirements regarding reports, report content and frequency of
submission of reports are subject to change at any time during the term of the
contract. The Contractor shall comply with all changes specified by AHCCCSA.

The Contractor shall be responsible for continued reporting beyond the term of
the contract. For example, processing claims and reporting encounter data will
likely continue beyond the term of the contract because of lag time in filing
source documents by subcontractors.

The Contractor shall comply with all financial reporting requirements contained
in the Reporting Guide for Acute Health Care Contractors with the Arizona Health
Care Cost Containment System, a copy of which may be found in the Bidder's
Library. The required reports, which are subject to change during the contract
term, are summarized in Attachment F, Periodic Report Requirements.

                                       44
<PAGE>

30.      DISSEMINATION OF INFORMATION

Upon request, the Contractor shall assist AHCCCSA in the dissemination of
information prepared by AHCCCSA, or the federal government, to its members. The
cost of such dissemination shall be borne by the Contractor. All advertisements,
publications and printed materials that are produced by the Contractor and refer
to covered services shall state that such services are funded under contract
with AHCCCSA.

31.      REQUESTS FOR INFORMATION

AHCCCSA may, at any time during the term of this contract, request financial or
other information from the Contractor. Upon receipt of such requests for
information, the Contractor shall provide complete information as requested no
later than 30 days after the receipt of the request unless otherwise specified
in the request itself.

32.      OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
successful offerors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business for the initial contract year beginning 10/1/97.
The purpose of Readiness Reviews is to assess new contractors' readiness and
ability to provide contract services to members at the start of the contract
year. A new contractor will be permitted to commence operations only if the
Readiness Review factors are met to AHCCCSA's satisfaction.

33.      OPERATIONAL AND FINANCIAL REVIEWS

In accordance with HCFA requirements, AHCCCSA will conduct regular Operational
and Financial Reviews for the purpose of (but not limited to) ensuring
operational and financial program compliance. The Reviews will identify areas
where improvements can be made and make recommendations accordingly, monitor the
Contractor's progress towards implementing mandated programs and provide the
Contractor with technical assistance if necessary. The Contractor shall comply
with all other medical audit provisions as required by AHCCCS Rule R9-22-521 and
R9-3l-521.

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful, AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with AHCCCSA and the AHCCCSA Review Team by
forwarding in advance such policies, procedures, job descriptions, contracts,
logs and other information that AHCCCSA may request. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance by
AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor personnel as identified in advance shall be
available to the Review Team at all times during AHCCCSA on-site review
activities. While on-site, the Contractor shall provide the Review Team with
workspace, access to a telephone, electrical outlets and privacy for
conferences. Certain documentation submission requirements may be waived at the
discretion of AHCCCSA if the

                                       45
<PAGE>

Contractor has obtained accreditation from NCQA or any other nationally
recognized accrediting body. The Contractor must submit the entire NCQA report
to AHCCCSA for such waiver consideration.

The Contractor will be furnished a copy of the Operational and Financial Review
Report and given an opportunity to comment on any review findings prior to
AHCCCSA publishing the final report. Operational and Financial Review findings
may be used in the scoring of subsequent bid proposals by that Contractor.
Recommendations made by the Review Team to bring the Contractor into compliance
with federal, State, AIHCCCS, and/or RFP requirements must be implemented by the
Contractor. AHCCCSA may conduct a follow-up Operational and Financial Review to
determine the Contractor's progress in implementing recommendations and
achieving program compliance. Follow-up reviews may be conducted at any time
after the initial Operational and Financial Review.

AHCCCSA may conduct an Operational and Financial Review in the event the
Contractor undergoes a merger, reorganization, change in ownership or makes
changes in three or more key staff positions within a 12-month period.

34.      CLAIMS PAYMENT SYSTEM

The Contractor shall develop and maintain a claims payment system capable of
processing, cost avoiding and paying claims in accordance with AHCCCS Rule
R9-22-705, a copy of which may be found in the Bidder's Library. In the absence
of a subcontract provision to the contrary, claims submission deadlines shall be
calculated from the date of service or the effective date of eligibility
posting, whichever is later. Remittance advices accompanying the Contractor's
payments to providers must contain, at a minimum, adequate descriptions of all
denials and adjustments, the reasons for such denials and adjustments, the
amount billed, the amount paid, and grievance and request for hearing rights.
The Contractor's claims payment system, as well as its prior authorization and
concurrent review process, must minimize the likelihood of having to recoup
already-paid claims. Any recoupment in excess of $50,000 per provider within a
contract year must be approved in advance by AHCCCSA, Office of Managed Care.

In accordance with the Balanced Budget Act of 1997, unless a subcontract
specifies otherwise, the Contractor shall ensure that 90% of all clean claims
are paid within 30 days of receipt of the clean claim and 99% are paid within 90
days of receipt of the clean claim.

During the term of this contract, AHCCCSA anticipates requiring all health plans
to use a standardized electronic format for electronic claims processing between
the plan and its providers. AHCCCSA plans to require the formats outlined in the
Technical Interface Guidelines under Claims Processing, which is the format
adopted by FFS providers and their billing agents who submit claims
electronically to AHCCCS. The form UB-92 and 1500 layouts will be supplemented
by a Form C layout. All formats are subject to changes as required by federal
law. Reasonable implementation timeframes will be negotiated with each plan.

                                       46
<PAGE>

35.      HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

The Contractor shall reimburse hospitals for member care in accordance with
AHCCCS Rule R9-22-705. The Contractor is encouraged to obtain contracts with
hospitals in all GSA's and must submit copies of these contracts to AHCCCSA,
Office of Managed Care, at least seven days prior to the effective dates
thereof.

The Contractor may conduct prepayment and postpayment medical reviews of all
hospital claims including outlier claims. Erroneously paid claims are subject to
recoupment. If the Contractor fails to identify lack of medical necessity
through concurrent review and/or prepayment medical review, lack of medical
necessity identified during postpayment medical review shall not constitute a
basis for recoupment by the Contractor. See also Section D, Paragraph 34, Claims
Payment System. For a more complete description of the guidelines for hospital
reimbursement, please consult the Bidder's Library for applicable statutes and
rules.

FOR OUT-OF-STATE HOSPITALS: The Contractor shall reimburse out-of-state
hospitals in accordance with AHCCCS Rule R9-22-705.

36.      NURSING FACILITY REIMBURSEMENT

The Contractor shall not deny nursing facility services if the nursing facility
is unable to obtain prior authorization in situations where acute care
eligibility and ALTCS eligibility overlap and the member is enrolled with an
AHCCCS acute care contractor. In such situations, the Contractor shall impose
reasonable authorization requirements. The Contractor's payment responsibility
described above applies only in situations where the nursing facility has not
been notified in advance of the member's enrollment with an AHCCCS acute care
contractor. To further illustrate, when ALTCS eligibility overlaps AHCCCS acute
care enrollment, the acute care enrollment takes precedence. Although the member
could be ALTCS eligible for this time period, there is no ALTCS enrollment that
occurs on the same days as AHCCCS acute enrollment. The Contractor is
responsible for payment of services while the member is enrolled with the
Contractor. The Contractor is not responsible for the full 90 days of nursing
facility coverage if ALTCS enrollment occurs before the 90 days has ended.

The Contractor shall provide medically necessary nursing facility services for
any member who has a pending ALTCS application, who is currently residing in a
nursing facility and is eligible for services provided under this contract. If
the member becomes ALTCS eligible and is enrolled with an ALTCS Program
Contractor before the end of the maximum 90 days of nursing facility coverage,
the Contractor is only responsible for nursing facility coverage during the time
the member is enrolled with the Contractor. Nursing facility services covered by
a third party insurer (including Medicare) while the member is enrolled with the
Contractor shall be applied to the 90 day limitation.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application process and to prepare for potential fee-for-service coverage if the
stay goes beyond the 90-day maximum.

                                       47
<PAGE>
37.   COMPENSATION

The method of compensation under this contract will be Prior Period Coverage
(PPC) capitation, prospective capitation, delivery supplement, HIV-AIDS
supplement, reinsurance (PPC and prospective), and third party liability, as
described and defined within this contract and appropriate laws, regulations or
policies.

Subject to the availability of funds, AHCCCSA shall make payments to the
Contractor in accordance with the terms of this contract provided that the
Contractor's performance is in compliance with the terms and conditions of this
contract. Payment must comply with requirements of A.R.S. Title 36. AHCCCSA
reserves the option to make payments to the Contractor by wire or National
Automated Clearing House Association (NACHA) transfer and will provide the
Contractor at least 30 days notice prior to the effective date of any such
change.

Where payments are made by electronic funds transfer, AHCCCSA shall not be
liable for any error or delay in transfer nor indirect or consequential damages
arising from the use of the electronic funds transfer process. Any charges or
expenses imposed by the bank for transfers or related actions shall be borne by
the Contractor. Except for adjustments made to correct errors in payment, and as
otherwise specified in this section, any savings remaining to the Contractor as
a result of favorable claims experience and efficiencies in service delivery at
the end of the contract term may be kept by the Contractor.

All funds received by Contractor pursuant to this contract shall be separately
accounted for in accordance with generally accepted accounting principles.

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund, as described in A.R.S. ss.36-2913. An error discovered by the State with
or without an audit in the amount of fees paid to Contractor will be subject to
adjustment or repayment by Contractor making a corresponding decrease in a
current Contractor's payment or by making an additional payment by AHCCCSA to
the Contractor.

No payment due the Contractor by AHCCCSA may be assigned by the Contractor. This
section shall not prohibit AHCCCSA at its sole option from making payment to a
fiscal agent hired by Contractor.

The Contractor or its subcontractors shall collect any required copayment from
members but service will not be denied for inability to pay the copayment.
Except for permitted copayments, the Contractor or its subcontractors shall not
bill or attempt to collect any fee from, or for, a member for the provision of
covered services. Any required copayments collected shall belong to the
Contractor or its subcontractors.

PRIOR PERIOD COVERAGE (PPC) CAPITATION: The Contractor will be paid capitation
for all PPC member months, including partial member months. This capitation
includes the cost of providing medically necessary covered services to members
during prior period coverage. The PPC capitation rates will be set by AHCCCSA
and will be paid to the Contractor along with the prospective capitation
described below. Contractors will not receive PPC capitation for newborns of
members who were enrolled at the time of delivery.

                                       48
<PAGE>

RECONCILIATION OF PPC COSTS TO REIMBURSEMENT: For CYE `98 and CYE `99, AHCCCSA
will offer a reconciliation process for contractors whose total PPC medical cost
experience (excluding administrative and non-operating expenses) is more than
10% higher than the reimbursement associated with PPC in two areas: the "retro"
portion of the capitation rate for all rate categories, and the prospective
three-day notification period for MN/MI recipients only. Expenses will be net of
reinsurance for both the retro and prospective period.

AHCCCSA will reimburse 100% of a Contractor's excess reasonable costs in excess
of a 10% limit as determined by reported encounters. AHCCCS will recoup profit
amounts in excess of a 10% limit.

For CYE `00 and `01, a full reconciliation to 0% profit or loss will be done by
AHCCCSA for the same eligibility time periods and risk groups noted above.
AHCCCSA will reimburse the health plans 100% of any excess reasonable costs as
determined by reported encounters, and all profits will be recouped. Refer to
the Office of Managed Care's PPC Reconciliation Policy for further details of
the reconciliation process.

DELIVERY SUPPLEMENT. When the Contractor has an enrolled woman who delivers
during a prospective enrollment period, the Contractor will be entitled to a
supplemental payment. Supplemental payments will not apply to women who deliver
in a prior period coverage time period. AHCCCSA reserves the right at any time
during the term of this contract to adjust the amount of this payment for women
who deliver at home.

HIV-AIDS SUPPLEMENT: On a quarterly basis, AHCCCSA shall utilize encounters to
determine the number of members receiving approved HIV/AIDS drugs and calculate
the amount of the supplemental payment. The rate of reimbursement for this
separate per member per month payment is specified in Section B and is subject
to review during the term of the contract. AHCCCSA reserves the right to recoup
any amounts paid for ineligible members as determined through an encounter data
review as well as an associated penalty for incorrect encounter reporting.

Refer to the Office of Managed Care's HIV/AIDS supplemental payment and review
policies for further details and requirements.

38.   INCENTIVE FUND. AHCCCSA MAY RETAIN A SPECIFIED PERCENTAGE OF CAPITATION
REIMBURSEMENT IN ORDER TO DISTRIBUTE TO CONTRACTORS BASED ON THEIR PERFORMANCE
MEASURE OUTCOMES. AHCCCSA WILL NOTIFY CONTRACTORS 60 DAYS PRIOR TO A NEW
CONTRACT YEAR IF THIS METHODOLOGY WILL BE IMPLEMENTED AND WILL PROVIDE DETAILS
OF THE REIMBURSEMENT METHODOLOGY AT THAT TIME. CAPITATION ADJUSTMENTS

Except for changes made specifically in accordance with this contract, the rates
set forth in Section B shall not be subject to re-negotiation or modification
during the contract period. AHCCCSA may, at its option, review the effect of a
program change and determine if a capitation adjustment is needed. In these
instances the adjustment will be prospective with assumptions discussed with the
Contractor prior to modifying capitation rates. The Contractor may request a
review of a program change if it believes the program change was not equitable;
AHCCCSA will not unreasonably withhold such a review.

                                       49

<PAGE>

If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the default. The Contractor shall reimburse AHCCCSA
and/or AHCCCSA may deduct from future monthly capitation for any portion of a
month during which the Contractor was not at risk due to, for example:

a.       death of a member

b.       member's incarceration (not eligible for AHCCCS benefits from the date
         of incarceration)

c.       duplicate capitation to the same contractor

d.       adjustment based on change in member's contract type

If a member is enrolled twice with the same contractor, recoupment will be made
as soon as the double capitation is identified. AHCCCSA reserves the right to
modify its policy on capitation recoupments at any time during the term of this
contract.

39.   REINSURANCE

REGULAR ACUTE PROSPECTIVE REINSURANCE: Reinsurance is a stop-loss program
provided by AHCCCSA to the Contractor for the partial reimbursement of covered
inpatient facility medical services incurred for a member with an acute medical
condition beyond an annual deductible (AHCCCS Rule R9-22-503 and R9-31-503). Per
diem rates paid for nursing facility services, including room and board,
provided in lieu of hospitalization for up to 90 days in any contract year shall
be eligible for reinsurance coverage. Refer to the AHCCCS Reinsurance Claims
Processing Manual for further details on the Reinsurance Program.

AHCCCSA is self-insured for the reinsurance program. The program is
characterized by an initial deductible level and a subsequent coinsurance
percentage. The coinsurance percent is the rate at which AHCCCSA will reimburse
the Contractor for inpatient covered services incurred above the deductible.
Prospective reinsurance coverage applies to prospective enrollment periods. The
deductible level is based on the Contractor's statewide AHCCCS acute care
enrollment (not including SOBRA Family Planning Extension services) as of
October 1st each contract year for all rate codes and counties, as shown in the
following table. These deductible levels are subject to change by AHCCCSA during
the term of this contract. Any change would have a corresponding impact on
capitation rates.

<TABLE>
<CAPTION>
                                           Prospective Reinsurance                         PPC Reinsurance
   ------------------------------------------------------------------------------------------------------------------
                                 MNMI              NON MNMI
   STATEWIDE PLAN ENROLLMENT   DEDUCTIBLE         DEDUCTIBLE       COINSURANCE     ALL RATE CODES    COINSURANCE
   ------------------------------------------------------------------------------------------------------------------
   <S>                         <C>                <C>              <C>             <C>               <C>
   0-19,999                     $ 15,000           $ 20,000           75%              $ 5,000          100%
   ------------------------------------------------------------------------------------------------------------------
   20,000-49,999                $ 15,000           $ 35,000           75%              $ 5,000          100%
   ------------------------------------------------------------------------------------------------------------------
   50,000 and over              $ 15,000           $ 50,000           75%              $ 5,000          100%
   ------------------------------------------------------------------------------------------------------------------
</TABLE>

A Contractor whose enrollment qualifies for the $35,000 or $50,000 non-MN/MI
deductible level may, prior to the start of the contract period, elect one of
the lower deductible levels indicated in the above table. Contractors may not
elect to increase their deductible level. If a Contractor's actual non-MN/MI
deductible is $35,000 or $50,000, AHCCCSA will increase the Contractor's
capitation rate awarded by defined amounts for each capitation risk group. These
specific capitation adjustments are available from the Office of Managed Care.

                                       50
<PAGE>

PRIOR PERIOD COVERAGE REINSURANCE: A separate reinsurance deductible and
coinsurance percentage will apply during prior period coverage. As noted in the
table above, all Contractors, regardless of enrollment, will be subject to a
$5,000 deductible level. The coinsurance percentage for the prior period
coverage reinsurance is 100%. Expenses incurred during prior period coverage
will not apply toward the prospective reinsurance thresholds.

AHCCCSA will use inpatient encounter data to determine prospective and prior
period coverage reinsurance benefits. Reimbursement for these reinsurance
benefits will be made to the Contractor each month. AHCCCSA will also provide
for a reconciliation of reinsurance payments in the case where encounters used
in the calculation of reinsurance benefits are subsequently adjusted or voided.

Effective October 1, 1998, when a member changes Contractors within a contract
year, for reinsurance purposes, all eligible inpatient costs incurred for that
member will follow the member to the receiving health plan. Therefore, all
submitted encounters from the health plan the member is leaving (for dates of
service within the current contract year) will be applied toward the receiving
health plan's deductible level. For further details regarding this policy and
other reinsurance policies refer to the AHCCCS Reinsurance Claims Processing
Manual.

Medical review on prospective and prior period coverage reinsurance cases will
be determined based on statistically valid retrospective random sampling.
AHCCCSA, Office of Medical Management, will generate the sampling and will
notify the Contractor of documentation needed for the retrospective medical
review process to occur at the Contractor's offices. Reinsurance consideration
will be given to inpatient facility contracts, and hearing decisions rendered by
the Office of Legal Assistance. Prehearing and/or hearing penalties discoverable
during the review process will not be reimbursed under reinsurance. A recoupment
of reinsurance reimbursements made to the Contractor will occur based on the
results of the medical review sampling. The results of the medical review
sampling will be separately extrapolated to the entire prospective and prior
period coverage reinsurance reimbursement populations in the review time frame
for the Contractor. AHCCCSA will give the Contractor at least 45 days advance
notice of any on-site review. The Contractor shall have all requested medical
records on-site. Any documents not requested in advance by AHCCCSA shall be made
available upon request of the Review Team during the course of the review. The
Contractor representative shall be available to the Review Team at all times
during AHCCCSA on-site review activities. While on-site, the Contractor shall
provide the Review Team with workspace, access to a telephone, electrical
outlets and privacy for conferences. The Contractor will be furnished a copy of
the Reinsurance Review Report within 60 days of the on-site review and given an
opportunity to comment on any review findings.

CATASTROPHIC REINSURANCE: The reinsurance program also includes a special
Catastrophic Reinsurance program. This program encompasses members diagnosed
with hemophilia, von Willebrand's Disease, and Gaucher's Disease. This program
also covers members who are eligible to receive covered major organ and tissue
transplantation including bone marrow, heart, heart/lung, lung, liver, kidney,
and other organ transplantation. For additional detail and restrictions refer to
the AHCCCS Reinsurance Claims Processing Manual and the AMPM. There are no
deductibles for catastrophic reinsurance cases. All catastrophic claims are
subject to medical review by AHCCCSA.

                                       51

<PAGE>

The Contractor shall notify AHCCCSA, Office of Medical Management, Reinsurance
Unit, of cases identified for catastrophic non-transplant reinsurance coverage
within 30 days of (a) initial diagnosis, (b) enrollment with the Contractor, and
(c) the beginning of each contract year. Catastrophic reinsurance will be paid
for a maximum 30-day retroactive period from the date of notification to
AHCCCSA.

HEMOPHILIA: When a member is identified as being catastrophically eligible by
AHCCCSA due to the specific diagnosis of hemophilia (ICD9 codes 286.0, 286.1,
286.2), all medically necessary covered services provided during the contract
year shall be eligible for reimbursement at 85% of the Contractor's paid amount.

VON WILLEBRAND'S DISEASE: Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDAVP responders and
dependent on Plasma Factor VIII. The Contractor must promptly notify AHCCCS
Office of Medical Management Reinsurance Unit after diagnosis. All medically
necessary covered services provided during the contract year shall be eligible
for reimbursement at 85% of the Contractor's paid amount.

GAUCHER'S DISEASE: Catastrophic reinsurance is available for members diagnosed
with Gaucher's Disease classified as Type I and are dependent on enzyme
replacement therapy. All medically necessary covered services provided during
the contract year shall be eligible for reimbursement at 85% of the Contractor's
paid amount.

TRANSPLANTS: Bone grafts and cornea transplantation services are not eligible
for catastrophic reinsurance coverage but are eligible under the regular
(non-catastrophic) reinsurance program. Refer to the AMPM, Chapter 300 for
covered services for organ and tissue transplants. Catastrophic reinsurance
coverage for transplants is limited to 85% of the AHCCCS contract amount for the
transplantation services rendered, or 85% of the Contractor's paid amount,
whichever is lower. The AHCCCS contracted transplantation rates may be found in
the Bidder's Library. When a member is referred to a transplant facility for an
AHCCCS-covered organ transplant, the Contractor shall notify AHCCCSA, Office of
Medical Management.

Encounter data will not be used to determine catastrophic reinsurance benefits
for transplants. However, this does not relieve the Contractor of the
responsibility for submitting encounters for all catastrophic reinsurance
services.

All reinsurance claims must be submitted in accordance with R9-22-703 and the
AHCCCS Re-insurance Claims Processing Manual.

40.   COORDINATION OF BENEFITS/THIRD PARTY LIABILITY

By law, AHCCCSA is the payer of last resort. This means AHCCCSA shall be used as
a source of payment for covered services only after all other sources of payment
have been exhausted. The two methods used in the coordination of benefits are
cost avoidance and postpayment recovery. See Section D, Paragraph 41, Medicare
Services and Cost Sharing.

COST AVOIDANCE: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires

                                       52
<PAGE>

the member to pay any copayment, coinsurance or deductible, the Contractor is
responsible for making these payments, even if the services are provided outside
of the Contractor's network. The Contractor's liability for coinsurance and
deductibles is limited to what the Contractor would have paid for the entire
service pursuant to a written contract with the provider or the AHCCCS
fee-for-service rate, less any amount paid by the third party. (The Contractor
must decide whether it is more cost-effective to provide the service within its
network or pay coinsurance and deductibles for a service outside its network.
For continuity of care, the Contractor may also choose to provide the service
within its network.) If the Contractor refers the member for services to a
third-party insurer (other than Medicare), and the insurer requires payment in
advance of all copayments, coinsurance and deductibles, the Contractor must make
such payments in advance.

If the Contractor knows that the third party insurer will neither pay for nor
provide the covered service, and the service is medically necessary, the
Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so. (See also Section D, Paragraph 41,
Medicare Services and Cost Sharing.)

The requirement to cost-avoid applies to all AHCCCS covered services. For
pre-natal care and preventive pediatric services, AHCCCS may require the
Contractor to provide such service and then coordinate payment with the
potentially liable third party ("pay and chase"). In emergencies, the Contractor
shall provide the necessary services and then coordinate payment with the
third-party payer. The Contractor shall also provide medically necessary
transportation so the member can receive third-party benefits. Further, if a
service is medically necessary, the Contractor shall ensure that its cost
avoidance efforts do not prevent a member from receiving such service and that
the member shall not be required to pay any coinsurance or deductibles for use
of the other insurer's providers.

POSTPAYMENT RECOVERIES. Postpayment recovery is necessary in cases where the
Contractor was not aware of third-party coverage at the time services were
rendered or paid for, or was unable to cost-avoid. The Contractor shall identify
all potentially liable third parties and pursue reimbursement from them except
in the circumstances below. The Contractor shall not pursue reimbursement in the
following circumstances unless the case has been referred to the Contractor by
AHCCCSA or AHCCCSA's authorized representative:

Uninsured/underinsured motorist insurance            Adoption recovery
First-and third-party liability insurance            Worker's Compensation
Tortfeasors                                          Estate recovery
Special Treatment Trusts recovery

The Contractor shall report any cases involving the above circumstances to
AHCCCSA's authorized representative should the Contractor identify such a
situation. See AHCCCS Rule R9-22-l002 and R9-31-1002. The Contractor shall
cooperate with AHCCCSA's authorized representative in all collection efforts. In
joint cases involving both AHCCCS fee-for-service or reinsurance and the
Contractor, AHCCCSA's authorized representative is responsible for performing
all research, investigation and payment of lien-related costs, subsequent to the
referral of any and all relevant case information to AHCCCSA's authorized
representative by the Contractor. AHCCCSA's authorized representative is also
responsible for negotiating and acting

                                       53
<PAGE>

in the best interest of all parties to obtain a reasonable settlement in joint
cases and may compromise a settlement in order to maximize overall
reimbursement, net of legal and other costs. For total plan cases involving only
payments from the Contractor, the Contractor is responsible for performing all
research, investigation, the filing of liens and payment of lien filing fees and
other related costs. The Contractor shall use the cover sheet as prescribed by
AHCCCS when filing Liens.

The Contractor may retain up to 100% of its third-party collections if all of
the following conditions exist:

a.       Total collections received do not exceed the total amount of the
         Contractor's financial liability for the member

b.       There are no payments made by AHCCCS related to fee-for-service,
         reinsurance or administrative costs (i.e. lien filing, etc.)

c.       Such recovery is not prohibited by state or federal law

REPORTING. The Contractor may be required to report case level detail of
third-party collections and cost avoidance, including number of referrals on
total plan cases. In addition, upon AHCCCS's request, the Contractor shall
provide an electronic extract of the Casualty cases, including open and closed
cases. Data elements include, but are not limited to: the member's first and
last name; AHCCCS ID; date of incident; claimed amount; paid/recovered amount;
and case status. The AHCCCSA TPL Section shall provide the format and reporting
schedule for this information to the Contractor. The Contractor shall notify
AHCCCSA's authorized representative within five working days of the
identification of a third-party liability case with reinsurance. Failure to
report reinsurance cases may result in one of the remedies specified in
Paragraph 60 (Sanctions) of Section D. The Contractor shall communicate any
known change in health insurance information, including Medicare, to AHCCCS
Administration, Division of Member Services, not later than 10 days from the
date of discovery using the AHCCCS Third-Party Coverage Form found in the
Bidder's Library.

AHCCCSA will provide the Contractor, on an agreed upon schedule, with a complete
file of all third-party coverage information (other than Medicare) for the
purpose of updating the Contractor's files. The Contractor shall notify AHCCCSA
of any known changes in coverage within deadlines and in a format prescribed by
AHCCCSA.

TITLE XXI (KIDSCARE): Eligibility for KidsCare benefits requires that the
applicant/member not be enrolled with or entitled to any other health insurance
benefits. If the Contractor becomes aware of any such potential coverage, the
Contractor shall notify AHCCCSA immediately. The Contractor shall follow the
same cost avoidance and postpayment recovery practices for the KidsCare
population as it does for the Title XIX population, and shall maintain a
reporting system which allows Title XIX and KidsCare information to be reported
separately.

CONTRACT TERMINATION. Upon termination of this contract, the Contractor will
complete the existing third party liability cases or make any necessary
arrangements to transfer the cases to AHCCCSA's authorized TPL representative.

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<PAGE>

41.   MEDICARE SERVICES AND COST SHARING

AHCCCS has members enrolled who are eligible for both Medicaid and Medicare.
These members are referred to as "dual eligible". Generally, Contractors are
responsible for payment of Medicare coinsurance and/or deductibles for covered
services provided to dual eligible members. However, there are different cost
sharing responsibilities that apply to dual eligible members based on a variety
of factors. The Contractor is responsible for adhering to the cost sharing
responsibilities presented in the AHCCCS Medicare Cost Sharing policy. Effective
10/1/97, the Contractor shall have no cost sharing obligation if the Medicare
payment exceeds what the Contractor would have paid for the same service of a
non-Medicare member.

42.   COPAYMENTS

The Contractor is responsible for the collection of copayments from members in
accordance with AHCCCS Rule R9-22-711 and R9-31-711. The Contractor may not
collect copayments for family planning and EPSDT services.

43.   RECORDS RETENTION

The Contractor shall maintain books and records relating to covered services and
expenditures including reports to AHCCCSA and working papers used in the
preparation of reports to AHCCCSA. The Contractor shall comply with all
specifications for record keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as required by AHCCCS Rules
and policies. Records shall include but not be limited to financial statements,
records relating to the quality of care, medical records, prescription files and
other records specified by AHCCCSA.

The Contractor agrees to make available at its office at all reasonable times
during the term of this contract and the period set forth in paragraphs a. and
b. below any of its records for inspection, audit or reproduction by any
authorized representative of AHCCCSA, State or federal government.

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this contract except as provided
in paragraphs a. and b. below:

If this contract is completely or partially terminated, the records relating to
the work terminated shall be preserved and made available for a period of five
years from the date of any such termination. Records which relate to grievances,
disputes, litigation or the settlement of claims arising out of the performance
of this contract, or costs and expenses of this contract to which exception has
been taken by AHCCCSA, shall be retained by the Contractor for a period of five
years after the date of final disposition or resolution thereof.

44.   MEDICAL RECORDS

The member's medical record is the property of the provider who generates the
record. Each member is entitled to one copy of his or her medical record free of
charge. The Contractor shall have written policies and procedures to maintain
the confidentiality of all medical records. AHCCCSA shall be afforded access to
all members' medical records whether electronic or paper within 20 working days
of receipt of request. The Contractor is responsible for ensuring that a medical
record is established when information is received about a member. If the PCP
has not yet seen the member, such information may be kept temporarily in an
appropriately labeled file,

                                       55
<PAGE>

in lieu of actually establishing a medical record, but must be associated with
the member's medical record as soon as one is established.

The Contractor shall have written policies and procedures for the maintenance of
medical records so that those records are documented accurately and in a timely
manner, are readily accessible, and permit prompt and systematic retrieval of
information.

The Contractor shall have written standards for documentation on the medical
record for legibility, accuracy and plan of care which comply with the AMPM.

The Contractor shall have written plans for providing training and evaluating
providers' compliance with the Contractor's medical records standards. Medical
records shall be maintained in a detailed and comprehensive manner which
conforms to good professional medical practice, permits effective professional
medical review and medical audit processes, and which facilitates an adequate
system for follow-up treatment. Medical records must be legible, signed and
dated.

When a member changes PCPs, his or her medical records or copies of medical
records must be forwarded to the new PCP within 10 working days from receipt of
the request for transfer of the medical records.

AHCCCSA is not required to obtain written approval from a member before
requesting the member's medical record from the PCP or any other agency. The
Contractor may obtain a copy of a member's medical records without written
approval of the member if the reason for such request is directly related to the
administration of the AHCCCS program.

Information related to fraud and abuse may be released so long as protected
HIV-related information is not disclosed. (A.R.S.ss.36-664I)

45.   ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

The Contractor shall not, without the prior approval of AHCCCSA, make any
advances to a related party or subcontractor. The Contractor shall not, without
similar prior approval, make any distribution, loan or loan guarantee to any
entity, including another fund or line of business within its organization. All
investments, other than investments in U.S. Government securities or
Certificates of Deposit, also require AHCCCSA prior approval. (See the Reporting
Guide for Acute Care Contractors for alternatives to the prior approval of
individual investments.) All requests for prior approval are to be submitted to
the Office of Managed Care.

46.   ACCUMULATED FUND DEFICIT

The Contractor and its owners shall fund any accumulated fund deficit through
capital contributions in a form acceptable to AHCCCSA within 30 days after
receipt by AHCCCSA of the final audited financial statements, or as otherwise
requested by AHCCCSA. AHCCCSA may, at its option, impose enrollment caps in any
or all GSAs as a result of an accumulated deficit, even if unaudited.

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<PAGE>

47.   DATA EXCHANGE REQUIREMENT

The Contractor is authorized to exchange data with AHCCCSA relating to the
information requirements of this contract and as required to support the data
elements to be provided AHCCCSA in the format specified in the AHCCCS Technical
Interface Guidelines which is available in the Bidder's Library. The information
so recorded and submitted to AHCCCSA shall be in accordance with all procedures,
policies, rules, or statutes in effect during the term of this contract. If any
of these procedures, policies, rules, regulations or statutes are hereinafter
changed both parties agree to conform to these changes following appropriate
notification to both parties by AHCCCSA.

The Contractor is responsible for any incorrect data, delayed submission or
payment (to the Contractor or its subcontractors), and/or penalty applied due to
any error, omission, deletion, or erroneous insert caused by
Contractor-submitted data. Any data that does not meet the standards required by
AHCCCSA shall not be accepted by AHCCCSA.

The Contractor is responsible for identifying any inconsistencies immediately
upon receipt of data from AHCCCSA. If any unreported inconsistencies are
subsequently discovered, the Contractor shall be responsible for the necessary
adjustments to correct its records at its own expense.

The Contractor shall accept from AHCCCSA original evidence of eligibility and
enrollment in a form appropriate for electronic data exchange. Upon request by
AHCCCSA, the Contractor shall provide to AHCCCSA updated date-sensitive PCP
assignments in a form appropriate for electronic data exchange.

The Contractor shall be provided with a Contractor-specific security code for
use in all data transmissions made in accordance with contract requirements.
Each data transmission by the Contractor shall include the Contractor's security
code. The Contractor agrees that by use of its security code, it certifies that
any data transmitted is accurate and truthful, to the best of the Contractor's
knowledge. The Contractor further agrees to indemnify and hold harmless the
State of Arizona and AHCCCSA from any and all claims or liabilities, including
but not limited to consequential damages, reimbursements or erroneous billings
and reimbursements of attorney fees incurred as a consequence of any error,
omission, deletion or erroneous insert caused by the Contractor in the submitted
input data. Neither the State of Arizona nor AHCCCSA shall be responsible for
any incorrect or delayed payment to the Contractor's AHCCCS services providers
(subcontractors) resulting from such error, omission, deletion, or erroneous
input data caused by the Contractor in the submission of AHCCCS claims.

The publication AHCCCS Contracted Health Plan Technical Interface Guidelines
describes the specific technical and procedural requirements for interfaces
between AHCCCS and the Contractor and its subcontractors. The Contractor is
responsible for complying with all technical requirements as stated in this
manual as well as any subsequent changes to the manual. A copy may be found in
the Bidder's Library.

The costs of software changes are included in administrative costs paid to the
Contractor. There is no separate payment for software changes. A PMMIS systems
contact will be assigned after contract award. AHCCCSA will work with the health
plans as they evaluate Electronic Data Interchange options.

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<PAGE>

ELECTRONIC DATA INTERCHANGE (EDI): In addition to the requirements outlined in
Section D, Paragraph 34, Claims Payment System, the Contractor will be required
to comply with all administrative simplification provisions resulting from the
Health Insurance Portability and Accountability Act (HIPAA). The administrative
simplification section standardizes electronic transaction formats and code
sets; establishes national identifiers for providers, employers, health plans,
and individuals; and sets standards for security and privacy. Each of these
provisions will be published as one or more Final Rules in the Federal Register.
Implementation of these provisions will be required two years after the
effective date of each provision's final rule as published by the Department of
Health and Human Services.

in the event that systems fail.

48.   ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to the success of
the AHCCCS program. AHCCCSA uses encounter data to pay reinsurance benefits, set
fee-for-service and capitation rates, determine disproportionate share payments
to hospitals, and to determine compliance with performance measures. The
Contractor shall submit encounter data to AHCCCSA for all covered services for
which the Contractor incurred a financial liability, including services provided
during prior period coverage. This requirement is a condition of the HCFA grant
award.

Encounter data must be provided to AHCCCSA by electronic media and must be
submitted in the PMMIS AHCCCSA supplied formats. Formatting and specific
requirements for encounter data are described in the AHCCCS Encounter Reporting
User Manual and the AHCCCS Technical Interface Guidelines, copies of which may
be found in the Bidder's Library. The Encounter Submission Requirements are
included herein as Attachment I.

An Encounter Submission Tracking Report must be maintained and made available to
AHCCCSA upon request. The Tracking Report's purpose is to link each claim to an
adjudicated or pended encounter returned to the Contractor. Further information
regarding the Encounter Submission Tracking Report may be found in The Encounter
User's Manual.

49.   MONTHLY ROSTER RECONCILIATION

AHCCCSA produces daily roster updates identifying new members and changes to
members' demographic, eligibility and enrollment data, which the Contractor
shall use to update its member records. The daily roster which is run prior to
the monthly roster is referred to as the "last daily" and will contain all rate
code changes made for the prospective month, as well as any new enrollments and
disenrollments.

The monthly roster is generally produced two days before the end of every month.
The roster will identify the total active population for the Contractor as of
the first day of the next month. This roster contains the information used by
AHCCCSA to produce the monthly capitation payment for the next month. The
Contractor will reconcile their member files with the AHCCCS monthly roster.
After reconciling the monthly roster information, the Contractor resumes posting
daily roster updates beginning with the last two days of the month. The last two
daily rosters are different from the regular daily rosters in that they pay
and/or recoup capitation into the next month.

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<PAGE>

Refer to the AHCCCS Contracted Health Plan Technical Interface Guidelines
available in the Bidder's Library for additional information.

50.   TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/97 through 9/30/98. In addition,
AHCCCSA reserves the sole option to extend the term of the contract, not to
exceed a total contracting period of five years. The terms and conditions of any
such contract extension shall remain the same as the original contract, as
amended. Any contract extension, however, shall not affect the maximum
contracting period of five years. All contract extensions shall be through
contract amendment. If, in conjunction with a contract extension, AHCCCSA elects
to increase the capitation rate for any risk category, such increase will not
exceed in aggregate the inflation rate recognized by the Arizona Legislature.

If the Contractor has been awarded a contract in more than one GSA, each such
contract will be considered separately renewable. AHCCCSA may renew the
Contractor's contract in one GSA but not in another. In addition, if the
Contractor has had significant problems of non-compliance in one GSA, it may
result in the capping of the Contractor's enrollment in another. Further,
AHCCCSA may require a contractor to renew all GSAs, or may terminate remaining
GSAs if the Contractor does not agree to renew all GSAs.

When AHCCCSA issues an amendment to extend the contract, the provisions of such
extension will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the extension amendment has not been signed by the
Contractor, unless within that time the Contractor notifies AHCCCSA in writing
that it refuses to sign the extension amendment. If the Contractor provides such
notification, AHCCCSA will initiate contract termination proceedings.

CONTRACTOR'S NOTICE OF INTENT NOT TO RENEW: If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the Contractor
provides AHCCCSA written notice of its intent not to renew this contract at
least 180 days before its expiration, this liability for transition costs may be
waived by AHCCCSA.

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<PAGE>

51.   SUBCONTRACTS

The Contractor shall be legally responsible for contract performance whether or
not subcontracts are used. No subcontract shall operate to terminate the legal
responsibility of the Contractor to assure that all activities carried out by
the subcontractor conform to the provisions of this contract. Subject to such
conditions, any function required to be provided by the Contractor pursuant to
this contract may be subcontracted to a qualified person or organization. All
such subcontracts must be in writing. See policy on claims processing by
subcontracted providers in the Bidder's Library.

All subcontracts entered into by the Contractor are subject to prior review and
approval by AHCCCSA, Contracts and Purchasing, and shall incorporate by
reference the terms and conditions of this contract. The following subcontracts
shall be submitted to AHCCCSA Contracting Office for prior approval at least 30
days prior to the beginning date of the subcontract:

a.       Automated data processing

b.       Third-party administrators

c.       Management Services (See also Section D, Paragraphs 53 & 54)

d.       Model subcontracts

e.       Capitated or other risk subcontracts requiring claims processing by the
         subcontractor must be submitted to AHCCCSA, Office of Managed Care.

The Contractor shall maintain a fully executed original of all subcontracts,
which shall be accessible to AHCCCSA within two working days of request by
AHCCCSA. A subcontract is voidable and subject to immediate cancellation by
AHCCCSA in the event any subcontract pertinent to "a" through "e" above is
implemented without the prior written approval of AHCCCSA. All subcontracts
shall comply with the applicable provisions of federal and State laws,
regulations and policies.

The Contractor shall not include covenant-not-to-compete requirements in its
provider agreements. Specifically, the Contractor shall not contract with a
provider and require that the provider not provide services for any other AHCCCS
contractor.

The Contractor must enter into a written agreement with any provider the
Contractor reasonably anticipates will be providing services on its behalf more
than 25 times during the contract year. Exceptions to this requirement include
the following:

a.       If a provider who provides services more than 25 times during the
         contract year refuses to enter into a written agreement with the
         Contractor, the Contractor shall submit documentation of such refusal
         to AHCCCS Office of Managed Care within seven days of its final attempt
         to gain such agreement.

b.       If a provider performs emergency services such as an emergency room
         physician or an ambulance company, a written agreement is not required.

These and any other exceptions to this requirement must be approved by AHCCCS
Office of Managed Care.

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<PAGE>

Each subcontract must contain verbatim all the provisions of Attachment A,
Minimum Subcontract Provisions. In addition, each subcontract must contain the
following:

a.       Full disclosure of the method and amount of compensation or other
         consideration to be received by the subcontractor.

b.       Identification of the name and address of the subcontractor.

c.       Identification of the population, to include patient capacity, to be
         covered by the subcontractor.

d.       The amount, duration and scope of medical services to be provided, and
         for which compensation will be paid.

e.       The term of the subcontract including beginning and ending dates,
         methods of extension, termination and re-negotiation.

f.       The specific duties of the subcontractor relating to coordination of
         benefits and determination of third-party liability.

g.       A provision that the subcontractor agrees to identify Medicare and
         other third-party liability coverage and to seek such Medicare or third
         party liability payment before submitting claims to the Contractor.

h.       A description of the subcontractor's patient, medical and cost record
         keeping system.

i.       Specification that the subcontractor shall cooperate with quality
         assurance programs and comply with the utilization control and review
         procedures specified in 42 CFR Part 456, as implemented by AHCCCSA.

j.       A provision stating that a merger, reorganization or change in
         ownership of a subcontractor that is related to or affiliated with the
         Contractor shall require a contract amendment and prior approval of
         AHCCCSA.

k.       Procedures for enrollment or re-enrollment of the covered population
         (may also refer to the Provider Manual).

l.       A provision that the subcontractor shall be fully responsible for all
         tax obligations, Worker's Compensation Insurance, and all other
         applicable insurance coverage obligations which arise under this
         subcontract, for itself and its employees, and that AHCCCSA shall have
         no responsibility or liability for any such taxes or insurance
         coverage.

m.       A provision that the subcontractor must obtain any necessary
         authorization from the Contractor or AHCCCSA for services provided to
         eligible and/or enrolled members.

n.       A provision that the subcontractor must comply with encounter reporting
         and claims submission requirements as described in the subcontract.

52.   SPECIALTY CONTRACTS

AHCCCSA may at any time negotiate or contract on behalf of the Contractor and
AHCCCSA for specialized hospital and medical services. AHCCCSA will consider
existing Contractor resources in the development and execution of specialty
contracts. AHCCCSA may require the Contractor to modify its delivery network to
accommodate the provisions of specialty contracts. Specialty contracts shall
take precedence over and supersede existing and future subcontracts for services
that are subject to specialty contracts. AHCCCSA may consider waiving this
requirement in particular situations if such action is determined to be in the
best interest of the State; however, in no case shall reimbursement for
transplant surgery exceed that payable under the relevant AHCCCSA specialty
contract.

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<PAGE>

During the term of specialty contracts, AHCCCSA may act as an intermediary
between the Contractor and specialty contractors to enhance the cost
effectiveness of service delivery. AHCCCSA reserves the right to make direct
payments to specialty contractors on behalf of the Contractor. Adjudication of
claims related to such payments provided under specialty contracts shall remain
the responsibility of the Contractor. AHCCCSA may provide technical assistance
prior to the implementation of any specialty contracts.

AHCCCSA shall provide at least 60 days advance written notice to the Contractor
prior to the implementation of any specialty contract.

53.   MANAGEMENT SERVICES SUBCONTRACTORS

All proposed management services subcontracts and/or corporate cost allocation
plans must be approved in advance by AHCCCSA Contracting Office as described in
Section D, Paragraph 51, Subcontracts. Cost allocation plans must be submitted
with the proposed management fee agreement. AHCCCSA reserves the right to
perform a thorough review of actual management fees charged and/or corporate
allocations made. If the fees or allocations actually paid out are determined to
be unjustified or excessive, amounts may be subject to repayment to the
Contractor, the Contractor may be placed on monthly financial reporting, and/or
financial sanctions may be imposed.

54.   MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

All management services subcontractors that have oversight responsibilities for
the Contractor's program operations (such as third-party administrators) are
required to have an annual financial audit. A copy of this audit shall be
submitted to AHCCCSA, Office of Managed Care, within 120 days of the
subcontractor's fiscal year end. If services billed by a consultant or actuary
are less than $50,000, AHCCCSA will waive the requirement for an audit of that
consultant or actuary.

55.   MINIMUM CAPITALIZATION REQUIREMENTS

In order to be considered for contract award, the Offeror must meet a minimum
capitalization requirement for each GSA bid. The capitalization requirement for
both new and continuing offerors must be met within 15 days after contract
award.

Minimum capitalization requirements by GSA are as follows:

<TABLE>
<CAPTION>
Geographic Service Area                   Capitalization Requirement

<S>                                       <C>
    GSA #2     Yuma                              $1,400,000
    GSA #4     Mohave, La Paz                     1,150,000
    GSA #6     Yavapai, Coconino                  1,250,000
    GSA #8     Pinal, Gila                        1,450,000
    GSA #10    Pima                               1,250,000
    GSA #12    Maricopa                           2,500,000
    GSA #14    Graham, Greenlee                     350,000
    GSA #16    Apache, Navajo                       650,000
    GSA #18    Cochise, Santa Cruz                1,450,000
</TABLE>

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<PAGE>

NEW OFFERORS: To be considered for a contract award in a given GSA or group of
GSAs, a new offeror must meet the minimum capitalization requirements listed
above. The capitalization requirement is subject to a $5,000,000 ceiling
regardless of the number of GSAs awarded. This requirement is in addition to the
Performance Bond requirements defined in Paragraphs 56 and 57 below and must be
met with cash with no encumbrances, such as a loan subject to repayment. The
capitalization requirements may be applied toward meeting the equity per member
requirement (see Section D, Paragraph 58, Financial Viability Criteria) and is
intended for use in operations of the Contractor.

CONTINUING OFFERORS: Continuing offerors that are bidding a county or GSA that
they are currently servicing must meet the equity per member standard (see
Section D, Paragraph 58, Financial Viability Criteria) for their current
membership. Continuing offerors that do not meet the equity standard must fund
through capital contribution the necessary amount to meet this requirement.
Continuing offerors that are bidding a new GSA must provide the additional
capitalization for the new GSA they are bidding. (See the table of requirements
by GSA above). Continuing offerors will not be required to provide additional
capitalization if they currently meet the equity per member standard with their
existing membership and their excess equity is sufficient to cover the proposed
additional members, or they have at least $5,000,000 in equity.

56.   PERFORMANCE BOND OR BOND SUBSTITUTE

The Contractor shall be required to provide a performance bond of standard
commercial scope issued by a surety company doing business in this State, an
irrevocable letter of credit, or a cash deposit ("Performance Bond") to AHCCCSA
for as long as the Contractor has AHCCCS-related liabilities of $50,000 or more
outstanding, or 15 months following the effective date of this contract,
whichever is later, to guarantee: (1) payment of the Contractor's obligations to
providers, non-contracting providers, and non-providers; and (2) performance by
the Contractor of its obligations under this contract. The Performance Bond
shall be in a form acceptable to AHCCCSA as described in the AHCCCS Performance
Bond policy available in the Office of Managed Care.

In the event of a default by the Contractor, AHCCCSA shall, in addition to any
other remedies it may have under this contract, obtain payment under the
Performance Bond or substitute security for the purposes of the following:

a.    Paying any damages sustained by providers, non-contracting providers and
      nonproviders by reason of a breach of the Contractor's obligations under
      this contract,

b.    Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of the
      Contractor, and

c.    Reimbursing AHCCCSA for any extraordinary administrative expenses incurred
      by reason of a breach of the Contractor's obligations under this contract,
      including, but not limited to, expenses incurred after termination of this
      contract for reasons other than the convenience cf the State by AHCCCSA.

In the event AHCCCSA agrees to accept substitute security in lieu of the
Performance Bond, irrevocable letter of credit or cash deposit, the Contractor
agrees to execute any and all documents and perform any and all acts necessary
to secure and enforce AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and

                                       63
<PAGE>

necessary UCC filings pursuant to the Arizona Uniform Commercial Code. In the
event such substitute security is agreed to and accepted by AHCCCSA, the
Contractor acknowledges that it has granted AHCCCSA a security interest in such
substitute security to secure performance of its obligations under this
contract. The Contractor is solely responsible for establishing the
credit-worthiness of all forms of substitute security. AHCCCSA may, after
written notice to the Contractor, withdraw its permission for substitute
security, in which case the Contractor shall provide AHCCCSA with a form of
security described above. The Contractor may not change the amount, duration or
scope of the performance bond without prior written approval from AHCCCSA,
Office of Managed Care.

The Contractor shall not leverage the bond for another loan or create other
creditors using the bond as security.

57.   AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110% of the total
capitation payment expected to be paid in the month of October 1997, or as
determined by AHCCCSA. The total capitation amount shall include SOBRA
supplemental payments. This requirement must be satisfied by the Contractor not
later than 15 days after notification by AHCCCSA of the amount required.
Thereafter, AHCCCSA shall evaluate the enrollment statistics of the Contractor
on a monthly basis. If there is an increase in capitation payment that exceeds
10% of the performance bond amount, AHCCCSA may require an increase in the
amount of the Performance Bond. The Contractor shall have 15 days following
notification by AHCCCSA to increase the amount of the Performance Bond. The
Performance Bond amount that must be maintained after the contract term shall be
sufficient to cover all outstanding liabilities and will be determined by
AHCCCSA. The Contractor may not change the amount of the performance bond
without prior written approval from AHCCCSA, Office of Managed Care.

58.   FINANCIAL VIABILITY CRITERIA/PERFORMANCE MEASURES

AHCCCSA has established the following financial viability criteria/performance
goals:

    CURRENT RATIO                        Current assets divided by current
                                         liabilities. "Current assets" includes
                                         any long-term investments that can be
                                         converted to cash within 24 hours
                                         without significant penalty (i.e.,
                                         greater than 20%).
                                         Standard: At least 1.00

    EQUITY PER MEMBER                    Equity, less on-balance sheet
                                         performance bond, divided by the number
                                         of non-SOBRA Family Planning Extension
                                         Services members enrolled at the end of
                                         the period.
                                         Standard: At least $150
                                         (Failure to meet this standard may
                                         result in an enrollment cap being
                                         imposed in any or all contracted
                                         GSAS.I)

                                       64
<PAGE>

    MEDICAL EXPENSE RATIO                Total medical expenses (net of
                                         reinsurance, TPL, HIV/AIDS Supplement)
                                         divided by total capitation + Delivery
                                         Supplement.
                                         Standard: At least 85%

    ADMINISTRATIVE COST PERCENTAGE       Total administrative expenses
                                         (excluding income taxes), divided by
                                         total capitation + Delivery Supplement
                                         + TPL + reinsurance + HIV/AIDS
                                         Supplement.
                                         Standard: No more than 10%

    RECEIVED BUT UNPAID CLAIMS           Received but unpaid claims divided by
    (DAYS OUTSTANDING)                   the average daily medical expenses for
                                         the period, net of sub-capitation
                                         expense
                                         Standard: No more than 30 days

59.   MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

A proposed merger, reorganization or change in ownership of the Contractor
health plan shall require prior approval of AHCCCSA and a subsequent contract
amendment. The Contractor must submit a detailed merger, reorganization and/or
transition plan to AHCCCSA Contracting Office for AHCCCSA review. The purpose of
the plan review is to ensure uninterrupted services to members, evaluate the new
entity's ability to support the provider network, ensure that services to
members are not diminished and that major components of the organization and
AHCCCS programs are not adversely affected by such merger, reorganization or
change in ownership.

60.   SANCTIONS

AHCCCSA may impose sanctions, suspend, deny, refuse to renew, or terminate this
contract or any related subcontracts in accordance with AHCCCS Rules R9-22-405
and 406 and R9-31-405 and 406 and the terms of this contract and applicable
federal or State law and regulations. Written notice will be provided to the
Contractor specifying the sanction to be imposed, the grounds for such sanction
and either the length of suspension or the amount of capitation prepayment to be
withheld. The Contractor may appeal the decision to impose a sanction in
accordance with AHCCCS Rule R9-22-804.

In addition to the above remedies, AHCCCSA may, at its option, impose partial or
full enrollment caps on the Contractor. Among the contract violations that may
result in an enrollment cap are, but are not limited to, the following:

a.       Marketing violations

b.       Failure to meet AHCCCS financial viability standards

c.       Material deficiency in the Contractor's provider network

d.       Quality of care and quality management issues

e.       Failure to meet AHCCCS encounter standards

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CURE NOTICE PROCESS - Prior to the imposition of a sanction for non-compliance,
AHCCCSA may provide a written cure notice to the Contractor regarding the
details of the non-compliance. The cure notice will specify the period of time
during which the Contractor must bring its performance back into compliance with
contract requirements. If, at the end of the specified time period, the
Contractor has complied with the cure notice requirements, AHCCCSA will take no
further action. If, however, the Contractor has not complied with the cure
notice requirements, AHCCCSA will proceed with the imposition of sanctions.

61.   AUTO-ASSIGNMENT ALGORITHM

Members who do not have the right to choose a contractor or members who have the
right to choose but do not exercise this right, are assigned to contractors
through an auto-assignment algorithm. The algorithm is a mathematical formula
used to distribute members to the various contractors in a manner that is
predictable and consistent with AHCCCSA goals. The algorithm favors those
contractors with lower capitation rates. For further details on the AHCCCS
Auto-Assignment Algorithm, refer to Attachment G. AHCCCSA may change the
algorithm at any time during the term of the contract and frequently does so in
response to contractor-specific issues of non-compliance (e.g. imposition of an
enrollment cap). The Contractor should consider this in preparing its response
to this RFP. AHCCCSA is not obligated to adjust for any financial impacts this
may have on the Contractor.

62.   GRIEVANCE PROCESS AND STANDARDS

The Contractor shall have in place a written grievance policy for members and
providers, which defines their rights regarding any adverse action by the
Contractor. This written policy shall be in accordance with applicable federal
and State law and AHCCCS Rules and policy including, but not limited to, AHCCCS
Rules R9-22-512; R9-22-518(A); R9-22, Article 8 and R9-31, Article 8, the
Alternate Resolution Process and the Members Rights and Responsibilities. The
grievance process may not be delegated or subcontracted outside of the health
plan. Refer to Attachment H for a complete description of grievance process
requirements.

63.   QUARTERLY GRIEVANCE REPORT

The Contractor shall submit a Quarterly Grievance Report to AHCCCSA, Office of
Legal Assistance, using the Quarterly Grievance Report Format on file in the
Bidders Library. The Quarterly Grievance Report must be received by the AHCCCSA,
Office of Legal Assistance, no later than 45 days from the end of the quarter.

64.   KIDSCARE

On November 1, 1998, AHCCCSA implemented a Title XXI Children's Health Insurance
Program, referred to as "KidsCare". KidsCare provides health care coverage
statewide to eligible children under age 19 and is provided through the existing
AHCCCS health plans, state employee HMOs that elect to participate at the
beginning of a contract cycle, and tribal facilities or Indian Health Service
for Native Americans who elect to receive services through them. Services will
also be directly provided by participating community health clinics and
hospitals, which predominantly serve low income children.

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The KidsCare service package is established by the legislature and approved by
HCFA through the State Plan. Services, limitations and exclusions are described
in Section D, Paragraph 1, Scope of Services. Capitation rates payable to the
Contractor for KidsCare members will be set by AHCCCSA in conjunction with an
independent actuary.

Effective October 1, 1999, KidsCare members in families with gross household
income over 150% and up to 200% of the federal poverty limit shall pay a premium
to AHCCCSA. The premium amount shall be based on the number of members in the
household and the gross family income in accordance with 9 A.A.C., Article 14.

TITLE XVI PARENT/GUARDIAN HEALTH INSURANCE COVERAGE. A.R.S. ss.36.2984 mandates
that the Contractor offer health insurance coverage to the parent(s) or legal
guardian(s) of a child who is eligible for Title XXI. The Contractor shall
establish rates for this coverage, which must be approved by AHCCCSA, Office of
Managed Care, prior to implementation. Title XXI funds or any other federal or
state funds shall not be used to subsidize family coverage. The full cost of the
premium shall be paid by the parent or legal guardian who elects this coverage.
The Contractor may include provisions for pre-existing conditions and any other
medical underwriting considerations that are necessary to protect it from
adverse risk. For further information, refer to the Title XXI Parent Guardian
Health Insurance Coverage Guidelines on file in the Bidder's Library.

65.   PENDING LEGISLATIVE ISSUES

In addition to the requirements described in this RFP, there are several
legislative issues that could have an impact on services provided by the
Contractor on or after October 1, 2000. The following is a brief description of
the issues that AHCCCS is aware of at the time of the issuance of this renewal
amendment:

ELIGIBILITY BASED ON 100% OF THE FEDERAL POVERTY LEVEL (FPL): Through a
successful initiative effort, eligibility for AHCCCS has been expanded to allow
persons with income up to 100% of the FPL to become eligible for the Medicaid
program. Legislative action will be required to implement this new eligibility
guideline and HCFA must approve the expansion. If HCFA approval is granted,
there will be a significant number of new persons who will be eligible for the
program and enrolled with the health plans at some future date.

66.   SEPARATE INCORPORATION

As specified in A.R.S. ss. 36-2906.01, within 60 days of contract award, a
non-governmental Contractor shall have established a separate corporation for
the purposes of this contract, whose sole activity is the performance of
contract function with AHCCCS.

67.   CULTURAL COMPETENCY

The Contractor shall have a Cultural Competency Plan that meets the requirements
of the AHCCCS Cultural Competency Policy. The Contractor must identify a staff
member responsible for the cultural competency plan and inform the office of
Managed Care of that person's identity.

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68.   MEDICAID IN THE PUBLIC SCHOOLS

Pursuant to an Intergovernmental Agreement with the Arizona Department of
Education, AHCCCS will begin paying participating school districts for
specifically identified Medicaid services provided to Medicaid eligible children
with special educational needs. The Medicaid service shall be identified in a
child's Individualized Education Plan (IEP) as a medically necessary service. In
the first phase, AHCCCS shall directly reimburse school districts for speech,
physical and occupational therapies with dates of service beginning July 1,
2000. The Administration's intent is to add other Medicaid reimbursable services
in the future.

To ensure that there is coordination of care, the Administration shall require
that a participating school district notify the primary care provider that
Medicaid services are being provided to the child in a school-based setting. If
a child is enrolled with the Contractor and a request is made for a school-based
Medicaid covered service, the Contractor shall evaluate the request on the same
basis as any request for a covered service. The determination to provide the
service shall include consideration of whether the school-based services are
sufficient to meet the child's needs.

                               [END OF SECTION D]

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                           SECTION E: CONTRACT CLAUSES

1)    APPLICABLE LAW

ARIZONA LAW - The law of Arizona applies to this contract including, where
applicable, the Uniform Commercial Code, as adopted in the State of Arizona.

IMPLIED CONTRACT TERMS - Each provision of law and any terms required by law to
be in this contract are a part of this contract as if fully stated in it.

2)    AUTHORITY

This contract is issued under the authority of the Contracting Officer who
signed this contract. Changes to the contract, including the addition of work or
materials, the revision of payment terms, or the substitution of work or
materials, directed by an unauthorized state employee or made unilaterally by
the Contractor are violations of the contract and of applicable law. Such
changes, including unauthorized written contract amendments, shall be void and
without effect, and the Contractor shall not be entitled to any claim under this
contract based on those changes.

3)    ORDER OF PRECEDENCE

The parties to this contract shall be bound by all terms and conditions
contained herein. For interpreting such terms and conditions the following
sources shall have precedence in descending order: The Constitution and laws of
the United States and applicable federal regulations; the terms of the HCFA 1115
waiver for the State of Arizona; the Constitution and laws of Arizona, and
applicable State rules; the terms of this contract, including all attachments
and executed amendments and modifications; AHCCCSA policies and procedures.

4)    CONTRACT INTERPRETATION AND AMENDMENT

NO PAROL EVIDENCE - This contract is intended by the parties as a final and
complete expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term used in
this contract.

NO WAIVER - Either party's failure to insist on strict performance of any term
or condition of the contract shall not be deemed a waiver of that term or
condition even if the party accepting or acquiescing in the non-conforming
performance knows of the nature of the performance and fails to object to it.

WRITTEN CONTRACT AMENDMENTS - The contract shall be modified only through a
written contract amendment within the scope of the contract signed by the
procurement officer on behalf of the State.

5)    SEVERABILITY

The provisions of this contract are severable to the extent that any provision
or application held to be invalid shall not affect any other provision or
application of the contract, which may remain in effect without the invalid
provision, or application.

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6)    RELATIONSHIP OF PARTIES

The Contractor under this contract is an independent contractor. Neither party
to this contract shall be deemed to be the employee or agent of the other party
to the contract.

7)    ASSIGNMENT AND DELEGATION

The Contractor shall not assign any right nor delegate any duty under this
contract without prior written approval of the Contracting Officer, who will not
unreasonably withhold such approval.

8)    GENERAL INDEMNIFICATION

The Contractor shall defend, indemnify and hold harmless the State from any
claim, demand, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation) arising out of or relating to injury, disease, or
death of persons or damage to or loss of property resulting from or in
connection with the negligent performance of this contract by the Contractor,
its agents, employees, and subcontractors or anyone for whom the Contractor may
be responsible. The obligations, indemnities and liabilities assumed by the
Contractor under this paragraph shall not extend to any liability caused by the
negligence of the State or its employees. The Contractors liability shall not be
limited by any provisions or limits of insurance set forth in this contract. The
State shall reasonably notify the Contractor of any claim for which it may be
liable under this paragraph.

9)    INDEMNIFICATION - PATENT AND COPYRIGHT

The Contractor shall defend, indemnify and hold harmless the State against any
liability including costs and expenses for infringement of any patent, trademark
or copyright arising out of contract performance or use by the State of
materials furnished or work performed under this contract. The State shall
reasonably notify the Contractor of any claim for which it may be liable under
this paragraph.

10)   COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS

The materials and services supplied under this contract shall comply with all
applicable federal, state and local laws, and the Contractor shall maintain all
applicable licenses and permits.

11)   ADVERTISING AND PROMOTION OF CONTRACT

The Contractor shall not advertise or publish information for commercial benefit
concerning this contract without the prior written approval of the Contracting
Officer.

12)   PROPERTY OF THE STATE

Any materials, including reports, computer programs and other deliverables,
created under this contract are the sole property of AHCCCSA. The Contractor is
not entitled to a patent or copyright on those materials and may not transfer
the patent or copyright to anyone else. The Contractor shall not use or release
these materials without the prior written consent of AHCCCSA.

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13)   THIRD PARTY ANTITRUST VIOLATIONS

The Contractor assigns to the State any claim for overcharges resulting from
antitrust violations to the extent that those violations concern materials or
services supplied by third parties to the Contractor toward fulfillment of this
contract.

14)   RIGHT TO ASSURANCE

If AHCCCSA, in good faith, has reason to believe that the Contractor does not
intend to perform or continue performing this contract, the procurement officer
may demand in writing that the Contractor give a written assurance of intent to
perform. The demand shall be sent to the Contractor by certified mail, return
receipt required. Failure by the Contractor to provide written assurance within
the number of days specified in the demand may, at the State's option, be the
basis for terminating the contract.

15)   TERMINATION FOR CONFLICT OF INTEREST

AHCCCSA may cancel this contract without penalty or further obligation if any
person significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of AHCCCSA is, or becomes at any time while the
contract or any extension of the contract is in effect, an employee of, or a
consultant to, any other party to this contract with respect to the subject
matter of the contract. The cancellation shall be effective when the Contractor
receives written notice of the cancellation unless the notice specifies a later
time.

16)   GRATUITIES

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that employment or a gratuity was offered or made by
the Contractor or a representative of the Contractor to any officer or employee
of the State for the purpose of influencing the outcome of the procurement or
securing the contract, an amendment to the contract, or favorable treatment
concerning the contract, including the making of any determination or decision
about contract performance. AHCCCSA, in addition to any other rights or
remedies, shall be entitled to recover exemplary damages in the amount of three
times the value of the gratuity offered by the Contractor.

17)   SUSPENSION OR DEBARMENT

The Contractor shall not employ, consult, subcontract or enter into any
agreement for Title XIX services with any person or entity who is debarred,
suspended or otherwise excluded from federal procurement activity. This
prohibition extends to any entity which employs, consults, subcontracts with or
otherwise reimburses for services any person substantially involved in the
management of another entity which is debarred, suspended or otherwise excluded
from federal procurement activity.

The Contractor shall not retain as a director, officer, partner or owner of 5%
or more of the Contractor entity, any person, or affiliate of such a person, who
is debarred, suspended or otherwise excluded from federal procurement activity.

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AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that the Contractor has been debarred, suspended or
otherwise lawfully prohibited from participating in any public procurement
activity.

18)   TERMINATION FOR CONVENIENCE

AHCCCSA reserves the right to terminate the contract in whole or in part at any
time for the convenience of the State without penalty or recourse. The
Contracting Officer shall give written notice by certified mail, return receipt
requested, to the Contractor of the termination at least 90 days before the
effective date of the termination. In the event of termination under this
paragraph, all documents, data and reports prepared by the Contractor under the
contract shall become the property of and be delivered to AHCCCSA. The
Contractor shall be entitled to receive just and equitable compensation for work
in progress, work completed and materials accepted before the effective date of
the termination.

19)   TERMINATION FOR DEFAULT

AHCCCSA reserves the right to terminate this contract in whole or in part due to
the failure of the Contractor to comply with any term or condition of the
contract or failure to take corrective action as required by AHCCCSA to comply
with the terms of the contract. If the Contractor is providing services under
more than one contract with AHCCCSA, AHCCCSA may deem unsatisfactory performance
under one contract to be cause to require the Contractor to provide assurance of
performance under any and all other contracts. In such situations, AHCCCSA
reserves the right to seek remedies under both actual and anticipatory breaches
of contract if adequate assurance of performance is not received. The
Contracting Officer shall mail written notice of the termination and the
reason(s) for it to the Contractor by certified mail, return receipt requested.

In the event the Contractor requests a hearing prior to termination, AHCCCSA is
required by the Balanced Budget Act of 1997 to oversee the operation of the
Contractor entity through appointment of temporary management prior to the
hearing.

Upon termination under this paragraph, all documents, data, and reports prepared
by the Contractor under the contract shall become the property of and be
delivered to AHCCCSA on demand.

AHCCCSA may, upon termination of this contract, procure, on terms and in the
manner that it deems appropriate, materials or services to replace those under
this contract. The Contractor shall be liable for any excess costs incurred by
AHCCCSA in re-procuring the materials or services.

20)   TERMINATION - AVAILABILITY OF FUNDS

Funds are not presently available for performance under this contract beyond the
current fiscal year. No legal liability on the part of AHCCCSA for any payment
may arise under this contract until funds are made available for performance of
this contract.

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21)   RIGHT OF OFFSET

AHCCCSA shall be entitled to offset against any amounts due the Contractor any
expenses or costs incurred by AHCCCSA concerning the Contractor's non-conforming
performance or failure to perform the contract.

22)   NON-EXCLUSIVE REMEDIES

The rights and the remedies of AHCCCSA under this contract are not exclusive.

23)   NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 99-4, which mandates
that all persons, regardless of race, color, religion, sex, national origin or
political affiliation, shall have equal access to employment opportunities, and
all other applicable federal and state laws, rules and regulations, including
the Americans with Disabilities Act. The Contractor shall take positive action
to ensure that applicants for employment, employees, and persons to whom it
provides service are not discriminated against due to race, creed, color,
religion, sex, national origin or disability.

24)   EFFECTIVE DATE

The effective date of this contract shall be the date that the Contracting
Officer signs the award page (page 1) of this contract.

25) INSURANCE

A certificate of insurance naming the State of Arizona and AHCCCSA as the
"additional insured" must be submitted to AHCCCSA within 10 days of notification
of contract award and prior to commencement of any services under this contract.
This insurance shall be provided by carriers rated as "A+" or higher by the A.M.
Best Rating Service. The following types and levels of insurance coverage are
required for this contract:

a.    Commercial General Liability: Provides coverage of at least $1,000,000 for
      each occurrence for bodily injury and property damage to others as a
      result of accidents on the premises of or as the result of operations of
      the Contractor.

b.    Commercial Automobile Liability: Provides coverage of at least $1,000,000
      for each occurrence for bodily injury and property damage to others
      resulting from accidents caused by vehicles operated by the Contractor.

c.    Workers Compensation: Provides coverage to employees of the Contractor for
      injuries sustained in the course of their employment. Coverage must meet
      the obligations imposed by federal and state statutes and must also
      include Employer's Liability minimum coverage of $100,000. Evidence of
      qualified self-insured status will also be considered.

d.    Professional Liability (if applicable): Provides coverage for alleged
      professional misconduct on lack of ordinary skills in the performance of a
      professional act of service.

The above coverages may be evidenced by either one of the following.

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a.    The State of Arizona Certificate of Insurance: This is a form with the
      special conditions required by the contract already pre-printed on the
      form. The Contractor's agent or broker must fill in the pertinent policy
      information and ensure the required special conditions are included in the
      Contractor's policy.

b.    The Accord form: This standard insurance industry certificate of insurance
      does not contain the preprinted special conditions required by this
      contract. These conditions must be entered on the certificate by the agent
      or broker and read as follows:

      The State of Arizona and Arizona Health Care Cost Containment System are
      hereby added as additional insureds. Coverages afforded under this
      Certificate shall be primary and any insurance carried by the State or any
      of its agencies, boards, departments or commissions shall be in excess of
      that provided by the insured Contractor. No policy shall expire, be
      canceled or materially changed without 30 days written notice to the
      State. This Certificate is not valid unless countersigned by an authorized
      representative of the insurance company.

26)   DISPUTES

The exclusive manner for the Contractor to assert any claim, grievance, dispute
or demand against AHCCCSA shall be in accordance with AHCCCS Rule R9-28-804(C).
Pending the final resolution of any disputes involving this contract, the
Contractor shall proceed with performance of this contract in accordance with
AHCCCSA's instructions, unless AHCCCSA specifically, in writing, requests
termination or a temporary suspension of performance.

27)   RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS

AHCCCSA may, at reasonable times, inspect the part of the plant or place of
business of the Contractor or subcontractor that is related to the performance
of this contract, in accordance with A.R.S. ss.41-2547.

28)   INCORPORATION BY REFERENCE

This solicitation and all attachments and amendments, the Contractor's proposal,
best and final offer accepted by AHCCCSA, and any approved subcontracts are
hereby incorporated by reference into the contract.

29)   COVENANT AGAINST CONTINGENT FEES

The Contractor warrants that no person or agency has been employed or retained
to solicit or secure this contract upon an agreement or understanding for a
commission, percentage, brokerage or contingent fee. For violation of this
warranty, AHCCCSA shall have the right to annul this contract without liability.

30)   CHANGES

AHCCCSA may at any time, by written notice to the Contractor, make changes
within the general scope of this contract. If any such change causes an increase
or decrease in the cost of, or the time required for, performance of any part of
the work under this contract, the Contractor may assert its right to an
adjustment in compensation paid under this contract. The Contractor must assert
its right to such adjustment within 30 days from the date of receipt of the
change

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notice. Any dispute or disagreement caused by such notice shall constitute a
dispute within the meaning of Section E, Paragraph 26, Disputes, and be
administered accordingly.

When AHCCCSA issues an amendment to modify the contract, the provisions of such
amendment will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the amendment has not been signed by the Contractor, unless
within that time the Contractor notifies AHCCCSA in writing that it refuses to
sign the amendment. If the Contractor provides such notification, AHCCCSA will
initiate termination proceedings.

31)   TYPE OF CONTRACT

Firm Fixed-Price

32)   AMERICANS WITH DISABILITIES ACT

People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling Michael Veit at (602) 417-4762.

33)   WARRANTY OF SERVICES

The Contractor warrants that all services provided under this contract will
conform to the requirements stated herein. AHCCCSA's acceptance of services
provided by the Contractor shall not relieve the Contractor from its obligations
under this warranty. In addition to its other remedies, AHCCCSA may, at the
Contractor's expense, require prompt correction of any services failing to meet
the Contractor's warranty herein. Services corrected by the Contractor shall be
subject to all of the provisions of this contract in the manner and to the same
extent as the services originally furnished.

34)   NO GUARANTEED QUANTITIES

AHCCCSA does not guarantee the Contractor any minimum or maximum quantity of
services or goods to be provided under this contract.

35)   CONFLICT OF INTEREST

The Contractor shall not undertake any work that represents a potential conflict
of interest, or which is not in the best interest of AHCCCSA or the State
without prior written approval by AHCCCSA. The Contractor shall fully and
completely disclose any situation that may present a conflict of interest. If
the Contractor is now performing or elects to perform during the term of this
contract any services for any PAHCCCS health plan, provider or Contractor or an
entity owning or controlling same, the Contractor shall disclose this
relationship prior to accepting any assignment involving such party.

36)   DISCLOSURE OF CONFIDENTIAL INFORMATION

The Contractor shall not, without prior written approval from AHCCCSA, either
during or after the performance of the services required by this contract, use,
other than for such performance, or disclose to any person other than AHCCCSA
personnel with a need to know, any information,

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data, material, or exhibits created, developed, produced, or otherwise obtained
during the course of the work required by this contract. This nondisclosure
requirement shall also pertain to any information contained in reports,
documents, or other records furnished to the Contractor by AHCCCSA.

37)   COOPERATION WITH OTHER CONTRACTORS

AHCCCSA may award other contracts for additional work related to this contract
and Contractor shall fully cooperate with such other contractors and AHCCCSA
employees or designated agents, and carefully fit its own work to such other
contractors' work. Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor or by AHCCCSA
employees.

38)   ASSIGNMENT OF CONTRACT AND BANKRUPTCY

This contract is voidable and subject to immediate cancellation by AHCCCSA upon
Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or assigning rights or obligations
under this contract without the prior written consent of AHCCCSA.

39)   OWNERSHIP OF INFORMATION AND DATA

Any data or information system, including all software, documentation and
manuals, developed by Contractor pursuant to this contract, shall be deemed to
be owned by AHCCCSA. The federal government reserves a royalty-free,
nonexclusive, and irrevocable license to reproduce, publish, or otherwise use
and to authorize others to use for federal government purposes, such data or
information system, software, documentation and manuals. Proprietary software
which is provided at established catalog or market prices and sold or leased to
the general public shall not be subject to the ownership or licensing provisions
of this section.

Data, information and reports collected or prepared by Contractor in the course
of performing its duties and obligations under this contract shall be deemed to
be owned by AHCCCSA. The ownership provision is in consideration of Contractor's
use of public funds in collecting or preparing such data, information and
reports. These items shall not be used by Contractor for any independent project
of Contractor or publicized by Contractor without the prior written permission
of AHCCCSA. Subject to applicable state and federal laws and regulations,
AHCCCSA shall have full and complete rights to reproduce, duplicate, disclose
and otherwise use all such information. At the termination of the contract,
Contractor shall make available all such data to AHCCCSA within 30 days
following termination of the contract or such longer period as approved by
AHCCCSA, Office of the Director. For purposes of this subsection, the term
"data" shall not include member medical records.

Except as otherwise provided in this section, if any copyrightable or patentable
material is developed by Contractor in the course of performance of this
contract, the federal government, AHCCCSA and the State of Arizona shall have a
royalty-free, nonexclusive, and irrevocable right to reproduce, publish, or
otherwise use, and to authorize others to use, the work for state or federal
government purposes. Contractor shall additionally be subject to the applicable
provisions of 45 CFR Part 74 and 45 CFR Parts 6 and 8.

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40)   AHCCCSA RIGHT TO OPERATE CONTRACTOR

If, in the judgment of AHCCCSA, Contractor's performance is in material breach
of the contract or Contractor is insolvent, AHCCCSA may directly operate
Contractor to assure delivery of care to members enrolled with Contractor until
cure by Contractor of its breach, by demonstrated financial solvency or until
the successful transition of those members to other contractors.

If AHCCCS undertakes direct operation of the Contractor, AHCCCS, through
designees appointed by the Director shall be vested with full and exclusive
power of management and control of the Contractor as necessary to ensure the
uninterrupted care to persons and accomplish the orderly transition of persons
to a new or existing Contractor, or until the Contractor corrects the Contract
Performance failure to the satisfaction of AHCCCS. AHCCCS shall have the power
to employ any necessary assistants, to execute any instrument in the name of the
Contractor, to commence, defend and conduct in its name any action or proceeding
in which the Contractor may be a party.

All reasonable expenses of AHCCCS related to the direct operation of the
Contractor, including attorney fees, cost of preliminary or other audits of the
Contractor and expenses related to the management of any office or other assets
of the Contractor, shall be paid by the Contractor or withheld from payment due
from AHCCCS to the Contractor.

41)   AUDITS AND INSPECTIONS

The Contractor shall comply with all provisions specified in applicable AHCCCS
Rule R9-22-519, -520 and -521 and AHCCCS policies and procedures relating to the
audit of Contractor's records and the inspection of Contractor's facilities.
Contractor shall fully cooperate with AHCCCSA staff and allow them reasonable
access to Contractor's staff, subcontractors, members, and records.

At any time during the term of this contract, the Contractor's or any
subcontractor's books and records shall be subject to audit by AHCCCSA and,
where applicable, the federal government, to the extent that the books and
records relate to the performance of the contract or subcontracts.

AHCCCSA and the federal government may evaluate through on-site inspection or
other means, the quality, appropriateness and timeliness of services performed
under this contract.

42)   FRAUD AND ABUSE

It shall be the responsibility of the Contractor to report all cases of
suspected fraud and abuse by subcontractors, members or employees. The
Contractor shall provide written notification of all such incidents to AHCCCSA.
The Contractor shall comply with the AHCCCS Health Plans and Program Contractors
Policy for Prevention, Detection and Reporting of Fraud and Abuse which is
available in the Bidder's Library and incorporated herein by reference.

As stated in A.R.S. ss. 13-2310, incorporated herein by reference, any person
who knowingly obtains any benefit by means of false or fraudulent pretenses,
representations, promises, or material omissions is guilty of a class 2 felony.

Contractors are required to research potential overpayments identified by a
fraud and abuse investigation or audit conducted by AHCCCSA. After conducting a
cost benefit analysis to

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determine if such action is warranted, the Contractor should attempt to recover
any overpayments identified due to erroneous, false or fraudulent billings.

43)   LOBBYING

No funds paid to the Contractor by AHCCCSA, or interest earned thereon, shall be
used for the purpose of influencing or attempting to influence an officer or
employee of any federal or State agency, a member of the United States Congress
or State Legislature, an officer or employee of a member of the United States
Congress or State Legislature in connection with awarding of any federal or
State contract, the making of any federal or State grant, the making of any
federal or State loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment or modification of any federal or
State contract, grant, loan, or cooperative agreement. The Contractor shall
disclose if any funds other than those paid to the Contractor by AHCCCSA have
been used or will be used to influence the persons and entities indicated above
and will assist AHCCCSA in making such disclosures to HCFA.

44)   CHOICE OF FORUM

The parties agree that jurisdiction over any action arising out of or relating
to this contract shall be brought or filed in a court of competent jurisdiction
located in the State of Arizona.

                               [END OF SECTION E]

                                       78
<PAGE>

                 ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS

   [The following provisions must be included verbatim in every subcontract.]

1)   EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES

The Arizona Health Care Cost Containment System Administration (AHCCCSA) or the
U.S. Department of Health and Human Services may evaluate, through inspection or
other means, the quality, appropriateness or timeliness of services performed
under this subcontract.

2)   RECORDS AND REPORTS

The Contractor shall maintain all forms, records, reports and working papers
used in the preparation of reports, files, correspondence, financial statements,
records relating to quality of care, medical records, prescription files,
statistical information and other records specified by AHCCCSA for purposes of
audit and program management. The Contractor shall comply with all
specifications for record-keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as shall properly reflect
each service provided and all net costs, direct and indirect, of labor,
materials, equipment, supplies and services, and other costs and expenses of
whatever nature for which payment is made to the Contractor. Such material shall
be subject to inspection and copying by the state, AHCCCSA and the U.S.
Department of Health and Human Services during normal business hours at the
place of business of the person or organization maintaining the records.

The Contractor agrees to make available at the office of the Contractor, at all
times reasonable times, any of its records for inspection, audit or
reproduction, by any authorized representative of the state or federal
governments.

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this subcontract except as
provided in paragraphs a. and b. below:

a.        If this subcontract is completely or partially terminated, the records
          relating to the work terminated shall be preserved and made available
          for a period of five years from the date of any such termination.

b.        Records which relate to disputes, litigation or the settlement of
          claims arising out of the performance of this subcontract, or costs
          and expenses of this subcontract to which exception has been taken by
          the state, shall be retained by the Contractor until such disputes,
          litigation, claims or exceptions have been disposed of.

The Contractor shall provide all reports requested by AHCCCSA, and all
information from records relating to the performance of the Contractor which
AHCCCSA may reasonably require. The Contractor reporting requirements may
include, but are not limited to, timely and detailed utilization statistics,
information and reports.

                                      A-1
<PAGE>

3)   LIMITATIONS ON BILLING AND COLLECTION PRACTICES

The Contractor shall not bill, nor attempt to collect payment directly or
through a collection agency from a person claiming to be AHCCCS eligible without
first receiving verification from AHCCCSA that the person was ineligible for
AHCCCS on the date of service, or that services provided were not AHCCCS covered
services. This provision shall not apply to patient contributions to the cost of
services delivered by nursing homes.

4)   ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES

No payment due the Contractor under this subcontract may be assigned without the
prior approval of AHCCCSA. No assignment or delegation of the duties of this
subcontract shall be valid unless prior written approval is received from
AHCCCSA.

5)   APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS

This subcontract is subject to prior approval by AHCCCSA. The prime contractor
shall notify AHCCCSA in the event of any proposed amendment or termination
during the term hereof. Any such amendment or termination is subject to the
prior approval of AHCCCSA. Approval of the subcontract may be rescinded by the
Director of AHCCCSA for violation of federal or state laws or rules.

6)   WARRANTY OF SERVICES

The Contractor, by execution of this subcontract, warrants that it has the
ability, authority, skill, expertise and capacity to perform the services
specified in this contract.

7)   SUBJECTION OF SUBCONTRACT

The terms of this subcontract shall be subject to the applicable material terms
and conditions of the contract existing between the Contractor and AHCCCSA for
the provision of covered services.

8)   AWARDS OF OTHER SUBCONTRACTS

AHCCCSA and/or the prime contractor may undertake or award other contracts for
additional or related work to the work performed by the Contractor and the
Contractor shall fully cooperate with such other contractors, subcontractors or
state employees. The Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor, subcontractor or
state employee.

9)   INDEMNIFICATION BY CONTRACTOR

The Contractor agrees to hold harmless the state, all state officers and
employees, AHCCCSA and other appropriate state agencies, and all officers and
employees of AHCCCSA and all AHCCCS eligible persons in the event of nonpayment
to the Contractor. The Contractor shall further indemnify and hold harmless the
state, AHCCCSA, other appropriate state agencies, AHCCCS contractors, and their
agents, officers and employees against all injuries, deaths,

                                       2
<PAGE>

losses, damages, claims, suits, liabilities, judgments, costs and expenses which
may, in any manner, accrue against the State, AHCCCSA or its agents, officers or
employees, or AHCCCS contractors, through the intentional conduct, negligence or
omission of the Contractor, its agent, officers or employees.

10)   MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES

The Contractor shall be registered with AHCCCSA and shall obtain and maintain
all licenses, permits and authority necessary to do business and render service
under this subcontract and, where applicable, shall comply with all laws
regarding safety, unemployment insurance, disability insurance and worker's
compensation.

11)   COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS

The Contractor shall comply with all federal, State and local laws, rules,
regulations, standards and executive orders governing performance of duties
under this subcontract, without limitation to those designated within this
subcontract.

12)   SEVERABILITY

If any provision of these standard subcontract terms and conditions is held
invalid or unenforceable, the remaining provisions shall continue valid and
enforceable to the full extent permitted by law.

13)   VOIDABILITY OF SUBCONTRACT

This subcontract is voidable and subject to immediate termination by AHCCCSA
upon the Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or upon assignment or delegation of
the subcontract without AHCCCSA's prior written approval.

14)   CONFIDENTIALITY REQUIREMENT

Confidential information shall be safeguarded pursuant to 42 CFR Part 431,
Subpart F, A.R.S. ss.36-107, 36-2903, 41-1959 and 46-135, and AHCCCS and/or
ALTCS Rules.

15)   GRIEVANCE AND REQUEST FOR HEARING PROCEDURES

Any grievance and request for hearings filed by the Contractor shall be
adjudicated in accordance with AHCCCS Rules.

16)   TERMINATION OF SUBCONTRACT

AHCCCSA may, by written notice to the Contractor, terminate this subcontract if
it is found, after notice and hearing by the State, that gratuities in the form
of entertainment, gifts, or otherwise were offered or given by the Contractor,
or any agent or representative of the

                                       3
<PAGE>

Contractor, to any officer or employee of the State with a view towards securing
a contract or securing favorable treatment with respect to the awarding,
amending or the making of any determinations with respect to the performance of
the Contractor; provided, that the existence of the facts upon which the state
makes such findings shall be in issue and may be reviewed in any competent
court. If the subcontract is terminated under this section, unless the prime
contractor is a governmental agency, instrumentality or subdivision thereof,
AHCCCSA shall be entitled to a penalty, in addition to any other damages to
which it may be entitled by law, and to exemplary damages in the amount of three
times the cost incurred by the Contractor in providing any such gratuities to
any such officer or employee.

17)   PRIOR AUTHORIZATION AND UTILIZATION REVIEW

The prime contractor and Contractor shall develop, maintain and use a system for
Prior Authorization and Utilization Review which is consistent with AHCCCS Rules
and the prime contractor's policies.

18)   NON-DISCRIMINATION REQUIREMENTS

If applicable, the Contractor shall comply with:

a.    The Equal Pay Act of 1963, as amended, which prohibits sex discrimination
      in the payment of wages to men and women performing substantially equal
      work under similar working conditions in the same establishment.

b.    Title VI of the Civil Rights Act of 1964, as amended, which prohibits the
      denial of benefits of, or participation in, contract services on the basis
      of race, color, or national origin.

c.    Title VII of the Civil Rights Act of 1964, as amended which prohibits
      private employers, state and local governments, and educational
      institutions from discriminating against their employees and job
      applicants on the basis of race, religion, color, sex, or national origin.

d.    Title I of the Americans with Disabilities Act of 1990, as amended, which
      prohibits private employers and state and local governments from
      discriminating against job applicants and employees on the basis of
      disability.

e.    The Civil Rights Act of 1991, which reverses in whole or in part, several
      recent Supreme Court decisions interpreting Title VII.

f.    The Age Discrimination in Employment Act (A.R.S. Title 41-1461, et seq.);
      which prohibits discrimination based on age.

g.    State Executive Order 99-4 and Federal Order 11246 which mandates that all
      persons, regardless of race, color, religion, sex, age, national origin or
      political affiliation, shall have equal access to employment
      opportunities.

                                       4

<PAGE>

h.    Section 503 of the Rehabilitation Act of 1973, as amended, which prohibits
      discrimination in the employment or advancement of the employment of
      qualified persons because of physical or mental handicap.

i.    Section 504 of the Rehabilitation Act of 1973, as amended, which prohibits
      discrimination on the basis of handicap in delivering contract services.

19)   COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION

The Contractor shall comply with all applicable AHCCCS Rules and Audit Guide
relating to the audit of the Contractor's records and the inspection of the
Contractor's facilities. If the Contractor is an inpatient facility, the
Contractor shall file uniform reports and Title XVIII and Title XIX cost reports
with AHCCCSA.

20)   CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION

By signing this subcontract, the Contractor certifies that all representations
set forth herein are true to the best of its knowledge.

21)   CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING

By signing this subcontract, the Contractor certifies that it has not engaged in
any violation of the Medicare Anti-Kickback statute (42 USC ss. ss. 1320a-7b) or
the "Stark I" and "Stark II" laws governing related-entity referrals (PL 101-239
and PL 101-432) and compensation therefrom. If the Contractor provides
laboratory testing, it certifies that it has complied with 42 CFR ss.411.361 and
has sent to AHCCCSA simultaneous copies of the information required by that rule
to be sent to the Health Care Financing Administration.

22)   CONFLICT IN INTERPRETATION OF PROVISIONS

In the event of any conflict in interpretation between provisions of this
subcontract and the AHCCCS Minimum Subcontract Provisions, the latter shall take
precedence.

23)   ENCOUNTER DATA REQUIREMENT

If the Contractor does not bill the prime contractor (e.g., Contractor is
capitated), the Contractor shall submit encounter data to the prime contractor
in a form acceptable to AHCCCSA.

24)   CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988

The Clinical Laboratory Improvement Amendment (CLIA) of 1988 requires
laboratories and other facilities that test human specimens to obtain either a
CLIA Waiver or CLIA Certificate in order to obtain reimbursement from the
Medicare and Medicaid (AHCCCS) programs. In addition, they must meet all the
requirements of 42 CFR 493, Subpart A.

                                       5
<PAGE>

To comply with these requirements, AHCCCSA requires all clinical laboratories to
provide verification of CLIA Licensure or Certificate of Waiver during the
provider registration process. Failure to do so shall result in either a
termination of an active provider ID number or denial of initial registration.
These requirements apply to all clinical laboratories.

Pass-through billing or other similar activities with the intent of avoiding the
above requirements are prohibited. Prime contractor may not reimburse providers
who do not comply with the above requirements.

25)   INSURANCE

[This provision applies only if the Contractor provides services directly to
AHCCCS members]

The Contractor shall maintain for the duration of this subcontract a policy or
policies of professional liability insurance, comprehensive general liability
insurance and automobile liability insurance. The Contractor agrees that any
insurance protection required by this subcontract, or otherwise obtained by the
Contractor, shall not limit the responsibility of Contractor to indemnify, keep
and save harmless and defend the State and AHCCCSA, their agents, officers and
employees as provided herein. Furthermore, the Contractor shall be fully
responsible for all tax obligations, Worker's Compensation Insurance, and all
other applicable insurance coverage, for itself and its employees, and AHCCCSA
shall have no responsibility or liability for any such taxes or insurance
coverage.

26)   FRAUD AND ABUSE

If the Contractor discovers, or is made aware, that an incident of potential
fraud or abuse has occurred, the Contractor shall report the incident to the
prime contractor, who shall proceed in accordance with the AHCCCS Health Plans
and Program Contractors Policy for Prevention, Detection and Reporting of Fraud
and Abuse. Incidents involving potential member eligibility fraud should be
reported to AHCCCSA, Office of Managed Care, Member Fraud Unit. All other
incidents of potential fraud should be reported to AHCCCSA, Office of the
Director, Office of Program Integrity. (See AHCCCS Rule R9-22-511.)

                                       6
<PAGE>

                     ATTACHMENT B: MINIMUM NETWORK STANDARDS

                          (By Geographic Service Area)

INSTRUCTIONS:

NOTE: OFFERORS ARE PERMITTED TO BID ONLY BY GEOGRAPHIC SERVICE AREA. PLEASE SEE
SECTION H, PARAGRAPH 9, AWARD OF CONTRACTS, FOR FURTHER INFORMATION ON BIDDING
BY GEOGRAPHIC SERVICE AREA.

Offerors shall have in place an adequate network of providers capable of meeting
contract requirements. The information that follows describes the minimum
network requirements by Geographic Service Area (GSA). The minimum bid is a
single entire GSA, as depicted on the following page.

In some GSA's there are required service sites located outside of the
geographical boundary of a GSA. The reason for this relates to practical access
to care. In certain instances, a member must travel a much greater distance to
receive services within their assigned GSA if the member were not allowed to
receive services in an adjoining GSA or state.

Split zip codes occur in some counties. Split zip codes are those which straddle
two different counties. Enrollment for members residing in these zip codes is
based upon the county and GSA to which the entire zip code has been assigned by
AHCCCS. The Offeror shall be responsible for providing services to members
residing in the entire zip code that is assigned to the GSA for which the
Offeror has agreed to provide services. The split zip codes GSA assignments are
as follows:

<TABLE>
<CAPTION>
            ZIP CODE         SPLIT BETWEEN            COUNTY ASSIGNED          ASSIGNED GSA
                             THESE COUNTIES                 TO
            --------     ---------------------        ---------------          ------------
            <S>          <C>                          <C>                      <C>
               85220        Pinal and Maricopa           Maricopa                    12
               85242        Pinal and Maricopa           Maricopa                    12
               85292         Gila and Pinal               Gila                        8
               85342      Yavapai and Maricopa           Maricopa                    12
               85358      Yavapai and Maricopa           Maricopa                    12
               85390      Yavapai and Maricopa           Maricopa                    12
               85643       Graham and Cochise             Cochise                    18
               85645       Pima and Santa Cruz          Santa Cruz                   18
               85943        Apache and Navajo             Navajo                     16
               86336      Coconino and Yavapai            Yavapai                     6
               86351      Coconino and Yavapai           Coconino                     6
               86434       Mohave and Yavapai             Yavapai                     6
</TABLE>

If outpatient specialty services (OB, family planning, and pediatrics) are not
included in the primary care provider contract, at least one subcontract is
required for each of these specialties in the service sites specified. General
surgeons must be available within 50 miles of service sites.

<PAGE>

In Tucson (GSA 10) and Metropolitan Phoenix (GSA 12), the Offeror must
demonstrate its ability to provide PCP, dental and pharmacy services so that
members don't need to travel more than 5 miles from their residence.
Metropolitan Phoenix is defined on the Minimum Network Standard page specific to
GSA # 6.

Offerors bidding in GSA's other than GSA 10 and GSA 12 are encouraged to
contract with the hospitals in their provider network. However, AHCCCSA will not
award additional points in the evaluation process for hospital contracts in
rural areas. At a minimum, the Offeror shall have a physician with admitting and
treatment privileges with each hospital in its network. Offerors bidding in GSA
10 and/or GSA 12 must have at least one hospital contract in each service
district as depicted on the respective maps for GSA 10 and GSA 12. This
requirement is part of the Hospital Reimbursement Pilot Program, described more
fully in Section D, Paragraph 35, Hospital Reimbursement. For offerors'
convenience, a list of Phoenix and Tucson area hospitals are included on the
reverse of the Phoenix and Tucson maps which follow.

Provider categories required at various service delivery sites included in the
Service Area Minimum Network Standards are indicated as follows:

         H        Hospitals
         P        Primary Care Providers (physicians, certified nurse
                  practitioners and physician assistants)
         D        Dentists
         PH       Pharmacies

<PAGE>

HOSPITALS IN PHOENIX METROPOLITAN AREA (BY SERVICE DISTRICT, BY ZIP CODE)

CENTRAL DISTRICT

  85006  Good Samaritan Regional Medical Center
         Phoenix Children's Hospital
         St. Luke's Medical Center
  85007  Phoenix Memorial Hospital
  85008  Maricopa Medical Center
  85013  St. Joseph's Hospital & Medical Center
  85015  Phoenix Baptist Hospital & Medical Center
  85020  John C. Lincoln Hospital -- North Mountain
  85027  John C. Lincoln Hospital -- Deer Valley

NORTHWEST DISTRICT

  85031  Maryvale Hospital Medical Center
  85032  Paradise Valley Hospital
  85306  Thunderbird Samaritan Medical Center
  85308  Arrowhead Community Hospital & Medical Center
  85351  Walter O. Boswell Memorial Hospital
  85375  Del E. Webb Memorial Hospital
  85054  Mayo Clinic Hospital

SOUTHWEST DISTRICT

  85201  Mesa General Hospital Medical Center
         Mesa Lutheran Hospital
  85202  Desert Samaritan Medical Center
  85206  Valley Lutheran Hospital
  85224  Chandler Regional Hospital
  85251  Scottsdale Healthcare Osborn
  85260  Scottsdale Healthcare Shea
  85281  Tempe St. Luke's Hospital

<PAGE>

HOSPITALS IN TUCSON METROPOLITAN AREA (BY SERVICE DISTRICT, BY ZIP CODE)

NORTHWEST DISTRICT

  85719  Tucson General Hospital
         University Medical Center
  85741  Northwest Hospital
  85745  Carondelet St. Mary's Hospital

SOUTHEAST DISTRICT

  85711  Carondelet St. Joseph's Hospital
  85712  El Dorado Hospital
         Tucson Medical Center
  85713  Kino Community Hospital

<PAGE>

                   ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

The following table is a summary of the periodic reporting requirements for
AHCCCS acute care contractors and is subject to change at any time during the
term of the contract. The table is presented for convenience only and should not
be construed to limit the Contractor's responsibilities in any manner.
"Reporting Guide" refers to the Reporting Guide for Acute Health Care
Contractors with the Arizona Health Care Cost Containment System.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
        REPORT                        WHEN DUE              SOURCE/REFERENCE                      AHCCS CONTACT:
----------------------------------------------------------------------------------------------------------------------
<S>                             <C>                         <C>                                 <C>
Monthly Financial Report        45 days after the end of    Reporting Guide                     Financial Manager
                                the month, as applicable
----------------------------------------------------------------------------------------------------------------------
Quarterly Financial Report      60 days after the end of    Reporting Guide                     Financial Manager
                                each quarter
----------------------------------------------------------------------------------------------------------------------
Draft Annual Audit Report       90 days after the end of    Reporting Guide                     Financial Manager
                                each fiscal year
----------------------------------------------------------------------------------------------------------------------
Draft Management Letter         90 days after the end of    Reporting Guide                     Financial Manager
                                each fiscal year
----------------------------------------------------------------------------------------------------------------------
First Annual Audit Report       120 days after the end of   Reporting Guide                     Financial Manager
                                each fiscal year
----------------------------------------------------------------------------------------------------------------------
Final Management Letter         120 days after the end of   Reporting Guide                     Financial Manager
                                each fiscal year
----------------------------------------------------------------------------------------------------------------------
Accountant's Report on          120 days after the end of   Reporting Guide                     Financial Manager
Compliance                      each fiscal year
----------------------------------------------------------------------------------------------------------------------
Reconciliation - Annual Audit   120 days after the end of   Reporting Guide                     Financial Manager
and Plan Year-to-Date           each fiscal year
Financial Report Information
----------------------------------------------------------------------------------------------------------------------
Financial Disclosure Report     120 days after the end of   Reporting Guide                     Financial Manager
                                each fiscal year
----------------------------------------------------------------------------------------------------------------------
Annual Analysis of              120 days after the end of   Reporting Guide                     Financial Manager
Profitability by Major Rate     each fiscal year
Code (by County)
----------------------------------------------------------------------------------------------------------------------
PPC Lag Schedules               120 days after the end of   Reporting Guide                     Financial Manager
                                each fiscal year
----------------------------------------------------------------------------------------------------------------------
Physician Incentive Plan        Annually by October 1st     RFP, Section D, Paragraph 18        Financial Manager
(PIP) reporting                 of each year
----------------------------------------------------------------------------------------------------------------------
Quarterly FQHC Reports          60 days after the end of    RFP, Section D, paragraph 26        Financial Manager
                                each quarter
----------------------------------------------------------------------------------------------------------------------
Provider Affiliation Tape       10 business days after      PMMIS Provider-to-Health Plan       Health Plan
                                the beginning of each       magnetic tape submission and        Operations Manager
                                quarter                     processing
----------------------------------------------------------------------------------------------------------------------
Corrected Pended Encounter      Monthly, according to       Encounter Manual                    Encounter
Data                            established schedule                                            Administrator
----------------------------------------------------------------------------------------------------------------------
New Day Encounter Data          Monthly, according to       Encounter Manual                    Encounter
                                established schedule                                            Administrator
----------------------------------------------------------------------------------------------------------------------
Medical Records for Data        90 days after the request   RFP, Section C, Paragraph 1         Data Validation
Validation                      received from AHCCCSA                                           Manager
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-1

<PAGE>

<TABLE>
<S>                             <C>                         <C>                                 <C>
----------------------------------------------------------------------------------------------------------------------
Quarterly Grievance and         45 days after the end of    RFP, Section D, Paragraph 26        Administrative
Request for Hearing Report      each quarter                                                    Assistant
----------------------------------------------------------------------------------------------------------------------
Comprehensive EPSDT Plan        Annually on December 1      RFP, Section D, Paragraph 16        AHCCCS Chief Medical
Including Dental                                                                                Officer
----------------------------------------------------------------------------------------------------------------------
EPSDT Progress Report           15 days after the end of    AMPM, Chapter 400                   AHCCCS Chief Medical
including Dental - Quarterly    each quarterly                                                  Officer
Update
----------------------------------------------------------------------------------------------------------------------
Quarterly Inpatient Hospital    15 days after the end of    State Medicaid Manual and the       AHCCCS Chief Medical
Showing                         each quarter                AMPM, Chapter 900                   Officer
----------------------------------------------------------------------------------------------------------------------
Quarterly                       Annually on November 15th   AMPM, Chapter 900                   AHCCCS Chief Medical
Management/Utilization                                                                          Officer
Management Plan Evaluation
and Revision
----------------------------------------------------------------------------------------------------------------------
AIDS/HIV Reports                90 days after the end of    AMPM, Chapter 900                   AHCCCS Chief Medical
                                each contract year                                              Officer
----------------------------------------------------------------------------------------------------------------------
Acute Pharmacy Report           90 days after the end of    AMPM, Chapter 900                   AHCCCS Chief Medical
                                each quarter, annually                                          Officer
                                within 90 days following
                                the end of each contract
                                year
----------------------------------------------------------------------------------------------------------------------
Monthly Pregnancy Termination   End of the month            AMPM, Chapter 400                   AHCCCS Chief Medical
Report                          following the pregnancy                                         Officer
                                termination
----------------------------------------------------------------------------------------------------------------------
Maternity Care Plan             Annually on December 1st    AMPM, Chapter 400                   AHCCCS Chief Medical
                                                                                                Officer
----------------------------------------------------------------------------------------------------------------------
Semi-annual report of number    30 days after the end of    AMPM, Chapter 900                   AHCCCS Chief Medical
of pregnant women who are       the 2nd and 4th quarter                                         Officer
HIV/AIDS positive               of each contract year
----------------------------------------------------------------------------------------------------------------------
Clinical Study Proposal         Annual on November 15       AMPM, Chapter 900                   AHCCCS Chief Medical
                                                                                                Officer
------------------------------- --------------------------- ----------------------------------- ----------------------
Clinical Study Results          Annually within 90 days     AMPM, Chapter 900                   AHCCCS Chief Medical
                                following the end of each                                       Officer
                                contract year
----------------------------------------------------------------------------------------------------------------------
Provider Fraud/Abuse Report     Immediately following       AHCCCS Internal Audit/Program       Office of Program
                                discovery                   Investigation Policy for            Integrity Manager
                                                            Prevention, Detection and
                                                            Reporting of Fraud and Abuse
----------------------------------------------------------------------------------------------------------------------
Eligible Person Fraud/Abuse     Immediately following       AHCCCS Internal Audit/Program       Office of Program
Report                          discovery                   Investigation Policy for            Integrity Manager
                                                            Prevention, Detection and
                                                            Reporting of Fraud and Abuse
----------------------------------------------------------------------------------------------------------------------
Non-Transplant Catastrophic     Annually, within 30 days    RFP, Section D, Paragraph 39        OMM/FFS Unit
Reinsurance covered Diseases    of the beginning of the                                          Reinsurance Manager
                                contract year, enrollment
                                to the plan, and when
                                newly diagnosed.
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-2
<PAGE>

           ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND
                                    STANDARDS

The Contractor shall have in place a written grievance and request for hearing
policy for members and providers which defines their rights regarding any
adverse action by the Contractor. The Contractor shall also ensure compliance
with 9 A.C.C. R9-28-Article 12 the Members' Rights and Responsibilities Policy.
The written grievance and request for hearing policy shall be in accordance with
applicable federal and State laws and AHCCCS Rules and policy including, but not
limited to, AHCCCS Rules R9-22-512; R9-22-518 (A); R9-22-802 and R9-22-804. The
grievance and request for hearing policy shall include the following provisions:

a.       The grievance and request for hearing procedure will be provided all
         subcontractors at time of contract, and to non-contracting providers
         within 10 days of the date of receipt of the claim. For non-contracting
         providers, the grievance and request for hearing procedure may be
         mailed with the remittance advice provided the remittance is sent
         within 45 days of receipt of claim.

b.       Specific individual(s) are appointed with authority to require
         corrective action to administer the grievance and request for hearing
         policy.

c.       A log is maintained for all grievance and request for hearings
         containing sufficient information to identify the grievant, date of
         receipt, nature of the grievance and request for hearing and the date
         grievance and request for hearing is resolved. Separate logs must be
         maintained for provider and member grievance and request for hearings.
         The logs must contain sufficient information to identify the grievant,
         date of receipt, nature of the grievance and request for hearing and
         the date grievance and request for hearing is resolved.

d.       Within five working days of receipt, the grievant is informed by letter
         that the grievance and request for hearing has been received. The
         letter must also be in a second language when 200 members or 5% of the
         Contractor's population, whichever is greater speak the second
         language.

e.       Each grievance and request for hearing is thoroughly investigated using
         the applicable statutory, regulatory and contractual provisions as well
         as the Contractor's policies and procedures, ensuring that facts are
         gathered from all parties.

f.       All documentation received and mailed by Contractor during the
         grievance and request for hearing process is dated upon date of
         receipt.

g.       All grievance and request for hearings are filed in a secure,
         designated area and are retained for five years following the final
         decision, judicial appeal or close of a grievance and request for
         hearing.

h.       A copy of the Contractor's final decision will be either hand-delivered
         or delivered by certified mail to all parties. The final decision shall
         be mailed to all other individuals by regular mail. The date of the
         final decision shall be the date of the notice. The final decision must
         include, and describe in detail, the following:

         1.       the nature of the grievance and request for hearing
         2.       the issues involved
         3.       the reasons supporting the Contractor's decision including
                  references to applicable statute, rule and procedure

                                      H-1
<PAGE>

         4.       the grievant's right to appeal the Contractor's decision to
                  AHCCCSA by filing the appeal to the Contractor no later than
                  15 days after the date of the Contractor's final decision.
                  This must also be written in a second language, if applicable.

i.       If the member requests a hearing, all supporting documentation must be
         received by the AHCCCSA, Office of Legal Assistance no later than five
         working days from the date the Contractor receives the appeal or from
         the date of the oral or written request from AHCCCSA, Office of Legal
         Assistance. The appeal file must contain a cover letter that includes:

         1.       grievant's name
         2.       grievant's AHCCCS ID number
         3.       grievant's address
         4.       phone number (if applicable)
         5.       date of receipt of grievance and request for hearing and
                  appeal
         6.       summary of the Contractor's actions undertaken to resolve
                  the grievance and request for hearing and basis thereof

j.       The following material shall be included in the appeal file:
         1.       written request of the grievant asking for the appeal
         2.       copies of the entire file which include the investigations
                  and/or medical records; and the Contractor's grievance and
                  request for hearing decision
         3.       other information used by the Contractor to resolve the
                  grievance and request for hearing and that would be necessary
                  to AHCCCSA to resolve the grievance and request for hearing.

k.       The Contractor may attempt to use alternative resolution procedures to
         resolve disputes presented to the Contractor verbally or in writing. If
         the Contractor elects to use an alternative resolution process, it must
         be administered and completed within 10 days from receipt of the
         dispute. If the matter is not resolved to the grievant's satisfaction
         within the 10-day period, the dispute must then be adjudicated using
         the grievance and request for hearing standards contained above.
         However, the Contractor must render the written grievance and request
         for hearing decision within a maximum of 30 days from the date of the
         initial filing of the grievance and request for hearing or dispute
         unless a longer period was agreed to by the parties involved.

l.       For all disputes where an alternative resolution is proposed, the
         Contractor must maintain a separate log, complying with paragraphs c.
         and g. above.

                                      H-2
<PAGE>

                 ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed sanctions for noncompliance with encounter
submission requirements. AHCCCSA may also perform special reviews of encounter
data, such as comparing encounter reports to the Contractor's claims files. Any
findings of incomplete or inaccurate encounter data may result in the imposition
of sanctions or requirement of a corrective action plan.

PENDED ENCOUNTER CORRECTIONS

The Contractor must resolve all pended encounters within 120 days of the
original processing date. Sanctions will be imposed according to the following
schedule for each encounter pended for more than 120 days unless the pend is due
to AHCCCSA error:

<TABLE>
<CAPTION>
0-l20 days     121-l80 day's        181-240 days       241-360 days         361+ days
<S>            <C>                 <C>                <C>                 <C>
No sanction    $ 5 per month       $ 10 per month     $ 15 per month      $ 20 per month
</TABLE>

"AHCCCSA error" is defined as a pended encounter which (1) AHCCCSA acknowledges
to be the result of its own error, and (2) requires a change to the system
programming, an update to the database reference table, or further research by
AHCCCSA. AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA in writing that the resolution of a pended
encounter depends on AHCCCSA rather than the Contractor, AHCCCSA will respond in
writing within 30 days of receipt of such notification. The AHCCCSA response
will report the status of each pending encounter problem or issue in question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA reviews the
Contractor's notification and asks the Contractor to research the issue and
provide additional substantiating documentation, or if AHCCCSA disagrees with
the Contractor's claim of AHCCCSA error. If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error, the Contractor
may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor in writing of the
total number of sanctionable encounters pended more than 120 days.

Pended encounters shall not be deleted by the Contractor as a means of avoiding
sanctions for failure to correct encounters within 120 days. The Contractor
shall document deleted encounters and shall maintain a record of the deleted
CRNs with appropriate reasons indicated. The Contractor shall, upon request,
make this documentation available to AHCCCSA for review.

ENCOUNTER VALIDATION STUDIES

Per HCFA requirement, AHCCCSA will conduct encounter validation studies of the
Contractor's encounter submissions, and sanction the Contractor for
noncompliance with encounter submission requirements. The purpose of encounter
validation studies is to compare recorded utilization information from a medical
record or other source with the Contractor's

                                      I-1
<PAGE>

submitted encounter data. Any and all covered services may be validated as part
of these studies. Encounter validation studies will be conducted at least
yearly. The following reflects AHCCCSA'S encounter validation study process and
sanction policy as of 10/1/97. AHCCCSA may revise study methodology, timelines,
and sanction amounts based on agency review or as a result of consultations with
HCFA. The Contractor will be notified in writing of any significant change in
study methodology.

AHCCCSA will conduct two encounter validation studies. Study "A" examines
non-institutional services (form HCFA 1500 encounters), and Study "B" examines
institutional services (form UB-92 encounters).

AHCCCSA will notify the Contractor in writing of the sanction amounts and of the
selected data needed for encounter validation studies. The Contractor will have
90 days to submit the requested data to AHCCCSA. In the case of medical records
requests, the Contractor's failure to provide AHCCCSA with the records requested
within 90 days may result in a sanction of $1,000 per missing medical record. If
AHCCCSA does not receive a sufficient number of medical records from the
Contractor to select a statistically valid sample for a study, the Contractor
may be sanctioned up to 5% of its annual capitation payment.

The criteria used in encounter validation studies may include timeliness,
correctness, and omission of encounters. These criteria are defined as follows:

Timeliness: The time elapsed between the date of service and the date that the
encounter is received at AHCCCS. All encounters must be received by AHCCCSA no
later than 240 days after the end of the month in which the service was
rendered, or the effective date of enrollment with the Contractor, whichever is
later. For all encounters for which timeliness is evaluated, a sanction per
encounter error extrapolated to the population of encounters may be assessed if
the encounter record is received by AHCCCSA more than 240 days after the date
determined above. It is anticipated that the sanction amount will be $1.00 per
error extrapolated to the population of encounters; however, sanction amounts
may be adjusted if AHCCCSA determines that encounter quality has changed, or if
HCFA changes sanction requirements. The Contractor will be notified of the
sanction amount in effect for the studies at the time the studies begin.

Correctness: A correct encounter contains a complete and accurate description of
AHCCCS covered services provided to a member. A sanction per encounter error
extrapolated to the population of encounters may be assessed if the encounter is
incomplete or incorrectly coded. It is anticipated that the sanction amount will
be $1.00 per error extrapolated to the population of encounters; however,
sanction amounts may be adjusted if AHCCCSA determines that encounter quality
has changed, or if HCFA changes sanction requirements. The Contractor will be
notified of the sanction amount in effect for the studies at the time the
studies begin.

Omission of data: An encounter not submitted to AHCCCSA or an encounter
inappropriately deleted from AHCCCSA'S pending encounter file or historical
files in lieu of correction of such record. For Study "A" and for Study "B", a
sanction per encounter error extrapolated to the population of encounters may be
assessed for an omission. It is anticipated that the sanction amount will be
$5.00 per error extrapolated to the population of encounters for Study "A" and
$10.00 per error extrapolated to the population of encounters for Study "B";
however, sanction amounts may be adjusted if AHCCCSA determines that encounter
quality has changed, or if

                                      I-2
<PAGE>

HCFA changes sanction requirements. The Contractor will be notified of the
sanction amount in effect for the studies at the time the studies begin.

For encounter validation studies, AHCCCSA will select all approved and pended
encounters to be studied no earlier than 240 days after the end of the month in
which the service was rendered. Once AHCCCSA has selected the Contractor's
encounters for encounter validation studies, subsequent encounter submissions
for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters, or may select a
sample. The sample size, or number of encounters to be reviewed, will be
determined using statistical methods in order to accurately estimate the
Contractor's error rates. Error rates will be calculated by dividing the number
of errors found by the number of encounters reviewed. A 95% confidence interval
will be used to account for limitations caused by sampling. The confidence
interval shows the range within which the true error rate is estimated to be. If
error rates are based on a sample, the error rate used for sanction purposes
will be the lower limit of the confidence interval.

Encounter validation methodology and statistical formulas are provided in the
AHCCCS Encounter Data Validation Technical Document, which is available in the
Bidders Library. This document also provides examples, which illustrate how
AHCCCSA determines study sample sizes, error rates, confidence intervals, and
sanction amounts.

Written preliminary results of all encounter validation studies will be sent to
the Contractor for review and comment. The Contractor will have a maximum of 30
days to review results and provide AHCCCSA with additional documentation that
would affect the final calculation of error rates and sanctions. AHCCCSA will
examine the Contractor's documentation and may revise study results if
warranted. Written final results of the study will then be sent to the
Contractor and communicated to HCFA, and any sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed by AHCCCSA not
more than 35 days after the Contractor receives final study results from
AHCCCSA. Challenges will be reviewed by AHCCCSA and a written decision will be
rendered no later than 60 days from the date of receipt of a timely challenge.
Sanctions shall not apply to encounter errors successfully challenged. A
challenge must be filed on a timely basis and a decision must be rendered by
AHCCCSA prior to filing a grievance and request for hearing pursuant to Article
8 of AHCCCS Rules. Sanction amounts will be deducted from the Contractor's
capitation payment.

ENCOUNTER ADJUSTMENTS

Contractors are required to submit adjusted or voided encounters in the event
that claims are subsequently adjusted or denied after the initial encounter
submission. This includes adjustments for inaccuracies identified by fraud and
abuse audits or investigations conducted by AHCCCSA or the Contractor.
Contractors shall refer to the Encounter User's Manual for further instructions
regarding adjustments to encounters.

                                       I-3
<PAGE>
                                                       Contract/RFP No. YH8-0001

[AHCCCS LOGO]     ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                          SECTION A. CONTRACT AMENDMENT
<TABLE>
===============================================================================================
<S>                       <C>                   <C>                              <C>
1. AMENDMENT              2. CONTRACT           3. EFFECTIVE DATE OF             4. PROGRAM:
   NUMBER:                   NO.:                  AMENDMENT:
        13                YH8-0001-05                     APRIL 1, 2001               OMC
===============================================================================================
5.  CONTRACTOR'S NAME AND ADDRESS:
                                 HEALTH CHOICE ARIZONA
                              1600 W. BROADWAY SUITE 260
                                 TEMPE, AZ 85282-1502
===============================================================================================
6.  PURPOSE OF AMENDMENT: TO INCORPORATE CHANGES TO CONTRACT REQUIREMENTS DUE TO THE PASSAGE
OF PROPOSITION 204.
===============================================================================================
7.  THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:
      A. Proposition 204.  The attached pages represent modifications to the contract
         requirements as a result of the passage of Proposition 204.

      B. Capitation Rates.  Included in this amendment are revised capitation rates for
         the period beginning April 1, 2001 and ending September 30, 2001.

       NOTE: PLEASE SIGN AND DATE BOTH AND THEN RETURN ONE TO:  MICHAEL VEIT, MD 5700
                                                                AHCCCS CONTRACTS AND PURCHASING
                                                                701 E JEFFERSON STREET
                                                                PHOENIX AZ 85034

===============================================================================================
8.  EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN UNCHANGED AND IN FULL
EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
===============================================================================================
9.  SIGNATURE OF AUTHORIZED                  10. SIGNATURE OF AHCCCSA CONTRACTING
REPRESENTATIVE:                              OFFICER:

                 /S/ CAROLYN ROSE                              /S/ MICHAEL VEIT
===============================================================================================
TYPED NAME:  CAROLYN ROSE                    MICHAEL VEIT

===============================================================================================
TITLE:  CHIEF EXECUTIVE OFFICER              CONTRACTS & PURCHASING
                                             ADMINISTRATOR

===============================================================================================
DATE:           3/6/01                       DATE               3/12/01:

===============================================================================================
</TABLE>

                                       1
<PAGE>

                                                       CONTRACT/RFP NO. YH8-0001

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                              <C>
SECTION A CONTRACT AMENDMENT ...............................................      1

SECTION B CAPITATION RATES .................................................      5

SECTION C DEFINITIONS ......................................................      7

SECTION D PROGRAM REQUIREMENTS .............................................     15

   1.  SCOPE OF SERVICES ...................................................     15
   2.  BEHAVIORAL HEALTH SERVICES ..........................................     22
   3.  AHCCCS MEDICAL POLICY MANUAL ........................................     23
   4.  VACCINE FOR CHILDREN PROGRAM ........................................     24
   5.  DENIALS OR REDUCTIONS OF SERVICES ...................................     24
   6.  ENROLLMENT AND DISENROLLMENT ........................................     24
   7.  MAINSTREAMING OF AHCCCS MEMBERS .....................................     27
   8.  MEMBER INFORMATION ..................................................     28
   9.  MEMBER SURVEYS ......................................................     30
  10.  MARKETING PLANS .....................................................     30
  11.  ANNUAL ENROLLMENT CHOICE ............................................     30
  12.  TRANSITION OF MEMBERS ...............................................     31
  13.  STAFF REQUIREMENTS AND SUPPORT SERVICES .............................     32
  14.  WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS ...................     33
  15.  ADVANCE DIRECTIVES ..................................................     33
  16.  PERFORMANCE MEASUREMENT .............................................     34
  17.  QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM) ...............     36
  18.  PHYSICIAN INCENTIVES ................................................     36
  19.  APPOINTMENT STANDARDS ...............................................     36
  20.  REFERRAL PROCEDURES AND STANDARDS ...................................     37
  21.  PROVIDER MANUAL .....................................................     38
  22.  PRIMARY CARE PROVIDER STANDARDS .....................................     39
  23.  OTHER PROVIDER STANDARDS ............................................     40
  24.  NETWORK DEVELOPMENT .................................................     41
  25.  NETWORK MANAGEMENT ..................................................     41
  26.  FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) ...........................     42
  27.  PROVIDER REGISTRATION ...............................................     43
  28.  PROVIDER AFFILIATION TAPE ...........................................     43
  29.  PERIODIC REPORT REQUIREMENTS ........................................     43
  30.  DISSEMINATION OF INFORMATION ........................................     44
  31.  REQUESTS FOR INFORMATION ............................................     44
  32.  OPERATIONAL AND FINANCIAL READINESS REVIEWS .........................     44
  33.  OPERATIONAL AND FINANCIAL REVIEWS ...................................     44
  34.  CLAIMS PAYMENT SYSTEM ...............................................     45
  35.  HOSPITAL SUBCONTRACTING AND REIMBURSEMENT ...........................     45
  36.  NURSING FACILITY REIMBURSEMENT ......................................     46
  37.  COMPENSATION ........................................................     46
  38.  CAPITATION ADJUSTMENTS ..............................................     48
  39.  REINSURANCE .........................................................     48
  40.  COORDINATION OF BENEFITS/THIRD PARTY LIABILITY ......................     50
  41.  MEDICARE SERVICES AND COST SHARING ..................................     52
  42.  COPAYMENTS ..........................................................     53
  43.  RECORDS RETENTION ...................................................     53
  44.  MEDICAL RECORDS .....................................................     53
  45.  ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS ......................     54
</TABLE>

                                       2
<PAGE>

                                                       CONTRACT/RFP NO. YH8-0001

<TABLE>
<S>                                                                              <C>
  46.  ACCUMULATED FUND DEFICIT ............................................     54
  47.  DATA EXCHANGE REQUIREMENT ...........................................     54
  48.  ENCOUNTER DATA REPORTING ............................................     55
  49.  MONTHLY ROSTER RECONCILIATION .......................................     56
  50.  TERM OF CONTRACT AND OPTION TO RENEW ................................     56
  51.  SUBCONTRACTS ........................................................     57
  52.  SPECIALTY CONTRACTS .................................................     58
  53.  MANAGEMENT SERVICES SUBCONTRACTORS ..................................     59
  54.  MANAGEMENT SERVICES SUBCONTRACTOR AUDITS ............................     59
  55.  MINIMUM CAPITALIZATION REQUIREMENTS .................................     59
  56.  PERFORMANCE BOND OR BOND SUBSTITUTE .................................     60
  57.  AMOUNT OF PERFORMANCE BOND ..........................................     60
  58.  FINANCIAL VIABILITY CRITERIA/PERFORMANCE MEASURES ...................     61
  59.  MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP ......................     61
  60.  SANCTIONS ...........................................................     62
  61.  AUTO-ASSIGNMENT ALGORITHM ...........................................     62
  62.  GRIEVANCE PROCESS AND STANDARDS .....................................     62
  63.  QUARTERLY GRIEVANCE REPORT ..........................................     63
  64.  KIDSCARE ............................................................     63
  65.  PENDING LEGISLATIVE ISSUES ..........................................     63
  66.  SEPARATE INCORPORATION ..............................................     64
  67.  CULTURAL COMPETENCY .................................................     64
  68.  MEDICAID IN THE PUBLIC SCHOOLS ......................................     64
  69.  PROPOSITION 204 AND HCFA WAIVER .....................................     64

SECTION E: CONTRACT CLAUSES.................................................     66

   1)  APPLICABLE LAW ......................................................     66
   2)  AUTHORITY ...........................................................     66
   3)  ORDER OF PRECEDENCE .................................................     66
   4)  CONTRACT INTERPRETATION AND AMENDMENT ...............................     66
   5)  SEVERABILITY ........................................................     66
   6)  RELATIONSHIP OF PARTIES .............................................     66
   7)  ASSIGNMENT AND DELEGATION ...........................................     66
   8)  GENERAL INDEMNIFICATION .............................................     66
   9)  INDEMNIFICATION -- PATENT AND COPYRIGHT .............................     67
  10)  COMPLIANCE WITH APPLICABLE  LAWS, RULES AND REGULATIONS .............     67
  11)  ADVERTISING AND PROMOTION OF CONTRACT ...............................     67
  12)  PROPERTY OF THE STATE ...............................................     67
  13)  THIRD PARTY ANTITRUST VIOLATIONS ....................................     67
  14)  RIGHT TO ASSURANCE ..................................................     67
  15)  TERMINATION FOR CONFLICT OF INTEREST ................................     67
  16)  GRATUITIES ..........................................................     67
  17)  SUSPENSION OR DEBARMENT .............................................     68
  18)  TERMINATION FOR CONVENIENCE .........................................     68
  19)  TERMINATION FOR DEFAULT .............................................     68
  20)  TERMINATION - AVAILABILITY OF FUNDS .................................     68
  21)  RIGHT OF OFFSET .....................................................     69
  22)  NON-EXCLUSIVE REMEDIES ..............................................     69
  23)  NON-DISCRIMINATION ..................................................     69
  24)  EFFECTIVE DATE ......................................................     69
  25)  INSURANCE ...........................................................     69
  26)  DISPUTES ............................................................     70
  27)  RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS .........................     70
  28)  INCORPORATION BY REFERENCE ..........................................     70
  29)  COVENANT AGAINST CONTINGENT FEES ....................................     70
</TABLE>

                                       3
<PAGE>

                                                       CONTRACT/RFP NO. YH8-0001

<TABLE>
<S>                                                                              <C>
  30)  CHANGES .............................................................     70
  31)  TYPE OF CONTRACT ....................................................     70
  32)  AMERICANS WITH DISABILITIES ACT .....................................     70
  33)  WARRANTY OF SERVICES ................................................     70
  34)  NO GUARANTEED QUANTITIES ............................................     71
  35)  CONFLICT OF INTEREST ................................................     71
  36)  DISCLOSURE OF CONFIDENTIAL INFORMATION ..............................     71
  37)  COOPERATION WITH OTHER CONTRACTORS ..................................     71
  38)  ASSIGNMENT OF CONTRACT AND BANKRUPTCY ...............................     71
  39)  OWNERSHIP OF INFORMATION AND DATA ...................................     71
  40)  AHCCCSA RIGHT TO OPERATE CONTRACTOR .................................     72
  41)  AUDITS AND INSPECTIONS ..............................................     72
  42)  FRAUD AND ABUSE .....................................................     72
  43)  LOBBYING ............................................................     73
  44)  CHOICE OF FORUM .....................................................     73

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS ...............................      1

   1)  EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES ...      1
   2)  RECORDS AND REPORTS .................................................      1
   3)  LIMITATIONS ON BILLING AND COLLECTION PRACTICES .....................      1
   4)  ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES ............      1
   5)  APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS ................      2
   6)  WARRANTY OF SERVICES ................................................      2
   7)  SUBJECTION OF SUBCONTRACT ...........................................      2
   8)  AWARDS OF OTHER SUBCONTRACTS ........................................      2
   9)  INDEMNIFICATION BY CONTRACTOR .......................................      2
  10)  MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES .....      2
  11)  COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS .........................      2
  12)  SEVERABILITY ........................................................      2
  13)  VOIDABILITY OF SUBCONTRACT ..........................................      2
  14)  CONFIDENTIALITY REQUIREMENT .........................................      2
  15)  GRIEVANCE AND REQUEST FOR HEARING PROCEDURES ........................      3
  16)  TERMINATION OF SUBCONTRACT ..........................................      3
  17)  PRIOR AUTHORIZATION AND UTILIZATION REVIEW ..........................      3
  18)  NON-DISCRIMINATION REQUIREMENTS .....................................      3
  19)  COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION .......      4
  20)  CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION .....................      4
  21)  CERTIFICATION OF COMPLIANCE-ANTI-KICKBACK AND LABORATORY TESTING ....      4
  22)  CONFLICT IN INTERPRETATION OF PROVISIONS ............................      4
  23)  ENCOUNTER DATA REQUIREMENT ..........................................      4
  24)  CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988 ............      4
  25)  INSURANCE ...........................................................      4
  26)  FRAUD AND ABUSE .....................................................      5

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS .................................      1

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS ......      1

ATTACHMENT I:  ENCOUNTER SUBMISSION REQUIREMENTS ...........................      1
</TABLE>

                                       4
<PAGE>

CAPITATION RATES                                       CONTRACT/RFP NO. YH8-0001

                          SECTION B - CAPITATION RATES

The Contractor shall provide services as described in this contract. In
consideration for these services, the Contractor will be paid the attached rates
for the term April 1, 2001 through September 30, 2001.

CAPITATION RATES
(per member per month)

Capitation rates specific to contractor

                                       5
<PAGE>

                   ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
                                  HEALTH CHOICE
                  CAPITATION RATE FOR SSI W/MEDICARE AND MN/MI
                                EFFECTIVE 4/1/01

<TABLE>
<CAPTION>
                        SSI W/MED     SSI W/MED       MN/MI         MN/MI
                        ---------     ---------      -------       -------
                         10/1/00        4/1/01       10/1/00        4/1/01
                         -------       -------       -------       -------
<S>                     <C>           <C>            <C>           <C>
GSA #10 (PIMA)           $155.68       $168.56       $500.15       $509.02
                         -------       -------       -------       -------
GSA #12 (MARICOPA)       $173.04       $187.38       $612.63       $622.12
                         -------       -------       -------       -------
</TABLE>

                                       6
<PAGE>

DEFINITIONS                                            CONTRACT/RFP NO. YH8-0001

                             SECTION C: DEFINITIONS

ADHS                          Arizona Department of Health Services, the state
                              agency mandated to serve the public health needs
                              of all Arizona citizens.

AGENT                         Any person who has been delegated the authority to
                              obligate or act on behalf of another person or
                              entity.

AHCCCS                        Arizona Health Care Cost Containment System, which
                              is composed of the Administration, contractors,
                              and other arrangements through which health care
                              services are provided to an eligible person, as
                              defined by A.R.S. ss. 36-2902, et seq.

AHCCCS BENEFITS               See "COVERED SERVICES".

AHCCCS MEMBER                 See "MEMBER".

AHCCCSA                       Arizona Health Care Cost Containment System

ALTCS                         Administration. The Arizona Long Term Care System
                              (ALTCS), a program under AHCCCSA that delivers
                              long term, acute, behavioral health and case
                              management services to members, as authorized by
                              A.R.S. ss. 36-2932.

AMBULATORY CARE               Preventive, diagnostic and treatment services
                              provided on an outpatient basis by physicians,
                              nurse practitioners, physician assistants and
                              other health care providers.

AMPM AHCCCS                   Medical Policy Manual.

ARIZONA ADMINISTRATIVE CODE   State regulations established pursuant to relevant
(A.A.C.)                      statutes. For purposes of this solicitation, the
                              relevant sections of the AAC are referred to
                              throughout this document as "AHCCCS Rules".

A.R.S.                        Arizona Revised Statutes.

AT RISK                       Refers to the period of time that a member is
                              enrolled with a contractor during which time the
                              Contractor is responsible to provide AHCCCS
                              covered services under capitation.

BIDDERS LIBRARY               A repository of manuals, statutes, rules and other
                              reference material located at the AHCCCS office in
                              Phoenix.

BOARD CERTIFIED               An individual who has successfully completed all
                              prerequisites of the respective specialty board
                              and successfully passed the required examination
                              for certification.

CAPITATION                    Payment to contractor by AHCCCSA of a fixed
                              monthly payment per person in advance for which
                              the contractor provides a full range of covered
                              services as authorized under A.R.S. ss. 36-2942
                              and ss. 36-2931.

CATEGORICALLY                 Member eligible for Medicaid under Title XIX of
LINKED TITLE XIX              the Social Security Act including those eligible
MEMBER                        under 1931 provisions of the Social Security Act
                              (previously AFDC), Sixth Omnibus Budget
                              Reconciliation Act (SOBRA), Supplemental Security
                              Income (SSI), SSI-related groups. To be
                              categorically linked, the member must be aged (65
                              or over), blind, disabled, a child under age 19,
                              parent of a dependent child, or pregnant.

                                       7
<PAGE>

CLEAN CLAIM                   A claim that may be processed without obtaining
                              additional information from the provider of
                              service or from a third party; but does not
                              include claims under investigation for fraud or
                              abuse or claims under review for medical
                              necessity, as defined by A.R.S. ss. 36-2904.

COMPETITIVE BID               A state procurement system used to select
PROCESS                       contractors to provide covered services on a
                              geographic basis.

CONTINUING                    An AHCCCS contractor during CYE 97 that submits a
OFFEROR                       proposal pursuant to this solicitation.

CONTRACT                      See "COVERED SERVICES".
SERVICES

CONTRACT YEAR                 Corresponds to federal fiscal year (Oct. 1 through
(CY)                          Sept. 30). For example, Contract Year 01 is
                              10/01/00 - 9/30/01.

CONTRACTOR                    A person, organization or entity agreeing through
                              a direct contracting relationship with AHCCCSA to
                              provide the goods and services specified by this
                              contract in conformance with the stated contract
                              requirements, AHCCCS statute and rules and federal
                              law and regulations.

CONVICTED                     A judgment of conviction has been entered by a
                              federal, state or local court, regardless of
                              whether an appeal from that judgment is pending.

CO-PAYMENT                    A monetary amount specified by the Director that
                              the member pays directly to a contractor or
                              provider at the time covered services are
                              rendered, as defined in R9-22-107.

COUNTY                        Amount of funds contributed to the AHCCCS fund by
CONTRIBUTION                  each Arizona county based on funding formulas
                              established by law.

COVERED SERVICES              Health care services to be delivered by a
                              contractor which are designated in Section D of
                              this contract and also AHCCCS Rules R9-22, Article
                              2 and R9-31, Article 2.

CRS                           Children's Rehabilitative Services, as defined in
                              R9-22-114.

CY                            See "CONTRACT YEAR".

CYE                           Contract Year Ended; same as "CONTRACT YEAR".

DAYS                          Calendar days unless otherwise specified as
                              defined in the text, as defined in R9-22-101.

DIRECTOR                      The Director of AHCCCSA.

DISCLOSING ENTITY             An AHCCCS provider or a fiscal agent.

DME                           Durable Medical Equipment, which is an item, or
                              appliance that can withstand repeated use, is
                              designated to serve a medical purpose, and is not
                              generally useful to a person in the absence of a
                              medical condition, illness or injury as defined in
                              R9-22-102.

DUAL ELIGIBLE                 A member who is eligible for both Medicare and
                              Medicaid.

                                       8
<PAGE>

EAC                           Eligible Assistance Child as defined in A.R.S. ss.
                              36-2905.03(B); an AHCCCS state program for
                              children under age 14 receiving food stamps.
                              Effective 10/1/01, EAC members will become Title
                              XIX Waiver members.

ELIC                          Eligible Low-Income Child as defined in A.R.S. ss.
                              36-2905.05(C) and (D); an AHCCCS state program for
                              children under age 14 whose household income
                              exceeds the income limit for the MN/MI program but
                              is less than 100% of the federal poverty level.
                              Effective 10/1/01, ELIC members will become Title
                              XIX Waiver members.

ELIGIBILITY                   A process of determining, through a written
DETERMINATION                 application, including required documentation,
                              whether an applicant meets the qualifications for
                              Title XIX Title XXI, and/or state-only
                              eligibility.

EMERGENCY                     A medical condition manifesting itself by acute
MEDICAL                       symptoms of sufficient severity (including severe
CONDITION                     pain) such that a prudent layperson, who possess
                              an average knowledge of health and medicine, could
                              reasonably expect the absence of immediate medical
                              attention to result in: a) placing the patient's
                              health in serious jeopardy; b) serious impairment
                              to bodily functions; or c) serious dysfunction of
                              any bodily organ or part.

EMERGENCY                     Services provided after the sudden onset of a
MEDICAL                       medical condition manifesting itself by acute
SERVICE                       symptoms of sufficient severity (including severe
                              pain) that the absence of immediate medical
                              attention could reasonably be expected to result
                              in: a) placing the patient's health in serious
                              jeopardy; b) serious impairment to bodily
                              functions; or c) serious dysfunction of any bodily
                              organ or part, as defined in R9-22-102.

ENCOUNTER                     A record of a medically related service rendered
                              by a provider or providers registered with AHCCCSA
                              to a member who is enrolled with a Contractor on
                              the date of service. It includes all services for
                              which the contractor incurred any financial
                              liability.

ENROLLMENT                    The process by which an eligible person becomes a
                              member of a contractor's health plan.

EPSDT                         Early and Periodic Screening, Diagnosis and
                              Treatment; services for persons under 21 years of
                              age as described in AHCCCS rules R9-22, Article 2.

FAMILY PLANNING               A program that provides family planning services
SERVICES                      only for a maximum of 24 months to SOBRA women
EXTENSION                     whose pregnancy has ended and the woman is not
PROGRAM                       otherwise eligible for Title XIX.

FEDERALLY                     An entity which meets the requirements and
QUALIFIED HEALTH              receives a grant and funding pursuant to Section
CENTER (FQHC)                 330 of the Public Health Service Act. An FQHC
                              includes an outpatient health program or facility
                              operated by a tribe or tribal organization under
                              the Indian Self-Determination Act (PL 93-638) or
                              an urban Indian organization receiving funds under
                              Title V of the Indian Health Care Improvement Act.

FEE-FOR-SERVICE               A method of payment to registered providers on an
(FFS)                         amount-per service basis.

                                       9
<PAGE>

 FFP                          Federal financial participation (FFP) refers to
                              the contribution that the federal government makes
                              to the Title XIX and Title XXI program portions of
                              AHCCCS as defined in 42 CFR 400.203.

FISCAL YEAR (FY)              The budget year - Federal Fiscal Year: October 1
                              through September 30; State fiscal year: July 1
                              through June 30.

GATEKEEPER                    Primary care provider who is primarily responsible
                              for all medical treatment rendered and who makes
                              referrals as necessary and monitors the member's
                              treatment.

GEOGRAPHIC                    A specific county or defined grouping of counties
SERVICE AREA                  designated by the Administration within which a
(GSA)                         contractor of record provides, directly or through
                              subcontract, covered health care to members
                              enrolled with that contractor of record

GROUP OF                      Two or more health care professionals who practice
PROVIDERS                     their profession at a common location (whether or
                              not they share facilities, supporting staff, or
                              equipment).

HCFA                          Health Care Financing Administration, an
                              organization within the U.S. Department of Health
                              and Human Services, which administers the Medicare
                              and Medicaid programs and Children's Health
                              Insurance Program.

HEALTH                        Various forms of plan organization, including
MAINTENANCE                   staff and group models, that meet the HMO
ORGANIZATION                  licensing requirements of the federal and/or state
(HMO)                         government and offer a full array of health care
                              services to members on a capitated basis.

HEALTH PLAN                   See "CONTRACTOR".

IBNR                          Incurred But Not Reported: Liability for services
                              rendered for which claims have not been received.

IHS                           Indian Health Services, authorized as a federal
                              agency pursuant to 25 U.S.C. 1661.

LIEN                          A legal claim filed with the County Recorder's
                              office in which a member resides and in the county
                              an injury was sustained for the purpose of
                              ensuring that AHCCCS receives reimbursement for
                              medical services paid. The lien is attached to any
                              settlement the member may receive as a result of
                              an injury.

MANAGED CARE                  Systems that integrate the financing and delivery
                              of health care services to covered individuals by
                              means of arrangements with selected providers to
                              furnish comprehensive services to members;
                              establish explicit criteria for the selection of
                              health care providers; have significant financial
                              incentives for members to use providers and
                              procedures associated with the plan; and have
                              formal programs for quality assurance and
                              utilization review.

MANAGEMENT                    A person or organization that agrees to perform
SERVICES                      any administrative function or service for the
SUBCONTRACTOR                 Contractor specifically related to securing or
                              fulfilling the Contractor's obligations to AHCCCSA
                              under the terms of the contract.

MANAGING                      A general manager, business manager,
EMPLOYEE                      administrator, director, or other individual who
                              exercises operational or managerial control over,
                              or who directly or indirectly conducts the
                              day-to-day operation of, an institution,
                              organization or agency.

                                       10
<PAGE>

MATERIAL                      A fact, data or other information excluded from a
OMISSION                      report, contract, etc. the absence of which could
                              lead to erroneous conclusions following reasonable
                              review of such report, contract, etc.

MEDICAID                      A Federal/State program authorized by Title XIX of
                              the Social Security Act, as amended.

MEDICAL                       Title XIX Waiver member whose income is more than
EXPENSE                       100% of the Federal Poverty Level, and spends down
DEDUCTION                     to or below 40% of the 2000 Federal Poverty Level.
(MED)                         The 40% of 2000 Federal Poverty Level will not be
                              adjusted annually to reflect annual Federal
                              Poverty Level adjustments.

MEDICARE                      A Federal program authorized by Title XVIII of the
                              Social Security Act, as amended.

MEMBER                        A person eligible who is enrolled in the system,
                              as defined in A.R.S.ss.36-2901.

MN/MI                         Medically Needy/Medically Indigent; state program
                              for individuals not eligible for Medicaid but who
                              meet the eligibility requirements for the state
                              program. Beginning 4/1/01, individuals under this
                              program will be eligible for Medicaid as a Title
                              XIX Waiver member.

NEW OFFEROR                   The organization, entity or person which submits a
                              proposal in response to this solicitation and
                              which has not been an AHCCCS contractor during CYE
                              97.

NON-CONTRACTING               A person who provides services as prescribed in
PROVIDER                      A.R.S.ss.36-2939 and who does not have a
                              subcontract with an AHCCCS contractor.

OFFEROR                       A person or other entity that submits a proposal
                              to the Administration in response to an RFP, as
                              defined in R9-22-106.

PERFORMANCE                   A set of standardized indicators designed to
MEASURES                      assist AHCCCS in evaluating, comparing and
                              improving the performance of its contractors.
                              Specific descriptions of health services
                              measurement goals are found in Section D,
                              Paragraph 16, Performance Measures.

PMMIS                         AHCCCSA's Prepaid Medical Management Information
                              System.

PRIMARY CARE                  An individual who meets the requirements of A.R.S.
PROVIDER (PCP)                ss. 36-2901, and who is responsible for the
                              management of a member's health care. A PCP may be
                              a physician defined as a person licensed as
                              allopathic or osteopathic physician according to
                              A.R.S. Title 32, Chapter 13 or Chapter 17 or a
                              practitioner defined as a physician assistant
                              licensed under A.R.S. Title 32, Chapter 25, or a
                              certified nurse practitioner licensed under A.R.S.
                              Title 32, Chapter 15.

PRIOR PERIOD                  The period of time from the 1st day of the month
                              of application or the 1st eligible month,
                              whichever is later, to the day a member is
                              enrolled with the Contractor. The Contractor
                              receives notification from the Administration of
                              the member's enrollment.

PRIOR QUARTER                 The three-month period immediately preceding the
                              month in which the member applies for Title XIX
                              benefits. If it is determined that the member
                              would have been eligible had the member applied in
                              the month in which services were provided, AHCCCSA
                              may pay for unpaid Title XIX services on a
                              fee-for-service basis. The Contractor is not
                              liable for the prior quarter period. Prior quarter
                              coverage will discontinue for eligibility
                              determinations on or after 10/1/01.

                                       11
<PAGE>

PROPOSITION 204               Referendum that increased eligibility for AHCCCS
                              services to individuals whose income is at or less
                              than 100% of Federal Poverty Level.

PROVIDER                      Any person who contracts with the Administration
                              for the provision of hospitalization and medical
                              care to members according to the provisions
                              A.R.S.ss. 36-2901 or any subcontractor of provider
                              delivering services pursuant to A.R.S.ss. 36-2901.

QUALIFIED                     A person, eligible under A.R.S.ss.36-2971(4), who
MEDICARE                      is entitled to Medicare Part A insurance, meets
BENEFICIARY                   certain income and residency requirements of the
(QMB)                         Qualified Medicare Beneficiary program. A QMB who
                              is also eligible for Medicaid is commonly referred
                              to as a QMB dual eligible. Effective 4/1/01, all
                              QMB eligible members will be eligible for full
                              AHCCCS medical services under the SSI-MAO
                              category.

RATE CODE                     Eligibility classification for capitation payment
                              purposes.

REGIONAL                      An organization under contract with ADHS to
BEHAVIORAL                    administer covered behavioral health services in a
HEALTH                        geographically specific area of the state. Tribal
AUTHORITY                     governments, through an agreement with ADHS, may
(RBHA)                        operate a tribal regional behavioral health
                              authority (TRBHA) for the provision of behavioral
                              health services to Native American members living
                              on-reservation.

REINSURANCE                   A risk-sharing program provided by the
                              Administration to contractors for the
                              reimbursement of certain contract service costs
                              incurred by a member beyond a certain monetary
                              threshold.

RELATED PARTY                 A party that has, or may have, the ability to
                              control or significantly influence a contractor,
                              or a party that is, or may be, controlled or
                              significantly influenced by a contractor. "Related
                              parties" include, but are not limited to, agents,
                              managing employees, persons with an ownership or
                              controlling interest in the disclosing entity, and
                              their immediate families, subcontractors,
                              wholly-owned subsidiaries or suppliers, parent
                              companies, sister companies, holding companies,
                              and other entities controlled or managed by any
                              such entities or persons.

RFP                           Request For Proposals which is a document prepared
                              by AHCCCSA which describes the services required
                              and which instructs prospective offerors how to
                              prepare a response (proposal), as defined in
                              R9-22-107.

SCOPE OF SERVICES             See "COVERED SERVICES".

SOBRA                         Section 9401 of the Sixth Omnibus Budget and
                              Reconciliation Act, 1986, amended by the Medicare
                              Catastrophic Coverage Act of 1988, 42 CFR U.S.C.
                              1396a(a)(10)(A)(ii)(IX), July 1, 1988.

STATE                         The State of Arizona.

STATE PLAN                    The written agreements between the State and HCFA
                              which describes how the AHCCCS program meets HCFA
                              requirements for participation in the Medicaid
                              program and the Children's Health Insurance
                              Program.

                                       12
<PAGE>

STATE-ONLY                    A member who is not eligible for Title XIX or XXI
MEMBER                        but is eligible for one of the state-funded
                              eligibility categories which include Medically
                              Needy/Medically Indigent (MN/MI), Eligible
                              Assistance Children (EAC), Eligible Low Income
                              Children (ELIC). Beginning 4/1/01, MNMI's will no
                              longer be "state only," but funded by both state
                              and federal dollars.

SUBCONTRACT                   An agreement entered into by Contractor with a
                              provider of health care services who agrees to
                              furnish covered services to members, or with a
                              marketing organization, or with any other
                              organization or person who agrees to perform any
                              administrative function or service for Contractor
                              specifically related to fulfilling Contractor's
                              obligations to AHCCCSA under the terms of this
                              contract, as defined in R9-22-101.

SUBCONTRACTOR                 (1) A person, agency or organization to that a
                              contractor has contracted with or delegated some
                              of its management functions or responsibilities to
                              provide covered services to its members; or (2) A
                              person, agency or organization that a fiscal agent
                              has entered into a contract, agreement, purchase
                              order or lease (or leases of real property) to
                              obtain space, supplies, equipment or services
                              provided under the AHCCCS agreement.

SUPPLEMENTAL                  Federal cash assistance program under Title XVI of
SECURITY                      the Social Security Act.
INCOME
(SSI)

TEFRA RISK HMO                A Health Maintenance Organization or Comprehensive
                              Medical Plan, which provides Medicare, services to
                              Medicare beneficiaries pursuant to a Medicare risk
                              contract with HCFA under ss.1876 of the Social
                              Security Act.

TEMPORARY                     A Federal cash assistance program under the
ASSISTANCE TO                 Social Security Act. It replaced Aid To Families
NEEDY FAMILIES                With Dependent Children (AFDC).
(TANF)

THIRD PARTY                   An individual, entity or program that is or may be
                              liable to pay all or part of the medical cost of
                              injury, disease or disability of an AHCCCS
                              applicant or member, as defined in R9-22-110

THIRD PARTY LIABILITY         The resources available from a person or entity
                              that is, or may be, by agreement, circumstance or
                              otherwise, liable to pay all or part of the
                              medical expenses incurred by an AHCCCS applicant
                              or member, as defined in R9-22-110.

TITLE XIX MEMBER              Member eligible for Federally funded Medicaid
                              programs under Title XIX of the Social Security
                              Act including those eligible under 1931 provisions
                              of the Social Security Act (previously AFDC),
                              Sixth Omnibus Budget Reconciliation Act (SOBRA),
                              Supplemental Security Income (SSI), SSI-related
                              groups, and Title XIX Waiver groups.

TITLE XIX WAIVER              All MED (Medical Expense Deduction) members, and
MEMBER                        adults or childless couples at or under 100% of
                              the Federal Poverty Level who are not
                              categorically linked to another Title XIX program.

TITLE XXI MEMBER              Member eligible for acute care services under
                              Title XXI of the Social Security Act, referred to
                              in federal legislation as the "State Children's
                              Health Insurance Program" (SCHIP). The Arizona
                              version of SCHIP is referred to as "KidsCare."

                                       13
<PAGE>

TRIBAL FACILITY               A facility that is operated by an Indian tribe and
(638 TRIBAL                   that is authorized to provide ) services pursuant
FACILITY                      to Public Law 93-638, as amended.

YEAR                          See "Contract Year".

[END OF DEFINITIONS]

                                       14
<PAGE>

PROGRAM REQUIREMENTS                                   CONTRACT/RFP NO. YH8-0001

                         SECTION D: PROGRAM REQUIREMENTS

1. SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable federal, State and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R9-22, Article 2, the AHCCCS Medical Policy
Manual (AMPM), and the document entitled "AHCCCS Health Plan Performance
Indicators", all of which are incorporated herein by reference and may be found
in the Bidder's Library. The covered services are briefly described below.
Covered services must be medically necessary and provided by, or coordinated
with, a primary care provider, except for behavioral health and children's
preventive dental services. Services must be rendered by providers that are
appropriately licensed or certified, operating within their scope of practice,
and registered as an AHCCCS provider. The Contractor shall provide the same
standard of care for all members regardless of the member's eligibility
category.

The Contractor shall ensure that its providers are not restricted or inhibited
in any way from communicating freely with members regarding the members' health
care, medical needs and treatment options even if needed services are not
covered by the Contractor.

KIDSCARE COVERED SERVICES: KidsCare members are eligible for the same services
covered for members under the Title XIX and state-only programs, with the
following differences, exclusions and/or limitations:

a.       Non-emergency transportation is not covered.
b.       Chiropractic services are not covered.
c.       Vision services are limited to one eye examination per contract year
         and one pair of glasses or contacts every contract year.
d.       EPSDT services are limited to those services specified in this
         contract.
e.       Behavioral health services are limited to 30 inpatient days and 30
         outpatient visits per contract year. (See details under Section D
         Paragraph 2, Behavioral Health Services.)
f.       Licensed midwives and home deliveries are not covered.

For further details regarding the KidsCare program, see Section D, Paragraph 64,
KidsCare, and the AHCCCS Medical Policy Manual (AMPM).

AMBULATORY SURGERY AND ANESTHESIOLOGY: The Contractor shall provide surgical
services for either emergency or scheduled surgeries when provided in an
ambulatory or outpatient setting such as a free-standing surgical center or a
hospital based outpatient surgical setting.

AUDIOLOGY: The Contractor shall provide audiology services to members under the
age of 21 including the identification and evaluation of hearing loss and
rehabilitation of the hearing loss through other than medical or surgical means
(i.e. hearing aids). Only the identification and evaluation of hearing loss are
covered for members 21 years of age and older unless the hearing loss is due to
an accident or injury-related emergent condition.

BEHAVIORAL HEALTH: The Contractor shall provide behavioral health services as
described in Section D, Paragraph 2, Behavioral Health Services.

                                       15
<PAGE>

CHILDREN'S REHABILITATIVE SERVICES (CRS): The program for children with
CRS-covered conditions is administered by the Arizona Department of Health
Services (ADHS) for children who meet CRS eligibility criteria. The Contractor
shall refer children to the CRS program who are potentially eligible for
services related to CRS covered conditions, as specified in R9-22, Article 2
A.R.S. Title 36, Chapter 2, Article 3. Eligibility criteria and the referral
process are described in the CRS Policy and Procedures Manual available in the
Bidder's Library.

The Contractor shall monitor referrals to CRS to ensure CRS covered services are
provided in a timely manner to eligible members. Referral to CRS does not
relieve the Contractor of the responsibility for providing medically necessary
services not covered by CRS to CRS eligible members. The Contractor is also
responsible for initial care of newborn members, who are CRS eligible. The
Contractor must require the member's Primary Care Provider (PCP) to coordinate
their care with the CRS program. All services provided must be included in the
member's medical record maintained by the PCP.

A member with private insurance is not required to utilize CRS. If the member
uses their private insurance network for a CRS covered condition, and the member
is not enrolled with CRS, the Contractor is responsible for all applicable
deductibles and copays.

The Contractor remains ultimately responsible for the provision of all covered
services to its members. If the Contractor becomes aware that CRS has failed to
meet the established appointment standards, or has failed to provide medically
necessary CRS covered services, the Contractor shall immediately notify AHCCCSA,
Office of Medical Management, of the occurrence. In accordance with AHCCCS
policy, the Contractor may seek reimbursement from CRS for providing CRS covered
services.

CHIROPRACTIC SERVICES: The Contractor shall provide chiropractic services to
Title XIX members under age 21 when prescribed by the member's PCP and approved
by the Contractor in order to ameliorate the member's medical condition.
Medicare approved chiropractic services shall also be covered, subject to
limitations specified in CFR 410.22, for Qualified Medicare Beneficiaries if
prescribed by the member's PCP and approved by the Contractor.

DENTAL: The Contractor shall provide all members under the age of 21 with all
medically necessary dental services including emergency dental services; dental
screening and preventive services in accordance with the AHCCCS periodicity
schedule; therapeutic dental services; dentures; and pre-transplantation dental
services. The Contractor shall monitor compliance with the EPSDT periodicity
schedule for dental screening services and ensure that dental service reports
are included in the member's medical record maintained by the PCP. The
Contractor is required to meet specific utilization rates for members as
described in Section D, Paragraph 16, Performance Measures. The Contractor shall
ensure that members are notified when dental screenings are due if the member
has not been scheduled for a visit. If no dental screening is received by the
member, a second notice must be sent. Members under the age of 21 may request
dental services without referral and may choose a dental provider from the
Contractor's provider network. For members who are 21 years of age and older,
the Contractor shall provide emergency dental care, medically necessary dentures
and dental services for transplantation services as specified in the AMPM.
Dental standards may be found in the AMPM, Section 310, which is incorporated
herein by reference and which may be found in the Bidder's Library.

DIALYSIS: The Contractor shall provide medically necessary dialysis, supplies,
diagnostic testing and medication for all members when provided by
Medicare-certified hospitals or Medicare-certified end stage renal disease
(ESRD) providers. Services may be provided on an outpatient basis, or on an
inpatient basis if the hospital admission is not solely to provide chronic
dialysis services.

                                       16
<PAGE>

EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment to correct or
ameliorate defects and physical or mental illness discovered by the screenings
for members under age 21. The Contractor shall ensure that these members receive
required health screenings, including developmental/behavioral health, in
compliance with the AHCCCS periodicity schedule (Exhibit 430-1 in the AMPM) and
to submit to the AHCCCS Office of Medical Management, all EPSDT reports as
required by AHCCCS medical policy. The Contractor is required to meet specific
participation/utilization rates for members as described in Section D, Paragraph
16, Performance Measures. Because the behavioral health benefit for Title XIX
and Title XXI is provided through the ADHS/RBHA system, the Contractor shall
ensure the initiation and coordination of the referral of these members to the
RBHA and shall follow up with the RBHA to monitor whether members have received
behavioral health services. Title XXI members are not entitled to the
all-encompassing EPSDT service package required for Title XIX children. Title
XXI children are entitled only to the EPSDT and other covered services specified
in this document, the AMPM and the Title XXI State Plan.

EMERGENCY SERVICES: The Contractor shall have and/or provide the following as a
minimum:

a.       Emergency services facilities adequately staffed by qualified medical
         professionals to provide pre-hospital, emergency care on a
         24-hour-a-day, 7-day-a-week basis, for the sudden onset of a medically
         emergent condition as defined by AHCCCS Rule R9-22-101 and R9-31-101.
         Emergency medical services are covered without prior authorization. The
         Contractor is encouraged to contract with emergency service facilities
         for the provision of emergency services. The Contractor is encouraged
         to contract with or employ the services of non-emergency facilities
         (e.g. urgent care centers) to address member non-emergency care issues
         occurring after regular office hours or on weekends. The Contractor
         shall be responsible for educating members and providers regarding
         appropriate utilization of emergency room services including behavioral
         health emergencies. The Contractor shall monitor emergency service
         utilization (by both provider and member) and shall have guidelines for
         implementing corrective action for inappropriate utilization. For
         utilization review, the test for appropriateness of the request for
         emergency services shall be whether a prudent layperson, similarly
         situated, would have requested such services. For purposes of this
         contract, a "prudent layperson" is a person who possesses an average
         knowledge of health and medicine.
b.       All medical services necessary to rule out an emergency condition
c.       Emergency transportation
d.       Member access by telephone to a physician, registered nurse, physician
         assistant or nurse practitioner for advice in emergent or urgent
         situations, 24 hours per day, 7 days per week.
e.       The Contractor shall comply with guidelines regarding the coordination
         of post-stabilization care.

EYE EXAMINATIONS/OPTOMETRY: The Contractor shall provide all medically necessary
emergency eye care, vision examinations, prescriptive lenses, and treatments for
conditions of the eye for all members under the age of 21, with the exception of
KidsCare members. See limitations for KidsCare members described at the
beginning of this section, titled "KidsCare Covered Services." For members who
are 21 years of age and older, the Contractor shall provide emergency care for
eye conditions which meet the definition of an emergency medical condition,
cataract removal, and/or medically necessary vision examinations and
prescriptive lenses if required following cataract removal and other eye
conditions as specified in the AMPM.

FAMILY PLANNING: The Contractor shall provide family planning services in
accordance with the AMPM, Section 420 for all members who choose to delay or
prevent pregnancy. These include medical, surgical, pharmacological and
laboratory services, as well as contraceptive devices. Information and
counseling necessary to allow the members to make informed decisions regarding
family planning methods shall also be included. If the Contractor does not
provide family planning services, it must contract for these services through
another health care delivery system, which allows members freedom of choice in
selecting a provider.

                                       17
<PAGE>
A prospective offeror may discuss arrangements for family planning services
only with other prospective offerors during the RFP process for the purpose of
making arrangements for the provision of family planning services.

The Contractor shall provide services to members enrolled in the Family Planning
Services Extension Program; a program that provides only family planning
services for a maximum of 24 months to women whose SOBRA eligibility has
terminated. The Contractor is also responsible for notifying AHCCCSA when a
SOBRA woman is sterilized to prevent inappropriate enrollment in the SOBRA
Family Planning Services Extension Program. Notification may be made at the time
the newborn is reported or after the sterilization procedure is completed.

HEALTH RISK ASSESSMENT AND SCREENING: The Contractor shall provide these
services for non-hospitalized members 21 years of age and older. These services
include, but are not limited to, screening for hypertension, elevated
cholesterol, colon cancer, sexually transmitted diseases, tuberculosis and
HIV/AIDS; nutritional assessment in cases when the member has a chronic
debilitating disease affected by nutritional needs; mammograms and prostate
screenings; physical examinations and diagnostic work-ups; and immunizations.
Required assessment and screening services for members under age 21 are included
in the AHCCCS EPSDT periodicity schedule.

HOME HEALTH: The Contractor shall provide part-time or intermittent care for
members who do not require hospital care. This service is provided under the
direction of a physician to prevent re-hospitalization or institutionalization
and may include nursing, therapies, supplies and home health aide services.

HOSPICE: These services are covered for members under 21 years of age who are
certified by a physician as being terminally ill and having six months or less
to live. See the AMPM for details on covered hospice services.

HOSPITAL: Inpatient services include semi-private accommodations for routine
care, intensive and coronary care, surgical care, obstetrics and newborn
nurseries, and behavioral health emergency/crisis services. If the member's
medical condition requires isolation; private inpatient accommodations are
covered. Nursing services, dietary services and ancillary services such as
laboratory, radiology, pharmaceuticals, medical supplies, blood and blood
derivatives, etc. are also covered. Outpatient services include any of the above
services, which may be provided on an outpatient or ambulatory basis (i.e.
laboratory, radiology, therapies, ambulatory surgery, etc.). Observation
services may be provided on an outpatient basis for up to 24 hours if determined
reasonable and necessary to decide whether the member should be admitted for
inpatient care. Observation services include the use of a bed and periodic
monitoring by hospital nursing staff and/or other staff to evaluate, stabilize
or treat medical conditions of a significant degree of instability and/or
disability.

IMMUNIZATIONS: The Contractor shall provide immunizations for adults (21 years
of age and older) to include diphtheria-tetanus, influenza, pneumococcus,
rubella, measles and hepatitis-B. For all members under the age of 21,
immunization requirements include diphtheria, tetanus, pertussis vaccine (DPT),
oral/inactivated polio vaccine (OPV/IPV), measles, mumps, rubella vaccine (MMR),
H. influenza, type B (HIB), hepatitis B (Hep B), and varicella vaccine. The
Contractor is required to meet specific immunization rates for members under the
age of 21, which are described in Section D, Paragraph 16, Performance Measures.

INDIAN HEALTH SERVICES (IHS): The Contractor may choose to subcontract with and
pay an IHS or 638 tribal facility as part of their provider network for covered
services provided to members. Effective October 1, 1999, the Contractor is
responsible for reimbursement to IHS or tribal facilities for emergency services
provided to state-only and Title XXI Native American members enrolled with the
Contractor. The Contractor has no responsibility for non-emergency services to
state-only and Title XXI Native American members

                                       18
<PAGE>

unless the Contractor refers or prior authorizes the service. AHCCCSA will
reimburse claims for acute care services that are medically necessary and
eligible for 100% Federal reimbursement, provided to Title XIX members in an IHS
or a 638 tribal facility.

LABORATORY: Laboratory services for diagnostic, screening and monitoring
purposes are covered when ordered by the member's PCP, other attending physician
or dentist, and provided by a CLIA (Clinical Laboratory Improvement Act)
approved free standing laboratory or hospital laboratory, clinic, physician
office or other health care facility laboratory.

Upon written request, a Contractor may obtain laboratory test data on members
from a laboratory or hospital based laboratory subject to the requirements
specified in A.R.S. ss. 36-2903(R) and (S). The data shall be used exclusively
for quality improvement activities and health care outcome studies required
and/or approved by the Administration.

MATERNITY: The Contractor shall provide pre-conception counseling, pregnancy
identification, prenatal care, treatment of pregnancy related conditions, labor
and delivery services, and postpartum care for members. Services may be provided
by physicians, physician assistants or nurse practitioners certified in
midwifery. Members may select or be assigned to a PCP specializing in
obstetrics. Circumcisions are covered as described in the AMPM. Title XIX and
state-only members anticipated to have a low-risk delivery may elect to receive
labor and delivery services in their home from their maternity provider if this
setting is included in allowable settings for the Contractor, and the Contractor
has providers in its network that offer home labor and delivery services. Title
XIX and state-only members anticipated to have a low-risk prenatal course and
delivery may elect to receive maternity services of prenatal care, labor and
delivery and postpartum care provided by licensed midwives if they are in the
Contractor's provider network. All licensed midwife labor and delivery services
must be provided in the member's home since licensed midwives do not have
admitting privileges in hospitals or AHCCCS registered free-standing birthing
centers. Members receiving maternity services from a licensed midwife must also
be assigned to a PCP for other health care and medical services. Home delivery
and licensed midwives are not covered for Title XXI members.

The Contractor shall allow women and their newborns to receive up to 48 hours of
inpatient hospital care after a routine vaginal delivery and up to 96 hours of
inpatient care after a cesarean delivery. The attending health care provider, in
consultation with the mother, may discharge the mother or newborn prior to the
48-hour minimum length of stay. A normal newborn may be granted an extended stay
in the hospital of birth when the mother's continued stay in the hospital is
beyond the 48 or 96 hour stay.

The Contractor shall inform all assigned AHCCCS pregnant women of voluntary
prenatal HIV testing and the availability of medical counseling if the test is
positive. The Contractor shall provide information in the member handbook and
annually in the member newsletter to encourage pregnant women to be tested and
instructions on where to be tested. Semi-annually, the Contractor shall report
to AHCCCS the number of pregnant women who have been identified as HIV/AIDS
positive. This report is due no later than 30 days after the end of the second
and fourth quarters of the contract year.

MEDICAL FOODS: Medical foods are covered within limitations defined in the AMPM
for members diagnosed with a metabolic condition included under the ADHS Newborn
Screening Program and specified in the AMPM. The medical foods, including
metabolic formula and modified low protein foods, must be prescribed or ordered
under the supervision of a physician.

MEDICALLY-NECESSARY ABORTIONS: This service is covered for a member if the
member suffers from a medical condition or disorder, physical injury, or illness
caused by or rising from the pregnancy. The service is also covered for Title
XIX and Title XXI members if the pregnancy is caused by rape or incest.
Physician

                                       19
<PAGE>
certification of the condition, disorder, illness or injury must be provided to
the Contractor. In addition, providers must submit to the Contractor a
Certificate of Medical Necessity for Pregnancy Termination. Prior authorization
is required. If the procedure is performed on an emergency basis, documentation
must be submitted to the Contractor within two working days. Additional
documentation, outlined in the AMPM, is required for members under 18 years of
age or members who are considered an incapacitated adult who seek a medically
necessary abortion due to rape or incest.

MEDICAL SUPPLIES, DURABLE MEDICAL EQUIPMENT (DME), ORTHOTIC AND PROSTHETIC
DEVICES: These services are covered when prescribed by the member's PCP,
attending physician or practitioner, or by a dentist. Medical equipment may be
rented or purchased only if other sources are not available which provide the
items at no cost. The total cost of the rental must not exceed the purchase
price of the item. Reasonable repairs or adjustments of purchased equipment are
covered to make the equipment serviceable and/or when the repair cost is less
than renting or purchasing another unit.

NURSING FACILITY: The Contractor shall provide nursing facility services,
including religious nonmedical health care institutions, for members who require
short-term convalescent care not to exceed 90 days per contract year. In lieu of
a nursing facility, the member may be placed in an alternative living facility
or receive home and community based services (HCBS) as defined in R9-22, Article
2 and R9-28, Article 2 that meet the provider standards described in R9-28,
Article 5, and subject to the limitations set forth in Chapter 1200 of the AMPM.

Nursing facility services must be provided in a dually-certified
Medicare/Medicaid facility which includes in the per-diem rate: nursing
services, basic patient care equipment and sickroom supplies, dietary services,
administrative physician visits, non-customized DME, necessary maintenance
rehabilitation therapies, over-the-counter medications, social, recreational and
spiritual activities, and administrative, operational medical direction
services. The Contractor shall provide medically necessary nursing facility
services for any member who has a pending ALTCS application, who is currently
residing in a nursing facility and is eligible for services provided under this
contract. If the member becomes ALTCS eligible and is enrolled with an ALTCS
Program Contractor before the end of the maximum 90 days of nursing facility
coverage, the Contractor is only responsible for nursing facility coverage
during the time the member is enrolled with the Contractor. Nursing facility
services covered by a third party insurer (including Medicare) while the member
is enrolled with the Contractor shall be applied to the 90 day limitation. See
Paragraph 36, Nursing Facility Reimbursement, for further details.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application and to prepare for potential fee-for-service coverage if the stay
goes beyond the 90-day maximum.

NUTRITION: Nutritional assessments may be conducted as a part of the EPSDT
screenings for members under age 21, and to assist members 21 years of age and
older whose health status may improve with nutritional intervention. Assessment
of nutritional status on a periodic basis may be provided as determined
necessary, and as a part of the health risk assessment and screening services
provided by the member's PCP. AHCCCS covers nutritional therapy on an enteral,
parenteral or oral basis, when determined medically necessary to provide either
complete daily dietary requirements, or to supplement a member's daily
nutritional and caloric intake and when AHCCCS criteria specified in the AMPM
are met.

PHYSICIAN: The Contractor shall provide physician services to include medical
assessment, treatments and surgical services provided by licensed allopathic or
osteopathic physicians.

                                       20
<PAGE>

PODIATRY: The Contractor shall provide podiatry services to include
bunionectomies, casting for the purpose of constructing or accommodating
orthotics, medically necessary orthopedic shoes that are an integral part of a
brace, and medically necessary routine foot care for patients with a severe
systemic disease which prohibits care by a nonprofessional person.

PRESCRIPTION MEDICATIONS AND PHARMACY: Medications ordered by a PCP, attending
physician or dentist and dispensed under the direction of a licensed pharmacist
are covered subject to limitations related to prescription supply amounts,
Contractor formularies and prior authorization requirements, as well as
restrictions for immunosuppressant drugs addressed in AHCCCS medical policies
for transplantations. Over-the-counter medication may be prescribed when it is
determined to be a lower-cost alternative to prescription medication.

PRIMARY CARE PROVIDER (PCP): PCP services are covered when provided by a
physician, physician assistant or nurse practitioner selected by, or assigned
to, the member. The PCP provides primary health care and serves as a gatekeeper
and coordinator in referring the member for specialty medical services,
behavioral health and dental services. The PCP is responsible for maintaining
the member's primary medical record, which contains documentation of all health
risk assessments and health care services of which they are aware whether or not
they were provided by the PCP.

RADIOLOGY AND MEDICAL IMAGING: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical condition. Services are
generally provided in hospitals, clinics, physician offices and other health
care facilities.

REHABILITATION THERAPY: The Contractor shall provide occupational, physical and
speech therapies. Therapies must be prescribed by the member's PCP or attending
physician for an acute condition and the member must have the potential for
improvement due to the rehabilitation. Occupational and speech therapies are
only covered on an inpatient basis for those members who are 21 and over;
physical therapy for all members and occupational and speech therapies for
members under the age of 21 are covered on both an inpatient and outpatient
basis if not used as a maintenance regimen.

RESPIRATORY THERAPY: This therapy is covered on an inpatient or outpatient basis
when prescribed by the member's PCP or attending physician and is necessary to
restore, maintain or improve respiratory functioning.

TRANSPLANTATION OF ORGANS AND TISSUE, AND RELATED IMMUNOSUPPRESSANT DRUGS: These
services are covered within limitations defined in the AMPM for members
diagnosed with specified medical conditions. Such limitations include whether
the stage of the disease is such that the transplant can affect the outcome; the
member has no other conditions that substantially reduce the potential for
successful transplantation; and whether the member will be able to comply with
necessary and required regimens of treatment. Bone grafts are also covered under
this service. Services include pre-transplant inpatient or outpatient
evaluation; donor search; organ/tissue harvesting or procurement; preparation
and transplantation services; and convalescent care. In addition, if a member
receives a transplant covered by a source other than AHCCCS, medically necessary
non-experimental services are provided within limitations after the discharge
from the acute care hospitalization for the transplantation. AHCCCS has
contracted with transplantation providers for the Contractor's use or the
Contractor may select its own transplantation provider. However, the quality of
services must be equal to or exceed those of the AHCCCS provider and the rate
paid can not exceed the AHCCCS provider's negotiated rate.

TRANSPORTATION: These services include emergency and non-emergency medically
necessary transportation. Emergency transportation, including transportation
initiated by an emergency response system such as 911,

                                       21
<PAGE>

may be provided by ground, air or water ambulance to manage an AHCCCS member's
emergency medical condition at an emergency scene and transport the member to
the nearest appropriate medical facility. Non-emergency transportation shall be
provided for Title XIX and state-only members who are unable to provide their
own transportation for medically necessary services. Title XXI members are not
eligible for non-emergency transportation services except for transfers between
facilities.

TRIAGE/SCREENING AND EVALUATION: These are covered services when provided by
acute care hospitals, IHS facilities and urgent care centers to determine
whether or not an emergency exists, assess the severity of the member's medical
condition and determine services necessary to alleviate or stabilize the
emergent condition. The provider must notify the Contractor within 12 hours of
the member's registration with the facility for emergency services. Supporting
documentation for services rendered must be provided when reporting or billing a
service. Triage/screening services must be reasonable, cost effective and meet
the criteria for severity of illness and intensity of service.

2.       BEHAVIORAL HEALTH SERVICES

Title XIX and Title XXI members are eligible for comprehensive behavioral health
services. The behavioral health benefit for these members is provided through
the ADHS - Regional Behavioral Health Authority (RBHA) system. The Contractor
shall be responsible for member education regarding these benefits; provision of
limited emergency inpatient services; and screening and referral to the RBHA
system of members identified as requiring behavioral health services.

MEMBER EDUCATION: The Contractor shall be responsible for educating members in
the member handbook and other printed documents about covered behavioral health
services and where and how to access services. Covered services for Title XIX
and Title XXI are similar with the exception that non-emergency transportation
is not covered for Title XXI members. For Title XXI members inpatient services
and specified outpatient services are limited to 30 days/30 visits per contract
year. Covered services include:

a.       Inpatient services (Title XXI limited to 30 days per contract year)
b.       Individual, group and family therapy and counseling (limited for Title
         XXI)
c.       Psychotropic medication
d.       Psychotropic medication adjustment and monitoring
e.       Partial care, basic and intensive (limited for Title XXI)
f.       Emergency crisis services
g.       Behavior management (limited for Title XXI)
h.       Psychosocial rehabilitation (limited for Title XXI)
i.       Evaluation, screening and diagnosis (limited for Title XXI)
j.       Laboratory and radiology services for psychotropic medication
         regulation and diagnosis
k.       Emergency and medically necessary transportation (Title XXI members
         limited to emergency transportation only)
l.       Case management services
m.       Respite (Title XIX Only)

REFERRALS: As specified in Section D, Paragraph 1, EPSDT, the Contractor must
provide developmental/behavioral health screenings for members up to 21 years of
age in compliance with the AHCCCS periodicity schedule. The Contractor shall
ensure the initiation and coordination of behavioral health referrals of these
members to the RBHA when determined necessary through the screening process.

The Contractor is responsible for RBHA referral and follow-up collaboration, as
necessary, for other Title XIX and Title XXI members identified as needing
behavioral health evaluation and treatment. Members may

                                       22
<PAGE>

also access the RBHA system for evaluation by self-referral or be referred by
schools, State agencies or other service providers. The Contractor is
responsible for providing transportation to Title XIX members first RBHA
evaluation appointments if members are unable to provide their own
transportation.

EMERGENCY SERVICES: For Title XIX and Title XXI members not enrolled with ADHS,
the Contractor is responsible for up to three days of inpatient behavioral
health services per emergency episode not to exceed 12 days per contract year. A
referral to the RBHA for evaluation and enrollment should be initiated as soon
as possible after admission.

For state-only members (EAC, ELIC): The Contractor is responsible for up to
three days of inpatient emergency behavioral health services not to exceed 12
days per contract year regardless of whether the member is enrolled with a RBHA.
For members who become eligible during an emergency episode, the three (3) days
of coverage for this hospital benefit are the first three (3) days of
eligibility.

COORDINATION OF CARE: The Contractor is responsible for ensuring that a medical
record is established by the PCP when behavioral health information is received
from the RBHA or provider about an assigned member even if the PCP has not yet
seen the assigned member. The Contractor shall require the PCP to respond to
RBHA/provider information requests pertaining to ADHS enrolled members
including, but not limited to, current diagnosis, medication, pertinent
laboratory results, last PCP visit, and last hospitalization. For prior period
coverage, the Contractor is responsible for payment of all claims for medically
necessary covered behavioral health services to members not enrolled with ADHS.

MEDICATION MANAGEMENT SERVICES: The Contractor shall allow PCPs to provide
medication management services (prescriptions, medication monitoring visits,
laboratory and other diagnostic tests necessary for diagnosis and treatment of
behavioral disorders) to members with diagnoses of depression, anxiety and
attention deficit hyperactivity disorder. The Contractor shall make available,
on the Contractor's formulary, medications for the treatment of these disorders.

The Contractor shall ensure that training and education is available to PCPs
regarding behavioral health referral and consultation procedures. The Contractor
shall establish policies and procedures for referral and consultation and shall
include them in their provider manual. Also, Contractors shall inform PCPs about
the availability of resource information through the Maricopa Integrated Health
System's Psychiatric Residency Training Program and the Arizona Medical
Association regarding the diagnosis and treatment of behavioral health
disorders.

The Contractor shall ensure that its quality management and peer review programs
incorporate monitoring of the PCP's management of behavioral health disorders.

3.       AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference into
this contract. The Contractor is responsible for complying with the requirements
set forth within. The AMPM with search capability and linkages to AHCCCS rules,
Statutes and other resources is available to all interested parties through the
AHCCCS Home Page on the Internet (www.ahcccs.state.az.us). Upon adoption by
AHCCCSA, AMPM updates will be available through the Internet at the beginning of
each month. If required, the Contractors may receive one hard copy of the AMPM,
free of charge, from AHCCCSA, Office of Medical Management, however, the
Contractor shall be responsible for maintaining such copies current with these
updates.

                                       23
<PAGE>

4.       VACCINE FOR CHILDREN PROGRAM

Federal legislation passed in 1993 (OBRA 93) amended Title XIX of the Social
Security Act and created the Vaccine for Children (VFC) program which became
effective 10/1/94. Through this program, the federal and state governments
purchase, and make available to providers free of charge, vaccines for AHCCCS
children under age 19. Therefore, the Contractor shall not utilize AHCCCS
funding to purchase vaccines for members under the age of 19. Any provider,
licensed by the State to administer immunizations, may register with ADHS as a
"VFC provider" and receive free vaccines. The Contractor shall comply with all
VFC requirements and monitor its providers to ensure that, if providing
immunizations to AHCCCS members under the age of 19, the providers are
registered with ADHS/VFC.

5.       DENIALS OR REDUCTIONS OF SERVICES

When a covered service is denied, reduced, suspended or terminated, the
Contractor shall comply with the notice, appeal and continuation of benefits
requirements specified in the Office of Managed Care Member Rights and
Responsibilities Policy.

6.       ENROLLMENT AND DISENROLLMENT

AHCCCSA has the exclusive authority to enroll and disenroll members. The
Contractor shall not disenroll any member for any reason unless directed to do
so by AHCCCSA. Eligibility for the various AHCCCS coverage groups is determined
by one of the following agencies:

Social                                       Security Administration (SSA) SSA
                                             determines eligibility for the
                                             Supplementary Security Income (SSI)
                                             cash program. SSI Cash recipients
                                             are automatically eligible for
                                             AHCCCS coverage.

Department of Economic Security (DES)        DES determines eligibility for the
                                             Temporary Assistance to Needy
                                             Families (TANF) program (formerly
                                             Aid to Families with Dependent
                                             Children), 1931 Group Medical
                                             Assistance Only (MAO) groups, SOBRA
                                             women and children, the Eligible
                                             Assistance Children state program
                                             (EAC), the Adoption Subsidy
                                             Program, Title IV-E foster care
                                             children, Young Adults Transition
                                             Insurance Program, and the Federal
                                             Emergency Services program (FES)
                                             related to the TANF, 1931 Group, or
                                             SOBRA programs.

AHCCCSA                                      AHCCCSA determines eligibility for
                                             the SSI/MAO groups, including the
                                             FES program related to the SSI-Cash
                                             program (aged, disabled, blind),
                                             the Arizona Long-Term Care System
                                             (ALTCS), the Qualified Medicare
                                             Beneficiary program and other
                                             Medicare cost sharing programs, and
                                             the Title XXI program.

Arizona's 15 Counties                        Each county determines eligibility
                                             for the Medically Needy/Medically
                                             Indigent (MN/MI), Eligible Low
                                             Income Children (ELIC), and the
                                             State Emergency Services state
                                             programs.

                                       24
<PAGE>

AHCCCS acute care members are enrolled with contractors in accordance with the
rules set forth in R9-22, Article 17.

HEALTH PLAN CHOICE

Title XIX members, except for those eligible under the MN/MI program have a
choice of available health plans. A listing of the available health plans and
their telephone numbers will be given to each applicant during the application
process for AHCCCS benefits. Also included are instructions to applicants to
call the health plans directly with specific questions concerning the health
plan. If there is only one health plan available for the applicant's
Geographical Service Area, no choice is offered. Members who do not choose prior
to AHCCCSA's being notified of their eligibility are automatically assigned to a
health plan based on family continuity or the auto-assignment algorithm.

Title XXI members must select a health plan prior to being determined eligible
and therefore, will not be auto-assigned. When a member is transferred from
Title XIX to Title XXI and has not made a health plan choice for Title XXI, the
member will remain with the Title XIX health plan and a choice notice will be
sent to the member. The member may then change plans no later than 16 days from
the date the choice notice is sent.

AHCCCSA assigns MN/MI members to an available health plan based on family
continuity or through AHCCCSA's auto-assignment algorithm. These members do not
get a choice of available contractors until their annual enrollment choice
period. Beginning 10/1/01, all Title XIX Waiver members, including MED's will
have a choice of available health plans.

Exceptions to the above enrollment policies for Title XIX and state-only members
include: previously enrolled members who have been disenrolled for less than 90
days will be automatically enrolled with the same contractor, if that contractor
is still available. Also, women who are eligible for the Family Planning
Services Extension Program will automatically remain assigned to the same health
plan. The Family Planning Services Extension Program provides a maximum of 24
months of family planning services.

The effective date of enrollment for a new Title XIX or state-only member with
the Contractor will generally be the day prior to the date the Contractor
receives notification from AHCCCSA via the daily roster. However, the Contractor
is responsible for payment of medically necessary covered services retroactive
to the member's beginning date of eligibility, excluding any prior quarter
coverage period.

The effective date of enrollment for a Title XXI member will be the first day of
the month following notification to the health plan. If a Title XXI member is
determined eligible by the 25th of the month, the member will be enrolled with
the health plan as of the 1st of the following month. If the member is
determined eligible AFTER the 25th of the month, the member will be enrolled
with the health plan as of the 1st of the second following month.

                                       25
<PAGE>

Proposition 204 and Title XIX Waiver Member Expansion/Conversion

<TABLE>
<CAPTION>
                                                                   DATE EXPANSION OR              ENROLLMENT
        EXPANSION AND CONVERSION POPULATION                     CONVERSION IS INITIATED           METHODOLOGY
        -----------------------------------                     -----------------------           -----------

<S>                                                             <C>                          <C>
QMB Only to QMB Dual Conversion                                     4/1/01                   Current Title XIX rules
New SSI's from 76% to 100% FPL                                      4/1/01 onward            Current Title XIX rules
Eligible parents of SOBRA children and KidsCare children up         7/1/01-9/1/01            Family Continuity
to 100% FPL
17 & 18 year old KidsCare children converting to Title XIX          Redetermination date     Remain in current health plan
MNMI (prior to 10/1/01)                                             4/1/01-10/1/01           Current MNMI rules
SOBRA Family Planning                                               10/1/01                  Remain in current health plan
SMI SSI's                                                           7/1/01-9/1/01            Current Title XIX rules
Premium Sharing Conversion members                                  10/1/01                  Remain in current health plan
EAC/ELIC's who don't convert to KidsCare                            10/1/01                  Remain in current health plan
Title XIX Waiver members                                            10/1/01                  Current Title XIX rules
</TABLE>

PRIOR PERIOD COVERAGE: AHCCCS provides prior period coverage for Title XIX and
state-only members. For Title XIX members except for MNMI's enrolled between
4/1/01 and 10/1/01, prior period coverage starts from the first day of the month
of application, or first eligible month, whichever is later. The Contractor is
responsible for payment of all claims for medically necessary covered services
provided to members during prior period coverage. During the period 4/1/01
through 10/1/01, MNMI's will continue to have a two day retro period for prior
period coverage; however they will be entitled to all medically necessary
services due to their Title XIX eligibility. For state-only EAC members, prior
period coverage does not apply. For state-only ELIC members, prior period
coverage is generally limited to the two days prior to the date of AHCCCSA being
notified of eligibility. However, prior period coverage could include additional
days prior to the date of enrollment. The Contractor is responsible for payment
of all claims for medically necessary covered services provided on an emergency
basis to state-only members pursuant to A.R.S. ss.36-2908 and A.R.S. ss.36-2909
for the first two days of the prior period coverage. Any additional prior period
coverage for state-only members will include all claims for medically necessary
covered services. This may include services provided prior to the contract year
(See Section D, Paragraph 37, Compensation, for a description of the
Contractor's reimbursement from AHCCCSA for this eligibility time period.)

NEWBORNS: Newborns born to AHCCCS-eligible mothers, including Title XXI mothers,
who were enrolled at the time of the child's birth and whose newborn
notification was received by AHCCCSA will be enrolled with the mother's health
plan. The Contractor is responsible for notifying AHCCCSA of a child's birth to
an enrolled member. Capitation to the Contractor will begin on the date
notification is received by AHCCCSA (except for cases of births during prior
period coverage). The effective date of AHCCCS eligibility will be the newborn's
date of birth, and the Contractor is responsible for all covered services to the
newborn whether or not AHCCCSA has received notification of the child's birth.
Note that AHCCCSA is currently available to receive notification calls 24 hours
a day, 7 days a week. Title XIX and Title XXI eligible mothers of newborns are
sent a letter advising them of their right to choose a different contractor for
their child; otherwise the child will remain with the mother's contractor.
Beginning 4/1/01, newborns of MNMI eligible women will become eligible and
enrolled under Title XIX rules.

                                       26
<PAGE>
Newborns of FES mothers are auto-assigned to a health plan and mothers of these
newborns are sent a letter advising them of their right to choose a different
health plan for their child. In the event the FES mother chooses a different
health plan, AHCCCS will recoup all capitation paid to the originally assigned
plan and the baby will be enrolled retroactive to the date of birth in the
second plan. The second plan will receive prior period capitation from the date
of birth to the day before assignment and prospective capitation from the date
of assignment forward. The second contractor will be responsible for all covered
services to the newborn from date of birth.

ENROLLMENT GUARANTEES: Upon initial capitated enrollment as a Title XIX-eligible
member, or as an Eligible Assistance Child (EAC), the member is guaranteed a
minimum of five full months of continuous enrollment. Upon initial capitated
enrollment as a Title XXI-eligible member, the member is guaranteed a minimum of
12 full months of continuous enrollment. Enrollment guarantees do not apply to
Native Americans who choose to obtain their covered services through Indian
Health Services (IHS) on a fee-for-service basis or children enrolled with
Department of Economic Security/Comprehensive Medical and Dental Program. The
enrollment guarantee applies a maximum of one time per member per eligibility
category for Title XIX, Title XXI, and EAC members. If a member changes from one
contractor to another within the enrollment guarantee period, the remainder of
the guarantee period applies to the new contractor. The enrollment guarantee may
not be granted or may be terminated if the member is incarcerated or, if a minor
child is adopted. AHCCCS Rule R9-22, Article 17 and R9-31, Article 3 describes
other reasons for which the enrollment guarantee may not apply.

NATIVE AMERICANS: Native Americans, on or off-reservation, have a choice to
receive services from Indian Health Service (IHS), a PL 93-638 tribal facility
or any available contractor. If choice is not available or made within the
specified time limit, Native American Title XIX and state-only members living
on-reservation will be assigned to IHS and Native American Title XIX and
state-only members living off-reservation will be assigned to an available
contractor using AHCCCSA's family continuity policy and auto-assignment
algorithm. Native Americans may change from IHS to a contractor or from a
contractor to IHS at any time. Native American Title XXI members must make a
choice prior to being determined eligible.

7. MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take affirmative
action so that members are provided covered services without regard to payer
source, race, color, creed, sex, religion, age, national origin, ancestry,
marital status, sexual preference, or physical or mental handicap, except where
medically indicated. Contractors must take into account a member's culture, when
addressing members and their concerns, and must take reasonable steps to
encourage subcontractors to do the same. The Contractor must make interpreters
available for members to ensure appropriate delivery of covered services.

Examples of prohibited practices include, but are not limited to, the following:

a.       Denying or not providing a member any covered service or access to an
         available facility.
b.       Providing to a member any covered service which is different, or is
         provided in a different manner or at a different time from that
         provided to other members, other public or private patients or the
         public at large except where medically necessary.
c.       Subjecting a member to segregation or separate treatment in any manner
         related to the receipt of any covered service; restricting a member in
         any way in his or her enjoyment of any advantage or privilege enjoyed
         by others receiving any covered service.

                                       27
<PAGE>

d.       The assignment of times or places for the provision of services on the
         basis of the race, color, creed, religion, age, sex, national origin,
         ancestry, marital status, sexual preference, income status, AHCCCS
         membership, or physical or mental handicap of the participants to be
         served.

If the Contractor knowingly executes a subcontract with a provider with the
intent of allowing or permitting the subcontractor to implement barriers to care
(i.e. the terms of the subcontract act to discourage the full utilization of
services by some members), the Contractor will be in default of its contract.

If the Contractor identifies a problem involving discrimination by one of its
providers, it shall promptly intervene and implement a corrective action plan.
Failure to take prompt corrective measures may place the Contractor in default
of its contract.

8. MEMBER INFORMATION

All informational materials prepared by the Contractor shall be approved by
AHCCCSA prior to distribution to members. The reading level and name of the
evaluation methodology used should be included when 200 members or 5% of the
Contractor's enrolled population, whichever is greater, speak a 2nd language,
the Contractor shall provide member information in that 2nd language. The
Contractor shall comply whenever it is aware that a population meets this
standard. When there are program or service site changes notification will be
provided to the affected members at least 14 days before implementation. The
Contractor shall review and update the Member Handbook at least once a year. The
Handbook must be submitted to AHCCCSA Office of Managed Care for approval by
Sept. 1 of each contract year, or within four weeks of receiving the annual
renewal amendment, whichever is later.

The Contractor shall make every effort to ensure that all information prepared
for distribution to members is written at a 4th grade level.

The Contractor shall produce and provide the following printed information to
each member or family within 10 days of receipt of notification of the
enrollment date:

I.       A Member Handbook which, at a minimum, shall include the following
         items that are also listed in the Office of Managed Care, Operations
         Policy #404, Member Information Policy:

         a.       A table of contents.
         b.       A general description of how managed care works, particularly
                  in regards to member responsibilities, appropriate utilization
                  of services and the PCP's role as gatekeeper of services.
         c.       A description of all available covered services and an
                  explanation of any service limitations or exclusions from
                  coverage and a notice stating that the Contractor will be
                  liable only for those services authorized by the Contractor.
                  The description should include a brief explanation of the
                  Contractor's approval and denial process.
         d.       Information on what to do when family size changes.
         e.       How to obtain a PCP.
         f.       How to change PCPs.
         g.       How to make, change and cancel appointments with a PCP or
                  dentist.
         h.       List of applicable copayments (including a statement that care
                  will not be denied due to lack of copayment). The member
                  handbook must clearly state that members cannot be billed for
                  covered services (other than applicable copayments), what to
                  do if they are billed, and under what circumstances a member
                  may be billed for non-covered services.
         i.       Dual eligibility (i.e. Medicare and Medicaid); services
                  received in and out of the Contractor's network; copayments.
                  See Section D, Paragraph 41, Medicare Services and Cost
                  Sharing.

                                       28
<PAGE>

         j.       The process of referral to specialists and other providers,
                  including access to behavioral health services provided by the
                  ADHS RBHA system.
         k.       How to contact Member Services and a description of its
                  function.
         l.       What to do in case of an emergency and instructions for
                  receiving advice on getting care in case of an emergency. In a
                  life-threatening situation, the member handbook should
                  instruct members to use the emergency medical services (EMS)
                  available and/or activate EMS by dialing 9-1-1. Handbook
                  should contain information on proper emergency service
                  utilization.
         m.       How to obtain emergency transportation and medically necessary
                  transportation.
         n.       EPSDT services. A description of the purpose and benefits of
                  EPSDT services, including the required components of EPSDT
                  screenings and the provision of all medically necessary
                  services to treat a physical or mental illness discovered by
                  the screenings. Screenings include a comprehensive history and
                  developmental/behavioral health screening, comprehensive
                  unclothed physical examination, appropriate vision testing,
                  hearing testing, laboratory tests, dental screening and
                  immunizations.
         o.       Maternity and family planning services.
         p.       Description of covered behavioral health services and how to
                  access them.
         q.       Description of all covered dental services for members under
                  21 and how to access these services.
         r.       Out of county/out of state moves.
         s.       Grievance and request for hearing procedures, including a
                  clear explanation of the member's right to file a grievance
                  and request for hearing and to appeal any decision that
                  affects the member's receipt of covered services.
         t.       Contributions the member can make towards his/her own health,
                  member responsibilities, appropriate and inappropriate
                  behavior, and any other information deemed essential by the
                  Contractor or AHCCCS. This shall include a statement that the
                  member is responsible for protecting his or her ID card and
                  that misuse of the card, including loaning, selling or giving
                  it to others could result in loss of the member's eligibility
                  and/or legal action. A sentence shall be included that
                  stresses the importance of members keeping, not discarding,
                  the swipe ID card.
         u.       How to access after-hours care (urgent care).
         v.       Advance directives for adults.
         w.       Use of other sources of insurance. See Section D, Paragraph
                  40, Coordination of Benefits.
         x.       The last revision date.
         y.       Member's notification rights and responsibilities under AAC
                  R9-22, Article 13 and AHCCCS policy.
         z.       A description of Fraud and Abuse including instructions on how
                  to report suspected fraud or abuse. This shall include a
                  statement that misuse of a member's identification card,
                  including loaning, selling or giving it to others could result
                  in loss of the member's eligibility and/or legal action
                  against the member
         aa.      A statement that informs the member of their right to request
                  information on whether or not the health plan has Physician
                  Incentive Plans (PIP) that affect the use of referral
                  services, the right to know the types of compensation
                  arrangements the plan uses, the right to know whether
                  stop-loss insurance is required and the right to a summary of
                  member survey results. (in accordance with PIP regulation).
         bb.      Member's right to be treated fairly regardless of race,
                  religion, sex, age or ability to pay.
         cc.      Instructions for obtaining culturally competent materials,
                  including translated member materials.
         dd.      A description of the criteria and procedures for requesting a
                  health plan change.
         ee.      Information regarding prenatal HIV testing and counseling
                  services.

Regardless of the format chosen by the Contractor, the member handbook must be
printed in a type style and size, which can easily be read by members with
varying degrees of visual impairment. At a minimum, the

                                       29
<PAGE>

member handbook shall also contain the following language regarding questions,
problems, grievances and requests for hearings (Ref. AHCCCS Rule R9-22-518 and
R9-31-518):

Q.       What if I have any questions, problems or complaints about
         [Contractor's name]?
A.       If you have a question or problem, please call ________ and ask to talk
         to a Member Representative. They are there to help you.
A.       If you have a specific complaint about your medical care, the Member
         Representative will help you.
Q.       What if I'm not happy with the help given to me by the Member
         Representative?
A.       If you are unhappy with the answer you receive, you can tell the Member
         Representative you want to file a written or oral grievance. The
         grievance must be filed not later than 60 days after the date of the
         action, decision, or incident.
A.       [Contractor's name] will make a final decision for grievances within 30
         days of receiving your written or oral grievance. A letter will be
         mailed to you stating the health plan's decision and the reason for the
         decision. The letter will tell you how you can appeal the decision if
         you are still unhappy. You must let the health plan know you want to
         appeal the decision letter.
A.       If you are appealing the health plan's decision, [Contractor's name]
         will send your request for appeal to the AHCCCSA. You will receive
         information from AHCCCSA on how your appeal will be handled. AHCCCSA
         will then decide if the health plan's decision was correct under the
         circumstances.

I.       A list of the names, telephone numbers and service site addresses of
         PCPs available for selection by the member and a description of the
         selection process. Upon request by the member, the Contractor must make
         information available regarding provider qualifications.

9. MEMBER SURVEYS

AHCCCSA may periodically conduct a survey of a representative sample of the
Contractor's membership. AHCCCSA will design a questionnaire to assess
accessibility, availability and continuity of care with PCPs; communication
between members and the Contractor; and general member satisfaction with the
AHCCCS program. To ensure comparability of results, the questions to the members
will be the same for all contractors. AHCCCSA will consider suggestions from the
Contractor for questions to be included in each survey. The results of these
surveys will become public information and available to all interested parties
upon request. In addition, unless waived by AHCCCSA, the Contractor shall
perform its own annual general or focused member survey. All such contractor
surveys must be approved in advance by AHCCCSA.

10. MARKETING PLANS

The Contractor shall submit all proposed marketing plans and materials to
AHCCCSA for prior approval in accordance with the AHCCCS Health Plan Marketing
Policy, a copy of which is available in the Bidder's Library. The Contractor
must have signed contracts with hospitals (in Maricopa and Pima counties), PCPs,
specialists and pharmacies in order for them to be included in marketing
materials.

11. ANNUAL ENROLLMENT CHOICE

AHCCCSA conducts an Annual Enrollment Choice (AEC) for members on their annual
anniversary date. AHCCCSA may hold an open enrollment on a limited basis as
deemed necessary. During AEC, members may change contractors subject to the
availability of other contractors within their Geographic Service Area.

                                       30
<PAGE>

Members are mailed a printed enrollment form and may choose a new contractor by
contacting AHCCCSA to complete the enrollment process. If the member does not
participate in the AEC, no change of contractor will be made (except for
approved changes under the Change of Plan Policy) during the new anniversary
year. This holds true if the Contractor's contract is renewed and the member
continues to live in the Contractor's service area. The Contractor shall comply
with the Office of Managed Care Member Transition for Annual Enrollment Choice
and Other Plan Changes policy.

12. TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM, and the Office of Managed Care Member
Transition for Annual Enrollment Choice and Other Plan Changes standards for
member transitions between health plans or GSAs, to or from an ALTCS program
contractor, IHS, a PL 93-638 tribal entity, or a Title XXI direct service
provider and upon termination or expiration of a contract. The Contractor shall
develop and implement policies and procedures, which comply with AHCCCS medical
policy to address transition of:

1.       Members with significant medical conditions such as a high-risk
         pregnancy or pregnancy within the last 30 days, the need for organ or
         tissue transplantation, chronic illness resulting in hospitalization or
         nursing facility placement, etc.;
2.       Members who are receiving ongoing services such as dialysis, home
         health, chemotherapy and/or radiation therapy or who are hospitalized
         at the time of transition;
3.       Members who have received prior authorization for services such as
         scheduled surgeries, out-of-area specialty services, nursing home
         admission;
4.       Prescriptions, DME and medically necessary transportation ordered for
         the transitioning member by the relinquishing contractor; and
5.       Medical records of the transitioning member (the cost of reproducing
         and forwarding medical records shall be the responsibility of the
         relinquishing AHCCCS contractor).

When relinquishing members, the Contractor is responsible for timely
notification of the receiving contractor regarding pertinent information related
to any special needs of transitioning members. The Contractor, when receiving a
transitioning member with special needs, is responsible to coordinate care with
the relinquishing contractor in order that services not be interrupted, and for
providing the new member with health plan and service information, emergency
numbers and instructions of how to obtain services.

In the event the contract, or any portion thereof, is terminated for any reason,
or expires, the Contractor shall assist AHCCCSA in the transition of its members
to other contractors, and shall abide by standards and protocols set forth
above. In addition, AHCCCSA reserves the right to extend the term of the
contract on a month-to-month basis to assist in any transition of members. The
Contractor shall make provision for continuing all management and administrative
services until the transition of all members is completed and all other
requirements of this contract are satisfied. The Contractor shall be responsible
for providing all reports set forth in this contract and necessary for the
transition process and shall be responsible for the following:

a.       Notification of subcontractors and members.
b.       Payment of all outstanding obligations for medical care rendered to
         members.
c.       Until AHCCCSA is satisfied that the Contractor has paid all such
         obligations, the Contractor shall provide the following reports to
         AHCCCSA:
d.       A monthly claims aging report by provider/creditor including IBNR
         amounts;
e.       A monthly summary of cash disbursements;
f.       Copies of all bank statements received by the Contractor.
g.       Such reports shall be due on the fifth day of each succeeding month for
         the prior month.

                                       31
<PAGE>

h.       In the event of termination or suspension of the contract by AHCCCSA,
         such termination or suspension shall not affect the obligation of the
         Contractor to indemnify AHCCCSA for any claim by any third party
         against the State or AHCCCSA arising from the Contractor's performance
         of this contract and for which the Contractor would otherwise be liable
         under this contract.
i.       Any dispute by the Contractor with respect to termination or suspension
         of this contract by AHCCCSA shall be exclusively governed by the
         provisions of Section E, Paragraph 26, Disputes.
j.       Any funds advanced to the Contractor for coverage of members for
         periods after the date of termination shall be returned to AHCCCSA
         within 30 days of termination of the contract.

13. STAFF REQUIREMENTS AND SUPPORT SERVICES

The Contractor shall have in place the organization, management and
administrative systems capable of fulfilling all contract requirements. For the
purposes of this contract, the Contractor shall not employ or contract with any
individual that has been debarred, suspended or otherwise lawfully prohibited
from participating in any public procurement activity. At a minimum, the
following staff is required.

a.       A full-time ADMINISTRATOR/CEO/COO who is available at all times to
         fulfill the responsibilities of the position and to oversee the entire
         operation of the health plan. The Administrator shall devote sufficient
         time to the Contractor's operations to ensure adherence to program
         requirements and timely response to AHCCCS Administration.
b.       A MEDICAL DIRECTOR who shall be an Arizona-licensed physician. The
         Medical Director shall be actively involved in all-major clinical
         programs and QM/UM components of the Contractor's health plan. The
         Medical Director shall devote sufficient time to Contractor's health
         plan to ensure timely medical decisions, including after-hours
         consultation as needed.
c.       A CHIEF FINANCIAL OFFICER/CFO who is available at all times to fulfill
         the responsibilities of the position and to oversee the budget and
         accounting systems implemented by the Contractor.
d.       A QUALITY MANAGEMENT/UTILIZATION MANAGEMENT COORDINATOR who is an
         Arizona-licensed registered nurse, physician or physician's assistant.
e.       A MATERNAL HEALTH/EPSDT COORDINATOR who shall be an Arizona-licensed
         registered nurse, physician or physician's assistant; or have a
         Master's degree in health services, public health or health care
         administration or other related field.
f.       A BEHAVIORAL HEALTH COORDINATOR who shall be a behavioral health
         professional as described in Health Services Rule R9-20. The Behavioral
         Health Coordinator shall devote sufficient time to ensure that the
         Contractor's behavioral health referral and coordination activities are
         implemented per AHCCCSA requirements.
g.       PRIOR AUTHORIZATION STAFF to authorize medical care 24 hours per day, 7
         days per week. This staff shall include an Arizona-licensed registered
         nurse, physician or physician's assistant.
h.       CONCURRENT REVIEW STAFF to conduct inpatient concurrent review. This
         staff shall consist of an Arizona-licensed registered nurse, physician,
         physician's assistant or an Arizona-licensed practical nurse
         experienced in concurrent review and under the direct supervision of a
         registered nurse, physician or physician's assistant.
i.       MEMBER SERVICES MANAGER AND STAFF to coordinate communications with
         members and act as member advocates. There shall be sufficient Member
         Service staff to enable members to receive prompt resolution to their
         problems, and to meet the Contractor's standards for telephone
         abandonment rates and telephone hold times.
j.       PROVIDER SERVICES MANAGER AND STAFF to coordinate communications
         between the Contractor and its subcontractors. There shall be
         sufficient Provider Services staff to enable providers to receive
         prompt resolution to their problems or inquiries.
k.       A CLAIMS ADMINISTRATOR AND CLAIMS PROCESSORS to ensure the timely and
         accurate processing of original claims, claims correction letters,
         re-submissions and overall adjudication of claims.

                                       32
<PAGE>

l.       ENCOUNTER PROCESSORS to ensure the timely and accurate processing and
         submission to AHCCCSA of encounter data and reports.
m.       A GRIEVANCE COORDINATOR who will manage and adjudicate member and
         provider grievances.
n.       CLERICAL AND SUPPORT STAFF to ensure appropriate functioning of the
         Contractor's operation.

The Contractor shall inform AHCCCSA, Office of Managed Care, in writing and
provide a resume within seven days of staffing changes in the following key
positions:

<TABLE>
         <S>                                    <C>
         Administrator                          Member Services Manager
         Medical Director                       Provider Services Manager
         Chief Financial Officer                Claims Administrator
         Maternal Health/ EPSDT Coordinator     Quality Management/Utilization Management Coordinator
         Grievance Coordinator                  Behavioral Health Coordinator
</TABLE>

The Contractor shall ensure that all staff has appropriate training, education,
experience and orientation to fulfill the requirements of the position. See the
AMPM, Chapter 600 for specific position requirements.

14. WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures shall be reviewed at least annually to ensure that the
Contractor's written policies reflect current practices. Reviewed policies shall
be dated and signed by the Contractor's appropriate manager, coordinator,
director or administrator. All medical and quality management policies must be
approved and signed by the Contractor's Medical Director. Job descriptions shall
be reviewed at least annually to ensure that current duties performed by the
employee reflect written requirements.

15. ADVANCE DIRECTIVES

The Contractor shall maintain policies and procedures addressing advanced
directives for adult members that specify:

a.       Each contract or agreement with a hospital, nursing facility, home
         health agency, hospice or organization responsible for providing
         personal care must comply with federal and State law regarding advance
         directives for adult members. Requirements include:

         (1)      Maintaining written policies that address the rights of adult
                  members to make decisions about medical care, including the
                  right to accept or refuse medical care, and the right to
                  execute an advance directive. If the agency/organization has a
                  conscientious objection to carrying out an advance directive,
                  it must be explained in policies. (A health care provider is
                  not prohibited from making such objection when made pursuant
                  to A.R.S. ss. 36-3205.C.1.)
         (2)      Provide written information to adult members regarding each
                  individual's rights under State law to make decisions
                  regarding medical care, and the health care provider's written
                  policies concerning advance directives (including any
                  conscientious objections).
         (3)      Documenting in the member's medical record whether or not the
                  adult member has been provided the information and whether an
                  advance directive has been executed.

                                       33
<PAGE>

         (4)      Not discriminating against a member because of his or her
                  decision to execute or not execute an advance directive, and
                  not making it a condition for the provision of care.
         (5)      Providing education to staff on issues concerning advance
                  directives including notification of direct care providers of
                  services, such as home health care and personal care, of any
                  advanced directives executed by members to whom they are
                  assigned to provide services.

b.       Contractors shall encourage subcontracted PCPs to comply with the
         requirements of subparagraph a. (2) through (5) above. Contractors
         shall also encourage health care providers specified in subparagraph a.
         to provide a copy of the member's executed advanced directive, or
         documentation of refusal, to the member's PCP for inclusion in the
         member's medical record.

16. PERFORMANCE MEASUREMENT

All performance measures described below apply to Title XIX, Title XXI, and
state-only member populations.

Effective October 1, 2000, AHCCCS will require Contractors to adopt the Quality
Improvement System for Managed Care (QISMC). AHCCCS will work with the
Contractors to develop quality improvement projects that will meet the QISMC
guidelines. Compliance with this requirement will become a part of the
Operational and Financial Review after October 1, 2001.

Contractors shall strive to meet the AHCCCS stated performance measure goals.
However, it is equally important that Contractors continually improve their
performance measure outcomes from year to year. Improvement in performance is to
be measured by a reduction in the health plan's adverse outcomes. AHCCCS
requires the Contractor to achieve a reduction of ten percent or more from the
previous year's adverse outcomes. The Contractor's performance will also be
evaluated against the adjusted AHCCCS statewide average performance level,
excluding the effect of the Contractor's data.

A.       AHCCCS will require the Contractor to have a quality improvement plan
         in place when:

(1)      the Contractor has not achieved the AHCCCS statewide performance level
         for any measure but has shown significant improvement, or
(2)      the Contractor's rate has declined but is at or above the AHCCCS
         statewide performance level for any measure.

B.       The Contractor will be required to submit a corrective action plan and
         may be subject to sanctions if:

(1)      the Contractor has not achieved the AHCCCS statewide performance level
         for any measure and has failed to show adequate improvement, or
(2)      if the Contractor's rate has declined and fallen below the AHCCCS
         statewide performance level for any measure.

Corrective action plans must be received by the Office of Medical Management
within 30 days of receipt of notification from AHCCCS. AHCCCS may conduct one or
more follow-up on-site reviews to verify compliance with a corrective action
plan.

EPSDT PARTICIPATION: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program to at least 80% of all enrolled
members under age 21 during CYE 2001. The participant rate is the number of
children receiving at least one medical screen compared to the number of
children expected to receive at least one medical screen. The number of children
expected to receive at least one medical screen is based on the federal
periodicity schedule and the average period of eligibility.

                                       34
<PAGE>

AHCCCSA will measure participation levels through encounter data and will not
use information from prior period coverage (see Paragraph D.6, Prior Period
Coverage) in evaluating the Contractor's performance.

EPSDT IMMUNIZATIONS: The Contractor shall ensure members under age 21 receive
age-appropriate immunizations as specified in the AMPM. During CYE 2001, the
Contractor shall meet or exceed the following:

<TABLE>
<CAPTION>
Immunization                                          Percentage of     Number of Doses
                                                      Members
                                                      Immunized
<S>                                                   <C>               <C>
Diphtheria, Tetanus, Pertussis vaccine (DPT)              82%                 4
Oral/Inactivated Polio Vaccine                            88%                 3
Measles, Mumps, Rubella Vaccine (MMR)                     90%                 1
H. Influenza, Type B (2 HIB)                              90%                 2
Hepatitis B (Hep B)                                       87%                 3
Combined 3-Antigen Rate (4 DPT, 3 OPV, 1 MMR)             82%                 8
Combined All Antigen                                      73%                13
Varicella Vaccine                                         67%                 1
</TABLE>

The Contractor shall participate in an annual immunization audit based on random
sampling to assess and verify the immunization status of two-year-old members.
AHCCCSA will provide the Contractor, within two weeks after the end of the
contract year, the selected sample, specifications for conducting the audit, the
AHCCCSA reporting requirements, and technical assistance. The Contractor shall
identify each child's PCP, conduct the assessment, and report to AHCCCSA in the
required format all immunization data for the sampled two-year-old children no
later than December 15 after the end of the contract year. If medical records
are missing for more than 5% of the sample group, the Contractor is subject to
sanctions by AHCCCSA. The External Quality Review Contractor will conduct a
study to validate the Contractor's reported rates.

PERFORMANCE INDICATORS: For CYE 2001, the Contractor shall comply with AHCCCS
quality management requirements to improve performance for all AHCCCS
established performance indicators. Complete descriptions of these indicators
can be found in the document Health Plan Performance Indicators, User and
Technical Specifications. AHCCCS has established goals for the following
indicators: annual dental visits; well-child visits in the first 15 months of
life; and well-child visits in the 3rd, 4th, 5th and 6th years of life.

ANNUAL DENTAL VISITS: The Contractor shall take affirmative steps to increase
utilization of dental services for members under age 21. At least 55% of all
enrolled members between the ages of 3 to 21 shall have at least one dental
visit during CYE 2001. AHCCCSA will monitor utilization through reported
encounter data.

WELL CHILD VISITS IN THE FIRST 15 MONTHS OF LIFE: The Contractor shall ensure
that members under the age of 15 months receive all recommended well-child
visits as specified in the AMPM. During CYE 2001, the Contractor shall ensure
that a minimum of 64% of its members receive all recommended well-child visits.

WELL-CHILD VISITS IN THE 3RD, 4TH, 5TH AND 6TH YEARS OF LIFE: The Contractor
shall ensure that members 3, 4, 5 and 6 years of age receive all recommended
well-child visits as specified in the AMPM. During CYE 2001, the Contractor
shall ensure that a minimum of 64% of its members receive at least one
well-child visit during the contract year.

                                       35
<PAGE>

CHILDREN'S ACCESS TO PRIMARY CARE PRACTITIONERS: The Contractor shall ensure
that members under age 21 have access to primary care provider (PCP) services.
During CYE 2001, the Contractor shall ensure that a minimum of 70% of members
under age 21 visit their PCP at least once during the contract year.

ACCESS TO CARE: During the contract year AHCCCSA will be developing and
establishing baseline information for three new measures: Provider Turnover,
Board Certification/Residency Completion and Availability of Language
Interpretation Services.

17. QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)

The Contractor shall provide to members quality medical care as described in the
AMPM, Chapter 900, regardless of payer source or eligibility category. The
Contractor shall institute processes to assess, plan, implement and evaluate
quality improvement activities. The Contractor shall conduct two clinical
studies each contract year as required in Chapter 900 of the AMPM. AHCCCSA will
determine the subject matter and study methodology for one of the annual studies
and the Contractor shall submit to AHCCCSA by November 15 of each contract year
its proposed subject matter and methodology for the other. The results of the
studies shall be submitted to AHCCCS, Office of Medical Management, within 180
days after the end of each contract year.

The Contractor must maintain a written QM/UM plan, which details plans for
compliance with the AMPM. The Contractor shall incorporate in its QM/UM plan an
action plan for improving the performance rates for those indicators with
established baselines.

18. PHYSICIAN INCENTIVES

The Contractor must comply with all applicable physician incentive requirements
and conditions defined in 42 CFR 417.479. These regulations prohibit physician
incentive plans that directly or indirectly make payments to a doctor or a group
as an inducement to limit or refuse medically necessary services to a member.
The Contractor is required to disclose all physician incentive agreements to
AHCCCSA and to AHCCCS members who request them.

The Contractor shall not enter into contractual arrangements that place
providers at significant financial risk as defined in CFR 417.479 unless
specifically approved in advance by the Office of Managed Care. In order to
obtain approval, the following must be submitted to the Office of Managed Care
45 days prior to the implementation of the contract:

         1.       A complete copy of the contract
         2.       A plan for the member satisfaction survey
         3.       Details of the stop-loss protection provided
         4.       A summary of the compensation arrangement that meets the
                  substantial financial risk definition.

The Contractor shall disclose to AHCCCSA the information on physician incentive
plans listed in 42 CFR 417.479(h)(1) through 417.479(I) upon contract renewal,
prior to initiation of a new contract, or upon request from AHCCCSA or HCFA.
Please refer to the "Physician Incentive Guidelines" in the Bidder's Library for
details on providing required disclosures.

19. APPOINTMENT STANDARDS

                                       36
<PAGE>

For purposes of this section, "urgent" is defined as an acute but not
necessarily severe disorder, which, if not attended to, could endanger the
patient's health. The Contractor shall have procedures in place that ensure the
following standards are met:

a.       Emergency PCP appointments -       same day of request
b.       Urgent care PCP appointments -     within two days of request
c.       Routine care PCP appointments -    within 21 days of request

For SPECIALTY REFERRALS, the Contractor shall be able to provide:

a.       Emergency appointments -      within 24 hours of referral
b.       Urgent care appointments -    within three days of referral
c.       Routine care appointments -   within 30 days of referral

For DENTAL APPOINTMENTS, the Contractor shall be able to provide:

a.       Emergency appointments -        within 24 hours of request
b.       Urgent appointments -           within three days of request
c.       Routine care appointments -  within 45 days of request

For MATERNITY CARE, the Contractor shall be able to provide initial prenatal
care appointments for enrolled pregnant members as follows:

a.       First trimester -          within 14 days of request
b.       Second trimester -         within 7 days of request
c.       Third trimester -          within three days of request
d.       High risk pregnancies -    within three days of identification of high
         risk by the Contractor or maternity care provider, or immediately if an
         emergency exists

If a member needs medically-necessary transportation, the Contractor shall
require its transportation provider to schedule the transportation so that the
member arrives no sooner than one hour before the appointment; does not have to
wait more than one hour after making the call to be picked up; nor have to wait
for more than one hour after conclusion of the appointment for transportation
home.

The Contractor shall actively monitor the adequacy of its appointment processes
and reduce the unnecessary use of alternative methods such as emergency room
visits. The Contractor shall actively monitor and ensure that a member's waiting
time for a scheduled appointment at the PCP's or specialist's office is no more
than 45 minutes, except when the provider is unavailable due to an emergency.

The Contractor shall have written policies and procedures about educating its
provider network about appointment time requirements. The Contractor must assign
a specific staff member or unit within its organization to monitor compliance
with appointment standards and shall require a corrective action plan when
appointment standards are not met. Appointment standards shall be included in
the Provider Manual.

20. REFERRAL PROCEDURES AND STANDARDS

The Contractor shall have adequate written procedures regarding referrals to
specialists to include, at a minimum, the following:

a.       Use of referral forms clearly identifying the Contractor

                                       37
<PAGE>

b.       A system for resolving disputes regarding the referrals
c.       Having a process in place that ensures the member's PCP receives all
         specialist and consulting reports and a process to ensure PCP follow-up
         of all referrals including EPSDT referrals for behavioral health
         services
d.       A referral plan for any member who is about to lose eligibility and who
         requests information on low-cost or no-cost health care services
e.       Referral to Medicare HMO including payment of copayments

The Contractor shall comply with all applicable physician referral requirements
and conditions defined in Sections 1903(s) and 1877 of the Social Security Act.
Upon finalization of the regulations, the Contractor shall comply with all
applicable physician referral requirements and conditions defined in 42 CFR Part
411, Part 424, Part 435 and Part 455. Sections 1903(s) and 1877 of the Act
prohibits physicians from making referrals for designated health services to
health care entities with which the physician or a member of the physician's
family has a financial relationship. Designated health services include:

                  Clinical laboratory services
                  Physical therapy services
                  Occupational therapy services
                  Radiology services
                  Radiation therapy services and supplies
                  Durable medical equipment and supplies
                  Parenteral and enteral nutrients, equipment and supplies
                  Prosthetics, orthotics and prosthetic devices and supplies
                  Home health services
                  Outpatient prescription drugs
                  Inpatient and outpatient hospital services

21. PROVIDER MANUAL

The Contractor shall develop, distribute and maintain a provider manual. The
Contractor shall ensure that each contracted provider is issued a copy of the
provider manual and is encouraged to distribute a provider manual to any
individual or group that submits claim and encounter data. The Contractor
remains liable for ensuring that all providers, whether contracted or not, meet
the applicable AHCCCS requirements such as covered services, billing, etc. At a
minimum, the Contractor's provider manual must contain information on the
following:

a.       Introduction to the Contractor which explains the Contractor's
         organization and administrative structure
b.       Provider responsibility and the Contractor's expectation of the
         provider
c.       Overview of the Contractor's Provider Service department and function
d.       Listing and description of covered and non-covered services,
         requirements and limitations including behavioral health services
e.       Emergency room utilization (appropriate and non-appropriate use of the
         emergency room)
f.       EPSDT Services - screenings include a comprehensive history,
         developmental/behavioral health screening, comprehensive unclothed
         physical examination, appropriate vision testing, hearing testing,
         laboratory tests, dental screenings and immunizations
g.       Dental services
h.       Maternity/Family Planning services
i.       The Contractor's policy regarding PCP assignments
j.       Referrals to specialists and other providers, including access to
         behavioral health services provided by the ADHS/RBHA system.
k.       Grievance and request for hearing rights

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<PAGE>

l.       Billing and encounter submission information
         -indicate which form UB92, HCFA 1500, or Form C is to be used for
         services
         -indicate which fields are required for a claim to be considered
         acceptable by the Contractor. A completed sample of each form shall be
         included
m.       Contractor's written policies and procedures which affect the
         provider(s) and/or the provider network
n.       Claims re-submission policy and procedure
o.       Reimbursement, including reimbursement for dual eligibles (i.e.
         Medicare and Medicaid) or members with other insurance
p.       Explanation of remittance advice
q.       Prior authorization requirement
r.       Claims medical review
s.       Concurrent review
t.       Fraud and Abuse
u.       Formularies (with updates and changes provided in advance to providers,
         including pharmacies)
v.       AHCCCS appointment standards
w.       Americans with Disabilities Act (ADA) requirements, as applicable
x.       Eligibility verification
y.       Cultural competency information.

22. PRIMARY CARE PROVIDER STANDARDS

The Contractor shall include in its provider network a sufficient number of PCPs
to meet the requirements of this contract. Health care providers designated by
the Contractor as PCPs shall be licensed in Arizona as allopathic or osteopathic
physicians who generally specialize in family practice, internal medicine,
obstetrics, gynecology, or pediatrics; certified nurse practitioners or
certified nurse midwifes; or physician's assistants.

At a minimum, the Contractor's number of full-time equivalent PCPs to enrolled
members shall not exceed a ratio of 1:1800 for adults and 1:1200 for children
who are 12 or younger. If the PCP contracts with more than one AHCCCS health
plan, the ratio shall be adjusted by the Contractor to ensure the total number
of AHCCCS members does not exceed the above ratio. The Contractor should
consider the PCP's total patient panel size (i.e. AHCCCS and non-AHCCCS
patients) when assessing the PCP's ability to meet AHCCCS' appointment and other
standards. In addition, AHCCCS members shall not comprise the majority of the
PCP's panel of patients. The Contractor shall also reduce the number of members
assigned to its network PCPs as necessary to meet the appointment standards
specified in Section D, Paragraph 19, Appointment Standards. Any variation to
the above standards must be submitted to AHCCCSA, Office of Medical Management
for prior approval. PCPs with assigned members diagnosed with AIDS or as
HIV-positive shall meet criteria and standards set forth in AHCCCS Medical
Policy and AHCCCS AIDS Advisory Committee Guidelines.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data regarding
PCP assignments is current. The Contractor is encouraged to assign members with
complex medical conditions who are age 12 and younger to Board-certified
pediatricians.

To the extent required by this contract, the Contractor shall offer members
freedom of choice in selecting a PCP. When a new member has been assigned to the
Contractor, the Contractor shall inform the member in writing of his enrollment
and of his PCP assignment within 10 days of the Contractor's receipt of
notification of assignment by AHCCCSA. The Contractor shall include with the
enrollment notification a list of all the Contractor's available PCPs and the
process for changing the PCP assignment, should the member desire to do so. The
Contractor shall confirm any PCP change in writing to the member. Members may
make both their initial PCP selection and any subsequent PCP changes either
verbally or in writing.

                                       39
<PAGE>

At a minimum, the Contractor shall hold the PCP responsible for the following
gatekeeping activities:

a.       Supervision, coordination and provision of care to each assigned member
b.       Initiation of referrals for medically necessary specialty care
c.       Maintaining continuity of care for each assigned member
d.       Maintaining the member's medical record, including documentation of all
         services provided to the member by the PCP, as well as any specialty or
         referral services.

The Contractor shall establish and implement policies and procedures to monitor
PCP gatekeeping activities and to ensure that PCPs are adequately notified of,
and receive documentation regarding, specialty and referral services provided to
assigned members by specialty physicians, dentists and other health care
professionals. Contractor policies and procedures shall be subject to approval
by AHCCCSA, Office of Managed Care, and shall be monitored through operational
audits. PCPs and specialists who provide inpatient services to the Contractor's
members shall have admitting and treatment privileges in a minimum of one
general acute care hospital that is located within the Contractor's service
area.

23. OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and procedures to:

a.       Recruit sufficient specialty physicians, dentists, health care
         professionals, health care institutions and support services to meet
         the medical needs of its members.
b.       Monitor the adequacy, accessibility and availability of its provider
         network to meet the needs of its members, including the provision of
         care to members with limited proficiency in English.

Contractor policies shall be subject to approval by AHCCCSA, Office of Managed
Care, and shall be monitored through operational audits.

For specialty services, the Contractor shall ensure that:

a.       PCP referral shall be required for specialty physician services, except
         that women shall have direct access to GYN providers without a referral
         for preventive and routine services. Any waiver of this requirement by
         the Contractor must be approved in advance by AHCCCSA.
b.       Specialty physicians shall not begin a course of treatment for a
         medical condition other than that for which the member was referred,
         unless approved by the member's PCP.
c.       The specialty physicians shall provide to the member's PCP complete
         documentation of all diagnostic services including copies of test
         results if applicable, treatment services provided and the resulting
         outcome for each.

The Contractor shall ensure that a maternity care provider is designated for
each pregnant member for the duration of her pregnancy and postpartum care and
that maternity services are provided in accordance with the AMPM. The Contractor
may include in its provider network the following maternity care providers:

a.       Arizona licensed allopathic and/or osteopathic physicians who are
         general practitioners or specialize in family practice or obstetrics
b.       Certified nurse midwives
c.       Licensed midwives.

                                       40
<PAGE>

Members may choose, or be assigned, a PCP who provides obstetric care (physician
or certified nurse midwife). Such assignment shall be consistent with the
freedom of choice requirements for selecting health care professionals while
ensuring that the continuity of care is not compromised. Members who choose to
receive maternity services from a licensed midwife shall also be assigned to a
PCP for medical care as primary care is not within the scope of practice for
licensed midwives.

All physicians and certified nurse midwives who perform deliveries shall have OB
hospital privileges. Licensed midwives perform deliveries only in the member's
home. Labor and delivery services may also be provided in the member's home by
physicians and certified nurse practitioners and certified nurse midwives who
include such services within their practice.

24. NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is sufficient
to provide all covered services to AHCCCS members. It shall ensure covered
services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient personnel for the
provision of covered services, including emergency medical care on a
24-hour-a-day, 7-days-a-week basis. The proposed network shall be sufficient to
provide covered services within designated time and distance limits. For
Maricopa and Pima Counties only, this includes a network such that 95% of its
members residing within the boundary area of metropolitan Phoenix and Tucson do
not have to travel more than 5 miles to see a PCP or pharmacy. 95% of its
members residing outside the boundary area must not have to travel more than 10
miles to see such providers. See Attachment B, Minimum Network Requirements, for
details on network requirements by Geographic Service Area. Also see Section D,
Paragraph 35, Hospital Subcontracting and Reimbursement, for details on changes
in hospital subcontracting effective October 1, 1998.

Under the Balanced Budget Act of 1997, the Contractor shall not discriminate
with respect to participation in the AHCCCS program, reimbursement or
indemnification against any provider based solely on the provider's type of
licensure or certification. This provision, however, does not prohibit the
Contractor from limiting provider participation to the extent necessary to meet
the needs of the Contractor's members. This provision also does not interfere
with measures established by the Contractor to control costs consistent with its
responsibilities under this contract.

25. NETWORK MANAGEMENT

The Contractor shall have policies and procedures in place that pertains to all
service specifications described in the AMPM, Chapters 300, 600 and 900. In
addition, the Contractor shall have policies on how the Contractor will:

a.       Communicate with the network regarding contractual and/or program
         changes and requirements
b.       Monitor and control network compliance with policies and rules of
         AHCCCSA and the Contractor, including compliance with all policies and
         procedures related to the grievance process and ensuring the member's
         care is not compromised during the grievance process.
c.       Evaluate the quality of services delivered by the network
d.       Provide or arrange for medically necessary covered services should the
         network become temporarily insufficient within the contracted service
         area
e.       Monitor network capacity to ensure that there are sufficient providers
         to handle the volume of members
f.       Ensure service accessibility, including monitoring appointment
         procedures standards, appointment waiting times, and service provision
         standards

                                       41
<PAGE>

All material changes in the Contractor's provider network must be approved in
advance by AHCCCSA, Office of Managed Care. A material change is defined as one,
which affects, or can reasonably be foreseen to affect, the Contractor's ability
to meet the performance and network standards as described in this contract. The
Office of Managed Care must be notified of planned material changes in the
provider network before the change process has begun, for example before issuing
a 60-day termination notice to a provider. The notification shall be made within
one working day if the change is unexpected. AHCCCSA will assess proposed
changes in the Contractor's provider network for potential impact on members'
health care and provide a written response to the Contractor within 14 days of
receipt of request. For emergency situations, AHCCCSA will expedite the approval
process.

The Contractor shall notify AHCCCSA, Office of Managed Care, within one working
day of any unexpected changes that would impair its provider network. This
notification shall include (1) information about how the change will affect the
delivery of covered services, and (2) the Contractor's plans for maintaining the
quality of member care if the provider network change is likely to result in
deficient delivery of covered services.

26. FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide covered services
and must comply with the federal mandates. This legislation gives FQHCs the
option to require state Medicaid programs to reimburse the FQHC at 100% of
reasonable costs for the services delivered to Title XIX members. Effective
4/1/01, Title XIX Waiver members will also be eligible for reasonable cost
reimbursement. AHCCCSA and its contractors are required to comply with this
legislation. The following payment methodology for reasonable cost reimbursement
was implemented effective October 1, 1997.

If the FQHC elects reasonable cost reimbursement, the FQHC will receive a
quarterly payment per Title XIX member per month from AHCCCSA. The initial
capitation amount will be $1.75 PMPM statewide. In accordance with the Balanced
Budget Act of 1997 and BBA Refinements Legislation, this additional
reimbursement will be phased out over a five-year period beginning in contract
year ending 2000:

<TABLE>
<CAPTION>
         Contract Year             Phase-Out Percentage             PMPM Amount
         <S>                        <C>                                <C>
         1997 through 1999          No phase-out                       $ 1.75
         2000                       95%                                $ 1.66
         2001                       95%                                $ 1.66
         2002                       95%                                $ 1.66
         2003                       90%                                $ 1.58
         2004                       85%                                $ 1.49
         2005                        0%                                $ 0.00
</TABLE>

Contractors are required to submit member month information for Title XIX
members for each FQHC on a quarterly basis to AHCCCS Office of Managed Care.
AHCCCSA will perform periodic audits of the member month information submitted.
Contractors should refer to the Office of Managed Care's policy on FQHC
reimbursement for further guidance. The following FQHCs are currently recognized
by HCFA:

                  Ajo Community Health Center
                  Chiricahua Community Health Centers, Inc.
                  Clinica Adelante, Inc.
                  El Rio Health Center
                  Inter-Tribal Health Care Center
                  Lake Powell Medical Center
                  Marana Health Center
                  Mariposa Community Health Center, Inc.

                                       42
<PAGE>

                  Mountain Park Health Center
                  Native American Community Health Center, Inc.
                  Native Americans for Community Action Family Health Center
                  North Country Community Health Center
                  Sun Life Family Health Center
                  Sunset Community Health Center (formerly Valley Health
                  Center, Inc.)
                  United Community Health Center, Inc.

Any other clinics that subsequently become FQHCs will be subject to the
reimbursement methodology described above upon electing reasonable cost
reimbursement from AHCCCSA.

27. PROVIDER REGISTRATION

The Contractor shall ensure that all of its subcontractors register with AHCCCSA
as an approved service provider and receive an AHCCCS Provider ID Number. A
Provider Participation Agreement must be signed with each provider who does not
already have a current AHCCCS ID number. The original shall be forwarded to
AHCCCSA. This provider registration process must be completed in order for the
Contractor to report services a subcontractor renders to enrolled members and
for the Contractor to be paid reinsurance.

28. PROVIDER AFFILIATION TAPE

The Contractor shall submit information quarterly regarding its provider
network. This information shall be submitted in the format described in the
Provider Affiliation Tape User Manual on October 15, January 15, April 15, and
July 15 of each contract year. The Manual may be found in the Bidder's Library.

29. PERIODIC REPORT REQUIREMENTS

AHCCCSA, under the terms and conditions of its HCFA grant award, requires
periodic reports, encounter data, and other information from the Contractor. The
submission of late, inaccurate, or otherwise incomplete reports shall constitute
failure to report subject to the penalty provisions described in this contract.
Standards applied for determining adequacy of required reports are as follows:

a.       Timeliness:       Reports or other required data shall be received on
         or before scheduled due dates.

b.       Accuracy:         Reports or other required data shall be prepared in
         strict conformity with appropriate authoritative sources and/or AHCCCS
         defined standards.

c.       Completeness:     All required information shall be fully disclosed in
         a manner that is both responsive and pertinent to report intent with no
         material omissions.

AHCCCS requirements regarding reports, report content and frequency of
submission of reports are subject to change at any time during the term of the
contract. The Contractor shall comply with all changes specified by AHCCCSA.

The Contractor shall be responsible for continued reporting beyond the term of
the contract. For example, processing claims and reporting encounter data will
likely continue beyond the term of the contract because of lag time in filing
source documents by subcontractors.

                                       43
<PAGE>

The Contractor shall comply with all financial reporting requirements contained
in the Reporting Guide for Acute Health Care Contractors with the Arizona Health
Care Cost Containment System, a copy of which may be found in the Bidder's
Library. The required reports, which are subject to change during the contract
term, are summarized in Attachment F, Periodic Report Requirements.

30. DISSEMINATION OF INFORMATION

Upon request, the Contractor shall assist AHCCCSA in the dissemination of
information prepared by AHCCCSA, or the federal government, to its members. The
cost of such dissemination shall be borne by the Contractor. All advertisements,
publications and printed materials that are produced by the Contractor and refer
to covered services shall state that such services are funded under contract
with AHCCCSA.

31. REQUESTS FOR INFORMATION

AHCCCSA may, at any time during the term of this contract, request financial or
other information from the Contractor. Upon receipt of such requests for
information, the Contractor shall provide complete information as requested no
later than 30 days after the receipt of the request unless otherwise specified
in the request itself.

32. OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
successful offerors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business for the initial contract year beginning 10/1/97.
The purpose of Readiness Reviews is to assess new contractors' readiness and
ability to provide contract services to members at the start of the contract
year. A new contractor will be permitted to commence operations only if the
Readiness Review factors are met to AHCCCSA's satisfaction.

33. OPERATIONAL AND FINANCIAL REVIEWS

In accordance with HCFA requirements, AHCCCSA will conduct regular Operational
and Financial Reviews for the purpose of (but not limited to) ensuring
operational and financial program compliance. The Reviews will identify areas
where improvements can be made and make recommendations accordingly, monitor the
Contractor's progress towards implementing mandated programs and provide the
Contractor with technical assistance if necessary. The Contractor shall comply
with all other medical audit provisions as required by AHCCCS Rule R9-22-521 and
R9-31-521.

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful, AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with AHCCCSA and the AHCCCSA Review Team by
forwarding in advance such policies, procedures, job descriptions, contracts,
logs and other information that AHCCCSA may request. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance by
AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor personnel as identified in advance shall be
available to the Review Team at all times during AHCCCSA on-site review
activities. While on-site, the Contractor shall provide the Review Team with
workspace, access to a telephone, electrical outlets and privacy for
conferences. Certain documentation submission requirements may be waived at the
discretion of AHCCCSA if the Contractor has obtained accreditation from NCQA or
any other nationally

                                       44
<PAGE>

recognized accrediting body. The Contractor must submit the entire NCQA report
to AHCCCSA for such waiver consideration.

The Contractor will be furnished a copy of the Operational and Financial Review
Report and given an opportunity to comment on any review findings prior to
AHCCCSA publishing the final report. Operational and Financial Review findings
may be used in the scoring of subsequent bid proposals by that Contractor.
Recommendations made by the Review Team to bring the Contractor into compliance
with federal, State, AHCCCS, and/or RFP requirements must be implemented by the
Contractor. AHCCCSA may conduct a follow-up Operational and Financial Review to
determine the Contractor's progress in implementing recommendations and
achieving program compliance. Follow-up reviews may be conducted at any time
after the initial Operational and Financial Review.

AHCCCSA may conduct an Operational and Financial Review in the event the
Contractor undergoes a merger, reorganization, change in ownership or makes
changes in three or more key staff positions within a 12-month period.

34. CLAIMS PAYMENT SYSTEM

The Contractor shall develop and maintain a claims payment system capable of
processing, cost avoiding and paying claims in accordance with AHCCCS Rule
R9-22-705, a copy of which may be found in the Bidder's Library. In the absence
of a subcontract provision to the contrary, claims submission deadlines shall be
calculated from the date of service or the effective date of eligibility
posting, whichever is later. Remittance advices accompanying the Contractor's
payments to providers must contain, at a minimum, adequate descriptions of all
denials and adjustments, the reasons for such denials and adjustments, the
amount billed, the amount paid, and grievance and request for hearing rights.
The Contractor's claims payment system, as well as its prior authorization and
concurrent review process, must minimize the likelihood of having to recoup
already-paid claims. Any recoupment in excess of $50,000 per provider within a
contract year must be approved in advance by AHCCCSA, Office of Managed Care.

In accordance with the Balanced Budget Act of 1997, unless a subcontract
specifies otherwise, the Contractor shall ensure that 90% of all clean claims
are paid within 30 days of receipt of the clean claim and 99% are paid within 90
days of receipt of the clean claim.

During the term of this contract, AHCCCSA anticipates requiring all health plans
to use a standardized electronic format for electronic claims processing between
the plan and its providers. AHCCCSA plans to require the formats outlined in the
Technical Interface Guidelines under Claims Processing, which is the format
adopted by FFS providers and their billing agents who submit claims
electronically to AHCCCS. The form UB-92 and 1500 layouts will be supplemented
by a Form C layout. All formats are subject to changes as required by federal
law. Reasonable implementation timeframes will be negotiated with each plan.

35. HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

The Contractor shall reimburse hospitals for member care in accordance with
AHCCCS Rule R9-22-705. The Contractor is encouraged to obtain contracts with
hospitals in all GSA's and must submit copies of these contracts to AHCCCSA,
Office of Managed Care, at least seven days prior to the effective dates
thereof.

The Contractor may conduct prepayment and postpayment medical reviews of all
hospital claims including outlier claims. Erroneously paid claims are subject to
recoupment. If the Contractor fails to identify lack of medical necessity
through concurrent review and/or prepayment medical review, lack of medical
necessity

                                       45
<PAGE>

identified during postpayment medical review shall not constitute a basis for
recoupment by the Contractor. See also Section D, Paragraph 34, Claims Payment
System. For a more complete description of the guidelines for hospital
reimbursement, please consult the Bidder's Library for applicable statutes and
rules.

FOR OUT-OF-STATE HOSPITALS: The Contractor shall reimburse out-of-state
hospitals in accordance with AHCCCS Rule R9-22-705.

36. NURSING FACILITY REIMBURSEMENT

The Contractor shall not deny nursing facility services if the nursing facility
is unable to obtain prior authorization in situations where acute care
eligibility and ALTCS eligibility overlap and the member is enrolled with an
AHCCCS acute care contractor. In such situations, the Contractor shall impose
reasonable authorization requirements. The Contractor's payment responsibility
described above applies only in situations where the nursing facility has not
been notified in advance of the member's enrollment with an AHCCCS acute care
contractor. To further illustrate, when ALTCS eligibility overlaps AHCCCS acute
care enrollment, the acute care enrollment takes precedence. Although the member
could be ALTCS eligible for this time period, there is no ALTCS enrollment that
occurs on the same days as AHCCCS acute enrollment. The Contractor is
responsible for payment of services while the member is enrolled with the
Contractor. The Contractor is not responsible for the full 90 days of nursing
facility coverage if ALTCS enrollment occurs before the 90 days has ended.

The Contractor shall provide medically necessary nursing facility services for
any member who has a pending ALTCS application, who is currently residing in a
nursing facility and is eligible for services provided under this contract. If
the member becomes ALTCS eligible and is enrolled with an ALTCS Program
Contractor before the end of the maximum 90 days of nursing facility coverage,
the Contractor is only responsible for nursing facility coverage during the time
the member is enrolled with the Contractor. Nursing facility services covered by
a third party insurer (including Medicare) while the member is enrolled with the
Contractor shall be applied to the 90 day limitation.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application process and to prepare for potential fee-for-service coverage if the
stay goes beyond the 90-day maximum.

37. COMPENSATION

The method of compensation under this contract will be Prior Period Coverage
(PPC) capitation, prospective capitation, delivery supplement, HIV-AIDS
supplement, reinsurance (PPC and prospective), and third party liability, as
described and defined within this contract and appropriate laws, regulations or
policies.

Subject to the availability of funds, AHCCCSA shall make payments to the
Contractor in accordance with the terms of this contract provided that the
Contractor's performance is in compliance with the terms and conditions of this
contract. Payment must comply with requirements of A.R.S. Title 36. AHCCCSA
reserves the option to make payments to the Contractor by wire or National
Automated Clearing House Association (NACHA) transfer and will provide the
Contractor at least 30 days notice prior to the effective date of any such
change.

Where payments are made by electronic funds transfer, AHCCCSA shall not be
liable for any error or delay in transfer nor indirect or consequential damages
arising from the use of the electronic funds transfer process. Any charges or
expenses imposed by the bank for transfers or related actions shall be borne by
the Contractor. Except for adjustments made to correct errors in payment, and as
otherwise specified in this section, any savings

                                       46
<PAGE>

remaining to the Contractor as a result of favorable claims experience and
efficiencies in service delivery at the end of the contract term may be kept by
the Contractor.

All funds received by Contractor pursuant to this contract shall be separately
accounted for in accordance with generally accepted accounting principles.

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund, as described in A.R.S. ss.36-2913. An error discovered by the State with
or without an audit in the amount of fees paid to Contractor will be subject to
adjustment or repayment by Contractor making a corresponding decrease in a
current Contractor's payment or by making an additional payment by AHCCCSA to
the Contractor.

No payment due the Contractor by AHCCCSA may be assigned by the Contractor. This
section shall not prohibit AHCCCSA at its sole option from making payment to a
fiscal agent hired by Contractor.

The Contractor or its subcontractors shall collect any required copayment from
members but service will not be denied for inability to pay the copayment.
Except for permitted copayments, the Contractor or its subcontractors shall not
bill or attempt to collect any fee from, or for, a member for the provision of
covered services. Any required copayments collected shall belong to the
Contractor or its subcontractors.

PRIOR PERIOD COVERAGE (PPC) CAPITATION: The Contractor will be paid capitation
for all PPC member months, including partial member months. This capitation
includes the cost of providing medically necessary covered services to members
during prior period coverage. The PPC capitation rates will be set by AHCCCSA
and will be paid to the Contractor along with the prospective capitation
described below. Contractors will not receive PPC capitation for newborns of
members who were enrolled at the time of delivery.

RECONCILIATION OF PPC COSTS TO REIMBURSEMENT: For CYE '98 and CYE '99, AHCCCSA
will offer a reconciliation process for contractors whose total PPC medical cost
experience (excluding administrative and non-operating expenses) is more than
10% higher than the reimbursement associated with PPC in two areas: the "retro"
portion of the capitation rate for all rate categories, and the prospective
three-day notification period for MN/MI recipients only. Expenses will be net of
reinsurance for both the retro and prospective period.

AHCCCSA will reimburse 100% of a Contractor's excess reasonable costs in excess
of a 10% limit as determined by reported encounters. AHCCCS will recoup profit
amounts in excess of a 10% limit.

For CYE '00 and `01, a full reconciliation to 0% profit or loss will be done by
AHCCCSA for the same eligibility time periods and risk groups noted above.
AHCCCSA will reimburse the health plans 100% of any excess reasonable costs as
determined by reported encounters, and all profits will be recouped. Refer to
the Office of Managed Care's PPC Reconciliation Policy for further details of
the reconciliation process.

DELIVERY SUPPLEMENT: When the Contractor has an enrolled woman who delivers
during a prospective enrollment period, the Contractor will be entitled to a
supplemental payment. Supplemental payments will not apply to women who deliver
in a prior period coverage time period. AHCCCSA reserves the right at any time
during the term of this contract to adjust the amount of this payment for women
who deliver at home.

HIV-AIDS SUPPLEMENT: On a quarterly basis, AHCCCSA shall utilize encounters to
determine the number of members receiving approved HIV/AIDS drugs and calculate
the amount of the supplemental payment. The

                                       47
<PAGE>

rate of reimbursement for this separate per member per month payment is
specified in Section B and is subject to review during the term of the contract.
AHCCCSA reserves the right to recoup any amounts paid for ineligible members as
determined through an encounter data review as well as an associated penalty for
incorrect encounter reporting.

Refer to the Office of Managed Care's HIV/AIDS supplemental payment and review
policies for further details and requirements.

38. CAPITATION ADJUSTMENTS

INCENTIVE FUND: AHCCCSA may retain a specified percentage of capitation
reimbursement in order to distribute to Contractors based on their performance
measure outcomes. AHCCCSA will notify Contractors 60 days prior to a new
contract year if this methodology will be implemented and will provide details
of the reimbursement methodology at that time.

CAPITATION ADJUSTMENTS: Except for changes made specifically in accordance with
this contract, the rates set forth in Section B shall not be subject to
re-negotiation or modification during the contract period. AHCCCSA may, at its
option, review the effect of a program change and determine if a capitation
adjustment is needed. In these instances the adjustment will be prospective with
assumptions discussed with the Contractor prior to modifying capitation rates.
The Contractor may request a review of a program change if it believes the
program change was not equitable; AHCCCSA will not unreasonably withhold such a
review.

If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the default. The Contractor shall reimburse AHCCCSA
and/or AHCCCSA may deduct from future monthly capitation for any portion of a
month during which the Contractor was not at risk due to, for example:

a.       death of a member
b.       member's incarceration (not eligible for AHCCCS benefits from the date
         of incarceration)
c.       duplicate capitation to the same contractor
d.       adjustment based on change in member's contract type

If a member is enrolled twice with the same contractor, recoupment will be made
as soon as the double capitation is identified. AHCCCSA reserves the right to
modify its policy on capitation recoupments at any time during the term of this
contract.

39. REINSURANCE

REGULAR ACUTE PROSPECTIVE REINSURANCE: Reinsurance is a stop-loss program
provided by AHCCCSA to the Contractor for the partial reimbursement of covered
inpatient facility medical services incurred for a member with an acute medical
condition beyond an annual deductible (AHCCCS Rule R9-22-503 and R9-31-503). Per
diem rates paid for nursing facility services, including room and board,
provided in lieu of hospitalization for up to 90 days in any contract year shall
be eligible for reinsurance coverage. Refer to the AHCCCS Reinsurance Claims
Processing Manual for further details on the Reinsurance Program.

AHCCCSA is self-insured for the reinsurance program. The program is
characterized by an initial deductible level and a subsequent coinsurance
percentage. The coinsurance percent is the rate at which AHCCCSA will reimburse
the Contractor for inpatient covered services incurred above the deductible.
Prospective reinsurance coverage applies to prospective enrollment periods. The
deductible level is based on the Contractor's

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<PAGE>

statewide AHCCCS acute care enrollment (not including SOBRA Family Planning
Extension services) as of October 1st each contract year for all rate codes and
counties, as shown in the following table. No changes to the deductibles will be
made due to Proposition 204. These deductible levels are subject to change by
AHCCCSA during the term of this contract. Any change would have a corresponding
impact on capitation rates.

<TABLE>
<CAPTION>
                          Prospective Reinsurance                     PPC Reinsurance
Statewide Plan               MNMI            Non MNMI                     All Rate
Enrollment                Deductible       Deductible     Coinsurance      Codes        Coinsurance
----------                ----------       ----------     -----------      -----        -----------
<S>                       <C>              <C>            <C>              <C>          <C>
0-19,999                    $15,000          $20,000          75%          $5,000          100%
20,000-49,999               $15,000          $35,000          75%          $5,000          100%
50,000 and over             $15,000          $50,000          75%          $5,000          100%
</TABLE>

A Contractor whose enrollment qualifies for the $35,000 or $50,000 non-MN/MI
deductible level may, prior to the start of the contract period, elect one of
the lower deductible levels indicated in the above table. Contractors may not
elect to increase their deductible level. If a Contractor's actual non-MN/MI
deductible is $35,000 or $50,000, AHCCCSA will increase the Contractor's
capitation rate awarded by defined amounts for each capitation risk group. These
specific capitation adjustments are available from the Office of Managed Care.

Prior Period Coverage Reinsurance: A separate reinsurance deductible and
coinsurance percentage will apply during prior period coverage. As noted in the
table above, all Contractors, regardless of enrollment, will be subject to a
$5,000 deductible level. The coinsurance percentage for the prior period
coverage reinsurance is 100%. Expenses incurred during prior period coverage
will not apply toward the prospective reinsurance thresholds.

AHCCCSA will use inpatient encounter data to determine prospective and prior
period coverage reinsurance benefits. Reimbursement for these reinsurance
benefits will be made to the Contractor each month. AHCCCSA will also provide
for a reconciliation of reinsurance payments in the case where encounters used
in the calculation of reinsurance benefits are subsequently adjusted or voided.

Effective October 1, 1998, when a member changes Contractors within a contract
year, for reinsurance purposes, all eligible inpatient costs incurred for that
member will follow the member to the receiving health plan. Therefore, all
submitted encounters from the health plan the member is leaving (for dates of
service within the current contract year) will be applied toward the receiving
health plan's deductible level. For further details regarding this policy and
other reinsurance policies refer to the AHCCCS Reinsurance Claims Processing
Manual. Medical review on prospective and prior period coverage reinsurance
cases will be determined based on statistically valid retrospective random
sampling. AHCCCSA, Office of Medical Management, will generate the sampling and
will notify the Contractor of documentation needed for the retrospective medical
review process to occur at the Contractor's offices. Reinsurance consideration
will be given to inpatient facility contracts, and hearing decisions rendered by
the Office of Legal Assistance. Pre-hearing and/or hearing penalties
discoverable during the review process will not be reimbursed under reinsurance.
A recoupment of reinsurance reimbursements made to the Contractor will occur
based on the results of the medical review sampling. The results of the medical
review sampling will be separately extrapolated to the entire prospective and
prior period coverage reinsurance reimbursement populations in the review time
frame for the Contractor. AHCCCSA will give the Contractor at least 45 days
advance notice of any on-site review. The Contractor shall have all requested
medical records on-site. Any documents not requested in advance by AHCCCSA shall
be made available upon request of the Review Team during the course of the
review. The Contractor

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<PAGE>

representative shall be available to the Review Team at all times during AHCCCSA
on-site review activities. While on-site, the Contractor shall provide the
Review Team with workspace, access to a telephone, electrical outlets and
privacy for conferences. The Contractor will be furnished a copy of the
Reinsurance Review Report within 60 days of the onsite review and given an
opportunity to comment on any review findings.

CATASTROPHIC REINSURANCE: The reinsurance program also includes a special
Catastrophic Reinsurance program. This program encompasses members diagnosed
with hemophilia, von Willebrand's Disease, and Gaucher's Disease. This program
also covers members who are eligible to receive covered major organ and tissue
transplantation including bone marrow, heart, heart/lung, lung, liver, kidney,
and other organ transplantation. For additional detail and restrictions refer to
the AHCCCS Reinsurance Claims Processing Manual and the AMPM. There are no
deductibles for catastrophic reinsurance cases. All catastrophic claims are
subject to medical review by AHCCCSA.

The Contractor shall notify AHCCCSA, Office of Medical Management, Reinsurance
Unit, of cases identified for catastrophic non-transplant reinsurance coverage
within 30 days of (a) initial diagnosis, (b) enrollment with the Contractor, and
(c) the beginning of each contract year. Catastrophic reinsurance will be paid
for a maximum 30-day retroactive period from the date of notification to
AHCCCSA.

HEMOPHILIA: When a member is identified as being catastrophically eligible by
AHCCCSA due to the specific diagnosis of hemophilia (ICD9 codes 286.0, 286.1,
286.2), all medically necessary covered services provided during the contract
year shall be eligible for reimbursement at 85% of the Contractor's paid amount.

VON WILLEBRAND'S DISEASE: Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDAVP responders and
dependent on Plasma Factor VIII. The Contractor must promptly notify AHCCCS
Office of Medical Management Reinsurance Unit after diagnosis. All medically
necessary covered services provided during the contract year shall be eligible
for reimbursement at 85% of the Contractor's paid amount.

GAUCHER'S DISEASE: Catastrophic reinsurance is available for members diagnosed
with Gaucher's Disease classified as Type I and are dependent on enzyme
replacement therapy. All medically necessary covered services provided during
the contract year shall be eligible for reimbursement at 85% of the Contractor's
paid amount.

TRANSPLANTS: Bone grafts and cornea transplantation services are not eligible
for catastrophic reinsurance coverage but are eligible under the regular
(non-catastrophic) reinsurance program. Refer to the AMPM, Chapter 300 for
covered services for organ and tissue transplants. Catastrophic reinsurance
coverage for transplants is limited to 85% of the AHCCCS contract amount for the
transplantation services rendered, or 85% of the Contractor's paid amount,
whichever is lower. The AHCCCS contracted transplantation rates may be found in
the Bidder's Library. When a member is referred to a transplant facility for an
AHCCCS-covered organ transplant, the Contractor shall notify AHCCCSA, Office of
Medical Management.

Encounter data will not be used to determine catastrophic reinsurance benefits
for transplants. However, this does not relieve the Contractor of the
responsibility for submitting encounters for all catastrophic reinsurance
services.

All reinsurance claims must be submitted in accordance with R9-22-703 and the
AHCCCS Reinsurance Claims Processing Manual.

40. COORDINATION OF BENEFITS/THIRD PARTY LIABILITY

                                       50
<PAGE>

By law, AHCCCSA is the payer of last resort. This means AHCCCSA shall be used as
a source of payment for covered services only after all other sources of payment
have been exhausted. The two methods used in the coordination of benefits are
cost avoidance and postpayment recovery. See Section D, Paragraph 41, Medicare
Services and Cost Sharing.

COST AVOIDANCE: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires the member to pay any
copayment, coinsurance or deductible, the Contractor is responsible for making
these payments, even if the services are provided outside of the Contractor's
network. The Contractor's liability for coinsurance and deductibles is limited
to what the Contractor would have paid for the entire service pursuant to a
written contract with the provider or the AHCCCS fee-for-service rate, less any
amount paid by the third party. (The Contractor must decide whether it is more
cost-effective to provide the service within its network or pay coinsurance and
deductibles for a service outside its network. For continuity of care, the
Contractor may also choose to provide the service within its network.) If the
Contractor refers the member for services to a third-party insurer (other than
Medicare), and the insurer requires payment in advance of all copayments,
coinsurance and deductibles, the Contractor must make such payments in advance.

If the Contractor knows that the third party insurer will neither pay for nor
provide the covered service, and the service is medically necessary, the
Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so. (See also Section D, Paragraph 41,
Medicare Services and Cost Sharing.)

The requirement to cost-avoid applies to all AHCCCS covered services. For
pre-natal care and preventive pediatric services, AHCCCS may require the
Contractor to provide such service and then coordinate payment with the
potentially liable third party ("pay and chase"). In emergencies, the Contractor
shall provide the necessary services and then coordinate payment with the
third-party payer. The Contractor shall also provide medically necessary
transportation so the member can receive third-party benefits. Further, if a
service is medically necessary, the Contractor shall ensure that its cost
avoidance efforts do not prevent a member from receiving such service and that
the member shall not be required to pay any coinsurance or deductibles for use
of the other insurer's providers.

POSTPAYMENT RECOVERIES: Postpayment recovery is necessary in cases where the
Contractor was not aware of third-party coverage at the time services were
rendered or paid for, or was unable to cost-avoid. The Contractor shall identify
all potentially liable third parties and pursue reimbursement from them except
in the circumstances below. The Contractor shall not pursue reimbursement in the
following circumstances unless the case has been referred to the Contractor by
AHCCCSA or AHCCCSA's authorized representative:

<TABLE>
<S>                                                   <C>
Uninsured/underinsured motorist insurance             Adoption recovery
First-and third-party liability insurance             Worker's Compensation
Tortfeasors                                           Estate recovery
Special Treatment Trusts recovery
</TABLE>

The Contractor shall report any cases involving the above circumstances to
AHCCCSA's authorized representative should the Contractor identify such a
situation. See AHCCCS Rule R9-22-1002 and R9-31-1002. The Contractor shall
cooperate with AHCCCSA's authorized representative in all collection efforts. In
joint cases involving both AHCCCS fee-for-service or reinsurance and the
Contractor, AHCCCSA's authorized representative is responsible for performing
all research, investigation and payment of lien-related

                                       51
<PAGE>

costs, subsequent to the referral of any and all relevant case information to
AHCCCSA's authorized representative by the Contractor. AHCCCSA's authorized
representative is also responsible for negotiating and acting in the best
interest of all parties to obtain a reasonable settlement in joint cases and may
compromise a settlement in order to maximize overall reimbursement, net of legal
and other costs. For total plan cases involving only payments from the
Contractor, the Contractor is responsible for performing all research,
investigation, the filing of liens and payment of lien filing fees and other
related costs. The Contractor shall use the cover sheet as prescribed by AHCCCS
when filing liens.

The Contractor may retain up to 100% of its third-party collections if all of
the following conditions exist:

a.       Total collections received do not exceed the total amount of the
         Contractor's financial liability for the member
b.       There are no payments made by AHCCCS related to fee-for-service,
         reinsurance or administrative costs (i.e. lien filing, etc.)
c.       Such recovery is not prohibited by state or federal law

REPORTING: The Contractor may be required to report case level detail of
third-party collections and cost avoidance, including number of referrals on
total plan cases. In addition, upon AHCCCSA's request, the Contractor shall
provide an electronic extract of the Casualty cases, including open and closed
cases. Data elements include, but are not limited to: the member's first and
last name; AHCCCS ID; date of incident; claimed amount; paid/recovered amount;
and case status. The AHCCCSA TPL Section shall provide the format and reporting
schedule for this information to the Contractor. The Contractor shall notify
AHCCCSA's authorized representative within five working days of the
identification of a third-party liability case with reinsurance. Failure to
report reinsurance cases may result in one of the remedies specified in
Paragraph 60 (Sanctions) of Section D. The Contractor shall communicate any
known change in health insurance information, including Medicare, to AHCCCS
Administration, Division of Member Services, not later than 10 days from the
date of discovery using the AHCCCS Third-Party Coverage Form found in the
Bidder's Library.

AHCCCSA will provide the Contractor, on an agreed upon schedule, with a complete
file of all third-party coverage information (other than Medicare) for the
purpose of updating the Contractor's files. The Contractor shall notify AHCCCSA
of any known changes in coverage within deadlines and in a format prescribed by
AHCCCSA.

TITLE XXI (KIDSCARE): Eligibility for KidsCare benefits requires that the
applicant/member not be enrolled with or entitled to any other health insurance
benefits. If the Contractor becomes aware of any such potential coverage, the
Contractor shall notify AHCCCSA immediately. The Contractor shall follow the
same cost avoidance and postpayment recovery practices for the KidsCare
population as it does for the Title XIX population, and shall maintain a
reporting system which allows Title XIX and KidsCare information to be reported
separately.

CONTRACT TERMINATION. Upon termination of this contract, the Contractor will
complete the existing third party liability cases or make any necessary
arrangements to transfer the cases to AHCCCSA's authorized TPL representative.

41. MEDICARE SERVICES AND COST SHARING

AHCCCS has members enrolled who are eligible for both Medicaid and Medicare.
These members are referred to as "dual eligible". Generally, Contractors are
responsible for payment of Medicare coinsurance and/or deductibles for covered
services provided to dual eligible members. However, there are different cost

                                       52
<PAGE>

sharing responsibilities that apply to dual eligible members based on a variety
of factors. The Contractor is responsible for adhering to the cost sharing
responsibilities presented in the AHCCCS Medicare Cost Sharing policy. Effective
10/1/97, the Contractor shall have no cost sharing obligation if the Medicare
payment exceeds what the Contractor would have paid for the same service of a
non-Medicare member.

42. COPAYMENTS

The Contractor is responsible for the collection of copayments from members in
accordance with AHCCCS Rule R9-22-711 and R9-31-711. Beginning 4/1/01, all
copayment amounts for MNMI's will be the same as current Title XIX copayment
amounts. The Contractor may not collect copayments for family planning and EPSDT
services.

43. RECORDS RETENTION

The Contractor shall maintain books and records relating to covered services and
expenditures including reports to AHCCCSA and working papers used in the
preparation of reports to AHCCCSA. The Contractor shall comply with all
specifications for record keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as required by AHCCCS Rules
and policies. Records shall include but not be limited to financial statements,
records relating to the quality of care, medical records, prescription files and
other records specified by AHCCCSA.

The Contractor agrees to make available at its office at all reasonable times
during the term of this contract and the period set forth in paragraphs a. and
b. below any of its records for inspection, audit or reproduction by any
authorized representative of AHCCCSA, State or federal government.

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this contract except as provided
in paragraphs a. and b. below:

If this contract is completely or partially terminated, the records relating to
the work terminated shall be preserved and made available for a period of five
years from the date of any such termination. Records which relate to grievances,
disputes, litigation or the settlement of claims arising out of the performance
of this contract, or costs and expenses of this contract to which exception has
been taken by AHCCCSA, shall be retained by the Contractor for a period of five
years after the date of final disposition or resolution thereof.

44. MEDICAL RECORDS

The member's medical record is the property of the provider who generates the
record. Each member is entitled to one copy of his or her medical record free of
charge. The Contractor shall have written policies and procedures to maintain
the confidentiality of all medical records. AHCCCSA shall be afforded access to
all members' medical records whether electronic or paper within 20 working days
of receipt of request. The Contractor is responsible for ensuring that a medical
record is established when information is received about a member. If the PCP
has not yet seen the member, such information may be kept temporarily in an
appropriately labeled file, in lieu of actually establishing a medical record,
but must be associated with the member's medical record as soon as one is
established.

The Contractor shall have written policies and procedures for the maintenance of
medical records so that those records are documented accurately and in a timely
manner, are readily accessible, and permit prompt and systematic retrieval of
information.

                                       53
<PAGE>
The Contractor shall have written standards for documentation on the medical
record for legibility, accuracy and plan of care which comply with the AMPM.

The Contractor shall have written plans for providing training and evaluating
providers' compliance with the Contractor's medical records standards. Medical
records shall be maintained in a detailed and comprehensive manner which
conforms to good professional medical practice, permits effective professional
medical review and medical audit processes, and which facilitates an adequate
system for follow-up treatment. Medical records must be legible, signed and
dated.

When a member changes PCPs, his or her medical records or copies of medical
records must be forwarded to the new PCP within 10 working days from receipt of
the request for transfer of the medical records.

AHCCCSA is not required to obtain written approval from a member before
requesting the member's medical record from the PCP or any other agency. The
Contractor may obtain a copy of a member's medical records without written
approval of the member if the reason for such request is directly related to the
administration of the AHCCCS program.

Information related to fraud and abuse may be released so long as protected
HIV-related information is not disclosed. (A.R.S. ss. 36-664I)

45. ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

The Contractor shall not, without the prior approval of AHCCCSA, make any
advances to a related party or subcontractor. The Contractor shall not, without
similar prior approval, make any distribution, loan or loan guarantee to any
entity, including another fund or line of business within its organization. All
investments, other than investments in U.S. Government securities or
Certificates of Deposit, also require AHCCCSA prior approval. (See the Reporting
Guide for Acute Care Contractors for alternatives to the prior approval of
individual investments.) All requests for prior approval are to be submitted to
the Office of Managed Care.

46. ACCUMULATED FUND DEFICIT

The Contractor and its owners shall fund any accumulated fund deficit through
capital contributions in a form acceptable to AHCCCSA within 30 days after
receipt by AHCCCSA of the final audited financial statements, or as otherwise
requested by AHCCCSA. AHCCCSA may, at its option, impose enrollment caps in any
or all GSAs as a result of an accumulated deficit, even if unaudited.

47. DATA EXCHANGE REQUIREMENT

The Contractor is authorized to exchange data with AHCCCSA relating to the
information requirements of this contract and as required to support the data
elements to be provided AHCCCSA in the format specified in the AHCCCS Technical
Interface Guidelines which is available in the Bidder's Library. The information
so recorded and submitted to AHCCCSA shall be in accordance with all procedures,
policies, rules, or statutes in effect during the term of this contract. If any
of these procedures, policies, rules, regulations or statutes are hereinafter
changed both parties agree to conform to these changes following appropriate
notification to both parties by AHCCCSA.

The Contractor is responsible for any incorrect data, delayed submission or
payment (to the Contractor or its subcontractors), and/or penalty applied due to
any error, omission, deletion, or erroneous insert caused by

                                       54
<PAGE>

Contractor-submitted data. Any data that does not meet the standards required by
AHCCCSA shall not be accepted by AHCCCSA.

The Contractor is responsible for identifying any inconsistencies immediately
upon receipt of data from AHCCCSA. If any unreported inconsistencies are
subsequently discovered, the Contractor shall be responsible for the necessary
adjustments to correct its records at its own expense.

The Contractor shall accept from AHCCCSA original evidence of eligibility and
enrollment in a form appropriate for electronic data exchange. Upon request by
AHCCCSA, the Contractor shall provide to AHCCCSA updated date-sensitive PCP
assignments in a form appropriate for electronic data exchange.

The Contractor shall be provided with a Contractor-specific security code for
use in all data transmissions made in accordance with contract requirements.
Each data transmission by the Contractor shall include the Contractor's security
code. The Contractor agrees that by use of its security code, it certifies that
any data transmitted is accurate and truthful, to the best of the Contractor's
knowledge. The Contractor further agrees to indemnify and hold harmless the
State of Arizona and AHCCCSA from any and all claims or liabilities, including
but not limited to consequential damages, reimbursements or erroneous billings
and reimbursements of attorney fees incurred as a consequence of any error,
omission, deletion or erroneous insert caused by the Contractor in the submitted
input data. Neither the State of Arizona nor AHCCCSA shall be responsible for
any incorrect or delayed payment to the Contractor's AHCCCS services providers
(subcontractors) resulting from such error, omission, deletion, or erroneous
input data caused by the Contractor in the submission of AHCCCS claims.

The publication AHCCCS Contracted Health Plan Technical Interface Guidelines
describes the specific technical and procedural requirements for interfaces
between AHCCCS and the Contractor and its subcontractors. The Contractor is
responsible for complying with all technical requirements as stated in this
manual as well as any subsequent changes to the manual. A copy may be found in
the Bidder's Library.

The costs of software changes are included in administrative costs paid to the
Contractor. There is no separate payment for software changes. A PMMIS systems
contact will be assigned after contract award. AHCCCSA will work with the health
plans as they evaluate Electronic Data Interchange options.

ELECTRONIC DATA INTERCHANGE (EDI): In addition to the requirements outlined in
Section D, Paragraph 34, Claims Payment System, the Contractor will be required
to comply with all administrative simplification provisions resulting from the
Health Insurance Portability and Accountability Act (HIPAA). The administrative
simplification section standardizes electronic transaction formats and code
sets; establishes national identifiers for providers, employers, health plans,
and individuals; and sets standards for security and privacy. Each of these
provisions will be published as one or more Final Rules in the Federal Register.
Implementation of these provisions will be required two years after the
effective date of each provision's final rule as published by the Department of
Health and Human Services.

48. ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to the success of
the AHCCCS program. AHCCCSA uses encounter data to pay reinsurance benefits, set
fee-for-service and capitation rates, determine disproportionate share payments
to hospitals, and to determine compliance with performance measures. The
Contractor shall submit encounter data to AHCCCSA for all covered services for
which the Contractor incurred a financial liability, including services provided
during prior period coverage. This requirement is a condition of the HCFA grant
award.

                                       55
<PAGE>

Encounter data must be provided to AHCCCSA by electronic media and must be
submitted in the PMMIS AHCCCSA supplied formats. Formatting and specific
requirements for encounter data are described in the AHCCCS Encounter Reporting
User Manual and the AHCCCS Technical Interface Guidelines, copies of which may
be found in the Bidder's Library. The Encounter Submission Requirements are
included herein as Attachment I.

An Encounter Submission Tracking Report must be maintained and made available to
AHCCCSA upon request. The Tracking Report's purpose is to link each claim to an
adjudicated or pended encounter returned to the Contractor. Further information
regarding the Encounter Submission Tracking Report may be found in The Encounter
User's Manual.

49. MONTHLY ROSTER RECONCILIATION

AHCCCSA produces daily roster updates identifying new members and changes to
members' demographic, eligibility and enrollment data, which the Contractor
shall use to update its member records. The daily roster which is run prior to
the monthly roster is referred to as the "last daily" and will contain all rate
code changes made for the prospective month, as well as any new enrollments and
disenrollments.

The monthly roster is generally produced two days before the end of every month.
The roster will identify the total active population for the Contractor as of
the first day of the next month. This roster contains the information used by
AHCCCSA to produce the monthly capitation payment for the next month. The
Contractor will reconcile their member files with the AHCCCS monthly roster.
After reconciling the monthly roster information, the Contractor resumes posting
daily roster updates beginning with the last two days of the month. The last two
daily rosters are different from the regular daily rosters in that they pay
and/or recoup capitation into the next month.

Refer to the AHCCCS Contracted Health Plan Technical Interface Guidelines
available in the Bidder's Library for additional information.

50. TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/97 through 9/30/98. In addition,
AHCCCSA reserves the sole option to extend the term of the contract, not to
exceed a total contracting period of five years. The terms and conditions of any
such contract extension shall remain the same as the original contract, as
amended. Any contract extension, however, shall not affect the maximum
contracting period of five years. All contract extensions shall be through
contract amendment. If, in conjunction with a contract extension, AHCCCSA elects
to increase the capitation rate for any risk category, such increase will not
exceed in aggregate the inflation rate recognized by the Arizona Legislature.

If the Contractor has been awarded a contract in more than one GSA, each such
contract will be considered separately renewable. AHCCCSA may renew the
Contractor's contract in one GSA but not in another. In addition, if the
Contractor has had significant problems of non-compliance in one GSA, it may
result in the capping of the Contractor's enrollment in another. Further,
AHCCCSA may require a contractor to renew all GSAs, or may terminate remaining
GSAs if the Contractor does not agree to renew all GSAs.

When AHCCCSA issues an amendment to extend the contract, the provisions of such
extension will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the extension amendment has not been signed by the
Contractor, unless within that time the Contractor notifies AHCCCSA in writing
that it refuses

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<PAGE>

to sign the extension amendment. If the Contractor provides such notification,
AHCCCSA will initiate contract termination proceedings.

CONTRACTOR'S NOTICE OF INTENT NOT TO RENEW: If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the Contractor
provides AHCCCSA written notice of its intent not to renew this contract at
least 180 days before its expiration, this liability for transition costs may be
waived by AHCCCSA.

51. SUBCONTRACTS

The Contractor shall be legally responsible for contract performance whether or
not subcontracts are used. No subcontract shall operate to terminate the legal
responsibility of the Contractor to assure that all activities carried out by
the subcontractor conform to the provisions of this contract. Subject to such
conditions, any function required to be provided by the Contractor pursuant to
this contract may be subcontracted to a qualified person or organization. All
such subcontracts must be in writing. See policy on claims processing by
subcontracted providers in the Bidder's Library.

All subcontracts entered into by the Contractor are subject to prior review and
approval by AHCCCSA, Contracts and Purchasing, and shall incorporate by
reference the terms and conditions of this contract. The following subcontracts
shall be submitted to AHCCCSA Contracting Office for prior approval at least 30
days prior to the beginning date of the subcontract:

a.  Automated data processing
b.  Third-party administrators
c.  Management Services (See also Section D, Paragraphs 53 & 54)
d.  Model subcontracts
e.  Capitated or other risk subcontracts requiring claims processing by the
    subcontractor must be submitted to AHCCCSA, Office of Managed Care.

The Contractor shall maintain a fully executed original of all subcontracts,
which shall be accessible to AHCCCSA within two working days of request by
AHCCCSA. A subcontract is violable and subject to immediate cancellation by
AHCCCSA in the event any subcontract pertinent to "a" through "e" above is
implemented without the prior written approval of AHCCCSA. All subcontracts
shall comply with the applicable provisions of federal and State laws,
regulations and policies.

The Contractor shall not include covenant-not-to-compete requirements in its
provider agreements. Specifically, the Contractor shall not contract with a
provider and require that the provider not provide services for any other AHCCCS
contractor.

The Contractor must enter into a written agreement with any provider the
Contractor reasonably anticipates will be providing services on its behalf more
than 25 times during the contract year. Exceptions to this requirement include
the following:

a.  If a provider who provides services more than 25 times during the contract
    year refuses to enter into a written agreement with the Contractor, the
    Contractor shall submit documentation of such refusal to AHCCCS Office of
    Managed Care within seven days of its final attempt to gain such agreement.
b.  If a provider performs emergency services such as an emergency room
    physician or an ambulance company, a written agreement is not required.

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<PAGE>

These and any other exceptions to this requirement must be approved by AHCCCS
Office of Managed Care. Each subcontract must contain verbatim all the
provisions of Attachment A, Minimum Subcontract Provisions. In addition, each
subcontract must contain the following:

a.  Full disclosure of the method and amount of compensation or other
    consideration to be received by the subcontractor.
b.  Identification of the name and address of the subcontractor.
c.  Identification of the population, to include patient capacity, to be covered
    by the subcontractor.
d.  The amount, duration and scope of medical services to be provided, and for
    which compensation will be paid.
e.  The term of the subcontract including beginning and ending dates, methods of
    extension, termination and re-negotiation.
f.  The specific duties of the subcontractor relating to coordination of
    benefits and determination of third-party liability.
g.  A provision that the subcontractor agrees to identify Medicare and other
    third-party liability coverage and to seek such Medicare or third party
    liability payment before submitting claims to the Contractor.
h.  A description of the subcontractor's patient, medical and cost record
    keeping system.
i.  Specification that the subcontractor shall cooperate with quality assurance
    programs and comply with the utilization control and review procedures
    specified in 42 CFR Part 456, as implemented by AHCCCSA.
j.  A provision stating that a merger, reorganization or change in ownership of
    a subcontractor that is related to or affiliated with the Contractor shall
    require a contract amendment and prior approval of AHCCCSA.
k.  Procedures for enrollment or re-enrollment of the covered population (may
    also refer to the Provider Manual).
l.  A provision that the subcontractor shall be fully responsible for all tax
    obligations, Worker's Compensation Insurance, and all other applicable
    insurance coverage obligations which arise under this subcontract, for
    itself and its employees, and that AHCCCSA shall have no responsibility or
    liability for any such taxes or insurance coverage.
m.  A provision that the subcontractor must obtain any necessary authorization
    from the Contractor or AHCCCSA for services provided to eligible and/or
    enrolled members.
n.  A provision that the subcontractor must comply with encounter reporting and
    claims submission requirements as described in the subcontract.

52. SPECIALTY CONTRACTS

AHCCCSA may at any time negotiate or contract on behalf of the Contractor and
AHCCCSA for specialized hospital and medical services. AHCCCSA will consider
existing Contractor resources in the development and execution of specialty
contracts. AHCCCSA may require the Contractor to modify its delivery network to
accommodate the provisions of specialty contracts. Specialty contracts shall
take precedence over and supersede existing and future subcontracts for services
that are subject to specialty contracts. AHCCCSA may consider waiving this
requirement in particular situations if such action is determined to be in the
best interest of the State; however, in no case shall reimbursement for
transplant surgery exceed that payable under the relevant AHCCCSA specialty
contract.

During the term of specialty contracts, AHCCCSA may act as an intermediary
between the Contractor and specialty contractors to enhance the cost
effectiveness of service delivery. AHCCCSA reserves the right to make direct
payments to specialty contractors on behalf of the Contractor. Adjudication of
claims related to such payments provided under specialty contracts shall remain
the responsibility of the Contractor. AHCCCSA may provide technical assistance
prior to the implementation of any specialty contracts.

AHCCCSA shall provide at least 60 days advance written notice to the Contractor
prior to the implementation of any specialty contract.

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<PAGE>

53. MANAGEMENT SERVICES SUBCONTRACTORS

All proposed management services subcontracts and/or corporate cost allocation
plans must be approved in advance by AHCCCSA Contracting Office as described in
Section D, Paragraph 51, Subcontracts. Cost allocation plans must be submitted
with the proposed management fee agreement. AHCCCSA reserves the right to
perform a thorough review of actual management fees charged and/or corporate
allocations made. If the fees or allocations actually paid out are determined to
be unjustified or excessive, amounts may be subject to repayment to the
Contractor, the Contractor may be placed on monthly financial reporting, and/or
financial sanctions may be imposed.

54. MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

All management services subcontractors that have oversight responsibilities for
the Contractor's program operations (such as third-party administrators) are
required to have an annual financial audit. A copy of this audit shall be
submitted to AHCCCSA, Office of Managed Care, within 120 days of the
subcontractor's fiscal year end. If services billed by a consultant or actuary
are less than $50,000, AHCCCSA will waive the requirement for an audit of that
consultant or actuary.

55. MINIMUM CAPITALIZATION REQUIREMENTS

In order to be considered for contract award, the Offeror must meet a minimum
capitalization requirement for each GSA bid. The capitalization requirement for
both new and continuing offerors must be met within 15 days after contract
award.

Minimum capitalization requirements by GSA are as follows:

<TABLE>
<CAPTION>
         Geographic Service Area               Capitalization Requirement
         <S>                                   <C>
         GSA #2    Yuma                                $1,400,000
         GSA #4    Mohave, La Paz                       1,150,000
         GSA #6    Yavapai, Coconino                    1,250,000
         GSA #8    Pinal, Gila                          1,450,000
         GSA #10   Pima                                 1,250,000
         GSA #12   Maricopa                             2,500,000
         GSA #14   Graham, Greenlee                       350,000
         GSA #16   Apache, Navajo                         650,000
         GSA #18   Cochise, Santa Cruz                  1,450,000
</TABLE>

NEW OFFERORS: To be considered for a contract award in a given GSA or group of
GSAs, a new offeror must meet the minimum capitalization requirements listed
above. The capitalization requirement is subject to a $5,000,000 ceiling
regardless of the number of GSAs awarded. This requirement is in addition to the
Performance Bond requirements defined in Paragraphs 56 and 57 below and must be
met with cash with no encumbrances, such as a loan subject to repayment. The
capitalization requirements may be applied toward meeting the equity per member
requirement (see Section D, Paragraph 58, Financial Viability Criteria) and is
intended for use in operations of the Contractor.

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<PAGE>

CONTINUING OFFERORS: Continuing offerors that are bidding a county or GSA that
they are currently servicing must meet the equity per member standard (see
Section D, Paragraph 58, Financial Viability Criteria) for their current
membership. Continuing offerors that do not meet the equity standard must fund
through capital contribution the necessary amount to meet this requirement.
Continuing offerors that are bidding a new GSA must provide the additional
capitalization for the new GSA they are bidding. (See the table of requirements
by GSA above). Continuing offerors will not be required to provide additional
capitalization if they currently meet the equity per member standard with their
existing membership and their excess equity is sufficient to cover the proposed
additional members, or they have at least $5,000,000 in equity.

56. PERFORMANCE BOND OR BOND SUBSTITUTE

The Contractor shall be required to provide a performance bond of standard
commercial scope issued by a surety company doing business in this State, an
irrevocable letter of credit, or a cash deposit ("Performance Bond") to AHCCCSA
for as long as the Contractor has AHCCCS-related liabilities of $50,000 or more
outstanding, or 15 months following the effective date of this contract,
whichever is later, to guarantee: (1) payment of the Contractor's obligations to
providers, non-contracting providers, and non-providers; and (2) performance by
the Contractor of its obligations under this contract. The Performance Bond
shall be in a form acceptable to AHCCCSA as described in the AHCCCS Performance
Bond policy available in the Office of Managed Care.

In the event of a default by the Contractor, AHCCCSA shall, in addition to any
other remedies it may have under this contract, obtain payment under the
Performance Bond or substitute security for the purposes of the following:

a. Paying any damages sustained by providers, non-contracting providers and
nonproviders by reason of a breach of the Contractor's obligations under this
contract,

b.  Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of
the Contractor, and

c.  Reimbursing AHCCCSA for any extraordinary administrative
expenses incurred by reason of a breach of the Contractor's obligations under
this contract, including, but not limited to, expenses incurred after
termination of this contract for reasons other than the convenience of the State
by AHCCCSA.

In the event AHCCCSA agrees to accept substitute security in lieu of the
Performance Bond, irrevocable letter of credit or cash deposit, the Contractor
agrees to execute any and all documents and perform any and all acts necessary
to secure and enforce AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and necessary UCC filings
pursuant to the Arizona Uniform Commercial Code. In the event such substitute
security is agreed to and accepted by AHCCCSA, the Contractor acknowledges that
it has granted AHCCCSA a security interest in such substitute security to secure
performance of its obligations under this contract. The Contractor is solely
responsible for establishing the credit-worthiness of all forms of substitute
security. AHCCCSA may, after written notice to the Contractor, withdraw its
permission for substitute security, in which case the Contractor shall provide
AHCCCSA with a form of security described above. The Contractor may not change
the amount, duration or scope of the performance bond without prior written
approval from AHCCCSA, Office of Managed Care.

The Contractor shall not leverage the bond for another loan or create other
creditors using the bond as security.

57. AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110% of the total
capitation payment expected to be paid in the month of October 1997, or as
determined by AHCCCSA. The total capitation amount shall include SOBRA
supplemental payments. This requirement must be satisfied by the Contractor not
later than 15 days after notification by AHCCCSA of the amount required.
Thereafter, AHCCCSA shall evaluate the enrollment statistics of the Contractor
on a monthly basis. If there is an increase in capitation payment that

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<PAGE>

exceeds 10% of the performance bond amount, AHCCCSA may require an increase in
the amount of the Performance Bond. The Contractor shall have 15 days following
notification by AHCCCSA to increase the amount of the Performance Bond. The
Performance Bond amount that must be maintained after the contract term shall be
sufficient to cover all outstanding liabilities and will be determined by
AHCCCSA. The Contractor may not change the amount of the performance bond
without prior written approval from AHCCCSA, Office of Managed Care. Due to
increased enrollment as a result of Proposition 204, required performance bond
amounts will be reviewed for 10/1/01.

58. FINANCIAL VIABILITY CRITERIA/PERFORMANCE MEASURES

AHCCCSA has established the following financial viability criteria/performance
goals:

<TABLE>
<S>                                   <C>
CURRENT RATIO                         Current assets divided by current
                                      liabilities. "Current assets" includes any
                                      long-term investments that can be
                                      converted to cash within 24 hours without
                                      significant penalty (i.e., greater than
                                      20%).
                                      Standard: At least 1.00

EQUITY PER MEMBER                     Equity, less on-balance sheet performance
                                      bond, divided by the number of non-SOBRA
                                      Family Planning Extension Services members
                                      enrolled at the end of the period.
                                      Standard: At least $150
                                      (Failure to meet this standard may result
                                      in an enrollment cap being imposed in any
                                      or all contracted GSAs.)

MEDICAL EXPENSE RATIO                 Total medical expenses (net of
                                      reinsurance, TPL, HIV/AIDS Supplement)
                                      divided by total capitation + Delivery
                                      Supplement.
                                      Standard:  At least 85%

ADMINISTRATIVE COST PERCENTAGE        Total administrative expenses (excluding
                                      income taxes), divided by total capitation
                                      + Delivery Supplement + TPL + reinsurance
                                      + HIV/AIDS Supplement.
                                      Standard: No more than 10%

RECEIVED BUT UNPAID CLAIMS            Received but unpaid claims divided by the
  (DAYS OUTSTANDING)                  average daily medical expenses for the
                                      period, net of sub-capitation expense
                                      Standard: No more than 30 days
</TABLE>

59. MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

A proposed merger, reorganization or change in ownership of the Contractor
health plan shall require prior approval of AHCCCSA and a subsequent contract
amendment. The Contractor must submit a detailed merger, reorganization and/or
transition plan to AHCCCSA Contracting Office for AHCCCSA review. The purpose of
the plan review is to ensure uninterrupted services to members, evaluate the new
entity's ability to support the provider network, ensure that services to
members are not diminished and that major components of the organization and
AHCCCS programs are not adversely affected by such merger, reorganization or
change in ownership.

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<PAGE>

60. SANCTIONS

AHCCCSA may impose sanctions, suspend, deny, refuse to renew, or terminate this
contract or any related subcontracts in accordance with AHCCCS Rules R9-22-405
and 406 and R9-31-405 and 406 and the terms of this contract and applicable
federal or State law and regulations. Written notice will be provided to the
Contractor specifying the sanction to be imposed, the grounds for such sanction
and either the length of suspension or the amount of capitation prepayment to be
withheld. The Contractor may appeal the decision to impose a sanction in
accordance with AHCCCS Rule R9-22-804.

In addition to the above remedies, AHCCCSA may, at its option, impose partial or
full enrollment caps on the Contractor. Among the contract violations that may
result in an enrollment cap are, but are not limited to, the following:

a.  Marketing violations
b.  Failure to meet AHCCCS financial viability standards
c.  Material deficiency in the Contractor's provider network
d.  Quality of care and quality management issues
e.  Failure to meet AHCCCS encounter standards

CURE NOTICE PROCESS - Prior to the imposition of a sanction for non-compliance,
AHCCCSA may provide a written cure notice to the Contractor regarding the
details of the non-compliance. The cure notice will specify the period of time
during which the Contractor must bring its performance back into compliance with
contract requirements. If, at the end of the specified time period, the
Contractor has complied with the cure notice requirements, AHCCCSA will take no
further action. If, however, the Contractor has not complied with the cure
notice requirements, AHCCCSA will proceed with the imposition of sanctions.

61. AUTO-ASSIGNMENT ALGORITHM

Members who do not have the right to choose a contractor or members who have the
right to choose but do not exercise this right, are assigned to contractors
through an auto-assignment algorithm. The algorithm is a mathematical formula
used to distribute members to the various contractors in a manner that is
predictable and consistent with AHCCCSA goals. The algorithm favors those
contractors with lower capitation rates. For further details on the AHCCCS
Auto-Assignment Algorithm, refer to Attachment G. AHCCCSA may change the
algorithm at any time during the term of the contract and frequently does so in
response to contractor-specific issues of non-compliance (e.g. imposition of an
enrollment cap). The Contractor should consider this in preparing its response
to this RFP. AHCCCSA is not obligated to adjust for any financial impacts this
may have on the Contractor.

62. GRIEVANCE PROCESS AND STANDARDS

The Contractor shall have in place a written grievance policy for members and
providers, which defines their rights regarding any adverse action by the
Contractor. This written policy shall be in accordance with applicable federal
and State law and AHCCCS Rules and policy including, but not limited to, AHCCCS
Rules R9-22-512; R9-22-518(A); R9-22, Article 8 and R9-31, Article 8 , the
Alternate Resolution Process and the Members Rights and Responsibilities. The
grievance process may not be delegated or subcontracted outside of the health
plan. Refer to Attachment H for a complete description of grievance process
requirements.

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<PAGE>

63. QUARTERLY GRIEVANCE REPORT

The Contractor shall submit a Quarterly Grievance Report to AHCCCSA, Office of
Legal Assistance, using the Quarterly Grievance Report Format on file in the
Bidder's Library. The Quarterly Grievance Report must be received by the
AHCCCSA, Office of Legal Assistance, no later than 45 days from the end of the
quarter.

64. KIDSCARE

On November 1, 1998, AHCCCSA implemented a Title XXI Children's Health Insurance
Program, referred to as "KidsCare". KidsCare provides health care coverage
statewide to eligible children under age 19 and is provided through the existing
AHCCCS health plans, state employee HMOs that elect to participate at the
beginning of a contract cycle, and tribal facilities or Indian Health Service
for Native Americans who elect to receive services through them. Services will
also be directly provided by participating community health clinics and
hospitals, which predominantly serve low income children.

The KidsCare service package is established by the legislature and approved by
HCFA through the State Plan. Services, limitations and exclusions are described
in Section D, Paragraph 1, Scope of Services. Capitation rates payable to the
Contractor for KidsCare members will be set by AHCCCSA in conjunction with an
independent actuary.

Effective October 1, 1999, KidsCare members in families with gross household
income over 150% and up to 200% of the federal poverty limit shall pay a premium
to AHCCCSA. The premium amount shall be based on the number of members in the
household and the gross family income in accordance with 9 A.A.C., Article 14.

TITLE XXI PARENT/GUARDIAN HEALTH INSURANCE COVERAGE: A.R.S. ss.36.2984 mandates
that the Contractor offer health insurance coverage to the parent(s) or legal
guardian(s) of a child who is eligible for Title XXI. The Contractor shall
establish rates for this coverage, which must be approved by AHCCCSA, Office of
Managed Care, prior to implementation. Title XXI funds or any other federal or
state funds shall not be used to subsidize family coverage. The full cost of the
premium shall be paid by the parent or legal guardian who elects this coverage.
The Contractor may include provisions for pre-existing conditions and any other
medical underwriting considerations that are necessary to protect it from
adverse risk. For further information, refer to the Title XXI Parent/Guardian
Health Insurance Coverage Guidelines on file in the Bidder's Library.

65. PENDING LEGISLATIVE ISSUES

In addition to the requirements described in this RFP, there are several
legislative issues that could have an impact on services provided by the
Contractor on or after October 1, 2000. The following is a brief description of
the issues that AHCCCS is aware of at the time of the issuance of this renewal
amendment:

ELIGIBILITY BASED ON 100% OF THE FEDERAL POVERTY LEVEL (FPL): Through a
successful initiative effort, eligibility for AHCCCS has been expanded to allow
persons with income up to 100% of the FPL to become eligible for the Medicaid
program. Some legislative action will be required to fully implement this new
eligibility guideline. In January 2001, HCFA approved the waiver to federally
fund members eligible due to Proposition 204.

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<PAGE>

66. SEPARATE INCORPORATION

As specified in A.R.S. ss. 36-2906.01, within 60 days of contract award, a
non-governmental Contractor shall have established a separate corporation for
the purposes of this contract, whose sole activity is the performance of
contract function with AHCCCS.

67. CULTURAL COMPETENCY

The Contractor shall have a Cultural Competency Plan that meets the requirements
of the AHCCCS Cultural Competency Policy. The Contractor must identify a staff
member responsible for the cultural competency plan and inform the office of
Managed Care of that person's identity.

68. MEDICAID IN THE PUBLIC SCHOOLS

Pursuant to an Intergovernmental Agreement with the Arizona Department of
Education, AHCCCS will begin paying participating school districts for
specifically identified Medicaid services provided to Medicaid eligible children
with special educational needs. The Medicaid service shall be identified in a
child's Individualized Education Plan (IEP) as a medically necessary service. In
the first phase, AHCCCS shall directly reimburse school districts for speech,
physical, occupational therapies, and behavioral health services with dates of
service beginning July 1, 2000. The Administration's intent is to add other
Medicaid reimbursable services in the future.

To ensure that there is coordination of care, the Administration shall require
that a participating school district notify the primary care provider that
Medicaid services are being provided to the child in a school-based setting. If
a child is enrolled with the Contractor and a request is made for a school-based
Medicaid covered service, the Contractor shall evaluate the request on the same
basis as any request for a covered service. The determination to provide the
service shall include consideration of whether the school-based services are
sufficient to meet the child's needs.

69. PROPOSITION 204 AND HCFA WAIVER

The passage of Proposition 204 in November of 2000, and the subsequent HCFA
waiver that raises the Medicaid eligibility limit to 100% Federal Poverty Level
for all populations has multiple effects on the program. The most significant
changes to AHCCCS acute care contractors are described below.

MNMI POPULATION

-   Beginning 4/1/01, the MNMI population will no longer be funded solely with
    state dollars. The program will be Federally funded under Medicaid through
    the Title XIX Waiver. However, until 10/1/01, the enrollment and eligibility
    determination processes will not change.

-   Length of eligibility.

    -   For members enrolled as of 4/01/01.

        -   Non-spend down MNMI's will have twelve months of eligibility.
        -   Spend-down MNMI's will continue to have six months of eligibility.

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<PAGE>

    -   For members enrolled on or after 4/01/01.

        -   Non-spend down MNMI's will have open ended enrollment.
        -   Spend-down MNMI's will continue to have up to six months of
            enrollment.

-   Beginning 4/1/01, the service package will match the current Title XIX
    service package, including

    -   Full behavioral health coverage
    -   Full coverage during the two day prior period coverage time period.

-   Beginning 10/1/01, Title XIX Waiver members will be divided into two main
    groups:

    -   MED (Medical Expense Deduction). These are people that have income above
        100% FPL that spend down to or below 40% of 2000 FPL. Generally, these
        are the current medically needy (MN) population.
    -   Adults and couples who are not categorically linked to a Title XIX
        program, and have income at or below 100% FPL. This group includes the
        current medically indigent (MI) population.

-   Beginning 10/1/01, the Title XIX Waiver group, including MED's, will get a
    six-month enrollment guarantee.

-   Beginning 10/1/01, the MED population will no longer have a two-day
    retroactive enrollment period (PPC). Their eligibility effective date will
    be the date on which they spent down. Prior period coverage will extend from
    the date that AHCCCSA is notified that the member spent down, to the date of
    spend down. Often notification to AHCCCSA and spend down will occur on the
    same day.

-   Beginning 10/1/01, Non-MED Title XIX Waiver members' retroactive enrollment
    rules will follow the current Title XIX retroactive enrollment rules.

NEW POPULATIONS

-   See paragraph 6, Enrollment and Disenrollment, for population timelines.

REIMBURSEMENT

-   Reinsurance deductibles will not change between 4/1/01 and 10/1/01. They
    will be reviewed during normal contract renewal during the summer of 2001.

-   AHCCCSA reserves the right to make prospective capitation rate adjustments
    if increased enrollment affects the actuarial soundness of the rates.

[END OF SECTION D]

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<PAGE>

SECTION E: CONTRACT CLAUSES

1) APPLICABLE LAW

ARIZONA LAW - The law of Arizona applies to this contract
including, where applicable, the Uniform Commercial Code, as adopted in the
State of Arizona.

IMPLIED CONTRACT TERMS - Each provision of law and any terms required by law to
be in this contract are a part of this contract as if fully stated in it. 2)

2) AUTHORITY

This contract is issued under the authority of the Contracting Officer who
signed this contract. Changes to the contract, including the addition of work or
materials, the revision of payment terms, or the substitution of work or
materials, directed by an unauthorized state employee or made unilaterally by
the Contractor are violations of the contract and of applicable law. Such
changes, including unauthorized written contract amendments, shall be void and
without effect, and the Contractor shall not be entitled to any claim under this
contract based on those changes.

3) ORDER OF PRECEDENCE

The parties to this contract shall be bound by all terms and conditions
contained herein. For interpreting such terms and conditions the following
sources shall have precedence in descending order: The Constitution and laws of
the United States and applicable federal regulations; the terms of the HCFA 1115
waiver for the State of Arizona; the Constitution and laws of Arizona, and
applicable State rules; the terms of this contract, including all attachments
and executed amendments and modifications; AHCCCSA policies and procedures.

4) CONTRACT INTERPRETATION AND AMENDMENT

NO PAROL EVIDENCE - This contract is intended by the parties as a final and
complete expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term used in
this contract.

NO WAIVER - Either party's failure to insist on strict performance of any term
or condition of the contract shall not be deemed a waiver of that term or
condition even if the party accepting or acquiescing in the non-conforming
performance knows of the nature of the performance and fails to object to it.

WRITTEN CONTRACT AMENDMENTS - The contract shall be modified only through a
written contract amendment within the scope of the contract signed by the
procurement officer on behalf of the State.

5) SEVERABILITY

The provisions of this contract are severable to the extent that any provision
or application held to be invalid shall not affect any other provision or
application of the contract, which may remain in effect without the invalid
provision, or application.

6) RELATIONSHIP OF PARTIES

The Contractor under this contract is an independent contractor. Neither party
to this contract shall be deemed to be the employee or agent of the other party
to the contract.

7) ASSIGNMENT AND DELEGATION

The Contractor shall not assign any right nor delegate any duty under this
contract without prior written approval of the Contracting Officer, who will not
unreasonably withhold such approval.

8) GENERAL INDEMNIFICATION

The Contractor shall defend, indemnify and hold harmless the State from any
claim, demand, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation) arising out of or relating to

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<PAGE>

injury, disease, or death of persons or damage to or loss of property resulting
from or in connection with the negligent performance of this contract by the
Contractor, its agents, employees, and subcontractors or anyone for whom the
Contractor may be responsible. The obligations, indemnities and liabilities
assumed by the Contractor under this paragraph shall not extend to any liability
caused by the negligence of the State or its employees. The Contractor's
liability shall not be limited by any provisions or limits of insurance set
forth in this contract. The State shall reasonably notify the Contractor of any
claim for which it may be liable under this paragraph.

 9) INDEMNIFICATION -- PATENT AND COPYRIGHT

The Contractor shall defend, indemnify and hold harmless the State against any
liability including costs and expenses for infringement of any patent, trademark
or copyright arising out of contract performance or use by the State of
materials furnished or work performed under this contract. The State shall
reasonably notify the Contractor of any claim for which it may be liable under
this paragraph.

10) COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS

The materials and services supplied under this contract shall comply with all
applicable federal, state and local laws, and the Contractor shall maintain all
applicable licenses and permits.

11) ADVERTISING AND PROMOTION OF CONTRACT

The Contractor shall not advertise or publish information for commercial benefit
concerning this contract without the prior written approval of the Contracting
Officer.

12) PROPERTY OF THE STATE

Any materials, including reports, computer programs and other deliverables,
created under this contract are the sole property of AHCCCSA. The Contractor is
not entitled to a patent or copyright on those materials and may not transfer
the patent or copyright to anyone else. The Contractor shall not use or release
these materials without the prior written consent of AHCCCSA.

13) THIRD PARTY ANTITRUST VIOLATIONS

The Contractor assigns to the State any claim for overcharges resulting from
antitrust violations to the extent that those violations concern materials or
services supplied by third parties to the Contractor toward fulfillment of this
contract.

14) RIGHT TO ASSURANCE

If AHCCCSA, in good faith, has reason to believe that the Contractor does not
intend to perform or continue performing this contract, the procurement officer
may demand in writing that the Contractor give a written assurance of intent to
perform. The demand shall be sent to the Contractor by certified mail, return
receipt required. Failure by the Contractor to provide written assurance within
the number of days specified in the demand may, at the State's option, be the
basis for terminating the contract.

15) TERMINATION FOR CONFLICT OF INTEREST

AHCCCSA may cancel this contract without penalty or further obligation if any
person significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of AHCCCSA is, or becomes at any time while the
contract or any extension of the contract is in effect, an employee of, or a
consultant to, any other party to this contract with respect to the subject
matter of the contract. The cancellation shall be effective when the Contractor
receives written notice of the cancellation unless the notice specifies a later
time.

16) GRATUITIES

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that employment or a gratuity was offered or made by
the Contractor or a representative of the Contractor to any officer or employee
of the State for the purpose of influencing the outcome of the procurement or
securing the contract, an amendment to the contract, or favorable treatment
concerning the contract, including the making of any determination or decision
about contract performance. AHCCCSA, in addition to any other rights or

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remedies, shall be entitled to recover exemplary damages in the amount of three
times the value of the gratuity offered by the Contractor.

17) SUSPENSION OR DEBARMENT

The Contractor shall not employ, consult, subcontract or enter into any
agreement for Title XIX services with any person or entity who is debarred,
suspended or otherwise excluded from federal procurement activity. This
prohibition extends to any entity which employs, consults, subcontracts with or
otherwise reimburses for services any person substantially involved in the
management of another entity which is debarred, suspended or otherwise excluded
from federal procurement activity.

The Contractor shall not retain as a director, officer, partner or owner of 5%
or more of the Contractor entity, any person, or affiliate of such a person, who
is debarred, suspended or otherwise excluded from federal procurement activity.

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that the Contractor has been debarred, suspended or
otherwise lawfully prohibited from participating in any public procurement
activity.

18) TERMINATION FOR CONVENIENCE

AHCCCSA reserves the right to terminate the contract in whole or in part at any
time for the convenience of the State without penalty or recourse. The
Contracting Officer shall give written notice by certified mail, return receipt
requested, to the Contractor of the termination at least 90 days before the
effective date of the termination. In the event of termination under this
paragraph, all documents, data and reports prepared by the Contractor under the
contract shall become the property of and be delivered to AHCCCSA. The
Contractor shall be entitled to receive just and equitable compensation for work
in progress, work completed and materials accepted before the effective date of
the termination.

19) TERMINATION FOR DEFAULT

AHCCCSA reserves the right to terminate this contract in whole or in part due to
the failure of the Contractor to comply with any term or condition of the
contract or failure to take corrective action as required by AHCCCSA to comply
with the terms of the contract. If the Contractor is providing services under
more than one contract with AHCCCSA, AHCCCSA may deem unsatisfactory performance
under one contract to be cause to require the Contractor to provide assurance of
performance under any and all other contracts. In such situations, AHCCCSA
reserves the right to seek remedies under both actual and anticipatory breaches
of contract if adequate assurance of performance is not received. The
Contracting Officer shall mail written notice of the termination and the
reason(s) for it to the Contractor by certified mail, return receipt requested.

In the event the Contractor requests a hearing prior to termination, AHCCCSA is
required by the Balanced Budget Act of 1997 to oversee the operation of the
Contractor entity through appointment of temporary management prior to the
hearing.

Upon termination under this paragraph, all documents, data, and reports prepared
by the Contractor under the contract shall become the property of and be
delivered to AHCCCSA on demand.

AHCCCSA may, upon termination of this contract, procure, on terms and in the
manner that it deems appropriate, materials or services to replace those under
this contract. The Contractor shall be liable for any excess costs incurred by
AHCCCSA in re-procuring the materials or services.

20) TERMINATION - AVAILABILITY OF FUNDS

Funds are not presently available for performance under this contract beyond the
current fiscal year. No legal liability on the part of AHCCCSA for any payment
may arise under this contract until funds are made available for performance of
this contract.

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21) RIGHT OF OFFSET

AHCCCSA shall be entitled to offset against any amounts due the Contractor any
expenses or costs incurred by AHCCCSA concerning the Contractor's non-conforming
performance or failure to perform the contract.

22) NON-EXCLUSIVE REMEDIES

The rights and the remedies of AHCCCSA under this contract are not exclusive.

23) NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 99-4, which mandates
that all persons, regardless of race, color, religion, sex, national origin or
political affiliation, shall have equal access to employment opportunities, and
all other applicable federal and state laws, rules and regulations, including
the Americans with Disabilities Act. The Contractor shall take positive action
to ensure that applicants for employment, employees, and persons to whom it
provides service are not discriminated against due to race, creed, color,
religion, sex, national origin or disability.

24) EFFECTIVE DATE

The effective date of this contract shall be the date that the Contracting
Officer signs the award page (page 1) of this contract.

25) INSURANCE

A certificate of insurance naming the State of Arizona and AHCCCSA as the
"additional insured" must be submitted to AHCCCSA within 10 days of notification
of contract award and prior to commencement of any services under this contract.
This insurance shall be provided by carriers rated as "A+" or higher by the A.M.
Best Rating Service. The following types and levels of insurance coverage are
required for this contract:

a.  Commercial General Liability: Provides coverage of at least $1,000,000 for
    each occurrence for bodily injury and property damage to others as a result
    of accidents on the premises of or as the result of operations of the
    Contractor.

b.  Commercial Automobile Liability: Provides coverage of at least $1,000,000
    for each occurrence for bodily injury and property damage to others
    resulting from accidents caused by vehicles operated by the Contractor.

c.  Workers Compensation: Provides coverage to employees of the Contractor for
    injuries sustained in the course of their employment. Coverage must meet the
    obligations imposed by federal and state statutes and must also include
    Employer's Liability minimum coverage of $100,000. Evidence of qualified
    self-insured status will also be considered.

d.  Professional Liability (if applicable): Provides coverage for alleged
    professional misconduct or lack of ordinary skills in the performance of a
    professional act of service.

The above coverages may be evidenced by either one of the following:

a.  The State of Arizona Certificate of Insurance: This is a form with the
    special conditions required by the contract already pre-printed on the form.
    The Contractor's agent or broker must fill in the pertinent policy
    information and ensure the required special conditions are included in the
    Contractor's policy.

b.  The Accord form: This standard insurance industry certificate of insurance
    does not contain the pre-printed special conditions required by this
    contract. These conditions must be entered on the certificate by the agent
    or broker and read as follows:

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     The State of Arizona and Arizona Health Care Cost Containment System are
     hereby added as additional insureds. Coverages afforded under this
     Certificate shall be primary and any insurance carried by the State or any
     of its agencies, boards, departments or commissions shall be in excess of
     that provided by the insured Contractor. No policy shall expire, be
     canceled or materially changed without 30 days written notice to the State.
     This Certificate is not valid unless countersigned by an authorized
     representative of the insurance company.

26) DISPUTES

The exclusive manner for the Contractor to assert any claim, grievance, dispute
or demand against AHCCCSA shall be in accordance with AHCCCS Rule R9-28-804(C).
Pending the final resolution of any disputes involving this contract, the
Contractor shall proceed with performance of this contract in accordance with
AHCCCSA's instructions, unless AHCCCSA specifically, in writing, requests
termination or a temporary suspension of performance.

27) RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS

AHCCCSA may, at reasonable times, inspect the part of the plant or place of
business of the Contractor or subcontractor that is related to the performance
of this contract, in accordance with A.R.S. ss.41-2547.

28) INCORPORATION BY REFERENCE

This solicitation and all attachments and amendments, the Contractor's proposal,
best and final offer accepted by AHCCCSA, and any approved subcontracts are
hereby incorporated by reference into the contract.

29) COVENANT AGAINST CONTINGENT FEES

The Contractor warrants that no person or agency has been employed or retained
to solicit or secure this contract upon an agreement or understanding for a
commission, percentage, brokerage or contingent fee. For violation of this
warranty, AHCCCSA shall have the right to annul this contract without liability.

30) CHANGES

AHCCCSA may at any time, by written notice to the Contractor, make changes
within the general scope of this contract. If any such change causes an increase
or decrease in the cost of, or the time required for, performance of any part of
the work under this contract, the Contractor may assert its right to an
adjustment in compensation paid under this contract. The Contractor must assert
its right to such adjustment within 30 days from the date of receipt of the
change notice. Any dispute or disagreement caused by such notice shall
constitute a dispute within the meaning of Section E, Paragraph 26, Disputes,
and be administered accordingly.

When AHCCCSA issues an amendment to modify the contract, the provisions of such
amendment will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the amendment has not been signed by the Contractor, unless
within that time the Contractor notifies AHCCCSA in writing that it refuses to
sign the amendment. If the Contractor provides such notification, AHCCCSA will
initiate termination proceedings.

31) TYPE OF CONTRACT

Firm Fixed-Price

32) AMERICANS WITH DISABILITIES ACT

People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling Michael Veit at (602) 417-4762.

33) WARRANTY OF SERVICES

The Contractor warrants that all services provided under this contract will
conform to the requirements stated herein. AHCCCSA's acceptance of services
provided by the Contractor shall not relieve the Contractor from its obligations
under this warranty. In addition to its other remedies, AHCCCSA may, at the
Contractor's

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expense, require prompt correction of any services failing to meet the
Contractor's warranty herein. Services corrected by the Contractor shall be
subject to all of the provisions of this contract in the manner and to the same
extent as the services originally furnished.

34) NO GUARANTEED QUANTITIES

AHCCCSA does not guarantee the Contractor any minimum or maximum quantity of
services or goods to be provided under this contract.

35) CONFLICT OF INTEREST

The Contractor shall not undertake any work that represents a potential conflict
of interest, or which is not in the best interest of AHCCCSA or the State
without prior written approval by AHCCCSA. The Contractor shall fully and
completely disclose any situation that may present a conflict of interest. If
the Contractor is now performing or elects to perform during the term of this
contract any services for any AHCCCS health plan, provider or Contractor or an
entity owning or controlling same, the Contractor shall disclose this
relationship prior to accepting any assignment involving such party.

36) DISCLOSURE OF CONFIDENTIAL INFORMATION

The Contractor shall not, without prior written approval from AHCCCSA, either
during or after the performance of the services required by this contract, use,
other than for such performance, or disclose to any person other than AHCCCSA
personnel with a need to know, any information, data, material, or exhibits
created, developed, produced, or otherwise obtained during the course of the
work required by this contract. This nondisclosure requirement shall also
pertain to any information contained in reports, documents, or other records
furnished to the Contractor by AHCCCSA.

37) COOPERATION WITH OTHER CONTRACTORS

AHCCCSA may award other contracts for additional work related to this contract
and Contractor shall fully cooperate with such other contractors and AHCCCSA
employees or designated agents, and carefully fit its own work to such other
contractors' work. Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor or by AHCCCSA
employees.

38) ASSIGNMENT OF CONTRACT AND BANKRUPTCY

This contract is voidable and subject to immediate cancellation by AHCCCSA upon
Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or assigning rights or obligations
under this contract without the prior written consent of AHCCCSA.

39) OWNERSHIP OF INFORMATION AND DATA

Any data or information system, including all software, documentation and
manuals, developed by Contractor pursuant to this contract, shall be deemed to
be owned by AHCCCSA. The federal government reserves a royalty-free,
nonexclusive, and irrevocable license to reproduce, publish, or otherwise use
and to authorize others to use for federal government purposes, such data or
information system, software, documentation and manuals. Proprietary software
which is provided at established catalog or market prices and sold or leased to
the general public shall not be subject to the ownership or licensing provisions
of this section.

Data, information and reports collected or prepared by Contractor in the course
of performing its duties and obligations under this contract shall be deemed to
be owned by AHCCCSA. The ownership provision is in consideration of Contractor's
use of public funds in collecting or preparing such data, information and
reports. These items shall not be used by Contractor for any independent project
of Contractor or publicized by Contractor without the prior written permission
of AHCCCSA. Subject to applicable state and federal laws and regulations,
AHCCCSA shall have full and complete rights to reproduce, duplicate, disclose
and otherwise use all such information. At the termination of the contract,
Contractor shall make available all such data to AHCCCSA within 30 days
following termination of the contract or such longer period as approved by

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AHCCCSA, Office of the Director. For purposes of this subsection, the term
"data" shall not include member medical records.

Except as otherwise provided in this section, if any copyrightable or patentable
material is developed by Contractor in the course of performance of this
contract, the federal government, AHCCCSA and the State of Arizona shall have a
royalty-free, nonexclusive, and irrevocable right to reproduce, publish, or
otherwise use, and to authorize others to use, the work for state or federal
government purposes. Contractor shall additionally be subject to the applicable
provisions of 45 CFR Part 74 and 45 CFR Parts 6 and 8.

40) AHCCCSA RIGHT TO OPERATE CONTRACTOR

If, in the judgment of AHCCCSA, Contractor's performance is in material breach
of the contract or Contractor is insolvent, AHCCCSA may directly operate
Contractor to assure delivery of care to members enrolled with Contractor until
cure by Contractor of its breach, by demonstrated financial solvency or until
the successful transition of those members to other contractors.

If AHCCCS undertakes direct operation of the Contractor, AHCCCS, through
designees appointed by the Director shall be vested with full and exclusive
power of management and control of the Contractor as necessary to ensure the
uninterrupted care to persons and accomplish the orderly transition of persons
to a new or existing Contractor, or until the Contractor corrects the Contract
Performance failure to the satisfaction of AHCCCS. AHCCCS shall have the power
to employ any necessary assistants, to execute any instrument in the name of the
Contractor, to commence, defend and conduct in its name any action or proceeding
in which the Contractor may be a party.

All reasonable expenses of AHCCCS related to the direct operation of the
Contractor, including attorney fees, cost of preliminary or other audits of the
Contractor and expenses related to the management of any office or other assets
of the Contractor, shall be paid by the Contractor or withheld from payment due
from AHCCCS to the Contractor.

41) AUDITS AND INSPECTIONS

The Contractor shall comply with all provisions specified in applicable AHCCCS
Rule R9-22-519, -520 and -521 and AHCCCS policies and procedures relating to the
audit of Contractor's records and the inspection of Contractor's facilities.
Contractor shall fully cooperate with AHCCCSA staff and allow them reasonable
access to Contractor's staff, subcontractors, members, and records.

At any time during the term of this contract, the Contractor's or any
subcontractor's books and records shall be subject to audit by AHCCCSA and,
where applicable, the federal government, to the extent that the books and
records relate to the performance of the contract or subcontracts.

AHCCCSA and the federal government may evaluate through on-site inspection or
other means, the quality, appropriateness and timeliness of services performed
under this contract.

42) FRAUD AND ABUSE

It shall be the responsibility of the Contractor to report all cases of
suspected fraud and abuse by subcontractors, members or employees. The
Contractor shall provide written notification of all such incidents to AHCCCSA.
The Contractor shall comply with the AHCCCS Health Plans and Program Contractors
Policy for Prevention, Detection and Reporting of Fraud and Abuse which is
available in the Bidder's Library and incorporated herein by reference.

As stated in A.R.S. ss. 13-2310, incorporated herein by reference, any person
who knowingly obtains any benefit by means of false or fraudulent pretenses,
representations, promises or material omissions is guilty of a class 2 felony.

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<PAGE>

Contractors are required to research potential overpayments identified by a
fraud and abuse investigation or audit conducted by AHCCCSA. After conducting a
cost benefit analysis to determine if such action is warranted, the Contractor
should attempt to recover any overpayments identified due to erroneous, false or
fraudulent billings.

43) LOBBYING

No funds paid to the Contractor by AHCCCSA, or interest earned thereon, shall be
used for the purpose of influencing or attempting to influence an officer or
employee of any federal or State agency, a member of the United States Congress
or State Legislature, an officer or employee of a member of the United States
Congress or State Legislature in connection with awarding of any federal or
State contract, the making of any federal or State grant, the making of any
federal or State loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment or modification of any federal or
State contract, grant, loan, or cooperative agreement. The Contractor shall
disclose if any funds other than those paid to the Contractor by AHCCCSA have
been used or will be used to influence the persons and entities indicated above
and will assist AHCCCSA in making such disclosures to HCFA.

44) CHOICE OF FORUM

The parties agree that jurisdiction over any action arising out of or relating
to this contract shall be brought or filed in a court of competent jurisdiction
located in the State of Arizona.

[END OF SECTION E]

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ATTACHMENT A                                           CONTRACT/RFP NO. YH8-0001

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS

[The following provisions must be included verbatim in every subcontract.]

1) EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES

The Arizona Health Care Cost Containment System Administration (AHCCCSA) or the
U.S. Department of Health and Human Services may evaluate, through inspection or
other means, the quality, appropriateness or timeliness of services performed
under this subcontract.

2) RECORDS AND REPORTS

The Contractor shall maintain all forms, records, reports and working papers
used in the preparation of reports, files, correspondence, financial statements,
records relating to quality of care, medical records, prescription files,
statistical information and other records specified by AHCCCSA for purposes of
audit and program management. The Contractor shall comply with all
specifications for record-keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as shall properly reflect
each service provided and all net costs, direct and indirect, of labor,
materials, equipment, supplies and services, and other costs and expenses of
whatever nature for which payment is made to the Contractor. Such material shall
be subject to inspection and copying by the state, AHCCCSA and the U.S.
Department of Health and Human Services during normal business hours at the
place of business of the person or organization maintaining the records.

The Contractor agrees to make available at the office of the Contractor, at all
times reasonable times, any of its records for inspection, audit or
reproduction, by any authorized representative of the state or federal
governments.

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this subcontract except as
provided in paragraphs a. and b. below:

a.       If this subcontract is completely or partially terminated, the records
         relating to the work terminated shall be preserved and made available
         for a period of five years from the date of any such termination.

b.       Records which relate to disputes, litigation or the settlement of
         claims arising out of the performance of this subcontract, or costs and
         expenses of this subcontract to which exception has been taken by the
         state, shall be retained by the Contractor until such disputes,
         litigation, claims or exceptions have been disposed of.

The Contractor shall provide all reports requested by AHCCCSA, and all
information from records relating to the performance of the Contractor which
AHCCCSA may reasonably require. The Contractor reporting requirements may
include, but are not limited to, timely and detailed utilization statistics,
information and reports.

3) LIMITATIONS ON BILLING AND COLLECTION PRACTICES

The Contractor shall not bill, nor attempt to collect payment directly or
through a collection agency from a person claiming to be AHCCCS eligible without
first receiving verification from AHCCCSA that the person was ineligible for
AHCCCS on the date of service, or that services provided were not AHCCCS covered
services. This provision shall not apply to patient contributions to the cost of
services delivered by nursing homes.

4) ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES

No payment due the Contractor under this subcontract may be assigned without the
prior approval of AHCCCSA. No assignment or delegation of the duties of this
subcontract shall be valid unless prior written approval is received from
AHCCCSA.

                                      A-1
<PAGE>

5) APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS

This subcontract is subject to prior approval by AHCCCSA. The prime contractor
shall notify AHCCCSA in the event of any proposed amendment or termination
during the term hereof. Any such amendment or termination is subject to the
prior approval of AHCCCSA. Approval of the subcontract may be rescinded by the
Director of AHCCCSA for violation of federal or state laws or rules.

6) WARRANTY OF SERVICES

The Contractor, by execution of this subcontract, warrants that it has the
ability, authority, skill, expertise and capacity to perform the services
specified in this contract.

7) SUBJECTION OF SUBCONTRACT

The terms of this subcontract shall be subject to the applicable material terms
and conditions of the contract existing between the Contractor and AHCCCSA for
the provision of covered services.

8) AWARDS OF OTHER SUBCONTRACTS

AHCCCSA and/or the prime contractor may undertake or award other contracts for
additional or related work to the work performed by the Contractor and the
Contractor shall fully cooperate with such other contractors, subcontractors or
state employees. The Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor, subcontractor or
state employee.

9) INDEMNIFICATION BY CONTRACTOR

The Contractor agrees to hold harmless the state, all state officers and
employees, AHCCCSA and other appropriate state agencies, and all officers and
employees of AHCCCSA and all AHCCCS eligible persons in the event of nonpayment
to the Contractor. The Contractor shall further indemnify and hold harmless the
state, AHCCCSA, other appropriate state agencies, AHCCCS contractors, and their
agents, officers and employees against all injuries, deaths, losses, damages,
claims, suits, liabilities, judgments, costs and expenses which may, in any
manner, accrue against the State, AHCCCSA or its agents, officers or employees,
or AHCCCS contractors, through the intentional conduct, negligence or omission
of the Contractor, its agent, officers or employees.

10) MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES

The Contractor shall be registered with AHCCCSA and shall obtain and maintain
all licenses, permits and authority necessary to do business and render service
under this subcontract and, where applicable, shall comply with all laws
regarding safety, unemployment insurance, disability insurance and worker's
compensation.

11) COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS

The Contractor shall comply with all federal, State and local laws, rules,
regulations, standards and executive orders governing performance of duties
under this subcontract, without limitation to those designated within this
subcontract.

12) SEVERABILITY

If any provision of these standard subcontract terms and conditions is held
invalid or unenforceable, the remaining provisions shall continue valid and
enforceable to the full extent permitted by law.

13) VOIDABILITY OF SUBCONTRACT

This subcontract is voidable and subject to immediate termination by AHCCCSA
upon the Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or upon assignment or delegation of
the subcontract without AHCCCSA's prior written approval.

14) CONFIDENTIALITY REQUIREMENT

Confidential information shall be safeguarded pursuant to 42 CFR Part 431,
Subpart F, A.R.S. ss.36-107, 36-2903, 41-1959 and 46-135, and AHCCCS and/or
ALTCS Rules.

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<PAGE>

15) GRIEVANCE AND REQUEST FOR HEARING PROCEDURES

Any grievance and request for hearings filed by the Contractor shall be
adjudicated in accordance with AHCCCS Rules.

16) TERMINATION OF SUBCONTRACT

AHCCCSA may, by written notice to the Contractor, terminate this subcontract if
it is found, after notice and hearing by the State, that gratuities in the form
of entertainment, gifts, or otherwise were offered or given by the Contractor,
or any agent or representative of the Contractor, to any officer or employee of
the State with a view towards securing a contract or securing favorable
treatment with respect to the awarding, amending or the making of any
determinations with respect to the performance of the Contractor; provided, that
the existence of the facts upon which the state makes such findings shall be in
issue and may be reviewed in any competent court. If the subcontract is
terminated under this section, unless the prime contractor is a governmental
agency, instrumentality or subdivision thereof, AHCCCSA shall be entitled to a
penalty, in addition to any other damages to which it may be entitled by law,
and to exemplary damages in the amount of three times the cost incurred by the
Contractor in providing any such gratuities to any such officer or employee.

17) PRIOR AUTHORIZATION and UTILIZATION REVIEW

The prime contractor and Contractor shall develop, maintain and use a system for
Prior Authorization and Utilization Review which is consistent with AHCCCS Rules
and the prime contractor's policies.

18) NON-DISCRIMINATION REQUIREMENTS

If applicable, the Contractor shall comply with:

a.  The Equal Pay Act of 1963, as amended, which prohibits sex discrimination in
    the payment of wages to men and women performing substantially equal work
    under similar working conditions in the same establishment.

b.  Title VI of the Civil Rights Act of 1964, as amended, which prohibits the
    denial of benefits of, or participation in, contract services on the basis
    of race, color, or national origin.

c.  Title VII of the Civil Rights Act of 1964, as amended which prohibits
    private employers, state and local governments, and educational institutions
    from discriminating against their employees and job applicants on the basis
    of race, religion, color, sex, or national origin.

d.  Title I of the Americans with Disabilities Act of 1990, as amended, which
    prohibits private employers and state and local governments from
    discriminating against job applicants and employees on the basis of
    disability.

e.  The Civil Rights Act of 1991, which reverses in whole or in part, several
    recent Supreme Court decisions interpreting Title VII.

f.  The Age Discrimination in Employment Act (A.R.S. Title 41-1461, et seq.);
    which prohibits discrimination based on age.

g.  State Executive Order 99-4 and Federal Order 11246 which mandates that all
    persons, regardless of race, color, religion, sex, age, national origin or
    political affiliation, shall have equal access to employment opportunities.

h.  Section 503 of the Rehabilitation Act of 1973, as amended, which prohibits
    discrimination in the employment or advancement of the employment of
    qualified persons because of physical or mental handicap.

                                      A-3
<PAGE>

i.  Section 504 of the Rehabilitation Act of 1973, as amended, which prohibits
    discrimination on the basis of handicap in delivering contract services.

19) COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION

The Contractor shall comply with all applicable AHCCCS Rules and Audit Guide
relating to the audit of the Contractor's records and the inspection of the
Contractor's facilities. If the Contractor is an inpatient facility, the
Contractor shall file uniform reports and Title XVIII and Title XIX cost reports
with AHCCCSA.

20) CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION

By signing this subcontract, the Contractor certifies that all representations
set forth herein are true to the best of its knowledge.

21) CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK and LABORATORY TESTING

By signing this subcontract, the Contractor certifies that it has not engaged in
any violation of the Medicare Anti-Kickback statute (42 USC ss.ss.1320a-7b) or
the "Stark I" and "Stark II" laws governing related-entity referrals (PL 101-239
and PL 101-432) and compensation therefrom. If the Contractor provides
laboratory testing, it certifies that it has complied with 42 CFR ss.411.361 and
has sent to AHCCCSA simultaneous copies of the information required by that rule
to be sent to the Health Care Financing Administration.

22) CONFLICT IN INTERPRETATION OF PROVISIONS

In the event of any conflict in interpretation between provisions of this
subcontract and the AHCCCS Minimum Subcontract Provisions, the latter shall take
precedence.

23) ENCOUNTER DATA REQUIREMENT

If the Contractor does not bill the prime contractor (e.g., Contractor is
capitated), the Contractor shall submit encounter data to the prime contractor
in a form acceptable to AHCCCSA.

24) CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988

The Clinical Laboratory Improvement Amendment (CLIA) of 1988 requires
laboratories and other facilities that test human specimens to obtain either a
CLIA Waiver or CLIA Certificate in order to obtain reimbursement from the
Medicare and Medicaid (AHCCCS) programs. In addition, they must meet all the
requirements of 42 CFR 493, Subpart A.

To comply with these requirements, AHCCCSA requires all clinical laboratories to
provide verification of CLIA Licensure or Certificate of Waiver during the
provider registration process. Failure to do so shall result in either a
termination of an active provider ID number or denial of initial registration.
These requirements apply to all clinical laboratories.

Pass-through billing or other similar activities with the intent of avoiding the
above requirements are prohibited. Prime contractor may not reimburse providers
who do not comply with the above requirements.

25) INSURANCE

[This provision applies only if the Contractor provides services directly to
AHCCCS members]

The Contractor shall maintain for the duration of this subcontract a policy or
policies of professional liability insurance, comprehensive general liability
insurance and automobile liability insurance. The Contractor agrees that any
insurance protection required by this subcontract, or otherwise obtained by the
Contractor, shall not limit the responsibility of Contractor to indemnify, keep
and save harmless and defend the State and AHCCCSA, their agents, officers and
employees as provided herein. Furthermore, the Contractor shall be fully
responsible for all tax obligations, Worker's Compensation Insurance, and all
other applicable insurance coverage, for itself and its employees, and AHCCCSA
shall have no responsibility or liability for any such taxes or insurance
coverage.

                                      A-4
<PAGE>

26) FRAUD AND ABUSE

If the Contractor discovers, or is made aware, that an incident of potential
fraud or abuse has occurred, the Contractor shall report the incident to the
prime contractor, who shall proceed in accordance with the AHCCCS Health Plans
and Program Contractors Policy for Prevention, Detection and Reporting of Fraud
and Abuse. Incidents involving potential member eligibility fraud should be
reported to AHCCCSA, Office of Managed Care, Member Fraud Unit. All other
incidents of potential fraud should be reported to AHCCCSA, Office of the
Director, Office of Program Integrity. (See AHCCCS Rule R9-22-511.)

                                      A-5
<PAGE>

ATTACHMENT F                                           CONTRACT/RFP NO. YH8-0001

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

The following table is a summary of the periodic reporting requirements for
AHCCCS acute care contractors and is subject to change at any time during the
term of the contract. The table is presented for convenience only and should not
be construed to limit the Contractor's responsibilities in any manner.
"Reporting Guide" refers to the Reporting Guide for Acute Health Care
Contractors with the Arizona Health Care Cost Containment System.

<TABLE>
<CAPTION>
  REPORT                             WHEN DUE                       SOURCE/REFERENCE                   AHCCCS CONTACT:
  -------------------------------    --------------------------     -----------------------------      -----------------
  <S>                                <C>                            <C>                                <C>
  Monthly Financial Report           45 days after the end of       Reporting Guide                    Financial Manager
                                     the month, as applicable

  Quarterly Financial Report         60 days after the end of       Reporting Guide                    Financial Manager
                                     each quarter

  Draft Annual Audit Report          90 days after the end of       Reporting Guide                    Financial Manager
                                     each fiscal year

  Draft Management Letter            90 days after the end of       Reporting Guide                    Financial Manager
                                     each fiscal year

  Final Annual Audit Report          120 days after the end of      Reporting Guide                    Financial Manager
                                     each fiscal year

  Final Management Letter            120 days after the end of      Reporting Guide                    Financial Manager
                                     each fiscal year

  Accountant's Report on             120 days after the end of      Reporting Guide                    Financial Manager
  Compliance                         each fiscal year

  Reconciliation - Annual Audit      120 days after the end of      Reporting Guide                    Financial Manager
  and Plan Year-to-Date              each fiscal year
  Financial Report Information

  Financial Disclosure Report        120 days after the end of      Reporting Guide                    Financial Manager
                                     each fiscal year

  Annual Analysis of                 120 days after the end of      Reporting Guide                    Financial Manager
  Profitability by Major Rate        each fiscal year
  Code (by County)

  PPC Lag Schedules                  120 days after the end of      Reporting Guide                    Financial Manager
                                     each fiscal year

  Physician Incentive Plan (PIP)     Annually by October 1st of     RFP, Section D, Paragraph 18       Financial Manager
  reporting                          each year

  Quarterly FQHC Reports             60 days after the end of       RFP, Section D, paragraph 26       Financial Manager
                                     each quarter

  Provider Affiliation Tape          10 business days after the     PMMIS Provider-to-Health Plan      Health Plan
                                     beginning of each quarter      magnetic tape submission           Operations
                                                                    and processing                     Manager

  Corrected Pended Encounter Data    Monthly, according to          Encounter Manual                   Encounter
                                     established schedule                                              Administrator

  New Day Encounter Data             Monthly, according to          Encounter Manual                   Encounter
                                     established schedule                                              Administrator

  Medical Records for Data           90 days after the request      RFP, Section C, Paragraph 1        Data Validation
  Validation                         received from                                                     Manager
                                     AHCCCSA
</TABLE>

                                      F-1
<PAGE>

<TABLE>
<CAPTION>
  REPORT                             WHEN DUE                       SOURCE/REFERENCE                   AHCCCS CONTACT:
  -----------------------------      --------------------------     ----------------------------       -----------------
  <S>                                <C>                            <C>                                <C>
  Quarterly Grievance and            45 days after the end of       RFP, Section D, Paragraph 26       Administrative
  Request for Hearing Report         each quarter                                                      Assistant

  Comprehensive EPSDT Plan           Annually on December 1         RFP, Section D, Paragraph 16       AHCCCS Chief
  including Dental                                                                                     Medical Officer

  EPSDT Progress Report              15 days after the end of       AMPM, Chapter 400                  AHCCCS Chief
  including Dental - Quarterly       each quarter                                                      Medical Officer
  Update

  Quarterly Inpatient Hospital       15 days after the end of       State Medicaid Manual and          AHCCCS Chief
  Showing                            each quarter                   the AMPM, Chapter 900              Medical Officer

  Quality Management/                Annually on November 15th      AMPM, Chapter 900                  AHCCCS Chief
  Utilization Management Plan                                                                          Medical Officer
  Evaluation and Revision

  Monthly Pregnancy Termination      End of the month following     AMPM, Chapter 400                  AHCCCS Chief
  Report                             the pregnancy termination                                         Medical Officer

  Maternity Care Plan                Annually on December 1st       AMPM, Chapter 400                  AHCCCS Chief
                                                                                                       Medical Officer

  Semi-annual report of number       30 days after the end of       AMPM, Chapter 900                  AHCCCS Chief
  of pregnant women who are          the 2nd and 4th quarter of                                        Medical Officer
  HIV/AIDS positive                  each contract year

  Clinical Study Proposal            Annually on November 15th      AMPM, Chapter 900                  AHCCCS Chief
                                                                                                       Medical Officer

  Clinical Study Results             Annually within 90 days        AMPM, Chapter 900                  AHCCCS Chief
                                     following the end of each                                         Medical Officer
                                     contract year

  Provider Fraud/Abuse Report        Immediately following          AHCCCS Internal                    Office of Program
                                     discovery                      Audit/Program Investigation        Integrity Manager
                                                                    Policy for Prevention,
                                                                    Detection and Reporting of
                                                                    Fraud and Abuse

  Eligible Person Fraud/Abuse        Immediately following          AHCCCS Internal                    Office of Program
  Report                             discovery                      Audit/Program Investigation        Integrity Manager
                                                                    Policy for Prevention,
                                                                    Detection and Reporting of
                                                                    Fraud and Abuse

  Non-Transplant Catastrophic        Annually, within 30 days       RFP, Section D, Paragraph 39       OMM/FFS Unit
  Reinsurance covered Diseases       of the beginning of the                                           Reinsurance
                                     contract year, enrollment                                         Manager
                                     to the plan, and when
                                     newly diagnosed.
</TABLE>

                                      F-2
<PAGE>

ATTACHMENT H                                          CONTRACT/RFP NO. YH8-0001

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS

The Contractor shall have in place a written grievance and request for hearing
policy for members and providers which defines their rights regarding any
adverse action by the Contractor. The Contractor shall also ensure compliance
with 9 A.C.C. R9-28-Article 12 the Members' Rights and Responsibilities Policy.
The written grievance and request for hearing policy shall be in accordance with
applicable federal and State laws and AHCCCS Rules and policy including, but not
limited to, AHCCCS Rules R9-22-512; R9-22-518 (A); R9-22-802; and R9-22-804. The
grievance and request for hearing policy shall include the following provisions:

a.  The grievance and request for hearing procedure will be provided all
    subcontractors at time of contract, and to non-contracting providers within
    10 days of the date of receipt of the claim. For non-contracting providers,
    the grievance and request for hearing procedure may be mailed with the
    remittance advice provided the remittance is sent within 45 days of receipt
    of claim.
b.  Specific individual(s) are appointed with authority to require corrective
    action to administer the grievance and request for hearing policy.
c.  A log is maintained for all grievance and request for hearings containing
    sufficient information to identify the grievant, date of receipt, nature of
    the grievance and request for hearing and the date grievance and request for
    hearing is resolved. Separate logs must be maintained for provider and
    member grievance and request for hearings. The logs must contain sufficient
    information to identify the grievant, date of receipt, nature of the
    grievance and request for hearing and the date grievance and request for
    hearing is resolved.
d.  Within five working days of receipt, the grievant is informed by letter that
    the grievance and request for hearing has been received. The letter must
    also be in a second language when 200 members or 5% of the Contractor's
    population, whichever is greater speak the second language.
e.  Each grievance and request for hearing is thoroughly investigated using the
    applicable statutory, regulatory and contractual provisions as well as the
    Contractor's policies and procedures, ensuring that facts are gathered from
    all parties.
f.  All documentation received and mailed by Contractor during the grievance and
    request for hearing process is dated upon date of receipt.
g.  All grievance and request for hearings are filed in a secure, designated
    area and are retained for five years following the final decision, judicial
    appeal or close of a grievance and request for hearing.
h.  A copy of the Contractor's final decision will be either hand-delivered or
    delivered by certified mail to all parties. The final decision shall be
    mailed to all other individuals by regular mail. The date of the final
    decision shall be the date of the notice. The final decision must include,
    and describe in detail, the following:
    1.  the nature of the grievance and request for hearing
    2.  the issues involved
    3.  the reasons supporting the Contractor's decision including references to
        applicable statute, rule and procedure
    4.  the grievant's right to appeal the Contractor's decision to AHCCCSA by
        filing the appeal to the Contractor no later than 15 days after the date
        of the Contractor's final decision. This must also be written in a
        second language, if applicable.
e.  If the member requests a hearing, all supporting documentation must be
    received by the AHCCCSA, Office of Legal Assistance no later than five
    working days from the date the Contractor receives the appeal or from the
    date of the oral or written request from AHCCCSA, Office of Legal
    Assistance. The appeal file must contain a cover letter that includes:
    1.  grievant's name
    2.  grievant's AHCCCS ID number
    3.  grievant's address
    4.  phone number (if applicable)
    5.  date of receipt of grievance and request for hearing and appeal

                                      H-1
<PAGE>

    6.  summary of the Contractor's actions undertaken to resolve the grievance
        and request for hearing and basis thereof
e.  The following material shall be included in the appeal file:
    1.  written request of the grievant asking for the appeal
    2.  copies of the entire file which include the investigations and/or
        medical records; and the Contractor's grievance and request for hearing
        decision
    3.  other information used by the Contractor to resolve the grievance and
        request for hearing and that would be necessary to AHCCCSA to resolve
        the grievance and request for hearing.
e.  The Contractor may attempt to use alternative resolution procedures to
    resolve disputes presented to the Contractor verbally or in writing. If the
    Contractor elects to use an alternative resolution process, it must be
    administered and completed within 10 days from receipt of the dispute. If
    the matter is not resolved to the grievant's satisfaction within the 10-day
    period, the dispute must then be adjudicated using the grievance and request
    for hearing standards contained above. However, the Contractor must render
    the written grievance and request for hearing decision within a maximum of
    30 days from the date of the initial filing of the grievance and request for
    hearing or dispute unless a longer period was agreed to by the parties
    involved.
f.  For all disputes where an alternative resolution is proposed, the Contractor
    must maintain a separate log, complying with paragraphs c. and g. above.

                                      H-2
<PAGE>

ATTACHMENT I:  ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed sanctions for noncompliance with encounter
submission requirements. AHCCCSA may also perform special reviews of encounter
data, such as comparing encounter reports to the Contractor's claims files. Any
findings of incomplete or inaccurate encounter data may result in the imposition
of sanctions or requirement of a corrective action plan.

PENDED ENCOUNTER CORRECTIONS

The Contractor must resolve all pended encounters within 120 days of the
original processing date. Sanctions will be imposed according to the following
schedule for each encounter pended for more than 120 days unless the pend is due
to AHCCCSA error:

<TABLE>
<S>                  <C>                    <C>                    <C>                    <C>
0 - 120 days         121 - 180 days         181 - 240 days         241 - 360 days         361 + days
No sanction          $5 per month           $10 per month          $15 per month          $20 per month
</TABLE>

"AHCCCSA error" is defined as a pended encounter which (1) AHCCCSA acknowledges
to be the result of its own error, and (2) requires a change to the system
programming, an update to the database reference table, or further research by
AHCCCSA. AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA in writing that the resolution of a pended
encounter depends on AHCCCSA rather than the Contractor, AHCCCSA will respond in
writing within 30 days of receipt of such notification. The AHCCCSA response
will report the status of each pending encounter problem or issue in question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA reviews the
Contractor's notification and asks the Contractor to research the issue and
provide additional substantiating documentation, or if AHCCCSA disagrees with
the Contractor's claim of AHCCCSA error. If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error, the Contractor
may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor in writing of the
total number of sanctionable encounters pended more than 120 days.
Pended encounters shall not be deleted by the Contractor as a means of avoiding
sanctions for failure to correct encounters within 120 days. The Contractor
shall document deleted encounters and shall maintain a record of the deleted
CRNs with appropriate reasons indicated. The Contractor shall, upon request,
make this documentation available to AHCCCSA for review.

ENCOUNTER VALIDATION STUDIES

Per HCFA requirement, AHCCCSA will conduct encounter validation studies of the
Contractor's encounter submissions, and sanction the Contractor for
noncompliance with encounter submission requirements. The purpose of encounter
validation studies is to compare recorded utilization information from a medical
record or other source with the Contractor's submitted encounter data. Any and
all covered services may be validated as part of these studies. Encounter
validation studies will be conducted at least yearly.

The following reflects AHCCCSA's encounter validation study process and sanction
policy as of 10/1/97. AHCCCSA may revise study methodology, timelines, and
sanction amounts based on agency review or as a

                                      I-1
<PAGE>

result of consultations with HCFA. The Contractor will be notified in writing of
any significant change in study methodology.

AHCCCSA will conduct two encounter validation studies. Study "A" examines
non-institutional services (form HCFA 1500 encounters), and Study "B" examines
institutional services (form UB-92 encounters).

AHCCCSA will notify the Contractor in writing of the sanction amounts and of the
selected data needed for encounter validation studies. The Contractor will have
90 days to submit the requested data to AHCCCSA. In the case of medical records
requests, the Contractor's failure to provide AHCCCSA with the records requested
within 90 days may result in a sanction of $1,000 per missing medical record. If
AHCCCSA does not receive a sufficient number of medical records from the
Contractor to select a statistically valid sample for a study, the Contractor
may be sanctioned up to 5% of its annual capitation payment.

The criteria used in encounter validation studies may include timeliness,
correctness, and omission of encounters. These criteria are defined as follows:

Timeliness: The time elapsed between the date of service and the date that the
encounter is received at AHCCCS. All encounters must be received by AHCCCSA no
later than 240 days after the end of the month in which the service was
rendered, or the effective date of enrollment with the Contractor, whichever is
later. For all encounters for which timeliness is evaluated, a sanction per
encounter error extrapolated to the population of encounters may be assessed if
the encounter record is received by AHCCCSA more than 240 days after the date
determined above. It is anticipated that the sanction amount will be $1.00 per
error extrapolated to the population of encounters; however, sanction amounts
may be adjusted if AHCCCSA determines that encounter quality has changed, or if
HCFA changes sanction requirements. The Contractor will be notified of the
sanction amount in effect for the studies at the time the studies begin.

Correctness: A correct encounter contains a complete and accurate description of
AHCCCS covered services provided to a member. A sanction per encounter error
extrapolated to the population of encounters may be assessed if the encounter is
incomplete or incorrectly coded. It is anticipated that the sanction amount will
be $1.00 per error extrapolated to the population of encounters; however,
sanction amounts may be adjusted if AHCCCSA determines that encounter quality
has changed, or if HCFA changes sanction requirements. The Contractor will be
notified of the sanction amount in effect for the studies at the time the
studies begin.

Omission of data: An encounter not submitted to AHCCCSA or an encounter
inappropriately deleted from AHCCCSA's pending encounter file or historical
files in lieu of correction of such record. For Study "A" and for Study "B", a
sanction per encounter error extrapolated to the population of encounters may be
assessed for an omission. It is anticipated that the sanction amount will be
$5.00 per error extrapolated to the population of encounters for Study "A" and
$10.00 per error extrapolated to the population of encounters for Study "B";
however, sanction amounts may be adjusted if AHCCCSA determines that encounter
quality has changed, or if HCFA changes sanction requirements. The Contractor
will be notified of the sanction amount in effect for the studies at the time
the studies begin.

For encounter validation studies, AHCCCSA will select all approved and pended
encounters to be studied no earlier than 240 days after the end of the month in
which the service was rendered. Once AHCCCSA has selected the Contractor's
encounters for encounter validation studies, subsequent encounter submissions
for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters, or may select a
sample. The sample size, or number of encounters to be reviewed, will be
determined using statistical methods in order to accurately estimate the
Contractor's error rates. Error rates will be calculated by dividing the number
of errors

                                      I-2
<PAGE>

found by the number of encounters reviewed. A 95% confidence interval will be
used to account for limitations caused by sampling. The confidence interval
shows the range within which the true error rate is estimated to be. If error
rates are based on a sample, the error rate used for sanction purposes will be
the lower limit of the confidence interval.

Encounter validation methodology and statistical formulas are provided in the
AHCCCS Encounter Data Validation Technical Document, which is available in the
Bidders Library. This document also provides examples, which illustrate how
AHCCCSA determines study sample sizes, error rates, confidence intervals, and
sanction amounts.

Written preliminary results of all encounter validation studies will be sent to
the Contractor for review and comment. The Contractor will have a maximum of 30
days to review results and provide AHCCCSA with additional documentation that
would affect the final calculation of error rates and sanctions. AHCCCSA will
examine the Contractor's documentation and may revise study results if
warranted. Written final results of the study will then be sent to the
Contractor and communicated to HCFA, and any sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed by AHCCCSA not
more than 35 days after the Contractor receives final study results from
AHCCCSA. Challenges will be reviewed by AHCCCSA and a written decision will be
rendered no later than 60 days from the date of receipt of a timely challenge.
Sanctions shall not apply to encounter errors successfully challenged. A
challenge must be filed on a timely basis and a decision must be rendered by
AHCCCSA prior to filing a grievance and request for hearing pursuant to Article
8 of AHCCCS Rules. Sanction amounts will be deducted from the Contractor's
capitation payment.

ENCOUNTER ADJUSTMENTS

Contractors are required to submit adjusted or voided encounters in the event
that claims are subsequently adjusted or denied after the initial encounter
submission. This includes adjustments for inaccuracies identified by fraud and
abuse audits or investigations conducted by AHCCCSA or the Contractor.
Contractors shall refer to the Encounter User's Manual for further instructions
regarding adjustments to encounters.

                                      I-3
<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                               CONTRACT AMENDMENT

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
1.  AMENDMENT NUMBER:           2.  CONTRACT                 3.  EFFECTIVE DATE           4.  PROGRAM
<S>                             <C>                          <C>                          <C>
         14                         NO.:                         OF AMENDMENT:
                                   YH8-0001-05                      JULY 1, 2001                 OMC
----------------------------------------------------------------------------------------------------------------------
5.  CONTRACTOR'S NAME AND ADDRESS:

                                    HEALTH CHOICE ARIZONA
                                    1600 W. BROADWAY, SUITE 260
                                    TEMPE AZ  85282-1502
----------------------------------------------------------------------------------------------------------------------
6.  PURPOSE OF AMENDMENT: TO REVISE CAPITATION RATES.

----------------------------------------------------------------------------------------------------------------------

7.  THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

A.       Capitation Rates. Included in this amendment are revised capitation rates for the period beginning
         July 1, 2001 and ending September 30, 2001.

                                                     TANF              TANF              TANF
                                            GSA      14-44, F          14-44, M        45+, M/F

         Health Choice Arizona              10       $114.93           $92.22           $228.21
         Health Choice Arizona              12       $105.39           $95.77           $242.35

         NOTE:  PLEASE SIGN AND DATE BOTH AND THEN RETURN ONE TO:      MICHAEL VEIT, MD 5700
                                                                       AHCCCS CONTRACTS AND PURCHASING
                                                                       701 E JEFFERSON STREET
                                                                       PHOENIX AZ  85034

----------------------------------------------------------------------------------------------------------------------
8.       EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT NOT HERETOFORE CHANGED
         AND/OR AMENDED REMAIN UNCHANGED AND IN FULL EFFECT.

         IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
----------------------------------------------------------------------------------------------------------------------
9.       SIGNATURE OF AUTHORIZED REPRESENTATIVE:             10. SIGNATURE OF AHCCCSA
         CONTRACTING OFFICER:

                  /S/ GLORIA TOMSA (COO)                                         /S/ MICHAEL VEIT
----------------------------------------------------------------------------------------------------------------------
TYPED NAME:       CAROLYN ROSE                               MICHAEL VEIT

                   GLORIA TOMSA
----------------------------------------------------------------------------------------------------------------------
TITLE:        CHIEF EXECUTIVE OFFICER -                      CONTRACTS & PURCHASING ADMINISTRATOR
              HEALTH CHOICE ARIZONA

----------------------------------------------------------------------------------------------------------------------
DATE:                                                        DATE:
                  6/8/01                                                   JUNE 12 2001
----------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>

           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                         SECTION A: CONTRACT AMENDMENT

[AHCCCS LOGO]

<TABLE>
<CAPTION>
<S>                          <C>                       <C>                                        <C>
---------------------------- ------------------------- ------------------------------------------ --------------------------
1.  AMENDMENT                2.  CONTRACT              6.  EFFECTIVE DATE OF                      4.  PROGRAM
     NUMBER:                 NO.:                           AMENDMENT:
         15                  YH8-0001-05                        OCTOBER 1, 2001                            OMC
---------------------------- ------------------------- ------------------------------------------ --------------------------
5.  CONTRACTOR'S NAME AND ADDRESS:
         HEALTH CHOICE ARIZONA
         1600 W. BROADWAY, SUITE 260
         TEMPE, AZ  85282-1502
----------------------------------------------------------------------------------------------------------------------------
6.  PURPOSE OF AMENDMENT:  TO INCORPORATE CHANGES TO CONTRACT REQUIREMENTS DUE TO THE PASSAGE OF PROPOSITION 204.
----------------------------------------------------------------------------------------------------------------------------
7.  THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

         A.  Proposition 204.  The attached pages represent modifications to the contract requirements as a result of the
         passage of Proposition 204.

         B.  Included in this amendment are revised capitation rates for the period beginning October 1, 2001 and ending
         September 30, 2002.

         NOTE:  PLEASE SIGN AND DATE BOTH AND THEN RETURN ONE TO:               MICHAEL VEIT, MD 5700
                                                                                AHCCCS CONTRACTS AND PURCHASING
                                                                                701 E JEFFERSON STREET
                                                                                PHOENIX, AZ 85034
----------------------------------------------------------------------------------------------------------------------------
8. EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED
   REMAIN UNCHANGED AND IN FULL EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
------------------------------------------------------------- --------------------------------------------------------------
9.  SIGNATURE OF AUTHORIZED REPRESENTATIVE:                   10.  SIGNATURE OF AHCCCSA CONTRACTING OFFICER:

                  /s/ Carolyn Rose                                               /s/ Michael Veit
------------------------------------------------------------- --------------------------------------------------------------
TYPED NAME:
                  CAROLYN ROSE                                                           MICHAEL VEIT
------------------------------------------------------------- --------------------------------------------------------------
------------------------------------------------------------- --------------------------------------------------------------
TITLE:                                                                           CONTRACTS & PURCHASING
         CHIEF EXECUTIVE OFFICER                                                      ADMINISTRATOR
------------------------------------------------------------- --------------------------------------------------------------
DATE:                                                         DATE:
                  9/6/01                                                        8/31/01
------------------------------------------------------------- --------------------------------------------------------------
</TABLE>

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<S>        <C>                                                                                                  <C>
SECTION A:  CONTRACT AMENDMENT....................................................................................1

SECTION B:  CAPITATION RATES......................................................................................5

SECTION C:  DEFINITIONS...........................................................................................6

SECTION D:  PROGRAM REQUIREMENTS.................................................................................13

   1.      SCOPE OF SERVICES.....................................................................................13
   2.      BEHAVIORAL HEALTH SERVICES............................................................................18
   3.      AHCCCS MEDICAL POLICY MANUAL..........................................................................19
   4.      VACCINE FOR CHILDREN PROGRAM..........................................................................19
   5.      DENIALS OR REDUCTIONS OF SERVICES.....................................................................20
   6.      ENROLLMENT AND DISENROLLMENT..........................................................................20
   7.      MAINSTREAMING OF AHCCCS MEMBERS.......................................................................22
   8.      MEMBER INFORMATION....................................................................................22
   9.      MEMBER SURVEYS........................................................................................24
   10.     MARKETING.............................................................................................25
   11.     ANNUAL ENROLLMENT CHOICE..............................................................................25
   12.     TRANSITION OF MEMBERS.................................................................................25
   13.     STAFF REQUIREMENTS AND SUPPORT SERVICES...............................................................26
   14.     WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS.....................................................27
   15.     ADVANCE DIRECTIVES....................................................................................27
   16.     PERFORMANCE STANDARDS.................................................................................27
   17.     QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM).................................................29
   18.     PHYSICIAN INCENTIVES..................................................................................30
   19.     APPOINTMENT STANDARDS.................................................................................30
   20.     REFERRAL PROCEDURES AND STANDARDS.....................................................................31
   21.     PROVIDER MANUAL.......................................................................................31
   22.     PRIMARY CARE PROVIDER STANDARDS.......................................................................32
   23.     OTHER PROVIDER STANDARDS..............................................................................33
   24.     NETWORK DEVELOPMENT...................................................................................34
   25.     NETWORK MANAGEMENT....................................................................................34
   26.     FEDERALLY QUALIFIED HEALTH CENTERS (FQHC).............................................................34
   27.     PROVIDER REGISTRATION.................................................................................35
   28.     PROVIDER AFFILIATION TRANSMISSION.....................................................................35
   29.     PERIODIC REPORT REQUIREMENTS..........................................................................35
   30.     DISSEMINATION OF INFORMATION..........................................................................36
   31.     REQUESTS FOR INFORMATION..............................................................................36
   32.     OPERATIONAL AND FINANCIAL READINESS REVIEWS...........................................................36
   33.     OPERATIONAL AND FINANCIAL REVIEWS.....................................................................36
   34.     CLAIMS PAYMENT SYSTEM.................................................................................37
   35.     HOSPITAL SUBCONTRACTING AND REIMBURSEMENT.............................................................37
   36.     NURSING FACILITY REIMBURSEMENT........................................................................38
   37.     COMPENSATION..........................................................................................38
   38.     CAPITATION ADJUSTMENTS................................................................................39
   39.     REINSURANCE...........................................................................................40
   40.     COORDINATION OF BENEFITS/THIRD PARTY LIABILITY........................................................42
   41.     MEDICARE SERVICES AND COST SHARING....................................................................43
   42.     COPAYMENTS............................................................................................43
   43.     RECORDS RETENTION.....................................................................................43
   44.     MEDICAL RECORDS.......................................................................................44
   45.     ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS........................................................44
   46.     ACCUMULATED FUND DEFICIT..............................................................................44
   47.     DATA EXCHANGE REQUIREMENT.............................................................................45
</TABLE>

                                       2
<PAGE>

<TABLE>
<S>        <C>                                                                                                  <C>
   48.     ENCOUNTER DATA REPORTING..............................................................................45
   49.     MONTHLY ROSTER RECONCILIATION.........................................................................46
   50.     TERM OF CONTRACT AND OPTION TO RENEW..................................................................46
   51.     SUBCONTRACTS..........................................................................................46
   52.     SPECIALTY CONTRACTS...................................................................................48
   53.     MANAGEMENT SERVICES SUBCONTRACTORS....................................................................48
   54.     MANAGEMENT SERVICES SUBCONTRACTOR AUDITS..............................................................48
   55.     MINIMUM CAPITALIZATION REQUIREMENTS...................................................................48
   56.     PERFORMANCE BOND OR BOND SUBSTITUTE...................................................................49
   57.     AMOUNT OF PERFORMANCE BOND............................................................................50
   58.     FINANCIAL VIABILITY STANDARDS/PERFORMANCE GUIDELINES..................................................50
   59.     MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP........................................................51
   60.     SANCTIONS.............................................................................................51
   61.     AUTO-ASSIGNMENT ALGORITHM.............................................................................51
   62.     GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS...............................................51
   63.     QUARTERLY GRIEVANCE REPORT............................................................................52
   64.     KIDSCARE..............................................................................................52
   65.     PENDING LEGISLATIVE ISSUES............................................................................52
   66.     SEPARATE INCORPORATION................................................................................52
   67.     CULTURAL COMPETENCY...................................................................................53
   68.     MEDICAID IN THE PUBLIC SCHOOLS........................................................................53

SECTION E:  CONTRACT CLAUSES.....................................................................................54

   1.      APPLICABLE LAW........................................................................................54
   2.      AUTHORITY.............................................................................................54
   3.      ORDER OF PRECEDENCE...................................................................................54
   4.      CONTRACT INTERPRETATION AND AMENDMENT.................................................................54
   5.      SEVERABILITY..........................................................................................54
   6.      RELATIONSHIP OF PARTIES...............................................................................54
   7.      ASSIGNMENT AND DELEGATION.............................................................................54
   8.      GENERAL INDEMNIFICATION...............................................................................54
   9.      INDEMNIFICATION - PATENT AND COPYRIGHT................................................................55
   10.     COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS................................................55
   11.     ADVERTISING AND PROMOTION OF CONTRACT.................................................................55
   12.     PROPERTY OF TIlE STATE................................................................................55
   13.     THIRD PARTY ANTITRUST VIOLATIONS......................................................................55
   14.     RIGHT TO ASSURANCE....................................................................................55
   15.     TERMINATION FOR CONFLICT OF INTEREST..................................................................55
   16.     GRATUITIES............................................................................................55
   17.     SUSPENSION OR DEBARMENT...............................................................................56
   18.     TERMINATION FOR CONVENIENCE...........................................................................56
   19.     TERMINATION FOR DEFAULT...............................................................................56
   20.     TERMINATION - AVAILABILITY OF FUNDS...................................................................56
   21.     RIGHT OF OFFSET.......................................................................................56
   22.     NON-EXCLUSIVE REMEDIES................................................................................57
   23.     NON-DISCRIMINATION....................................................................................57
   24.     EFFECTIVE DATE........................................................................................57
   25.     INSURANCE.............................................................................................57
   26.     DISPUTES..............................................................................................57
   27.     RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS...........................................................58
   28.     INCORPORATION BY REFERENCE............................................................................58
   29.     COVENANT AGAINST CONTINGENT FEES......................................................................58
   30.     CHANGES...............................................................................................58
   31.     TYPE OF CONTRACT......................................................................................58
   32.     AMERICANS WITH DISABILITIES ACT.......................................................................58
   33.     WARRANTY OF SERVICES..................................................................................58
</TABLE>

                                       3
<PAGE>

<TABLE>
<S>        <C>                                                                                                  <C>
   34.     NO GUARANTEED QUANTITIES..............................................................................58
   35.     CONFLICT OF INTEREST..................................................................................58
   36.     DISCLOSURE OF CONFIDENTIAL INFORMATION................................................................59
   37.     COOPERATION WITH OTHER CONTRACTORS....................................................................59
   38.     ASSIGNMENT OF CONTRACT AND BANKRUPTCY.................................................................59
   39.     OWNERSHIP OF INFORMATION AND DATA.....................................................................59
   40.     AHCCCSA RIGHT TO OPERATE CONTRACTOR...................................................................59
   41.     AUDITS AND INSPECTIONS................................................................................60
   42.     FRAUD AND ABUSE.......................................................................................60
   43.     LOBBYING..............................................................................................60
   44.     CHOICE OF FORUM.......................................................................................60

ATTACHMENT A:  MINIMUM SUBCONTRACT PROVISIONS...................................................................A-1

   1.      EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES....................................A-1
   2.      RECORDS AND REPORTS..................................................................................A-1
   3.      LIMITATIONS ON BILLING AND COLLECTION PRACTICES......................................................A-1
   4.      ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES.............................................A-1
   5.      APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS.................................................A-1
   6.      WARRANTY OF SERVICES.................................................................................A-2
   7.      SUBJECTION OF SUBCONTRACT............................................................................A-2
   8.      AWARDS OF OTHER SUBCONTRACTS.........................................................................A-2
   9.      INDEMNIFICATION BY CONTRACTOR........................................................................A-2
   10.     MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES......................................A-2
   11.     COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS..........................................................A-2
   12.     SEVERABILITY.........................................................................................A-2
   13.     VOIDABILITY OF SUBCONTRACT...........................................................................A-2
   14.     CONFIDENTIALITY REQUIREMENT..........................................................................A-2
   15.     GRIEVANCE AND REQUEST FOR HEARING PROCEDURES.........................................................A-3
   16.     TERMINATION OF SUBCONTRACT...........................................................................A-3
   17.     PRIOR AUTHORIZATION AND UTILIZATION REVIEW...........................................................A-3
   18.     NON-DISCRIMINATION REQUIREMENTS......................................................................A-3
   19.     COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION........................................A-3
   20.     CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION......................................................A-4
   21.     CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK and LABORATORY TESTING...................................A-4
   22.     CONFLICT IN INTERPRETATION OF PROVISIONS.............................................................A-4
   23.     ENCOUNTER DATA REQUIREMENT...........................................................................A-4
   24.     CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988.............................................A-4
   25.     INSURANCE............................................................................................A-4
   26.     FRAUD AND ABUSE......................................................................................A-4

ATTACHMENT B: MINIMUM NETWORK STANDARDS.........................................................................B-1

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS......................................................................F-1

ATTACHMENT G: AUTO-ASSIGNMENT ALGORITHM.........................................................................G-1

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS...........................................H-1

ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS.................................................................I-1
</TABLE>

                                       4
<PAGE>

                          SECTION B: CAPITATION RATES

The Contractor shall provide services as described in this contract. In
consideration for these services, the Contractor will be paid the attached rates
for the term October 1, 2001 through September 30, 2002.

CAPITATION RATES
(per member per month)

Capitation rates specific to contractor

                                       5
<PAGE>

DEFINITIONS                                                CONTRACT/RFP YH8-0001

                             SECTION C: DEFINITIONS

ADHS                       Arizona Department of Health Services, the state
                           agency mandated to serve the public health needs of
                           all Arizona citizens.

AGENT                      Any person who has been delegated the authority to
                           obligate or act on behalf of another person or
                           entity.

AHCCCS                     Arizona Health Care Cost Containment System, which is
                           composed of the Administration, contractors, and
                           other arrangements through which health care services
                           are provided to an eligible person, as defined by
                           A.R.S. ss. 36-2902, et seq.

AHCCCS BENEFITS            See "COVERED SERVICES".

AHCCCS MEMBER              See "MEMBER".

AHCCCSA                    Arizona Health Care Cost Containment System
                           Administration.

ALTCS                      The Arizona Long Term Care System (ALTCS), a program
                           under AHCCCSA that delivers long term, acute,
                           behavioral health and case management services to
                           members, as authorized by A.R.S. ss. 36-2932.

AMBULATORY                 CARE Preventive, diagnostic and treatment services
                           provided on an outpatient basis by physicians, nurse
                           practitioners, physician assistants and other health
                           care providers.

AMPM                       AHCCCS Medical Policy Manual.

ARIZONA                    State regulations established pursuant to relevant
ADMINISTRATIVE             statutes. For purposes of this solicitation, the
CODE (A.A.C.)              relevant sections of the AAC are referred to
                           throughout this document as "AHCCCS Rules".

A.R.S.                     Arizona Revised Statutes.

AT RISK                    Refers to the period of time that a member is
                           enrolled with a contractor during which time the
                           Contractor is responsible to provide AHCCCS covered
                           services under capitation.

BIDDERS LIBRARY            A repository of manuals, statutes, rules and other
                           reference material located at the AHCCCS office in
                           Phoenix.

BOARD CERTIFIED            An individual who has successfully completed all
                           prerequisites of the respective specialty board and
                           successfully passed the required examination for
                           certification.

CAPITATION                 Payment to contractor by AHCCCSA of a fixed monthly
                           payment per person in advance for which the
                           contractor provides a full range of covered services
                           as authorized under A.R.S. ss. 36-2942 and ss.
                           36-2931.

CATEGORICALLY LINKED       Member eligible for Medicaid under Title XIX of the
TITLE XIX MEMBER           Social Security Act including those eligible under
                           1931 provisions of the Social Security Act
                           (previously AFDC), Sixth Omnibus Budget
                           Reconciliation Act (SOBRA), Supplemental Security
                           Income (SSI), SSI-related groups. To be categorically
                           linked, the member must be aged (65 or over), blind,
                           disabled, a child under age 19, parent of a dependent
                           child, or pregnant.

CLEAN CLAIM                A claim that may be processed without obtaining
                           additional information from the provider of service
                           or from a third party; but does not include claims
                           under investigation for fraud or abuse or claims
                           under review for medical necessity, as defined by
                           A.R.S. ss. 36-2904.

                                       6
<PAGE>

CMS (FORMALLY              Center for Medicare and Medicaid Services, an
HCFA)                      organization within the U.S. Department of Health and
                           Human Services, which administers the Medicare and
                           Medicaid programs and the State Children's Health
                           Insurance Program.

COMPETITIVE BID            A state procurement system used to select contractors
PROCESS                    to provide covered services on a geographic basis.

CONTINUING                 An AHCCCS contractor during CYE 97 that submits a
OFFEROR                    proposal pursuant to this solicitation.

CONTRACT                   See "COVERED SERVICES".
SERVICES

CONTRACT YEAR              Corresponds to federal fiscal year (Oct. 1 through
(CY)                       Sept. 30). For example, Contract Year 02 is
                           10/01/01-- 9/30/02.

CONTRACTOR                 A person, organization or entity agreeing through a
                           direct contracting relationship with AHCCCSA to
                           provide the goods and services specified by this
                           contract in conformance with the stated contract
                           requirements, AHCCCS statute and rules and federal
                           law and regulations.

CONVICTED                  A judgment of conviction has been entered by a
                           federal, state or local court, regardless of whether
                           an appeal from that judgment is pending.

CO-PAYMENT                 A monetary amount specified by the Director that the
                           member pays directly to a contractor or provider at
                           the time covered services are rendered, as defined in
                           R9-22-107.

COUNTY                     Amount of funds contributed to the AHCCCS fund by
CONTRIBUTION               each Arizona county based on funding formulas
                           established by law.

COVERED                    Health care services to be delivered by a contractor
SERVICES                   which are designated in Section D of this contract
                           and also AHCCCS Rules R9-22, Article 2 and R9-31.,
                           Article 2.

CRS                        Children's Rehabilitative Services, as defined in
                           R9-22-114.

CSHCN                      Children with Special Health Care Needs ,Children
                           under age 19 who are: Blind/Disabled Children and
                           Related Populations (eligible for SSI under Title
                           XVI). Children eligible under section 1902 (e)(3) of
                           the Social Security Act (Katie Beckett); In foster
                           care or other out-of-home placement; Receiving foster
                           care or adoption assistance; or receiving services
                           through a family-centered, community-based
                           coordinated care system that receives grant funds
                           under section 501(a)(1)(D) of Title V (CRS).

CY                         See "CONTRACT YEAR".

CYE                        Contract Year Ended; same as "CONTRACT YEAR".

DAYS                       Calendar days unless otherwise specified as defined
                           in the text, as defined in R9-22-101.

DIRECTOR                   The Director of AHCCCSA.

DISCLOSING                 An AHCCCS provider or a fiscal agent.
ENTITY

DME                        Durable Medical Equipment, which is an item, or
                           appliance that can withstand repeated use, is
                           designated to serve a medical purpose, and is not
                           generally useful to a person in the absence of a
                           medical condition, illness or injury as defined in
                           R9-22-102.

DUAL ELIGIBLE              A member who is eligible for both Medicare and
                           Medicaid.

                                       7
<PAGE>

ELIGIBILITY                A process of determining, through a written
DETERMINATION              application, including required documentation,
                           whether an applicant meets the qualifications for
                           Title XIX or Title XXI.

EMERGENCY                  A medical condition manifesting itself by acute
MEDICAL                    symptoms of sufficient severity (including severe
CONDITION                  pain) such that a prudent layperson, who possess an
                           average knowledge of health and medicine, could
                           reasonably expect the absence of immediate medical
                           attention to result in: a) placing the patient's
                           health in serious jeopardy; b) serious impairment to
                           bodily functions; or c) serious dysfunction of any
                           bodily organ or part.

EMERGENCY                  Services provided after the sudden onset of a medical
MEDICAL                    condition manifesting itself by acute symptoms of
SERVICE                    sufficient severity (including severe pain) that the
                           absence of immediate medical attention could
                           reasonably be expected to result in: a) placing the
                           patient's health in serious jeopardy; b) serious
                           impairment to bodily functions; or c) serious
                           dysfunction of any bodily organ or part, as defined
                           in R9-22-102.

ENCOUNTER                  A record of a medically related service rendered by a
                           provider or providers registered with AHCCCSA to a
                           member who is enrolled with a Contractor on the date
                           of service. It includes all services for which the
                           contractor incurred any financial liability.

ENROLLMENT                 The process by which an eligible person becomes a
                           member of a contractor's health plan.

EPSDT                      Early and Periodic Screening, Diagnosis and
                           Treatment; services for persons under 21 years of age
                           as described in AHCCCS rules R9-22, Article 2.

FAMILY                     A program that provides family planning services only
PLANNING                   for a maximum of 24 months to SOBRA women whose
SERVICES                   pregnancy has ended and the woman is not otherwise
EXTENSION                  eligible for Title XIX.
PROGRAM

FEDERALLY                  An entity which meets the requirements and receives a
QUALIFIED                  grant and funding pursuant to Section 330 of the
HEALTH CENTER              Public Health Service Act. An FQHC includes an
(FQHC)                     outpatient health program or facility operated by a
                           tribe or tribal organization under the Indian
                           Self-Determination Act (PL 93-638) or an urban Indian
                           organization receiving funds under Title V of the
                           Indian Health Care Improvement Act.

FEE-FOR-SERVICE            A method of payment to registered providers on an
(FFS)                      amount per service basis.

FFP                        Federal financial participation (FFP) refers to the
                           contribution that the federal government makes to the
                           Title XIX and Title XXI program portions of AHCCCS as
                           defined in 42 CFR 400.203.

FISCAL YEAR (FY)           The budget year - Federal Fiscal Year: October 1
                           through September 30; State fiscal year: July 1
                           through June 30

GATEKEEPER                 Primary care provider who is primarily responsible
                           for all medical treatment rendered and who makes
                           referrals as necessary and monitors the members
                           treatment.

GEOGRAPHIC                 A specific county or defined grouping of counties
SERVICE                    designated by the Administration within (GSA) which a
AREA                       contractor of record provides, directly or through
                           subcontract, covered health care to members enrolled
                           with that contractor of record

GROUP OF                   Two or more health care professionals who practice
PROVIDERS                  their profession at a common location (whether or not
                           they share facilities, supporting staff, or
                           equipment).

HEALTH                     Various forms of plan organization, including staff
MAINTENANCE                and group models, that meet the (HMO) licensing
HMO ORGANIZATION           requirements of the federal and/or state government
                           and offer a full array of health care services to
                           members on a capitated basis.

                                       8
<PAGE>

HEALTH PLAN                See "CONTRACTOR".

IBNR                       Incurred But Not Reported: Liability for services
                           rendered for which claims have not been received.

IHS                        Indian Health Services authorized as a federal agency
                           pursuant to 25 U.S.C. 1661.

LIEN                       A legal claim filed with the County Recorder's office
                           in which a member resides and in the county an injury
                           was sustained for the purpose of ensuring that AHCCCS
                           receives reimbursement for medical services paid. The
                           lien is attached to any settlement the member may
                           receive as a result of an injury.

MANAGED CARE               Systems that integrate the financing and delivery of
                           health care services to covered individuals by means
                           of arrangements with selected providers to furnish
                           comprehensive services to members; establish explicit
                           criteria for the selection of health care providers;
                           have significant financial incentives for members to
                           use providers and procedures associated with the
                           plan; and have formal programs for quality assurance
                           and utilization review.

MANAGEMENT                 A person or organization that agrees to perform any
SERVICES                   administrative function or service for the Contractor
SUBCONTRACTOR              specifically related to securing or fulfilling the
                           Contractor's obligations to AHCCCSA under the terms
                           of the contract.

MANAGING                   A general manager, business manager, administrator,
EMPLOYEE                   director, or other individual who exercises
                           operational or managerial control over, or who
                           directly or indirectly conducts the day-to-day
                           operation of, an institution, organization or agency.

MATERIAL                   A fact, data or other information excluded from a
OMISSION                   report, contract, etc. the absence of which could
                           lead to erroneous conclusions following reasonable
                           review of such report, contract, etc.

MEDICAID                   A Federal/State program authorized by Title XIX of
                           the Social Security Act, as amended.

MEDICAL                    Title XIX Waiver member whose income is more than
EXPENSE                    100% of the Federal Poverty Level, and has medical
DEDUCTION                  expenses that reduce income to or below 40% of the
(MED)                      Federal Poverty Level. The 40% Federal Poverty Level
                           will be adjusted annually to reflect annual Federal
                           Poverty Level adjustments. MED's may have a
                           categorical link to a Title XIX program; however,
                           their income exceeds the limits of the Title XIX
                           program.

MEDICARE                   A Federal program authorized by Title XVIII of the
                           Social Security Act, as amended.

MEMBER                     A person eligible who is enrolled in the system, as
                           defined in A.R.S. ss. 36-2901.

NEW OFFEROR                The organization, entity or person which submits a
                           proposal in response to this solicitation and which
                           has not been an AHCCCS contractor during CYE 97.

NON-                       A person who provides services as prescribed in
CONTRACTING                A.R.S. ss. 36-2939 and who does not have a
PROVIDER                   subcontract with an AHCCCS contractor.

OFFEROR                    A person or other entity that submits a proposal to
                           the Administration in response to an RFP, as defined
                           in R9-22-106.

PERFORMANCE                A set of standardized indicators designed to assist
STANDARDS                  AHCCCS in evaluating, comparing and improving the
                           performance of its contractors. Specific descriptions
                           of health services measurement goals are found in
                           Section D, Paragraph 16, Performance standards.

                                       9
<PAGE>

PMMIS                      AHCCCSA's Prepaid Medical Management Information
                           System.

PRIMARY CARE               An individual who meets the requirements of A.R.S.
PROVIDER (PCP)             ss. 36-2901, and who is responsible for the
                           management of a member's health care. A PCP may be a
                           physician defined as a person licensed as allopathic
                           or osteopathic physician according to A.R.S. Title
                           32, Chapter 13 or Chapter 17 or a practitioner
                           defined as a physician assistant licensed under
                           A.R.S. Title 32, Chapter 25, or a certified nurse
                           practitioner licensed under A.R.S. Title 32, Chapter
                           15.

PRIOR PERIOD               The period of time from the 1st day of the month of
                           application or the 1st eligible month, whichever is
                           later, to the day a member is enrolled with the
                           Contractor. The Contractor receives notification from
                           the Administration of the member's enrollment. Also,
                           the period of time between the date a MED member was
                           approved and the date the member met spenddown or 1st
                           day of the month the member reduced resources
                           whichever is later.

PROPOSITION 204            Referendum that increased eligibility for AHCCCS
                           services to individuals whose income is at or below
                           100% of Federal Poverty Level.

PROVIDER                   Any person who contracts with the Administration for
                           the provision of hospitalization and medical care to
                           members according to the provisions A.R.S. ss.
                           36-2901 or any subcontractor of provider delivering
                           services pursuant to A.R.S. ss. 36-2901

QUALIFIED                  A person, eligible under A.R.S. ss. 36-2971(4), who
MEDICARE                   is entitled to Medicare Part A insurance, meets
BENEFICIARY                certain income and residency requirements of the
(QMB)                      Qualified Medicare Beneficiary program. A QMB who is
                           also eligible for Medicaid is commonly referred to as
                           a QMB dual eligible.

QISMC                      Quality Improvement System for Managed Care developed
                           by the Centers for Medicare/Medicaid (CMS), formerly
                           (HCFA), for use in evaluation and management of the
                           quality of care provided by Medicare and Medicaid
                           managed care contractors. QISMC serves as one of the
                           key elements for the AHCCCS QM and UM requirements
                           included in this contract.

RATE CODE                  Eligibility classification for capitation payment
                           purposes.

REGIONAL                   An organization under contract with ADHS to
BEHAVIORAL                 administer covered behavioral health services in a
HEALTH                     geographically specific area of the state. Tribal
AUTHORITY                  governments, through an agreement with ADHS, may
(RBHA)                     operate a tribal regional behavioral health authority
                           (TRBHA) for the provision of behavioral health
                           services to Native American members living
                           on-reservation.

REINSURANCE                A risk-sharing program provided by the Administration
                           to contractors for the reimbursement of certain
                           contract service costs incurred by a member beyond a
                           certain monetary threshold.

RELATED PARTY              A party that has, or may have, the ability, to
                           control or significantly influence a contractor, or a
                           party that is, or may be, controlled or significantly
                           influenced by a contractor. "Related parties"
                           include, but are not limited to, agents, managing
                           employees, persons with an ownership or controlling
                           interest in the disclosing entity, and their
                           immediate families, subcontractors, wholly-owned
                           subsidiaries or suppliers, parent companies, sister
                           companies, holding companies, and other entities
                           controlled or managed by any such entities or
                           persons.

RFP                        Request For Proposals which is a document prepared by
                           AHCCCSA which describes the services required and
                           which instructs prospective offerors how to prepare a
                           response (proposal), as defined in R9-22-107.

SCOPE OF                   See "COVERED SERVICES"
SERVICES

SOBRA                      Section 9401 of the Sixth Omnibus Budget and
                           Reconciliation Act, 1986, amended by the

                                       10
<PAGE>

                           Medicare Catastrophic Coverage Act of 1988, 42 CFR
                           U.S.C. 1396a(a)(10)(A)(ii)(IX), July 1, 1988.

STATE                      The State of Arizona.

STATE PLAN                 The written agreements between the State and CMS
                           which describes how the AHCCCS program meets CMS
                           requirements for participation in the Medicaid
                           program and the State Children's Health Insurance
                           Program

SUBCONTRACT                An agreement entered into by Contractor with a
                           provider of health care services who agrees to
                           furnish covered services to members, or with a
                           marketing organization, or with any other
                           organization or person who agrees to perform any
                           administrative function or service for Contractor
                           specifically related to fulfilling Contractor's
                           obligations to AHCCCSA under the terms of this
                           contract, as defined in R9-22-101.

SUBCONTRACTOR              (1) A person, agency or organization to that a
                           contractor has contracted with or delegated some of
                           its management functions or responsibilities to
                           provide covered services to its members; or (2) A
                           person, agency or organization that a fiscal agent
                           has entered into a contract, agreement, purchase
                           order or lease (or leases of real property) to obtain
                           space, supplies, equipment or services provided under
                           the AHCCCS agreement.

SUPPLEMENTAL               Federal cash assistance program under Title XVI of
SECURITY                   the Social Security Act.
INCOME (SSI)

TEFRA RISK HMO             A Health Maintenance Organization or Comprehensive
                           Medical Plan, which provides Medicare services to
                           Medicare beneficiaries pursuant to a Medicare risk
                           contract with CMS under ss. 1876 of the Social
                           Security Act.

TEMPORARY                  A Federal cash assistance program under the Social
ASSISTANCE TO              Security Act. It replaced Aid To Families With
NEEDY FAMILIES             Dependent Children (AFDC).
(TANF)

THIRD PARTY                An individual, entity or program that is or may be
                           liable to pay all or part of the medical cost of
                           injury, disease or disability of an AHCCCS applicant
                           or member, as defined in R9-22-110.

THIRD PARTY                The resources available from a person or entity that
LIABILITY                  is, or may be, by agreement, circumstance or
                           otherwise, liable to pay all or part of the medical
                           expenses incurred by an AHCCCS applicant or member,
                           as defined in P.9-22-110.

TITLE XIX                  Member eligible for Federally funded Medicaid
MEMBER                     programs under Title XIX of the Social Security Act
                           including those eligible under 1931 provisions of the
                           Social Security Act (previously AFDC), Sixth Omnibus
                           Budget Reconciliation Act (SOBRA), Supplemental
                           Security Income (SSI), SSI-related groups, and Title
                           XIX Waiver groups.

TITLE XIX                  All MED (Medical Expense Deduction) members, and
WAIVER MEMBER              adults or childless couples at or below 100% of the
                           Federal Poverty Level who are not categorically
                           linked to another Title XIX program. This would also
                           include Title XIX linked individuals who's income
                           exceeds the limits of the categorical program.

TITLE XXI                  Member eligible for acute care services under Title
MEMBER                     XXI of the Social Security Act, referred to in
                           federal legislation as the "State Children's Health
                           Insurance Program" (SCHIP). The Arizona version of
                           SCHIP is referred to as "KidsCare."

TRIBAL FACILITY            A facility that is operated by an Indian tribe and
(638 TRIBAL FACILITY)      that is authorized to provide services pursuant to
                           Public Law 93-638, as amended.

                                       11
<PAGE>

YEAR                       See "Contract Year".
[END OF DEFINITIONS]

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                         SECTION D: PROGRAM REQUIREMENTS

1.       SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable federal, State and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R 9-22, Article 2, the AHCCCS Medical Policy
Manual (AMPM), and the document entitled "AHCCCS Health Plan Performance
Indicators", all of which are incorporated herein by reference and may be found
in the Bidder's Library. The covered services are briefly described below.
Covered services must be medically necessary and provided by, or coordinated
with, a primary care provider, except for behavioral health and children's
preventive dental services. Services must be rendered by providers that are
appropriately licensed or certified, operating within their scope of practice,
and registered as an AHCCCS provider. The Contractor shall provide the same
standard of care for all members regardless of the member's eligibility
category.

The Contractor shall ensure that its providers are not restricted or inhibited
in any way from communicating freely with members regarding the members' health
care, medical needs and treatment options even if needed services are not
covered by the Contractor.

KIDSCARE COVERED SERVICES: Effective 10/1/01: KidsCare members are eligible for
the same services covered for members under the Title XIX program.

AMBULATORY SURGERY AND ANESTHESIOLOGY: The Contractor shall provide surgical
services for either emergency or scheduled surgeries when provided in an
ambulatory or outpatient setting such as a free-standing surgical center or a
hospital based outpatient surgical setting.

AUDIOLOGY: The Contractor shall provide audiology services to members under the
age of 2l including the identification and evaluation of hearing loss and
rehabilitation of the hearing loss through other than medical or surgical means
(i.e. hearing aids). Only the identification and evaluation of hearing loss are
covered for members 21 years of age and older unless the hearing loss is due to
an accident or injury-related emergent condition.

BEHAVIORAL HEALTH: The Contractor shall provide behavioral health services as
described in Section D, Paragraph 2, Behavioral Health Services.

CHILDREN'S REHABILITATIVE SERVICES (CRS): The program for children with
CRS-covered conditions is administered by the Arizona Department of Health
Services (ADHS) for children who meet CRS eligibility criteria. The Contractor
shall refer children to the CRS program who are potentially eligible for
services related to CRS covered conditions, as specified in R9-22, Article 2
A.R.S. Title 36, Chapter 2, Article 3. Eligibility criteria and the referral
process are described in the CRS Policy and Procedures Manual available in the
Bidder's Library.

The Contractor shall monitor referrals to CRS to ensure CRS covered services are
provided in a timely manner to eligible members. Referral to CRS does not
relieve the Contractor of the responsibility for providing medically necessary
services not covered by CRS to CRS eligible members. The Contractor is also
responsible for initial care of newborn members, who are CRS eligible. The
Contractor must require the member's Primary Care Provider (PCP) to coordinate
their care with the CRS program. All services provided must be included in the
member's medical record maintained by the PCP.

The Contractor is not responsible for payment of those CRS covered services for
which a CRS eligible member refuses to receive through the CRS program. A member
with private insurance is not required to utilize CRS. If the member uses their
private insurance network for a CRS covered condition, and the member is not
enrolled with CRS, the Contractor is responsible for all applicable deductibles
and copays.

The Contractor remains ultimately responsible for the provision of all covered
services to its members. If the Contractor becomes aware that CRS has failed to
meet the established appointment standards, or has failed to provide medically
necessary CRS covered services, the Contractor shall immediately notify AHCCCSA,
Office of Medical Management, of the occurrence. In accordance with AHCCCS
policy, the Contractor may seek reimbursement from CRS for providing CRS covered
services.

CHIROPRACTIC SERVICES: The Contractor shall provide chiropractic services to
members under age 21 when prescribed by the member's PCP and approved by the
Contractor in order to ameliorate the member's medical condition. Medicare
approved

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<PAGE>

chiropractic services shall also be covered, subject to limitations specified in
CFR 410.22, for Qualified Medicare Beneficiaries if prescribed by the member's
PCP and approved by the Contractor.

DENTAL. The Contractor shall provide all members under the age of 21 with all
medically necessary dental services including emergency dental services, dental
screening and preventive services in accordance with the AHCCCS periodicity
schedule, therapeutic dental services, dentures, and pre-transplantation dental
services. The Contractor shall monitor compliance with the EPSDT periodicity
schedule for dental screening services and ensure that dental service reports
are included in the member's medical record maintained by the PCP. The
Contractor is required to meet specific utilization rates for members as
described in Section D, Paragraph 16, Performance Standards. The Contractor
shall ensure that members are notified when dental screenings are due if the
member has not been scheduled for a visit. If no dental screening is received by
the member, a second notice must be sent. Members under the age of 21 may
request dental services without referral and may choose a dental provider from
the Contractor's provider network. For members who are 21 years of age and
older, the Contractor shall provide emergency dental care, medically necessary
dentures and dental services for transplantation services as specified in the
AMPM. Dental standards may be found in the AMPM, Section 310, which is
incorporated herein by reference and which may be found in the Bidder's Library.

DIALYSIS: The Contractor shall provide medically necessary dialysis, supplies,
diagnostic testing and medication for all members when provided by
Medicare-certified hospitals or Medicare-certified end stage renal disease
(ESRD) providers. Services may be provided on an outpatient basis, or on an
inpatient basis if the hospital admission is not solely to provide chronic
dialysis services.

EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment to correct or
ameliorate defects and physical or mental illness discovered by the screenings
for members under age 21. The Contractor shall ensure that these members receive
required health screenings, including developmental/behavioral health, in
compliance with the AHCCCS periodicity schedule (Exhibit 430-1 in the AMPM) and
to submit to the AHCCCS Office of Medical Management; all EPSDT reports as
required by AHCCCS medical policy. The Contractor is required to meet specific
participation/utilization rates for members as described in Section D, Paragraph
16, Performance Standards. Because behavioral health benefits for Title XIX and
Title XXI members are provided through the ADHS/RBHA system, the Contractor
shall ensure the initiation and coordination of the referral of these members to
the RBHA and shall follow up with the RBHA to monitor whether members have
received behavioral health services

EMERGENCY SERVICES: The Contractor shall have and/or provide the following as a
minimum:

a.       Emergency services facilities adequately staffed by qualified medical
         professionals to provide pre-hospital, emergency care on a
         24-hour-a-day, 7-day-a-week basis, for the sudden onset of a medically
         emergent condition as defined by AHCCCS Rule R9-22-10l and R9-31-101.
         Emergency medical services are covered without prior authorization. The
         Contractor is encouraged to contract with emergency service facilities
         for the provision of emergency services. The Contractor is encouraged
         to contract with or employ the services of non-emergency facilities
         (e.g. urgent care centers) to address member non-emergency care issues
         occurring after regular office hours or on weekends. The Contractor
         shall be responsible for educating members and providers regarding
         appropriate utilization of emergency room services including behavioral
         health emergencies. The Contractor shall monitor emergency service
         utilization (by both provider and member) and shall have guidelines for
         implementing corrective action for inappropriate utilization. For
         utilization review, the test for appropriateness of the request for
         emergency services shall be whether a prudent layperson, similarly
         situated, would have requested such services. For purposes of this
         contract, a "prudent layperson" is a person who possesses an average
         knowledge of health and medicine.

b.       All medical services necessary to rule out an emergency condition

c.       Emergency transportation

d.       Member access by telephone to a physician, registered nurse, physician
         assistant or nurse practitioner for advice in emergent or urgent
         situations, 24 hours per day, 7 days per week.

e.       The Contractor shall comply with guidelines regarding the coordination
         of post-stabilization care.

EYE EXAMINATIONS/OPTOMETRY: The Contractor shall provide all medically necessary
emergency eye care, vision examinations, prescriptive lenses, and treatments for
conditions of the eye for all members under the age of 21. For members who are
21 years of age and older, the Contractor shall provide emergency care for eye
conditions which meet the definition of an emergency medical condition, cataract
removal, and/or medically necessary vision examinations and prescriptive lenses
if required following cataract removal and other eye conditions as specified in
the AMPM.

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<PAGE>

FAMILY PLANNING: The Contractor shall provide family planning services in
accordance with the AMPM, Section 420 for all members who choose to delay or
prevent pregnancy. These include medical, surgical, pharmacological and
laboratory services, as well as contraceptive devices. Information and
counseling necessary to allow the members to make informed decisions regarding
family planning methods shall also be included. If the Contractor does not
provide family planning services, it must contract for these services through
another health care delivery system, which allows members freedom of choice in
selecting a provider. A prospective offeror may discuss arrangements for family
planning services only with other prospective offerors during the RFP process
for the purpose of making arrangements for the provision of family planning
services.

The Contractor shall provide services to members enrolled in the Family Planning
Services Extension Program; a program that provides only family planning
services for a maximum of 24 months to women whose SOBRA eligibility has
terminated. The Contractor is also responsible for notifying AHCCCSA when a
SOBRA woman is sterilized to prevent inappropriate enrollment in the SOBRA
Family Planning Services Extension Program. Notification may be made at the time
the newborn is reported or after the sterilization procedure is completed.

HEALTH RISK ASSESSMENT AND SCREENING: The Contractor shall provide these
services for non-hospitalized members 21 years of age and older. These services
include, but are not limited to, screening for hypertension, elevated
cholesterol, colon cancer, sexually transmitted diseases, tuberculosis and
HIV/AIDS; nutritional assessment in cases when the member has a chronic
debilitating disease affected by nutritional needs; mammograms and prostate
screenings; physical examinations and diagnostic work-ups; and immunizations.
Required assessment and screening services for members under age 21 are included
in the AHCCCS EPSDT periodicity schedule.

HOME HEALTH: The Contractor shall provide part-time or intermittent care for
members who do not require hospital care. This service is provided under the
direction of a physician to prevent re-hospitalization or institutionalization
and may include nursing, therapies, supplies and home health aide services.

HOSPICE: These services are covered for members under 21 years of age who are
certified by a physician as being terminally ill and having six months or less
to live. See the AMPM for details on covered hospice services.

HOSPITAL: Inpatient services include semi-private accommodations for routine
care, intensive and coronary care, surgical care, obstetrics and newborn
nurseries, and behavioral health emergency/crisis services. If the member's
medical condition requires isolation; private inpatient accommodations are
covered. Nursing services, dietary services and ancillary services such as
laboratory, radiology, pharmaceuticals, medical supplies, blood and blood
derivatives, etc. are also covered. Outpatient services include any of the above
services, which may be provided on an outpatient or ambulatory basis (i.e.
laboratory, radiology, therapies, ambulatory surgery, etc.). Observation
services may be provided on an outpatient basis for up to 24 hours if determined
reasonable and necessary to decide whether the member should be admitted for
inpatient care. Observation services include the use of a bed and periodic
monitoring by hospital nursing staff and/or other staff to evaluate, stabilize
or treat medical conditions of a significant degree of instability and/or
disability.

IMMUNIZATIONS: The Contractor shall provide immunizations for adults (21 years
of age and older) to include diphtheria-tetanus, influenza, pneumococcus,
rubella, measles and hepatitis-B. For all members under the age of 21,
immunization requirements include diphtheria, tetanus, pertussis vaccine (DPT),
inactivated polio vaccine (IPV), measles, mumps, rubella (MMR) vaccine, H.
influenza, type B (HIB) vaccine, hepatitis B (Hep B) vaccine, and varicella
zoster virus (VZV) vaccine, and pneumococcal conjugate vaccine (PCV). The
Contractor is required to meet specific immunization rates for members under the
age of 21, which are described in Section 16, Performance Standards.

INDIAN HEALTH SERVICES (IHS): The Contractor may choose to subcontract with and
pay an IHS or 638 tribal facility as part of their provider network for covered
services provided to members. The Contractor is responsible for reimbursement to
IHS or tribal facilities for emergency services provided to Title XXI Native
American members enrolled with the Contractor. AHCCCSA will reimburse claims on
a FFS basis to providers for acute care services that are medically necessary
and eligible for 100% Federal reimbursement, and that are provided to Title XIX
members in an IHS or a 638 tribal facility.

LABORATORY. Laboratory services for diagnostic, screening and monitoring
purposes are covered when ordered by the member's PCP, other attending physician
or dentist, and provided by a CLIA (Clinical Laboratory Improvement Act)
approved free standing laboratory or hospital laboratory, clinic, physician
office or other health care facility laboratory.

                                       15
<PAGE>

Upon written request, a Contractor may obtain laboratory test data on members
from a laboratory or hospital based laboratory subject to the requirements
specified in A.R.S. ss. 36-2903(R) and (S). The data shall be used exclusively
for quality improvement activities and health care outcome studies required
and/or approved by the Administration.

MATERNITY: The Contractor shall provide pre-conception counseling, pregnancy
identification, prenatal care, treatment of pregnancy related conditions, labor
and delivery services, and postpartum care for members. Services may be provided
by physicians, physician assistants or nurse practitioners certified in
midwifery.

Members may select or be assigned to a PCP specializing in obstetrics.
Circumcisions are covered as described in the AMPM. All members anticipated to
have a low-risk delivery may elect to receive labor and delivery services in
their home from their maternity provider if this setting is included in
allowable settings for the Contractor, and the Contractor has providers in its
network that offer home labor and delivery services. All members anticipated to
have a low-risk prenatal course and delivery may elect to receive maternity
services of prenatal care, labor and delivery and postpartum care provided by
licensed midwives if they are in the Contractor's provider network. All licensed
midwife labor and delivery services must be provided in the member's home since
licensed midwives do not have admitting privileges in hospitals or AHCCCS
registered free-standing birthing centers. Members receiving maternity services
from a licensed midwife must also be assigned to a PCP for other health care and
medical services. The Contractor shall allow women and their newborns to receive
up to 48 hours of inpatient hospital care after a routine vaginal delivery and
up to 96 hours of inpatient care after a cesarean delivery. The attending health
care provider, in consultation with the mother, may discharge the mother or
newborn prior to the 48-hour minimum length of stay. A normal newborn may be
granted an extended stay in the hospital of birth when the mother's continued
stay in the hospital is beyond the 48 or 96 hour stay.

The Contractor shall inform all assigned AHCCCS pregnant women of voluntary
prenatal HIV testing and the availability of medical counseling if the test is
positive. The Contractor shall provide information in the member handbook and
annually in the member newsletter to encourage pregnant women to be tested and
instructions on where to be tested. Semi-annually, the Contractor shall report
to AHCCCS the number of pregnant women who have been identified as HIV/AIDS
positive. This report is due no later than 30 days after the end of the second
and fourth quarters of the contract year.

MEDICAL FOODS: Medical foods are covered within limitations defined in the AMPM
for members diagnosed with a metabolic condition included under the ADHS Newborn
Screening Program and specified in the AMPM. The medical foods, including
metabolic formula and modified low protein foods, must be prescribed or ordered
under the supervision of a physician.

MEDICALLY-NECESSARY PREGNANCY TERMINATIONS: AHCCCS covers pregnancy termination
when it is the result of rape or incest, or in circumstances where the member
suffers form a physical disorder, physical injury, or physical illness,
including a life endangering physical condition caused by or arising form the
pregnancy itself, that would, as certified by a physician, place the member in
danger of death unless the pregnancy is terminated. In addition, providers must
submit to the Contractor a Certificate of Medical Necessity for Pregnancy
Termination. Prior authorization is required. If the procedure is performed on
an emergency basis, documentation, outlined in the AMPM, is required for a
member under eighteen years of age or a member who is considered an
incapacitated adult who seeks a medically necessary pregnancy termination, as
defined above.

MEDICAL SUPPLIES, DURABLE MEDICAL EQUIPMENT (DME), ORTHOTIC AND PROSTHETIC
DEVICES: These services are covered when prescribed by the member's PCP,
attending physician or practitioner, or by a dentist. Medical equipment may be
rented or purchased only if other sources are not available which provide the
items at no cost. The total cost of the rental must not exceed the purchase
price of the item. Reasonable repairs or adjustments of purchased equipment are
covered to make the equipment serviceable and/or when the repair cost is less
than renting or purchasing another unit.

NURSING FACILITY. The Contractor shall provide nursing facility services,
including religious nonmedical health care institutions, for members who require
short-term convalescent care not to exceed 90 days per contract year. In lieu of
a nursing facility, the member may be placed in an assisted living facility or
alternative residential setting, or receive home and community based services
(HCBS) as defined in R9-22, Article 2 and R9-28, Article 2 that meet the
provider standards described in R9-28, Article 5, and subject to the limitations
set forth in Chapter 1200 of the AMPM.

Nursing facility services must be provided in a dually-certified
Medicare/Medicaid facility which includes in the per-diem rate: nursing
services, basic patient care equipment and sickroom supplies, dietary services,
administrative physician visits, non-customized DME, necessary maintenance
rehabilitation therapies, over-the-counter medications, social, recreational and
spiritual activities, and administrative, operational medical direction
services. The Contractor shall provide medically necessary nursing facility
services for any member who has a pending ALTCS application, who is currently
residing in a nursing facility and is eligible for services provided under this
contract. If the member becomes ALTCS eligible and is enrolled with an

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ALTCS Program Contractor before the end of the maximum 90 days of nursing
facility coverage, the Contractor is only responsible for nursing facility
coverage during the time the member is enrolled with the Contractor. Nursing
facility services covered by a third party insurer (including Medicare) while
the member is enrolled with the Contractor shall be applied to the 90 day
limitation. See Paragraph 36, Nursing Facility Reimbursement, for further
details.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing when a member has been residing in a nursing facility for 75
days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application and to prepare for potential fee-for-service coverage if the stay
goes beyond the 90-day maximum.

NUTRITION: Nutritional assessments may be conducted as a part of the EPSDT
screenings for members under age 21, and to assist members 21 years of age and
older whose health status may improve with nutritional intervention. Assessment
of nutritional status on a periodic basis may be provided as determined
necessary, and as a part of the health risk assessment and screening services
provided by the member's PCP. AHCCCS covers nutritional therapy on an enteral,
parenteral or oral basis, when determined medically necessary to provide either
complete daily dietary requirements, or to supplement a member's daily
nutritional and caloric intake and when AHCCCS criteria specified in the AMPM
are met.

PHYSICIAN: The Contractor shall provide physician services to include medical
assessment, treatments and surgical services provided by licensed allopathic or
osteopathic physicians.

PODIATRY: The Contractor shall provide podiatry services to include
bunionectomies, casting for the purpose of constructing or accommodating
orthotics, medically necessary orthopedic shoes that are an integral part of a
brace, and medically necessary routine foot care for patients with a severe
systemic disease which prohibits care by a nonprofessional person.

PRESCRIPTION MEDICATIONS: Medications ordered by a PCP, attending physician or
dentist and dispensed under the direction of a licensed pharmacist are covered
subject to limitations related to prescription supply amounts, Contractor
formularies and prior authorization requirements, as well as restrictions for
immunosuppressant drugs addressed in AHCCCS medical policies for
transplantation's. Appropriate over-the-counter medication may be prescribed
when it is determined to be a lower-cost alternative to prescription medication.

PRIMARY CARE PROVIDER (PCP): PCP services are covered when provided by a
physician, physician assistant or nurse practitioner selected by, or assigned
to, the member. The PCP provides primary health care and serves as a gatekeeper
and coordinator in referring the member for specialty medical services,
behavioral health and dental services. The PCP is responsible for maintaining
the member's primary medical record, which contains documentation of all health
risk assessments and health care services of which they are aware whether or not
they were provided by the PCP.

RADIOLOGY AND MEDICAL IMAGING: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical condition. Services are
generally provided in hospitals, clinics, physician offices and other health
care facilities.

REHABILITATION THERAPY: The Contractor shall provide occupational, physical and
speech therapies. Therapies must be prescribed by the member's PCP or attending
physician for an acute condition and the member must have the potential for
improvement due to the rehabilitation. Occupational and speech therapies are
only covered on an inpatient basis for those members who are 21 and over;
physical therapy for all members and occupational and speech therapies for
members under the age of 21 are covered on both an inpatient and outpatient
basis if not used as a maintenance regimen.

RESPIRATORY THERAPY: This therapy is covered on an inpatient or outpatient basis
when prescribed by the member's PCP or attending physician and is necessary to
restore, maintain or improve respiratory functioning.

TRANSPLANTATION OF ORGANS AND TISSUE, AND RELATED IMMUNOSUPPRESSANT DRUGS: These
services are covered within limitations defined in the AMPM for members
diagnosed with specified medical conditions. Such limitations include whether
the stage of the disease is such that the transplant can affect the outcome; the
member has no other conditions that substantially reduce the potential for
successful transplantation; and whether the member will be able to comply with
necessary and required regimens of treatment. Bone grafts are also covered under
this service. Services include pre-transplant inpatient or outpatient
evaluation; donor search; organ/tissue harvesting or procurement; preparation
and transplantation services; and convalescent care. In addition, if a member
receives a transplant covered by a source other than AHCCCS, medically necessary
non-experimental services are provided within limitations after the discharge
from the acute care hospitalization for the transplantation. AHCCCS has
contracted with transplantation providers for the Contractor's use or the
Contractor may select its

                                       17
<PAGE>

own transplantation provider. However, the quality of services must be equal to
or exceed those of the AHCCCS provider and the rate paid can not exceed the
AHCCCS provider's negotiated rate.

AHCCCSA is in the process of releasing a Request for Proposal (RFP) for the
purpose of contracting with an entity that will coordinate transplant services
for all AHCCCS members. It is anticipated that the responsibility for transplant
services will be transferred to the new contractor on January 1, 2002.

TRANSPORTATION: These services include emergency and non-emergency medically
necessary transportation. Emergency transportation, including transportation
initiated by an emergency response system such as 911, may be provided by
ground, air or water ambulance to manage an AHCCCS member's emergency medical
condition at an emergency scene and transport the member to the nearest
appropriate medical facility. Non-emergency transportation shall be provided for
members who are unable to provide their own transportation for medically
necessary services.

TRIAGE/SCREENING AND EVALUATION: These are covered services when provided by
acute care hospitals, IHS facilities and urgent care centers to determine
whether or not an emergency exists, assess the severity of the member's medical
condition and determine services necessary to alleviate or stabilize the
emergent condition. The provider must notify the Contractor within 12 hours of
the member's registration with the facility for emergency services. Supporting
documentation for services rendered must be provided when reporting or billing a
service. Triage/screening services must be reasonable, cost effective and meet
the criteria for seventy of illness and intensity of service.

2.       BEHAVIORAL HEALTH SERVICES

Title XIX and Title XXI members are eligible for comprehensive behavioral health
services. The behavioral health benefit for these members is provided through
the ADHS - Regional Behavioral Health Authority (RBHA) system. The Contractor
shall be responsible for member education regarding these benefits; provision of
limited emergency inpatient services; and screening and referral to the RBHA
system of members identified as requiring behavioral health services.

MEMBER EDUCATION: The Contractor shall be responsible for educating members in
the member handbook and other printed documents about covered behavioral health
services and where and how to access services. Covered services include:

a.       Behavior Management (behavioral health personal assistance, family
         support, peer support)

b.       Case Management Services

c.       Emergency/Crisis Behavioral Health Services

d.       Emergency Transportation

e.       Evaluation and Screening

f.       Group Therapy and Counseling

g.       Individual Therapy and Counseling

h.       Family Therapy and Counseling

i.       Inpatient Hospital

j.       Inpatient Psychiatric Facilities for persons under 21 years of age
         (residential treatment centers and subacute facilities)

k.       Institutions for Mental Diseases (with limitations)

l.       Laboratory and Radiology Services for Psychotropic Medication
         Regulation and Diagnosis

m.       Non-Emergency Transportation

n.       Partial Care (Supervised day program, therapeutic day program, and
         medical day program)

o.       Psychosocial Rehabilitation (living skills training; health promotion;
         per-job training, education and development; job coaching and
         employment support)

p.       Psychotropic Medication

q.       Psychotropic Medication Adjustment and Monitoring

r.       Respite Care

s.       Therapeutic foster care

REFERRALS: As specified in Section D, Paragraph 1, EPSDT, the Contractor must
provide developmental/behavioral health screenings for members up to 21 years of
age in compliance with the AHCCCS periodicity schedule. The Contractor shall

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<PAGE>

ensure the initiation and coordination of behavioral health referrals of these
members to the RBHA when determined necessary through the screening process.

The Contractor is responsible for RBHA referral and follow-up collaboration, as
necessary, for other Title XIX and Title XXI members identified as needing
behavioral health evaluation and treatment. Members may also access the RBHA
system for evaluation by self-referral or be referred by schools, State agencies
or other service providers. The Contractor is responsible for providing
transportation to a member's first RBHA evaluation appointment if a member is
unable to provide their own transportation.

EMERGENCY SERVICES: For Title XIX and Title XXI members not enrolled with ADHS,
the Contractor is responsible for up to three days of inpatient behavioral
health services per emergency episode not to exceed 12 days per contract year. A
referral to the RBHA for evaluation and enrollment should be initiated as soon
as possible after admission.

When Title XIX and Title XXI members present in an emergency room setting, the
Contractor is responsible for all emergency medical services including triage,
physician assessment and diagnostic tests. For Title XIX and Title XXI members
not enrolled with ADHS, the Contractor is responsible to provide medically
necessary psychiatric consultations or psychological consultations in emergency
room settings to help stabilize the member or determine the need for inpatient
behavioral health services. ADHS is responsible for medically necessary
psychiatric consultations provided to Title XIX and Title XXI ADHS enrolled
members in emergency room settings.

COORDINATION OF CARE: The Contractor is responsible for ensuring that a medical
record is established by the PCP when behavioral health information is received
from the RBHA or provider about an assigned member even if the PCP has not yet
seen the assigned member. In lieu of actually establishing a medical record,
such information may be kept in an appropriately labeled file but must be
associated with the member's medical record as soon as one is established. The
Contractor shall require the PCP to respond to RBHA/provider information
requests pertaining to ADHS enrolled members including, but not limited to,
current diagnosis, medication, pertinent laboratory results, last PCP visit, and
last hospitalization. For prior period coverage, the Contractor is responsible
for payment of all claims for medically necessary covered behavioral health
services to members not enrolled with ADHS.

MEDICATION MANAGEMENT SERVICES: The Contractor shall allow PCPs to provide
medication management services (prescriptions, medication monitoring visits,
laboratory and other diagnostic tests necessary for diagnosis and treatment of
behavioral disorders) to members with diagnoses of depression, anxiety and
attention deficit hyperactivity disorder. The Contractor shall make available,
on the Contractor's formulary, medications for the treatment of these disorders.

The Contractor shall ensure that training and education is available to PCPs
regarding behavioral health referral and consultation procedures. The Contractor
shall establish policies and procedures for referral and consultation and shall
include them in their provider manual. Also, Contractors shall inform PCPs about
the availability of resource information through the Maricopa Integrated Health
System's Psychiatric Residency Training Program and the Arizona Medical
Association regarding the diagnosis and treatment of behavioral health
disorders.

The Contractor shall ensure that its quality management program incorporates
monitoring of the PCP's management of behavioral health disorders.

3.       AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference into
this contract. The Contractor is responsible for complying with the requirements
set forth within. The AMPM with search capability and linkages to AHCCCS rules,
Statutes and other resources is available to all interested parties through the
AHCCCS Home Page on the Internet (www.ahcccs.state.az.us). Upon adoption by
AHCCCSA, AMPM updates will be available through the Internet at the beginning of
each month. If required, the Contractors may receive one hard copy of the AMPM,
free of charge, from AHCCCSA, Office of Medical Management, however, the
Contractor shall be responsible for maintaining such copies current with these
updates.

4.       VACCINE FOR CHILDREN PROGRAM

Federal legislation passed in 1993 (OBRA 93) amended Title XIX of the Social
Security Act and created the Vaccine for Children (VFC) program which became
effective 10/1/94. Through this program, the federal and state governments
purchase, and make available to providers free of charge, vaccines for AHCCCS
children under age 19. Therefore, the Contractor shall

                                       19
<PAGE>

not utilize AHCCCS funding to purchase vaccines for members under the age of 19.
Any provider, licensed by the State to administer immunizations, may register
with ADHS as a "VFC provider" and receive free vaccines. The Contractor shall
comply with all VFC requirements and monitor its providers to ensure that, if
providing immunizations to AHCCCS members under the age of 19, the providers are
registered with ADHS/VFC.

5.       DENIALS OR REDUCTIONS OF SERVICES

When any covered service subject to prior authorization is denied, reduced,
suspended or terminated, the Contractor shall comply with the notice, request
for hearing and continuation of benefit requirements specified in 42 CFR ss.
431.200, et seq., A.A.C. R9-22-Article 13 and R9-3 1-Article 13, and the AHCCCS
Member Rights and Responsibilities Policy. This information must be explained in
the Member handbook provided for each member by the Contractor. The Contractor
is required to promptly provide any services specified in the AHCCCS Director's
decisions, irrespective of whether or not a Petition for Rehearing is filed.
Also, refer to Attachment H, Grievance and Request for Hearing Process and
Standards.

6.       ENROLLMENT AND DISENROLLMENT

AHCCCSA has the exclusive authority to enroll and disenroll members. The
Contractor shall not disenroll any member for any reason unless directed to do
so by AHCCCSA. Eligibility for the various AHCCCS coverage groups is determined
by one of the following agencies:

<TABLE>
<S>                                          <C>
Social Security Administration (SSA)         SSA determines eligibility for the Supplementary Security Income (SSI) cash
                                             program. SSI cash recipients are automatically eligible for AHCCCS
                                             coverage.

Department of Economic Security (DES)        DES determines eligibility for the families with children, pregnant women
                                             and children under SOBRA, under section 1931 of the Social Security Act,
                                             the Adoption Subsidy Program, Title IV-E foster care children, Young Adult
                                             Transition Insurance Program, the Federal Emergency Services program
                                             (FES), and effective 10/1/200 1, the Title XIX Waiver Members.

AHCCCSA                                      AHCCCSA determines eligibility for the SSI/MAO groups, including the
                                             FES program for this population (aged, disabled, blind), the Arizona Long-
                                             Term Care System (ALTCS), the Qualified Medicare Beneficiary program
                                             and other Medicare cost sharing programs, and the Title XXI program,
                                             KidsCare.

Arizona's 15 Counties                        Proposition 204 legislation permits DES to allow counties to continue to
                                             perform eligibility determinations for AHCCCS until October 1, 2002.
</TABLE>

AHCCCS acute care members are enrolled with contractors in accordance with the
rules set forth in R9-22, Article 17.

HEALTH PLAN CHOICE

Title XIX members, including Title XIX waiver members, have a choice of
available health plans. A listing of the available health plans and their
telephone numbers will be given to each applicant during the application process
for AHCCCS benefits. Also included are instructions to applicants to call the
health plans directly with specific questions concerning the health plan. If
there is only one health plan available for the applicant's Geographical Service
Area, no choice is offered. Members who do not choose prior to AHCCCSA's being
notified of their eligibility are automatically assigned to a health plan based
on family continuity or the auto-assignment algorithm.

Title XXI members must select a health plan prior to being determined eligible
and therefore, will not be auto-assigned. When a member is transferred from
Title XIX to Title XXI and has not made a health plan choice for Title XXI, the
member will remain with the Title XIX health plan and a choice notice will be
sent to the member. The member may then change plans no later than 16 days from
the date the choice notice is sent.

Exceptions to the above enrollment policies for Title XIX members include:
previously enrolled members who have been disenrolled for less than 90 days will
be automatically enrolled with the same contractor, if that contractor is still
available. Also, women who are eligible for the Family Planning Services
Extension Program will automatically remain assigned to the

                                       20
<PAGE>

same health plan. The Family Planning Services Extension Program provides a
maximum of 24 months of family planning services.

The effective date of enrollment for a new Title XIX member with the Contractor
will generally be the day prior to the date the Contractor receives notification
from AHCCCSA via the daily roster. However, the Contractor is responsible for
payment of medically necessary covered services retroactive to the member's
beginning date of eligibility.

The effective date of enrollment for a Title XXI member will be the first day of
the month following notification to the health plan. If a Title XXI member is
determined eligible by the 25th of the month, the member will be enrolled with
the health plan as of the 1st of the following month. If the member is
determined eligible AFTER the 25th of the month, the member will be enrolled
with the health plan as of the 1st of the second following month.

Proposition 204 and Title XIX Waiver Member Expansion/Conversion:

<TABLE>
<CAPTION>
                                                                           DATE EXPANSION OR
                 EXPANSION AND CONVERSION POPULATION                     CONVERSION INITIATED      ENROLLMENT METHODOLOGY
<S>                                                                     <C>                      <C>
QMB Only to QMB Dual Conversion under SSI-MAO                           4/1/01                   Current Title XIX rules

New SSI-MAO's from 76% to 100% FPL                                      4/1/01 onward            Current Title XIX rules

Eligible parents of SOBRA children and KidsCare children up to          7/1/01 - 9/1/01          Family Continuity
100% FPL

17 & 18 year old KidsCare children converting to Title XIX              Redetermination date     Remain in current health
                                                                                                 plan

MNMI (prior to 10/1/01)                                                 4/1/01 - 10/1/01         Current MNMI rules

SOBRA Family Planning notified of increase in Title XIX income limit    10/1/01                  Remain in current health
to 100% FPL                                                                                      plan

SMI SSI's                                                               7/1/01 - 9/1/01          Current Title XIX rules

Premium Sharing Conversion members with income at or below 100% FPL     10/1/01                  Remain in current health
who are not parents of SOBRA children or KidsCare children                                       plan

EAC/ELIC's who don't convert to KidsCare will be converted to a Title   10/1/01                  Remain in current health
XIX group, probably SOBRA.                                                                       plan

Title XIX Waiver members                                                10/1/01                  Current Title XIX rules
</TABLE>

PRIOR PERIOD COVERAGE: AHCCCS provides prior period coverage for Title XIX
members. Prior period coverage starts from the first day of the month of
application, or first eligible month, whichever is later, to the day a member is
enrolled with the Contractor. For MED's, prior period coverage is the time
period from the date the member met spenddown to the date of eligibility
approval. The Contractor is responsible for payment of all claims for medically
necessary covered services provided to members during prior period coverage.
This may include services provided prior to the contract year (See Section D,
Paragraph 37, Compensation, for a description of the Contractor's reimbursement
from AHCCCSA for this eligibility time period.)

NEWBORNS: Newborns born to AHCCCS-eligible mothers, including Title XXI mothers,
who were enrolled at the time of the child's birth, and whose newborn
notification was received by AHCCCSA, will be enrolled with the mother's health
plan. The Contractor is responsible for noticing AHCCCSA of a child's birth to
an enrolled member. Capitation to the Contractor will begin on the date
notification is received by AHCCCSA (except for cases of births during prior
period coverage). The effective date of AHCCCS eligibility will be the newborn's
date of birth, and the Contractor is responsible for all covered services to the
newborn whether or not AHCCCSA has received notification of the child's birth.
Note that AHCCCSA is currently available to receive notification calls 24 hours
a day, 7 days a week. Eligible mothers of newborns are sent a letter advising
them of their right to choose a different contractor for their child; otherwise
the child will remain with the mother's contractor. Newborns of FES mothers are
auto-assigned to a health plan and mothers of these newborns are sent a letter
advising them of their right to choose a different health plan for their child.
In the event the FES mother chooses a different health plan, AHCCCS will recoup
all capitation paid to the originally assigned plan and the baby will be
enrolled retroactive to the date of birth in the second plan. The second plan
will receive prior period capitation from the date of birth to the day before
assignment and prospective capitation from the date of assignment forward. The
second contractor will be responsible for all covered services to the newborn
from date of birth.

ENROLLMENT GUARANTEES: Upon initial capitated enrollment as a Title XIX-eligible
member, the member is guaranteed a minimum of five full months of continuous
enrollment. Upon initial capitated enrollment as a Title XXI-eligible member,
the

                                       21
<PAGE>

member is guaranteed a minimum of 12 full months of continuous enrollment.
Enrollment guarantees do not apply to Native Americans who choose to obtain
their covered services through Indian Health Services (IHS) on a fee-for-service
basis or children enrolled with Department of Economic Security/Comprehensive
Medical and Dental Program. The enrollment guarantee applies a maximum of one
time per member per eligibility category for Title XIX and Title XXI members. If
a member changes from one contractor to another within the enrollment guarantee
period, the remainder of the guarantee period applies to the new contractor. The
enrollment guarantee may not be granted or may be terminated if the member is
incarcerated or, if a minor child is adopted. AHCCCS Rule R9-22, Article 17 and
R9-31, Article 3 describes other reasons for which the enrollment guarantee may
not apply.

NATIVE AMERICANS: Native Americans, on or off-reservation, have a choice to
receive services from Indian Health Services (IHS), a PL 93-638 tribal facility
or any available contractor. If choice is not available or made within the
specified time limit, Native American Title XIX members living on-reservation
will be assigned to IHS. Native American Title XIX members living
off-reservation will be assigned to an available contractor using AHCCCSA's
family continuity policy and auto-assignment algorithm. Native Americans may
change from IHS to a contractor or from a contractor to IHS at any time. Native
American Title XXI members must make a choice prior to being determined
eligible.

7.       MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take affirmative
action so that members are provided covered services without regard to payer
source, race, color, creed, sex, religion, age, national origin, ancestry,
marital status, sexual preference, genetic information, or physical or mental
handicap, except where medically indicated. Contractors must take into account a
member's culture, when addressing members and their concerns, and must take
reasonable steps to encourage subcontractors to do the same. The Contractor must
make interpreters available for members to ensure appropriate delivery of
covered services.

Examples of prohibited practices include, but are not limited to, the following:

a.       Denying or not providing a member any covered service or access to an
         available facility.

b.       Providing to a member any covered service which is different, or is
         provided in a different manner or at a different time from that
         provided to other members, other public or private patients or the
         public at large except where medically necessary.

c.       Subjecting a member to segregation or separate treatment in any manner
         related to the receipt of any covered service; restricting a member in
         any way in his or her enjoyment of any advantage or privilege enjoyed
         by others receiving any covered service.

d.       The assignment of times or places for the provision of services on the
         basis of the race, color, creed, religion, age, sex, national origin,
         ancestry, marital status, sexual preference, income status, AHCCCS
         membership, or physical or mental handicap of the participants to be
         served.

If the Contractor knowingly executes a subcontract with a provider with the
intent of allowing or permitting the subcontractor to implement barriers to care
(i.e. the terms of the subcontract act to discourage the full utilization of
services by some members), the Contractor will be in default of its contract.

If the Contractor identifies a problem involving discrimination by one of its
providers, it shall promptly intervene and implement a corrective action plan.
Failure to take prompt corrective measures may place the Contractor in default
of its contract.

8.       MEMBER INFORMATION

All informational materials prepared by the Contractor shall be approved by
AHCCCSA prior to distribution to members. The reading level and name of the
evaluation methodology used should be included.

- All materials shall be translated when the Contractor is aware that a language
is spoken by 3,000 or 10% (whichever is less) of the Contractor's members who
also have Limited English Proficiency (LEP) in that language.

- All vital materials shall be translated when the Contractor is aware that a
language is spoken by 1,000 or 5% (whichever is less) of the Contractor's
members who also have LEP in that language. Vital materials must include, at a
minimum, notices for denials, reductions, suspensions or terminations of
services, vital information from the member handbooks and consent forms.

                                       22
<PAGE>

- All written notices informing members of their right to interpretation and
translation services in a language shall be translated when the Contractor is
aware that 1,000 or 5% (whichever is less) of the Contractor's members speak
that language and have LEP.

When there are program or service site changes, notification shall be provided
to the affected members at least 14 days before implementation. The Contractor
shall review and update the Member Handbook at least once a year. The Handbook
must be submitted to AHCCCSA Office of Managed Care for approval by Sept. 1 of
each contract year, or within four weeks of receiving the annual renewal
amendment, whichever is later.

The Contractor shall make every effort to ensure that all information prepared
for distribution to members is written at a 4th grade level.

The Contractor shall produce and provide the following printed information to
each member or family within 10 days of receipt of notification of the
enrollment date:

I.       A Member Handbook which, at a minimum, shall include the following
         items that are also listed in the Office of Managed Care, Operations
         Policy #404, Member Information Policy:

         a.       A table of contents.

         b.       A general description of how managed care works, particularly
                  in regards to member responsibilities, appropriate utilization
                  of services and the PCP's role as gatekeeper of services.

         c.       A description of all available covered services and an
                  explanation of any service limitations or exclusions from
                  coverage and a notice stating that the Contractor will be
                  liable only for those services authorized by the Contractor.
                  The description should include a brief explanation of the
                  Contractor's approval and denial process.

         d.       Information on what to do when family size changes.

         e.       How to obtain a PCP.

         f.       How to change PCPs.

         g.       How to make, change and cancel appointments with a PCP or
                  dentist.

         h.       List of applicable copayments (including a statement that care
                  will not be denied due to lack of copayment). The member
                  handbook must clearly state that members cannot be billed for
                  covered services (other than applicable copayments), what to
                  do if they are billed, and under what circumstances a member
                  may be billed for non-covered services.

         i.       Dual eligibility (i.e. Medicare and Medicaid); services
                  received in and out of the Contractor's network; copayments.
                  See Section D, Paragraph 41, Medicare Services and Cost
                  Sharing.

         j.       The process of referral to specialists and other providers,
                  including access to behavioral health services provided by the
                  ADHS RBHA system.

         k.       How to contact Member Services and a description of its
                  function.

         l.       What to do in case of an emergency and instructions for
                  receiving advice on getting care in case of an emergency. In a
                  life-threatening situation, the member handbook should
                  instruct members to use the emergency medical services (EMS)
                  available and/or activate EMS by dialing 9-1-1. The handbook
                  should contain information on proper emergency service
                  utilization.

         m.       How to obtain emergency transportation and medically necessary
                  transportation.

         n.       EPSDT services. A description of the purpose and benefits of
                  EPSDT services, including the required components of EPSDT
                  screenings and the provision of all medically necessary
                  services to treat a physical or mental illness discovered by
                  the screenings. Screenings include a comprehensive history and
                  developmental/behavioral health screening, comprehensive
                  unclothed physical examination, appropriate vision testing,
                  hearing testing, laboratory tests, dental screening and
                  immunizations.

         o.       Maternity and family planning services.

         p.       Description of covered behavioral health services and how to
                  access these services.

         q.       Description of all covered dental services and how to access
                  these services.

         r.       Out of county/out of state moves.

         s.       Grievance and request for hearing procedures, including a
                  clear explanation of the members right to file a grievance and
                  request for hearing and to appeal any decision that affects
                  the member's receipt of covered services.

         t.       Contributions the member can make towards his/her own health,
                  member responsibilities, appropriate and inappropriate
                  behavior, and any other information deemed essential by the
                  Contractor or AHCCCS. This

                                       23
<PAGE>

                  shall include a statement that the member is responsible for
                  protecting his or her ID card and that misuse of the card,
                  including loaning, selling or giving it to others could result
                  in loss of the members eligibility and/or legal action. A
                  sentence shall be included that stresses the importance of
                  members keeping, not discarding, the swipe ID card.

         u.       How to access after-hours care (urgent care).

         v.       Advance directives for adults.

         w.       Use of other sources of insurance. See Section D, Paragraph
                  40, Coordination of Benefits.

         x.       The last revision date.

         y.       Member's notification rights and responsibilities under AAC
                  R9-22, Article 13 and AHCCCS policy.

         z.       A description of Fraud and Abuse including instructions on how
                  to report suspected fraud or abuse. This shall include a
                  statement that misuse of a member's identification card,
                  including loaning, selling or giving it to others could result
                  in loss of the member's eligibility and/or legal action
                  against the member

         aa.      A statement that informs the member of their right to request
                  information on whether or not the health plan has Physician
                  Incentive Plans (PIP) that affect the use of referral
                  services, the right to know the types of compensation
                  arrangements the plan uses, the right to know whether
                  stop-loss insurance is required and the right to a summary of
                  member survey results (in accordance with PIP regulation).

         bb.      Members right to be treated fairly regardless of race,
                  religion, sex, age or ability to pay.

         cc.      Instructions for obtaining culturally competent materials,
                  including translated member materials.

         dd.      A description of the criteria and procedures for requesting a
                  health plan change.

         ee.      Information regarding prenatal HIV testing and counseling
                  services.

         ff.      Members have a right to know of providers who speak languages
                  other than English.

II.      A list of the names, telephone numbers and service site addresses of
         PCPs available for selection by the member and a description of the
         selection process. Upon request by the member, the Contractor must make
         information available regarding provider qualifications.

Regardless of the format chosen by the Contractor, the member handbook must be
printed in a type style and size, which can easily be read by members with
varying degrees of visual impairment. At a minimum, the member handbook shall
also contain the following language regarding questions, problems, grievances
and requests for hearings (Ref. AHCCCS Rule R9-22-518 and R9-31-518):

Q.       What if I have any questions, problems or complaints about
         [Contractor's name]?

A.       If you have a question or problem, please call _________ and ask to
         talk to a Member Representative. They are there to help you.

A.       If you have a specific complaint about your medical care, the Member
         Representative will help you.

Q.       What if I'm not happy with the help given to me by the Member
         Representative?

A.       If you are unhappy with the answer you receive, you can tell the Member
         Representative you want to file a written or oral grievance. The
         grievance must be filed not later than 60 days after the date of the
         action, decision, or incident.

A.       [Contractor's name] will make a final decision for grievances within 30
         days of receiving your written or oral grievance. A letter will be
         mailed to you stating the health plan's decision and the reason for the
         decision. The letter will tell you how you can appeal the decision if
         you are still unhappy. You must let the health plan know you want to
         appeal the decision letter.

A.       If you are appealing the health plan's decision, [Contractor's name]
         will send your request for appeal to the AHCCCSA. You will receive
         information from AHCCCSA on how your appeal will be handled. AHCCCSA
         will then decide if the health plan's decision was correct under the
         circumstances.

9.       MEMBER SURVEYS

AHCCCSA may periodically conduct a survey of a representative sample of the
Contractor's membership. AHCCCSA will design a questionnaire to assess
accessibility, availability and continuity of care with PCPs; communication
between members and the Contractor; and general member satisfaction with the
AHCCCS program. To ensure comparability of results, the questions to the members
will be the same for all contractors. AHCCCSA will consider suggestions from the
Contractor for questions to be included in each survey. The results of these
surveys will become public information and available to all interested parties
upon request. In addition, unless waived by AHCCCSA, the Contractor shall
perform its own annual general or focused member survey. All such contractor
surveys must be approved in advance by AHCCCSA.

                                       24
<PAGE>

10.      MARKETING

The Contractor shall submit all proposed marketing and outreach materials and
events that will involve the general public to the AHCCCS Marketing Committee
for prior approval in accordance with the AHCCCS Health Plan Marketing Policy.
The Contractor must have signed contracts with PCPs, specialists, dentists, and
pharmacies in order for them to be included in marketing materials.

11.      ANNUAL ENROLLMENT CHOICE

AHCCCSA conducts an Annual Enrollment Choice (AEC) for members on their annual
anniversary date. AHCCCSA may hold an open enrollment on a limited basis as
deemed necessary. During AEC, members may change contractors subject to the
availability of other contractors within their Geographic Service Area. Members
are mailed a printed enrollment form and may choose a new contractor by
contacting AHCCCSA to complete the enrollment process. If the member does not
participate in the AEC, no change of contractor will be made (except for
approved changes under the Change of Plan Policy) during the new anniversary
year. This holds true if the Contractor's contract is renewed and the member
continues to live in the Contractor's service area. The Contractor shall comply
with the Office of Managed Care Member Transition for Annual Enrollment Choice
and Other Plan Changes policy.

12.      TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM, and the Office of Managed Care Member
Transition for Annual Enrollment Choice and Other Plan Changes standards for
member transitions between health plans or GSAs, to or from an ALTCS program
contractor, IHS, a PL 93-638 tribal entity, and upon termination or expiration
of a contract. The Contractor shall develop and implement policies and
procedures, which comply with AHCCCS medical policy to address transition of:

1.       Members with significant medical conditions such as a high-risk
         pregnancy or pregnancy within the last 30 days, the need for organ or
         tissue transplantation, chronic illness resulting in hospitalization or
         nursing facility placement, etc.;

2.       Members who are receiving ongoing services such as dialysis, home
         health, chemotherapy and/or radiation therapy or who are hospitalized
         at the time of transition;

3.       Members who have received prior authorization for services such as
         scheduled surgeries, out-of-area specialty services, nursing home
         admission;

4.       Prescriptions, DME and medically necessary transportation ordered for
         the transitioning member by the relinquishing contractor; and

5.       Medical records of the transitioning member (the cost of reproducing
         and forwarding medical records shall be the responsibility of the
         relinquishing AHCCCS contractor).

When relinquishing members, the Contractor is responsible for timely
notification of the receiving contractor regarding pertinent information related
to any special needs of transitioning members. The Contractor, when receiving a
transitioning member with special needs, is responsible to coordinate care with
the relinquishing contractor in order that services not be interrupted, and for
providing the new member with health plan and service information, emergency
numbers and instructions of how to obtain services.

In the event the contract, or any portion thereof, is terminated for any reason,
or expires, the Contractor shall assist AHCCCSA in the transition of its members
to other contractors, and shall abide by standards and protocols set forth
above. In addition, AHCCCSA reserves the right to extend the term of the
contract on a month-to-month basis to assist in any transition of members. The
Contractor shall make provision for continuing all management and administrative
services until the transition of all members is completed and all other
requirements of this contract are satisfied. The Contractor shall be responsible
for providing all reports set forth in this contract and necessary for the
transition process and shall be responsible for the following:

a.       Notification of subcontractors and members.

b.       Payment of all outstanding obligations for medical care rendered to
         members.

c.       Until AHCCCSA is satisfied that the Contractor has paid all such
         obligations, the Contractor shall provide the following reports to
         AHCCCSA:

d.       A monthly claims aging report by provider/creditor including IBNR
         amounts;

e.       A monthly summary of cash disbursements;

f.       Copies of all bank statements received by the Contractor.

g.       Such reports shall be due on the fifth day of each succeeding month for
         the prior month.

                                       25
<PAGE>

h.       In the event of termination or suspension of the contract by AHCCCSA,
         such termination or suspension shall not affect the obligation of the
         Contractor to indemnify AHCCCSA for any claim by any third party
         against the State or AHCCCSA arising from the Contractor's performance
         of this contract and for which the Contractor would otherwise be liable
         under this contract.

i.       Any dispute by the Contractor with respect to termination or suspension
         of this contract by AHCCCSA shall be exclusively governed by the
         provisions of Section E, Paragraph 26, Disputes.

j.       Any funds advanced to the Contractor for coverage of members for
         periods after the date of termination shall be returned to AHCCCSA
         within 30 days of termination of the contract.

13.      STAFF REQUIREMENTS AND SUPPORT SERVICES

The Contractor shall have in place the organization, management and
administrative systems capable of fulfilling all contract requirements. For the
purposes of this contract, the Contractor shall not employ or contract with any
individual that has been debarred, suspended or otherwise lawfully prohibited
from participating in any public procurement activity. At a minimum, the
following staff is required.

a.       A full-time ADMINISTRATOR/CEO/COO who is available at all times to
         fulfill the responsibilities of the position and to oversee the entire
         operation of the health plan. The Administrator shall devote sufficient
         time to the Contractor's operations to ensure adherence to program
         requirements and timely response to AHCCCS Administration.

b.       A MEDICAL DIRECTOR who shall be an Arizona-licensed physician. The
         Medical Director shall be actively involved in all-major clinical
         programs and QM/UM components of the Contractor's health plan. The
         Medical Director shall devote sufficient time to Contractor's health
         plan to ensure timely medical decisions, including after-hours
         consultation as needed.

c.       A CHIEF FINANCIAL OFFICER/CFO who is available at all times to fulfill
         the responsibilities of the position and to oversee the budget and
         accounting systems implemented by the Contractor.

d.       A QUALITY MANAGEMENT/UTILIZATION MANAGEMENT COORDINATOR who is an
         Arizona-licensed registered nurse, physician or physician's assistant.

e.       A MATERNAL HEALTH/EPSDT COORDINATOR who shall be an Arizona-licensed
         registered nurse, physician or physician's assistant; or have a
         Master's degree in health services, public health or health care
         administration or other related field.

f.       A BEHAVIORAL HEALTH COORDINATOR who shall be a behavioral health
         professional as described in Health Services Rule R9-20. The Behavioral
         Health Coordinator shall devote sufficient time to ensure that the
         Contractor's behavioral health referral and coordination activities are
         implemented per AHCCCSA requirements.

g.       PRIOR AUTHORIZATION STAFF to authorize medical care 24 hours per day, 7
         days per week. This staff shall include an Arizona-licensed registered
         nurse, physician or physician's assistant.

h.       CONCURRENT REVIEW STAFF to conduct inpatient concurrent review. This
         staff shall consist of an Arizona-licensed registered nurse, physician,
         physician's assistant or an Arizona-licensed practical nurse
         experienced in concurrent review and under the direct supervision of a
         registered nurse, physician or physician's assistant.

i.       MEMBER SERVICES MANAGER AND STAFF to coordinate communications with
         members and act as member advocates. There shall be sufficient Member
         Service staff to enable members to receive prompt resolution to their
         problems, and to meet the Contractor's standards for telephone
         abandonment rates and telephone hold times.

j.       PROVIDER SERVICES MANAGER AND STAFF to coordinate communications
         between the Contractor and its subcontractors. There shall be
         sufficient Provider Services staff to enable providers to receive
         prompt resolution to their problems or inquiries.

k.       A CLAIMS ADMINISTRATOR AND CLAIMS PROCESSORS to ensure the timely and
         accurate processing of original claims, claims correction letters,
         re-submissions and overall adjudication of claims.

1.       ENCOUNTER PROCESSORS to ensure the timely and accurate processing and
         submission to AHCCCSA of encounter data and reports.

m.       A GRIEVANCE COORDINATOR who will manage and adjudicate member and
         provider grievances.

n.       CLERICAL AND SUPPORT STAFF to ensure appropriate functioning of the
         Contractor's operation.

The Contractor shall inform AHCCCSA, Office of Managed Care, in writing and
provide a resume within seven days of staffing changes in the following key
positions:

<TABLE>
         <S>                                         <C>
         Administrator                               Member Services Manager
         Medical Director                            Provider Services Manager
         Chief Financial Officer                     Claims Administrator
         Maternal Health/EPSDT Coordinator           Quality Management/Utilization Management
         Grievance Coordinator                       Coordinator
                                                     Behavioral Health Coordinator
</TABLE>

                                       26
<PAGE>

The Contractor shall ensure that all staff has appropriate training, education,
experience and orientation to fulfill the requirements of the position. See the
AMPM, Chapter 600 for specific position requirements.

14.      WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures shall be reviewed at least annually to ensure that the
Contractor's written policies reflect current practices. Reviewed policies shall
be dated and signed by the Contractor's appropriate manager, coordinator,
director or administrator. All medical and quality management policies must be
approved and signed by the Contractor's Medical Director. Job descriptions shall
be reviewed at least annually to ensure that current duties performed by the
employee reflect written requirements.

15.      ADVANCE DIRECTIVES

The Contractor shall maintain policies and procedures addressing advanced
directives for adult members that specify:

a.       Each contract or agreement with a hospital, nursing facility, home
         health agency, hospice or organization responsible for providing
         personal care must comply with federal and State law regarding advance
         directives for adult members. Requirements include:

         (1)      Maintaining written policies that address the rights of adult
                  members to make decisions about medical care, including the
                  right to accept or refuse medical care, and the right to
                  execute an advance directive. If the agency/organization has a
                  conscientious objection to carrying out an advance directive,
                  it must be explained in policies. (A health care provider is
                  not prohibited from making such objection when made pursuant
                  to A.R.S. ss. 36-3205.C.1.)

         (2)      Provide written information to adult members regarding each
                  individual's rights under State law to make decisions
                  regarding medical care, and the health care provider's written
                  policies concerning advance directives (including any
                  conscientious objections).

         (3)      Documenting in the member's medical record whether or not the
                  adult member has been provided the information and whether an
                  advance directive has been executed.

         (4)      Not discriminating against a member because of his or her
                  decision to execute or not execute an advance directive, and
                  not making it a condition for the provision of care.

         (5)      Providing education to staff on issues concerning advance
                  directives including notification of direct care providers of
                  services, such as home health care and personal care, of any
                  advanced directives executed by members to whom they are
                  assigned to provide services.

b.       Contractors shall encourage subcontracted PCPs to comply with the
         requirements of subparagraph a. (2) through (5) above. Contractors
         shall also encourage health care providers specified in subparagraph a.
         to provide a copy of the member's executed advanced directive, or
         documentation of refusal, to the member's PCP for inclusion in the
         member's medical record.

16.      PERFORMANCE STANDARDS

All Performance Standards described below apply to Title XIX, Title XXI, and
state-only member populations. Effective October 1, 2001, AHCCCS requires
Contractors to implement the Quality Improvement System for Managed Care
(QISMC). AHCCCS will work with the Contractors to develop quality improvement
projects that will meet the QISMC guidelines. Compliance with this requirement
is a part of the Operational and Financial Review.

Contractors must meet AHCCCS stated Minimum Performance Standards. However, it
is equally important that Contractors continually improve their performance
indicator outcomes from year to year, as defined by QISMC. Contractors shall
strive to meet the ultimate standard, or Benchmark, established by AHCCCS.

Any statistically significant drop in the Contractor's performance level for any
indicator must be explained by the Contractor in its annual quality management
program evaluation. If a Contractor has a significant drop in any indicator
without a justifiable explanation, it will be required to submit a corrective
action plan and may be subject to sanctions.

                                       27
<PAGE>

AHCCCS has established three levels of performance:

-        MINIMUM PERFORMANCE STANDARD -- A Minimum Performance Standard is the
         minimally expected level of performance by the Contractor. If a
         Contractor does not achieve this standard for two consecutive years,
         the Contractor will be required to submit a corrective action plan and
         may be subject to sanctions. If the rate for any indicator declines to
         a level below the AHCCCS Minimum Performance, the Contractor will be
         required to submit a corrective action plan and may be subject to
         sanctions.

-        GOAL -- A Goal is a reachable standard for a given performance
         indicator for the Contract Year. If the Contractor has already met or
         exceeded the AHCCCS Minimum Performance Standard for any indicator, the
         Contractor must strive to meet the CYE 2002 Goal for the indicator(s).

-        BENCHMARK -- A Benchmark is the ultimate standard to be achieved.
         Contractors that have already achieved or exceeded the Goal for any
         performance indicator must strive to meet the Benchmark for the
         indicator(s). Contractors that have achieved the Benchmark are expected
         to maintain this level of performance for future years.

A Contractor that has not shown demonstrable and sustained improvement toward
meeting AHCCCS Performance Standards shall develop a corrective action plan. The
corrective action plan must be received by the Office of Medical Management
within 30 days of receipt of notification from AHCCCS. This plan must be
approved by AHCCCS prior to implementation. AHCCCS may conduct one or more
follow-up onsite reviews to verify compliance with a corrective action plan.
Failure to achieve adequate improvement may result in sanction imposed by
AHCCCS.

PERFORMANCE INDICATORS: For CYE 2001, the Contractor shall comply with AHCCCS
quality management requirements to improve performance for all AHCCCS
established performance indicators. Complete descriptions of these indicators
can be found in the Technical Specifications section of the most recently
published Health Plan Performance Standards Results and Analysis documents for
perinatal, pediatric and adult/adolescent services. For CYE 2002, the indicator
for postpartum visits has been eliminated as a contractual performance standard.
The Contractor shall continue to monitor rates for postpartum visits and
implement interventions as necessary to improve or sustain its rates. This
activity will be monitored by AHCCCS during the annual Operational and Financial
Review.

In addition, AHCCCS has established standards for the following indicators:

EPSDT PARTICIPATION: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program. The participant rate is the number of
children younger than 21 years receiving at least one medical screen during the
contract year, compared to the number of children expected to receive at least
one medical screen. The number of children expected to receive at least one
medical screen is based on the AHCCCS EPSDT periodicity schedule and the average
period of eligibility.

PEDIATRIC IMMUNIZATIONS: The Contractor shall ensure members under age 21
receive age-appropriate immunizations as specified in the AMPM

The Contractor shall participate in an annual immunization audit based on random
sampling to assess and verify the immunization status of two-year-old members.
AHCCCS will provide the Contractor the selected sample, specifications for
conducting the audit, the AHCCCSA reporting requirements, and technical
assistance. The Contractor shall identify each child's PCP, conduct the
assessment, and report to AHCCCS in the required format all immunization data
for the two-year-old children sampled. If medical records are missing for more
that 5 percent of the sample group, the Contractor is subject to sanctions by
AHCCCSA. An External Quality Review Organization (EQRO) may conduct a study to
validate the Contractor's reported rates.

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<PAGE>

The following table identifies the Minimum Performance Standards, Goals and
Benchmarks for each indicator:

<TABLE>
<CAPTION>
                                                                                         BENCHMARK*
                                                        CYE 02 MINIMUM     CYE 02      (HEALTH PEOPLE
                                                     PERFORMANCE STANDARD   GOAL           GOALS)
                                                     --------------------  ------      --------------
<S>                                                  <C>                   <C>         <C>
Performance Indicator
Immunization of two-year-olds 3 antigen
series (4:3:1)                                                78%            82%            90%
Immunization of two-year-olds 5 antigen
series (4:3:1:2:3)                                            67%            73%            90%
Immunizations of two-year-olds
     DtaP 4 doses                                             82%            85%            90%
     Polio 4 doses                                            88%            90%            90%
     MMR 1 dose                                               88%            90%            90%
     Hib 2 doses                                              85%            90%            90%
     HBV 3 doses                                              81%            87%            90%
     Varicella 1 dose                                         73%            80%            90%
Dental visits                                                 45%            55%            90%
Well-child Visits 15 Months                                   58%            64%            90%
Well-child Visits 3-6 Years                                   48%            64%            80%
EPSDT Participation                                           58%            80%            80%
Children's Access to PCP's                                    77%            80%            95%
Cervical Cancer Screening (3-yr period) **                    57%            60%            85%
Breast Cancer Screening                                       55%            60%            60%
Adolescent Well-care Visits                                   48%            49%            50%
Adult Ambulatory/Preventive Care                              78%            80%            95%
Low Birth Weight                                             8.5%           7.5%             5%
Initiation of Prenatal Care                                   59%            65%            90%

</TABLE>

*Benchmarks for each performance indicator are based on Healthy People 2000 and
2010 goals for health promotion and disease prevention, as determined by the
U.S. Department of Health and Human Services.
**AHCCCS reported an overall three-year rate for cervical cancer screening,
consistent with HEDIS methodology, for CYE 1999. Results were not calculated for
individual Health Plans. AHCCCS will develop a methodology for compiling a
three-year rate for individual Health Plans for CYE 2000 and use this rate in
the future.

ACCESS TO CARE: During the contract year AHCCCSA will pursue the feasibility of
developing and establishing baseline information for two new measures: Provider
Turnover and Availability of Language Interpretation Services.

17.      QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)

QUALITY MANAGEMENT (QM): The Contractor shall provide quality medical care to
members, regardless of payer source or eligibility category. The Contractor
shall execute processes to assess, plan, implement and evaluate quality
management and improvement activities, as specified in the AMPM, Chapter 900,
that include at least the following:

-        Conducting Quality Improvement Projects (QIPs);

-        QM monitoring and evaluation activities;

-        Credentialing and recredentialing processes;

-        Investigation, analysis, tracking and trending of quality of care
         issues, abuse and/or complaints; and

-        AHCCCS mandated performance indicators.

The Contractor shall submit, within timelines specified in Attachment F, a
written QM plan that addresses its strategies for quality improvement and
conducting the quality management activities described in this section. Although
the Contractor is no longer required to conduct two clinical studies during each
contract year, the Contractor shall conduct quality improvement projects as
required by the AMPM, Chapter 900.

The Contractor may combine its plan for quality improvement and quality
management activities with the plan that addresses utilization management as
described below.

UTILIZATION MANAGEMENT (UM): The Contractor shall execute processes to assess,
plan, implement and evaluate utilization management activities, as specified in
the AMPM, Chapter 1000 that include at least the following:

-        Prior authorization;

-        Concurrent review;

-        Continuity and coordination of care;

-        Monitoring and evaluation of over and/or under utilization of services;

                                       29
<PAGE>

-        Evaluation of new medical technologies, and new uses of existing
         technologies; and

-        Development and/or adoption of practice guidelines.

The Contractor shall maintain a written UM plan that addresses its plan for
monitoring UM activities described in this section. The plan must be submitted
for review by AHCCCS OMM within timelines specified in Attachment F.

18.      PHYSICIAN INCENTIVES

The Contractor must comply with all applicable physician incentive requirements
and conditions defined in 42 CFR 417.479. These regulations prohibit physician
incentive plans that directly or indirectly make payments to a doctor or a group
as an inducement to limit or refuse medically necessary services to a member.
The Contractor is required to disclose all physician incentive agreements to
AHCCCSA and to AHCCCS members who request them.

The Contractor shall not enter into contractual arrangements that place
providers at significant financial risk as defined in CFR 417.479 unless
specifically approved in advance by the Office of Managed Care. In order to
obtain approval, the following must be submitted to the Office of Managed Care
45 days prior to the implementation of the contract:

1.       A complete copy of the contract

2.       A plan for the member satisfaction survey

3.       Details of the stop-loss protection provided

4.       A summary of the compensation arrangement that meets the substantial
         financial risk definition..

The Contractor shall disclose to AHCCCSA the information on physician incentive
plans listed in 42 CFR 417.479(h)(1) through 417.479(I) upon contract renewal,
prior to initiation of a new contract, or upon request from AHCCCSA or CMS.
Please refer to the "Physician Incentive Guidelines" in the Bidder's Library for
details on providing required disclosures.

19.      APPOINTMENT STANDARDS

For purposes of this section, "urgent" is defined as an acute, but not
necessarily life-threatening disorder, which, if not attended to, could endanger
the patient's health. The Contractor shall have procedures in place that ensure
the following standards are met:

a.       Emergency PCP appointments - same day of request

b.       Urgent care PCP appointments - within two days of request

c.       Routine care PCP appointments - within 21 days of request

For SPECIALTY REFERRALS, the Contractor shall be able to provide:

a.       Emergency appointments - within 24 hours of referral

b.       Urgent care appointments - within three days of referral

c.       Routine care appointments - within 30 days of referral

For DENTAL APPOINTMENTS, the Contractor shall be able to provide:

a.       Emergency appointments - within 24 hours of request

b.       Urgent appointments - within three days of request

c.       Routine care appointments - within 45 days of request

For maternity care, the Contractor shall be able to provide initial prenatal
care appointments for enrolled pregnant members as follows:

a.       First trimester - within 14 days of request

b.       Second trimester - within 7 days of request

c.       Third trimester - within three days of request

d.       High risk pregnancies - within three days of identification
                                 of high risk by the Contractor or maternity
                                 care provider, or immediately if an
                                 emergency exists

                                       30
<PAGE>

If a member needs non-emergent medically necessary transportation, the
Contractor shall require its transportation provider to schedule the
transportation so that the member arrives no sooner than one hour before the
appointment; does not have to wait more than one hour after making the call to
be picked up; nor have to wait for more than one hour after conclusion of the
appointment for transportation home.

The Contractor shall actively monitor the adequacy of its appointment processes
and reduce the unnecessary use of alternative methods such as emergency room
visits. The Contractor shall actively monitor and ensure that a member's waiting
time for a scheduled appointment at the PCP's or specialist's office is no more
than 45 minutes, except when the provider is unavailable due to an emergency.

The Contractor shall have written policies and procedures about educating its
provider network regarding appointment time requirements. The Contractor must
assign a specific staff member or unit within its organization to monitor
compliance with appointment standards, and shall require a corrective action
plan when appointment standards are not met. Appointment standards shall be
included in the Provider Manual.

20.      REFERRAL PROCEDURES AND STANDARDS

The Contractor shall have adequate written procedures regarding referrals to
specialists, to include, at a minimum, the following:

a.       Use of referral forms clearly identifying the Contractor

b.       A system for resolving disputes regarding the referrals

c.       Having a process in place that ensures the member's PCP receives all
         specialist and consulting reports and a process to ensure PCP follow-up
         of all referrals including EPSDT referrals for behavioral health
         services

d.       A referral plan for any member who is about to lose eligibility and who
         requests information on low-cost or no-cost health care services

e.       Referral to Medicare HMO including payment of copayments

The Contractor shall comply with all applicable physician referral requirements
and conditions defined in Sections 1903(s) and 1877 of the Social Security Act.
Upon finalization of the regulations, the Contractor shall comply with all
applicable physician referral requirements and conditions defined in 42 CFR Part
411, Part 424, Part 435 and Part 455. Sections 1903(s) and 1877 of the Act
prohibits physicians from making referrals for designated health services to
health care entities with which the physician or a member of the physician's
family has a financial relationship. Designated health services include:

         Clinical laboratory services

         Physical therapy services

         Occupational therapy services

         Radiology services

         Radiation therapy services and supplies

         Durable medical equipment and supplies

         Parenteral and enteral nutrients, equipment and supplies

         Prosthetics, orthotics and prosthetic devices and supplies

         Home health services

         Outpatient prescription drugs

         Inpatient and outpatient hospital services

21.      PROVIDER MANUAL

The Contractor shall develop, distribute and maintain a provider manual. The
Contractor shall ensure that each contracted provider is issued a copy of the
provider manual and is encouraged to distribute a provider manual to any
individual or group that submits claim and encounter data. The Contractor
remains liable for ensuring that all providers, whether contracted or not, meet
the applicable AHCCCS requirements such as covered services, billing, etc. At a
minimum, the Contractor's provider manual must contain information on the
following:

a.       Introduction to the Contractor which explains the Contractor's
         organization and administrative structure

b.       Provider responsibility and the Contractor's expectation of the
         provider

c.       Overview of the Contractor's Provider Service department and function

                                       31
<PAGE>

d.       Listing and description of covered and non-covered services,
         requirements and limitations including behavioral health services

e.       Emergency room utilization (appropriate and non-appropriate use of the
         emergency room)

f.       EPSDT Services - screenings include a comprehensive history,
         developmental/behavioral health screening, comprehensive unclothed
         physical examination, appropriate vision testing, hearing testing,
         laboratory tests, dental screenings and immunizations

g.       Dental services

h.       Maternity/Family Planning services

i.       The Contractor's policy regarding PCP assignments

j.       Referrals to specialists and other providers, including access to
         behavioral health services provided by the ADHS/RBHA system.

k.       Grievance and request for hearing rights

1.       Billing and encounter submission information
                  -indicate which form UB92, HCFA 1500, or Form C is to be used
                   for services
                  -indicate which fields are required for a claim to be
                   considered acceptable by the Contractor. A completed sample
                   of each form shall be included

m.       Contractor's written policies and procedures which affect the
         provider(s) and/or the provider network

n.       Claims re-submission policy and procedure

o.       Reimbursement, including reimbursement for dual eligibles (i.e.
         Medicare and Medicaid) or members with other insurance

p.       Explanation of remittance advice

q.       Prior authorization and notification requirements

r.       Claims medical review

s.       Concurrent review

t.       Fraud and Abuse

u.       Formularies (with updates and changes provided in advance to providers,
         including pharmacies)

v.       AHCCCS appointment standards

w.       Americans with Disabilities Act (ADA) requirements and Title VI, as
         applicable

x.       Eligibility verification

y.       Cultural competency information, including notification about Title VI
         of the Civil Rights Act of 1964. Providers should also be informed of
         how to access interpretation services to assist members who speak a
         language other the English or who use sign language.

22.      PRIMARY CARE PROVIDER STANDARDS

The Contractor shall include in its provider network a sufficient number of PCPs
to meet the requirements of this contract. Health care providers designated by
the Contractor as PCPs shall be licensed in Arizona as allopathic or osteopathic
physicians who generally specialize in family practice, internal medicine,
obstetrics, gynecology, or pediatrics; certified nurse practitioners or
certified nurse midwifes; or physician's assistants.

The Contractor shall assess the PCP's ability to meet AHCCCS appointment
availability and other standards, when determining the appropriate number of its
members to be assigned to a PCP. The Contractor should also consider the PCP's
total panel size (i.e. AHCCCS and non-AHCCCS patients) when making this
determination. AHCCCS members shall not comprise the majority of a PCP's panel
of patients. AHCCCSA shall inform the Contractor when a PCP has a panel of more
that 1,800 AHCCCS members (assigned by a single or multiple contractors), to
assist in the assessment of the size of their panel. This information will he
provided on a quarterly basis. The Contractor will adjust the size of a PCP's
panel, as needed, for the PCP to meet AHCCCS standards.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data regarding
PCP assignments is current. The Contractor is encouraged to assign members with
complex medical conditions, who are age 12 and younger, to Board Certified
pediatricians. PCP's with assigned members diagnosed with AIDS or as HIV
positive shall meet criteria and standards set forth in the AHCCCS Medical
Policy Manual.

To the extent required by this contract, the Contractor shall offer members
freedom of choice in selecting a PCP. When a new member has been assigned to the
Contractor, the Contractor shall inform the member in writing of his enrollment
and of his PCP assignment within 10 days of the Contractor's receipt of
notification of assignment by AHCCCSA. The Contractor shall include with the
enrollment notification a list of all the Contractor's available PCPs and the
process for changing the PCP

                                       32
<PAGE>
assignment, should the member desire to do so. The Contractor shall confirm any
PCP change in writing to the member. Members may make both their initial PCP
selection and any subsequent PCP changes either verbally or in writing.

At a minimum, the Contractor shall hold the PCP responsible for the following
gatekeeping activities:

a.       Supervision, coordination and provision of care to each assigned member
b.       Initiation of referrals for medically necessary specialty care
c.       Maintaining continuity of care for each assigned member
d.       Maintaining the member's medical record, including documentation of all
         services provided to the member by the PCP, as well as any specialty or
         referral services.

The Contractor shall establish and implement policies and procedures to monitor
PCP gatekeeping activities and to ensure that PCPs are adequately notified of,
and receive documentation regarding, specialty and referral services provided to
assigned members by specialty physicians, dentists and other health care
professionals. Contractor policies and procedures shall be subject to approval
by AHCCCSA, Office of Managed Care, and shall be monitored through operational
audits. PCPs and specialists who provide inpatient services to the Contractor's
members shall have admitting and treatment privileges in a minimum of one
general acute care hospital that is located within the Contractor's service
area.

23.      OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and procedures to:

a.       Recruit sufficient specialty physicians, dentists, health care
         professionals, health care institutions and support services to meet
         the medical needs of its members.
b.       Monitor the adequacy, accessibility and availability of its provider
         network to meet the needs of its members, including the provision of
         care to members with limited proficiency in English.

Contractor policies shall be subject to approval by AHCCCSA, Office of Managed
Care, and shall be monitored through operational audits.

For specialty services, the Contractor shall ensure that:

a.       PCP referral shall be required for specialty physician services, except
         that women shall have direct access to GYN providers without a referral
         for preventive and routine services. Any waiver of this requirement by
         the Contractor must be approved in advance by AHCCCSA.
b.       Specialty physicians shall not begin a course of treatment for a
         medical condition other than that for which the member was referred,
         unless approved by the member's PCP.
c.       The specialty physicians shall provide to the member's PCP complete
         documentation of all diagnostic services including copies: of test
         results; if applicable; treatment services provided; and the resulting
         outcome for each.

The Contractor shall ensure that a maternity care provider is designated for
each pregnant member for the duration of her pregnancy and postpartum care and
that maternity services are provided in accordance with the AMPM. The Contractor
may include in its provider network the following maternity care providers:

a.       Arizona licensed allopathic and/or osteopathic physicians who are
         general practitioners or specialize in family practice or obstetrics
b.       Certified nurse midwives
c.       Licensed midwives.

Members may choose, or be assigned, a PCP who provides obstetric care (physician
or certified nurse midwife). Such assignment shall be consistent with the
freedom of choice requirements for selecting health care professionals while
ensuring that the continuity of care is not compromised. Members who choose to
receive maternity services from a licensed midwife shall also be assigned to a
PCP for medical care as primary care is not within the scope of practice for
licensed midwives.

All physicians and certified nurse midwives who perform deliveries shall have OB
hospital privileges. Licensed midwives perform deliveries only in the member's
home. Labor and delivery services may also be provided in the member's home by
physicians, certified nurse practitioners and certified nurse midwives who
include such services within their practice.

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<PAGE>

24.      NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is sufficient
to provide all covered services to AHCCCS members. It shall ensure covered
services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient personnel for the
provision of covered services, including emergency medical care on a
24-hour-a-day, 7-days-a-week basis. The proposed network shall be sufficient to
provide covered services within designated time and distance limits. For
Maricopa and Pima Counties only, this includes a network such that 95% of its
members residing within the boundary area of metropolitan Phoenix and Tucson do
not have to travel more than 5 miles to see a PCP or pharmacy. 95% of its
members residing outside the boundary area must not have to travel more than 10
miles to see such providers. See Attachment B, Minimum Network Requirements, for
details on network requirements by Geographic Service Area. Also see Section D,
Paragraph 35, Hospital Subcontracting and Reimbursement, for details on changes
in hospital subcontracting effective October 1, 2001.

Under the Balanced Budget Act of 1997, the Contractor shall not discriminate
with respect to participation in the AHCCCS program, reimbursement or
indemnification against any provider based solely on the provider's type of
licensure or certification. This provision, however, does not prohibit the
Contractor from limiting provider participation to the extent necessary to meet
the needs of the Contractor's members. This provision also does not interfere
with measures established by the Contractor to control costs consistent with its
responsibilities under this contract.

25.      NETWORK MANAGEMENT

The Contractor shall have policies and procedures in place that pertain to all
service specifications described in the AMPM, Chapters 300, 600 and 900. In
addition, the Contractor shall have policies on how the Contractor will:

a.       Communicate with the network regarding contractual and/or program
         changes and requirements
b.       Monitor and control network compliance with policies and rules of
         AHCCCSA and the Contractor, including compliance with all policies and
         procedures related to the grievance process and ensuring the member's
         care is not compromised during the grievance process.
c.       Evaluate the quality of services delivered by the network
d.       Provide or arrange for medically necessary covered services should the
         network become temporarily insufficient within the contracted service
         area
e.       Monitor network capacity to ensure that there are sufficient providers
         to handle the volume of members
f.       Ensure service accessibility, including monitoring appointment
         procedures standards, appointment waiting times, and service provision
         standards

All material changes in the Contractor's provider network must be approved in
advance by AHCCCSA, Office of Managed Care. A material change is defined as one,
which affects, or can reasonably be foreseen to affect, the Contractor's ability
to meet the performance and network standards as described in this contract. The
Office of Managed Care must be notified of planned material changes in the
provider network before the change process has begun, for example before issuing
a 60-day termination notice to a provider. The notification shall be made within
one working day if the change is unexpected. AHCCCSA will assess proposed
changes in the Contractor's provider network for potential impact on members'
health care and provide a written response to the Contractor within 14 days of
receipt of request. For emergency situations, AHCCCSA will expedite the approval
process.

The Contractor shall notify AHCCCSA, Office of Managed Care, within one working
day of any unexpected changes that would impair its provider network. This
notification shall include (1) information about how the change will affect the
delivery of covered services, and (2) the Contractor's plans for maintaining the
quality of member care if the provider network change is likely to result in
deficient delivery of covered services.

26.      FEDERALLY QUALIFIED HEALTH CENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide covered services
and must comply with the federal mandates. Under the Benefits Improvement and
Protection Act of 2000 (BIPA). AHCCCSA is required to reimburse FQHCs the
difference between the Contractor's reimbursement to the FQHC, and what the FQHC
would have received under the Medicaid Prospective Payment System (PPS). This
requirement replaces the supplemental payment methodology that began October 1,
1997. AHCCCSA and its contractors are required to comply with this legislation.

                                       34
<PAGE>

AHCCCSA and the FQHCs have agreed that AHCCCSA will reimburse the FQHCs $1.75
per member per month for Title XIX members only. This payment methodology was
implemented effective January 1, 2001. To comply with BIPA requirements, AHCCCSA
will establish a baseline rate. After a baseline rate is established, AHCCCSA
will adjust the payment rate annually in accordance with annual inflation
trends.

Contractors are required to submit member month information for Title XIX
members, including Title XIX Waiver members, for each FQHC on a quarterly basis
to AHCCCS Office of Managed Care. AHCCCSA will perform periodic audits of the
member month information submitted. Contractors should refer to the Office of
Managed Care's policy on FQHC reimbursement for further guidance. The following
FQHCs are currently recognized by CMS:

                  Canyonlands Community Health Care
                  Chiricahua Community Health Centers, Inc.
                  Clinica Adelante, Inc.
                  Desert Senita Community Health Center
                  El Rio Health Center
                  Inter-Tribal Health Care Center
                  Marana Health Center
                  Mariposa Community Health Center, Inc.
                  Mountain Park Health Center
                  Native American Community Health Center, Inc.
                  Native Americans for Community Action Family Health Center
                  North Country Community Health Center
                  Sun Life Family Health
                  Center Sunset Community Health Center (formerly Valley Health
                  Center, Inc.)
                  United Community Health Center, Inc.

Any other clinics that subsequently become FQHC's will be subject to the
reimbursement methodology described above.

27.      PROVIDER REGISTRATION

The Contractor shall ensure that all of its subcontractors register with AHCCCSA
as an approved service provider and receive an AHCCCS Provider ID Number. A
Provider Participation Agreement must be signed by each provider who does not
already have a current AHCCCS ID number. The original shall be forwarded to
AHCCCSA. This provider registration process must be completed in order for the
Contractor to report services a subcontractor renders to enrolled members and
for the Contractor to be paid reinsurance.

28.      PROVIDER AFFILIATION TRANSMISSION

The Contractor shall submit information quarterly regarding its provider
network. This information shall be submitted in the format described in the
Provider Affiliation Transmission User Manual on October 15, January 15, April
15, and July 15 of each contract year. The Manual may be found in the Bidder's
Library.

29.      PERIODIC REPORT REQUIREMENTS

AHCCCSA, under the terms and conditions of its CMS grant award, requires
periodic reports, encounter data, and other information from the Contractor. The
submission of late, inaccurate, or otherwise incomplete reports shall constitute
failure to report subject to the penalty provisions described in this contract.
Standards applied for determining adequacy of required reports are as follows:

         a.       Timeliness:       Reports or other required data shall be
                  received on or before scheduled due dates.

         b.       Accuracy:         Reports or other required data shall be
                  prepared in strict conformity with appropriate authoritative
                  sources and/or AHCCCS defined standards.

         c.       Completeness:     All required information shall be fully
                  disclosed in a manner that is both responsive and pertinent to
                  report intent with no material omissions.

AHCCCS requirements regarding reports, report content and frequency of
submission of reports are subject to change at any time during the term of the
contract. The Contractor shall comply with all changes specified by AHCCCSA.

                                       35
<PAGE>

The Contractor shall be responsible for continued reporting beyond the term of
the contract. For example, processing claims and reporting encounter data will
likely continue beyond the term of the contract because of lag time in filing
source documents by subcontractors.

The Contractor shall comply with all financial reporting requirements contained
in the Reporting Guide for Acute Health Care Contractors with the Arizona Health
Care Cost Containment System, a copy of which may be found in the Bidder's
Library. The required reports, which are subject to change during the contract
term, are summarized in Attachment F, Periodic Report Requirements.

30.      DISSEMINATION OF INFORMATION

Upon request, the Contractor shall assist AHCCCSA in the dissemination of
information prepared by AHCCCSA or the federal government to its members. The
cost of such dissemination shall be borne by the Contractor. All advertisements,
publications and printed materials that are produced by the Contractor and refer
to covered services shall state that such services are funded under contract
with AHCCCSA.

31.      REQUESTS FOR INFORMATION

AHCCCSA may, at any time during the term of this contract, request financial or
other information from the Contractor. Upon receipt of such requests for
information, the Contractor shall provide complete information as requested no
later than 30 days after the receipt of the request unless otherwise specified
in the request itself.

32.      OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
successful offerors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business. The purpose of Readiness Reviews is to assess
new contractors' readiness and ability to provide contract services to members
at the start of the contract year and current contractors' readiness to expand
to new geographic service areas. A new contractor will be permitted to commence
operations only if the Readiness Review factors are met to AHCCCSA's
satisfaction.

33.      OPERATIONAL AND FINANCIAL REVIEWS

In accordance with CMS requirements, AHCCCSA will conduct regular Operational
and Financial Reviews for the purpose of (but not limited to) ensuring
operational and financial program compliance. The Reviews will identify areas
where improvements can be made and make recommendations accordingly, monitor the
Contractor's progress towards implementing mandated programs and provide the
Contractor with technical assistance if necessary. The Contractor shall comply
with all other medical audit provisions as required by AHCCCS Rule R9-22-521 and
R9-31-521.

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful, AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with AHCCCSA and the AHCCCSA Review Team by
forwarding in advance such policies, procedures, job descriptions, contracts,
logs and other information that AHCCCSA may request. The Contractor shall have
all requested medical records on-site. Any documents not requested in advance by
AHCCCSA shall be made available upon request of the Review Team during the
course of the review. The Contractor personnel, as identified in advance shall
be available to the Review Team at all times during AHCCCSA on-site review
activities. While on-site, the Contractor shall provide the Review Team with
workspace, access to a telephone, electrical outlets and privacy for
conferences. Certain documentation submission requirements may be waived at the
discretion of AHCCCSA if the Contractor has obtained accreditation from NCQA,
JCAHO or any other nationally recognized accrediting body. The Contractor must
submit the entire accreditation report to AHCCCSA for such waiver consideration.

The Contractor will be furnished a copy of the Operational and Financial Review
Report and given an opportunity to comment on any review findings prior to
AHCCCSA publishing the final report. Operational and Financial Review findings
may be used in the scoring of subsequent bid proposals by that Contractor.
Recommendations made by the Review Team to bring the Contractor into compliance
with federal, State, AHCCCS, and/or RFP requirements must be implemented by the
Contractor. AHCCCSA may conduct a follow-up Operational and Financial Review to
determine the Contractor's progress in

                                       36
<PAGE>

implementing recommendations and achieving program compliance. Follow-up reviews
may be conducted at any time after the initial Operational and Financial Review.

AHCCCSA may conduct an Operational and Financial Review in the event the
Contractor undergoes a merger, reorganization, change in ownership or makes
changes in three or more key staff positions within a 12-month period.

34.      CLAIMS PAYMENT SYSTEM

The Contractor shall develop and maintain a claims payment system capable of
processing, cost avoiding and paying claims in accordance with ARS 36-2904(H)
and (K), AHCCCS Rules R9-22-705, and R9-22-709, a copy of which may be found in
the Bidder's Library. In the absence of a subcontract provision to the contrary,
claims submission deadlines shall be calculated from the date of service or the
effective date of eligibility posting, whichever is later. Remittance advices
accompanying the Contractor's payments to providers must contain, at a minimum,
adequate descriptions of all denials and adjustments, the reasons for such
denials and adjustments, the amount billed, the amount paid, and grievance and
request for hearing rights. The Contractor's claims payment system, as well as
its prior authorization and concurrent review process, must minimize the
likelihood of having to recoup already-paid claims. Any recoupment in excess of
$50,000 per provider within a contract year must be approved in advance by
AHCCCSA, Office of Managed Care.

In accordance with the Balanced Budget Act of 1997, unless a subcontract
specifies otherwise, the Contractor shall ensure that 90% of all clean claims
are paid within 30 days of receipt of the clean claim and 99% are paid within 90
days of receipt of the clean claim.

During the term of this contract, AHCCCSA anticipates requiring all health plans
to use a standardized electronic format for electronic claims processing between
the plan and its providers. AHCCCSA plans to require the formats outlined in the
Technical Interface Guidelines under Claims Processing, which is the format
adopted by CMS FFS providers and their billing agents who submit claims
electronically to AHCCCS. The form UB-92 and 1500 layouts will be supplemented
by a Form C layout. All formats are subject to changes as required by federal
law. Reasonable implementation timeframes will be negotiated with each plan.

35.      HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

MARICOPA AND PIMA COUNTIES ONLY: Legislation authorizes the Hospital
Reimbursement Pilot Program (Pilot), which is effective from October 1, 2001,
through September 30, 2003. The Pilot as defined by AHCCCS Rule R9-22-718
requires hospital subcontracts to be negotiated between health plans in Maricopa
and Pima counties and hospitals to establish reimbursement levels, terms and
conditions. Subcontracts shall be negotiated by the Contractor and hospitals to
cover operational concerns, such as timeliness of claims submission and payment,
payment of discounts or penalties, legal resolution, which may, as an option,
include establishing arbitration procedures. These negotiated subcontracts shall
remain under close scrutiny by AHCCCSA to ensure availability of quality
services within specific service districts, equity of related party interests,
reasonableness of rates. The general provisions of this program encompass acute
care hospital services and outpatient hospital services that result in an
admission. The Contractor shall submit all hospital subcontracts and any
amendments to AHCCCSA, Office of Managed Care, for prior approval. For
non-emergency patient-days, the Contractor shall ensure that at least 65% of its
members use contracted hospitals. AHCCCSA reserves the right to subsequently
adjust the 65% standard. Further, if in AHCCCSA's judgement the number of
emergency days at a particular non-contracted hospital becomes significant,
AHCCCSA may require a subcontract at that hospital.

ALL COUNTIES EXCEPT MARICOPA AND PIMA: The Contractor shall reimburse hospitals
for member care in accordance with AHCCCS Rule R9-22-705. The Contractor is
encouraged to obtain contracts with hospitals in all GSA's and must submit
copies of these contracts, including amendments, to AHCCCSA, Office of Managed
Care, at least seven days prior to the effective dates thereof.

The Contractor may conduct prepayment and postpayment medical reviews of all
hospital claims including outlier claims. Erroneously paid claims are subject to
recoupment. If the Contractor fails to identify lack of medical necessity
through concurrent review and/or prepayment medical review, lack of medical
necessity identified during postpayment medical review shall not constitute a
basis for recoupment by the Contractor. This prohibition does not apply to
recoupments that are a result of an AHCCCS reinsurance audit. See also Section
D, Paragraph 34, Claims Payment System. For a more complete description of the
guidelines for hospital reimbursement, please consult the Bidder's Library for
applicable statutes and rules.

                                       37
<PAGE>

FOR OUT-OF-STATE HOSPITALS: The Contractor shall reimburse out-of-state
hospitals in accordance with AHCCCS Rule R9-22-705.

36.      NURSING FACILITY REIMBURSEMENT

The Contractor shall not deny nursing facility services if the nursing facility
is unable to obtain prior authorization in situations where acute care
eligibility and ALTCS eligibility overlap and the member is enrolled with an
AHCCCS acute care contractor. In such situations, the Contractor shall impose
reasonable authorization requirements. The Contractor's payment responsibility
described above applies only in situations where the nursing facility has not
been notified in advance of the member's enrollment with an AHCCCS acute care
contractor. To further illustrate, when ALTCS eligibility overlaps AHCCCS acute
care enrollment, the acute care enrollment takes precedence. Although the member
could be ALTCS eligible for this time period, there is no ALTCS enrollment that
occurs on the same days as AHCCCS acute enrollment. The Contractor is
responsible for payment of services while the member is enrolled with the
Contractor. The Contractor is not responsible for the full 90 days per contract
year of nursing facility coverage if ALTCS enrollment occurs before the 90 days
has ended.

The Contractor shall provide medically necessary nursing facility services for
any member who has a pending ALTCS application, who is currently residing in a
nursing facility and is eligible for services provided under this contract. If
the member becomes ALTCS eligible and is enrolled with an ALTCS Program
Contractor before the end of the maximum 90 days per contract year of nursing
facility coverage, the Contractor is only responsible for nursing facility
coverage during the time the member is enrolled with the Contractor. Nursing
facility services covered by a third party insurer (including Medicare) while
the member is enrolled with the Contractor shall be applied to the 90 day per
contract year limitation.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application process and to prepare for potential fee-for-service coverage if the
stay goes beyond the 90-day per contract year maximum.

37.      COMPENSATION

The method of compensation under this contract will be Prior Period Coverage
(PPC) capitation, prospective capitation, delivery supplement, hospitalized
supplement for Title XIX Waiver members, HIV-AIDS supplement, reinsurance (PPC
and prospective), and third party liability, as described and defined within
this contract and appropriate laws, regulations or policies.

Subject to the availability of funds, AHCCCSA shall make payments to the
Contractor in accordance with the terms of this contract provided that the
Contractor's performance is in compliance with the terms and conditions of this
contract. Payment must comply with requirements of A.R.S. Title 36. AHCCCSA
reserves the option to make payments to the Contractor by wire or National
Automated Clearing House Association (NACHA) transfer and will provide the
Contractor at least 30 days notice prior to the effective date of any such
change.

Where payments are made by electronic funds transfer, AHCCCSA shall not be
liable for any error or delay in transfer nor indirect or consequential damages
arising from the use of the electronic funds transfer process. Any charges or
expenses imposed by the bank for transfers or related actions shall be borne by
the Contractor. Except for adjustments made to correct errors in payment, and as
otherwise specified in this section, any savings remaining to the Contractor as
a result of favorable claims experience and efficiencies in service delivery at
the end of the contract term may be kept by the Contractor.

All funds received by Contractor pursuant to this contract shall be separately
accounted for in accordance with generally accepted accounting principles.

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund. An error discovered by the State with or without an audit in the amount of
fees paid to Contractor will be subject to adjustment or repayment by Contractor
making a corresponding decrease m a current Contractor's payment or by making an
additional payment by AHCCCSA to the Contractor.

No payment due the Contractor by AHCCCSA may be assigned by the Contractor. Ths
section shall not prohibit AHCCCSA at its sole option from making payment to a
fiscal agent hired by Contractor.

                                       38
<PAGE>

The Contractor or its subcontractors shall collect any required copayment from
members but service will not be denied for inability to pay the copayment.
Except for permitted copayments, the Contractor or its subcontractors shall not
bill or attempt to collect any fee from, or for, a member for the provision of
covered services. Any required copayments collected shall belong to the
Contractor or its subcontractors.

PRIOR PERIOD COVERAGE (PPC) CAPITATION: The Contractor will be paid capitation
for all PPC member months., including partial member months. This capitation
includes the cost of providing medically necessary covered services to members
during prior period coverage. The PPC capitation rates will be set by AHCCCSA
and will be paid to the Contractor along with the prospective capitation
described below. Contractors will not receive PPC capitation for newborns of
members who were enrolled at the time of delivery.

RECONCILIATION OF PPC COSTS TO REIMBURSEMENT: For CYE `02 and `03, a full
reconciliation to 0% profit or loss will be done by AHCCCSA for all eligibility
groups, except for the Title XIX Waiver Group. Only the retro period is eligible
for this reconciliation. AHCCCSA will reimburse the health plans 100% of any
excess reasonable costs as determined by reported encounters, and all profits
will be recouped. Refer to the Office of Managed Care's PPC Reconciliation
Policy for further details of the reconciliation process.

RISK SHARING FOR TITLE XIX WAIVER MEMBERS: For CYE' 02 and CYE' 03, AHCCCSA will
reconcile the contractor's PPC and prospective medical cost expenses (net of
reinsurance, excluding administrative and non-operating expenses) to PPC
capitation, prospective capitation, and hospitalized supplements (net of
administration) paid to the Contractor during the year. This reconciliation will
limit the Contractor's losses to 2% and profits to 4%. Any losses in excess of
2% will be reimbursed to the Contractor, and likewise, profits in excess of 4%
will be recouped. Encounter data will be used to determine medical expenses.

The Contractor may choose to elect an alternative risk sharing methodology on
October 1, 2001 for CYE `02. In this alternative risk sharing methodology,
AHCCCSA will recoup profits in excess of 1% and reimburse losses in excess of
1%. Refer to the Title XIX Waiver Reconciliation Policy for details of the
reconciliation process.

DELIVERY SUPPLEMENT: When the Contractor has an enrolled woman who delivers
during a prospective enrollment period, the Contractor will be entitled to a
supplemental payment. Supplemental payments will not apply to women who deliver
in a prior period coverage time period. AHCCCSA reserves the right at any time
during the term of this contract to adjust the amount of this payment for women
who deliver at home.

HIV-AIDS SUPPLEMENT: On a quarterly basis, AHCCCSA shall utilize encounters to
determine the number of members receiving approved HIV/AIDS drugs and calculate
the amount of the supplemental payment. The rate of reimbursement for this
separate per member per month payment is specified in Section B and is subject
to review during the term of the contract. AHCCCSA reserves the right to recoup
any amounts paid for ineligible members as determined through an encounter data
review as well as an associated penalty for incorrect encounter reporting.

Refer to the Office of Managed Care's HIV/AIDS supplemental payment and review
policies for further details and requirements.

38.      CAPITATION ADJUSTMENTS

INCENTIVE FUND: AHCCCSA may retain a specified percentage of capitation
reimbursement in order to distribute to Contractors based on their performance
measure outcomes. AHCCCSA will notify Contractors 60 days prior to a new
contract year if this methodology will be implemented and will provide details
of the reimbursement methodology at that time.

CAPITATION ADJUSTMENTS: Except for changes made specifically in accordance with
this contract, the rates set forth in Section B shall not be subject to
re-negotiation or modification during the contract period. AHCCCSA may, at its
option, review the effect of a program change and determine if a capitation
adjustment is needed. In these instances the adjustment will be prospective with
assumptions discussed with the Contractor prior to modifying capitation rates.
The Contractor may request a review of a program change if it believes the
program change was not equitable; AHCCCSA will not unreasonably withhold such a
review.

If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the

                                       39
<PAGE>

default. The Contractor shall reimburse AHCCCSA and/or AHCCCSA may deduct from
future monthly capitation for any portion of a month during which the Contractor
was not at risk due to, for example:

a.       death of a member
b.       member's incarceration (not eligible for AHCCCS benefits from the date
         of incarceration)
c.       duplicate capitation to the same contractor
d.       adjustment based on change in member's contract type

If a member is enrolled twice with the same contractor, recoupment will be made
as soon as the double capitation is identified. AHCCCSA reserves the right to
modify its policy on capitation recoupments at any time during the term of this
contract.

39.      REINSURANCE

REGULAR ACUTE PROSPECTIVE REINSURANCE: Reinsurance is a stop-loss program
provided by AHCCCSA to the Contractor for the partial reimbursement of covered
inpatient facility medical services incurred for a member with an acute medical
condition beyond an annual deductible (AHCCCS Rule R9-22-503 and R9-31-503). Per
diem rates paid for nursing facility services, including room and board,
provided in lieu of hospitalization for up to 90 days in any contract year shall
be eligible for reinsurance coverage. Refer to the AHCCCS Re insurance Claims
Processing Manual for further details on the Reinsurance Program.

AHCCCSA is self-insured for the reinsurance program. The program is
characterized by an initial deductible level and a subsequent coinsurance
percentage. The coinsurance percent is the rate at which AHCCCSA will reimburse
the Contractor for inpatient covered services incurred above the deductible.
Prospective reinsurance coverage applies to prospective enrollment periods. The
deductible level is based on the Contractor's statewide AHCCCS acute care
enrollment (not including SOBRA Family Planning Extension services) as of
October 1st each contract year for all rate codes and counties, as shown in the
following table. These deductible levels are subject to change by AHCCCSA during
the term of this contract. Any change would have a corresponding impact on
capitation rates.

                  Prospective Reinsurance                   PPC Reinsurance

<TABLE>
<CAPTION>
                           TITLE XIX                      NON-TXIX
STATEWIDE PLAN              WAIVER                         WAIVER
ENROLLMENT                   GROUP       COINSURANCE     DEDUCTIBLE   COINSURANCE
----------                 ---------     -----------     ----------   -----------
<S>                         <C>              <C>          <C>             <C>
0-19,999                    $20,000          75%          $5,000          100%
20,000-49,999               $35,000          75%          $5,000          100%
50,000 and over             $50,000          75%          $5,000          100%
</TABLE>

A Contractor whose enrollment qualifies for the $35,000 or $50,000 deductible
level may, prior to the start of the contract period, elect one of the lower
deductible levels indicated in the above table. Contractors may riot elect to
increase their deductible level. If a Contractor's actual deductible is $35,000
or $50,000, AHCCCSA will increase the Contractor's capitation rate awarded by
defined amounts for each capitation risk group. These specific capitation
adjustments are available from the Office of Managed Care.

PRIOR PERIOD COVERAGE REINSURANCE: A separate reinsurance deductible and
coinsurance percentage will apply during prior period coverage. As noted in the
table above, all Contractors, regardless of enrollment, will be subject to a
$5,000 deductible level. The coinsurance percentage for the prior period
coverage reinsurance is 100%. Expenses incurred during prior period coverage
will not apply toward the prospective reinsurance thresholds. Effective October
1, 2001, the Title XIX Waiver Group will no longer be eligible for prior period
coverage reinsurance.

AHCCCSA will use inpatient encounter data to determine prospective and prior
period coverage reinsurance benefits. Reimbursement for these reinsurance
benefits will be made to the Contractor each month. AHCCCSA will also provide
for a reconciliation of reinsurance payments in the case where encounters used
in the calculation of reinsurance benefits are subsequently adjusted or voided.

Effective October 1, 1998, when a member changes Contractors within a contract
year, for reinsurance purposes, all eligible inpatient costs incurred for that
member will follow the member to the receiving health plan. Therefore, all
submitted encounters from the health plan the member is leaving (for dates of
service within the current contract year) will be applied

                                       40
<PAGE>

toward the receiving health plan's deductible level. For further details
regarding this policy and other reinsurance policies refer to the AHCCCS
Reinsurance Claims Processing Manual.

Medical review on prospective and prior period coverage reinsurance cases will
be determined based on statistically valid retrospective random sampling.
AHCCCSA, Office of Medical Management, will generate the sampling and will
notify the Contractor of documentation needed for the retrospective medical
review process to occur at the Contractor's offices. Reinsurance consideration
will be given to inpatient facility contracts, and hearing decisions rendered by
the Office of Legal Assistance. Pre-hearing and/or hearing penalties
discoverable during the review process will not be reimbursed under reinsurance.
A recoupment of reinsurance reimbursements made to the Contractor will occur
based on the results of the medical review sampling. The results of the medical
review sampling will be separately extrapolated to the entire prospective and
prior period coverage reinsurance reimbursement populations in the review time
frame for the Contractor. AHCCCSA will give the Contractor at least 45 days
advance notice of any on-site review. The Contractor shall have all requested
medical records on-site. Any documents not requested in advance by AHCCCSA shall
be made available upon request of the Review Team during the course of the
review. The Contractor representative shall be available to the Review Team at
all times during AHCCCSA on-site review activities. While on-site, the
Contractor shall provide the Review Team with workspace, access to a telephone,
electrical outlets and privacy for conferences. The Contractor will be furnished
a copy of the Reinsurance Review Report within 60 days of the onsite review and
given an opportunity to comment on any review findings.

CATASTROPHIC REINSURANCE: The reinsurance program also includes a special
Catastrophic Reinsurance program. This program encompasses members diagnosed
with hemophilia, von Willebrand's Disease, and Gaucher's Disease. This program
also covers members who are eligible to receive covered major organ and tissue
transplantation including bone marrow, heart, heart/lung, lung, liver, kidney,
and other organ transplantation. For additional detail and restrictions refer to
the AHCCCS Reinsurance Claims Processing Manual and the AMPM. There are no
deductibles for catastrophic reinsurance cases. All catastrophic claims are
subject to medical review by AHCCCSA.

The Contractor shall notify AHCCCSA, Office of Medical Management, Reinsurance
Unit, of cases identified for catastrophic non-transplant reinsurance coverage
within 30 days of (a) initial diagnosis, (b) enrollment with the Contractor, and
(c) the beginning of each contract year. Catastrophic reinsurance will be paid
for a maximum 30-day retroactive period from the date of notification to
AHCCCSA.

HEMOPHILIA: When a member is identified as being catastrophically eligible by
AHCCCSA due to the specific diagnosis of hemophilia (ICD9 codes 286.0, 286.1,
286.2), all medically necessary covered services provided during the contract
year shall be eligible for reimbursement at 85% of the Contractor's paid amount.

VON WILLEBRAND'S DISEASE: Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDAVP responders and
dependent on Plasma Factor VIII. The Contractor must promptly notify AHCCCS
Office of Medical Management Reinsurance Unit after diagnosis. All medically
necessary covered services provided during the contract year shall be eligible
for reimbursement at 85% of the Contractor's paid amount.

GAUCHER'S DISEASE: Catastrophic reinsurance is available for members diagnosed
with Gaucher's Disease classified as Type I and are dependent on enzyme
replacement therapy. All medically necessary covered services provided during
the contract year shall be eligible for reimbursement at 85% of the Contractor's
paid amount.

TRANSPLANTS: Bone grafts and cornea transplantation services are not eligible
for catastrophic reinsurance coverage but are eligible under the regular
(non-catastrophic) reinsurance program. Refer to the AMPM, Chapter 300 for
covered services for organ and tissue transplants. Catastrophic reinsurance
coverage for transplants is limited to 85% of the AHCCCS contract amount for the
transplantation services rendered, or 85% of the Contractor's paid amount,
whichever is lower. The AHCCCS contracted transplantation rates may be found in
the Bidder's Library. When a member is referred to a transplant facility for an
AHCCCS-covered organ transplant, the Contractor shall notify AHCCCSA, Office of
Medical Management.

Encounter data will not be used to determine catastrophic reinsurance benefits
for transplants. However, this does not relieve the Contractor of the
responsibility for submitting encounters for all catastrophic reinsurance
services.

Effective October 1, 2000, Contractors will be reimbursed 100% for medically
necessary expenses provided in a contract year, after a catastrophic reinsurance
case reaches $650,000. This additional reimbursement will limit a Contractor's
medical expenses to $97,500 per catastrophic reinsurance case.

                                       41
<PAGE>

All reinsurance claims must be submitted within fifteen months after the date of
service, or date of eligibility posting, whichever is later.

40.      COORDINATION OF BENEFITS/THIRD PARTY LIABILITY

By law, AHCCCSA is the payer of last resort. This means AHCCCSA shall be used as
a source of payment for covered services only after all other sources of payment
have been exhausted. The two methods used in the coordination of benefits are
cost avoidance and postpayment recovery. The Contractor shall use these methods
as described in A.A.C. R9-22-10. See Section D, Paragraph 41, Medicare Services
and Cost Sharing.

COST AVOIDANCE: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires the member to pay any
copayment, coinsurance or deductible, the Contractor is responsible for making
these payments, even if the services are provided outside of the Contractor's
network. The Contractor's liability for coinsurance and deductibles is limited
to what the Contractor would have paid for the entire service pursuant to a
written contract with the provider or the AHCCCS fee-for-service rate, less any
amount paid by the third party. (The Contractor must decide whether it is more
cost-effective to provide the service within its network or pay coinsurance and
deductibles for a service outside its network. For continuity of care, the
Contractor may also choose to provide the service within its network.) If the
Contractor refers the member for services to a third-party insurer (other than
Medicare), and the insurer requires payment in advance of all copayments,
coinsurance and deductibles, the Contractor must make such payments in advance.

If the Contractor knows that the third party insurer will neither pay for nor
provide the covered service, and the service is medically necessary, the
Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so. (See also Section D, Paragraph 41,
Medicare Services and Cost Sharing.)

The requirement to cost-avoid applies to all AHCCCS covered services. For
prenatal care and preventive pediatric services, AHCCCS may require the
Contractor to provide such service and then coordinate payment with the
potentially liable third party ("pay and chase"). In emergencies, the Contractor
shall provide the necessary services and then coordinate payment with the
third-party payer. The Contractor shall also provide medically necessary
transportation so the member can receive third-party benefits. Further, if a
service is medically necessary, the Contractor shall ensure that its cost
avoidance efforts do not prevent a member from receiving such service and that
the member shall not be required to pay any coinsurance or deductibles for use
of the other insurer's providers.

POSTPAYMENT RECOVERIES: Postpayment recovery is necessary in cases where the
Contractor was not aware of third-party coverage at the time services were
rendered or paid for, or was unable to cost-avoid. The Contractor shall identify
all potentially liable third parties and pursue reimbursement from them except
in the circumstances below. The Contractor shall not pursue reimbursement in the
following circumstances unless the case has been referred to the Contractor by
AHCCCSA or AHCCCSA'S authorized representative:

<TABLE>
<S>                                                   <C>
Uninsured/underinsured motorist insurance             Restitution Recovery
First-and third-party liability insurance             Worker's Compensation
Tortfeasors, including casualty                       Estate recovery
Special Treatment Trusts recovery
</TABLE>

The Contractor shall report any cases involving the above circumstances to
AHCCCSA's authorized representative should the Contractor identify such a
situation. See AHCCCS Rule R9-22-1002 and R9-3l-1002. The Contractor shall
cooperate with AHCCCSA's authorized representative in all collection efforts. In
joint cases involving both AHCCCS fee-for-service or reinsurance and the
Contractor, AHCCCSA's authorized representative is responsible for performing
all research, investigation and payment of lien-related costs, subsequent to the
referral of any and all relevant case information to AHCCCSA's authorized
representative by the Contractor. AHCCCSA's authorized representative is also
responsible for negotiating and acting in the best interest of all parties to
obtain a reasonable settlement in joint cases and may compromise a settlement in
order to maximize overall reimbursement, net of legal and other costs. For total
plan cases involving only payments from the Contractor, the Contractor is
responsible for performing all research, investigation, the filing of liens and
payment of lien filing fees and other related costs. The Contractor shall use
the cover sheet as prescribed by AHCCCS when filing liens.

The Contractor may retain up to 100% of its third-party collections if all of
the following conditions exist:

                                       42
<PAGE>

a.       Total collections received do not exceed the total amount of the
         Contractor's financial liability for the member
b.       There are no payments made by AHCCCS related to fee-for-service,
         reinsurance or administrative costs (i.e. lien filing, etc.)
c.       Such recovery is not prohibited by state or federal law

REPORTING. The Contractor may be required to report case level detail of
third-party collections and cost avoidance, including number of referrals on
total plan cases. In addition, upon AHCCCSA's request, the

Contractor shall provide an electronic extract of the Casualty cases, including
open and closed cases. Data elements include, but are not limited to: the
member's first and last name; AHCCCS ID; date of incident; claimed amount;
paid/recovered amount; and case status. The AHCCCSA TPL Section shall provide
the format and reporting schedule for this information to the Contractor. The
Contractor shall notify AHCCCSA's authorized representative within five working
days of the identification of a third-party liability case with retnsurance.
Failure to report reinsurance cases may result in one of the remedies specified
in Paragraph 60 (Sanctions) of Section D. The Contractor shall communicate any
known change in health insurance information, including Medicare, to AHCCCS
Administration, Division of Member Services, not later than 10 days from the
date of discovery using the AHCCCS Third-Party Coverage Form found in the
Bidder's Library.

AHCCCSA will provide the Contractor, on an agreed upon schedule, with a complete
file of all third-party coverage information (other than Medicare) for the
purpose of updating the Contractor's files. The Contractor shall notify AHCCCSA
of any known changes in coverage within deadlines and in a format prescribed by
AHCCCSA.

TITLE XXI (KIDSCARE): Eligibility for KidsCare benefits requires that the
applicant/member not be enrolled with or entitled to any other health insurance
benefits. If the Contractor becomes aware of any such potential coverage, the
Contractor shall notify AHCCCSA immediately. The Contractor shall follow the
same cost avoidance and postpayment recovery practices for the KidsCare
population as it does for the Title XIX population, and shall maintain a
reporting system which allows Title XIX and KidsCare information to be reported
separately.

CONTRACT TERMINATION: Upon termination of this contract, the Contractor will
complete the existing third party liability cases or make any necessary
arrangements to transfer the cases to AHCCCSA's authorized TPL representative.

41.      MEDICARE SERVICES AND COST SHARING

AHCCCS has members enrolled who are eligible for both Medicaid and Medicare.
These members are referred to as "dual eligible". Generally, Contractors are
responsible for payment of Medicare coinsurance and/or deductibles for covered
services provided to dual eligible members. However, there are different cost
sharing responsibilities that apply to dual eligible members based on a variety
of factors. The Contractor is responsible for adhering to the cost sharing
responsibilities presented in the AHCCCS Medicare Cost Sharing policy. Effective
10/1/97, the Contractor shall have no cost sharing obligation if the Medicare
payment exceeds what the Contractor would have paid for the same service of a
non-Medicare member.

42.      COPAYMENTS

The Contractor is responsible for the collection of copayments from members in
accordance with AHCCCS Rule R9-22-711 and R9-31-711. The Contractor may not
collect copayments for family planning and EPSDT services.

43.      RECORDS RETENTION

The Contractor shall maintain books and records relating to covered services and
expenditures including reports to AHCCCSA and working papers used in the
preparation of reports to AHCCCSA. The Contractor shall comply with all
specifications for record keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as required by AHCCCS Rules
and policies. Records shall include but not be limited to financial statements,
records relating to the quality of care, medical records, prescription files and
other records specified by AHCCCSA.

The Contractor agrees to make available at its office at all reasonable times
during the term of this contract and the period set forth in paragraphs a. and
b. below any of its records for inspection, audit or reproduction by any
authorized representative of AHCCCSA, State or Federal government.

                                       43
<PAGE>

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this contract except as provided
in paragraphs a. and b. below:

If this contract is completely or partially terminated, the records relating to
the work terminated shall be preserved and made available for a period of five
years from the date of any such termination. Records which relate to grievances,
disputes, litigation or the settlement of claims arising out of the performance
of this contract, or costs and expenses of this contract to which exception has
been taken by AHCCCSA, shall be retained by the Contractor for a period of five
years after the date of final disposition or resolution thereof.

44.      MEDICAL RECORDS

The member's medical record is the property of the provider who generates the
record. Each member is entitled to one copy of his or her medical record free of
charge. The Contractor shall have written policies and procedures to maintain
the confidentiality of all medical records. AHCCCSA shall be afforded access to
all members' medical records whether electronic or paper within 20 working days
of receipt of request.
The Contractor is responsible for ensuring that a medical record is established
when information is received about a member. If the PCP has not yet seen the
member, such information may be kept temporarily in an appropriately labeled
file, in lieu of actually establishing a medical record, but must be associated
with the member's medical record as soon as one is established.

The Contractor shall have written policies and procedures for the maintenance of
medical records so that those records are documented accurately and in a timely
manner, are readily accessible, and permit prompt and systematic retrieval of
information.

The Contractor shall have written standards for documentation on the medical
record for legibility, accuracy and plan of care which comply with the AMPM.

The Contractor shall have written plans for providing training and evaluating
providers' compliance with the Contractor's medical records standards. Medical
records shall be maintained in a detailed and comprehensive manner which
conforms to good professional medical practice, permits effective professional
medical review and medical audit processes, and which facilitates an adequate
system for follow-up treatment. Medical records must be legible, signed and
dated.

When a member changes PCPs, his or her medical records or copies of medical
records must be forwarded to the new PCP within 10 working days from receipt of
the request for transfer of the medical records.

AHCCCSA is not required to obtain written approval from a member before
requesting the member's medical record from the PCP or any other agency. The
Contractor may obtain a copy of a member's medical records without written
approval of the member if the reason for such request is directly related to the
administration of the AHCCCS program.

Information related to fraud and abuse may be released so long as protected
HIV-related information is not disclosed. (A.R.S. ss. 36-6641)

45.      ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

The Contractor shall not, without the prior approval of AHCCCSA, make any
advances to a related party or subcontractor. The Contractor shall not, without
similar prior approval, make any distribution, loan or loan guarantee to any
entity, including another fund or line of business within its organization. All
investments, other than investments in U.S. Government securities or
Certificates of Deposit, also require AHCCCSA pnor approval. (See the Reporting
Guide for Acute Care Contractors for alternatives to the prior approval of
individual investments.) All requests for prior approval are to be submitted to
the Office of Managed Care.

46.      ACCUMULATED FUND DEFICIT

The Contractor and its owners shall fund any accumulated fund deficit through
capital contributions in a form acceptable to AHCCCSA within 30 days after
receipt by AHCCCSA of the final audited financial statements, or as otherwise
requested by AHCCCSA. AHCCCSA may, at its option, impose enrollment caps in any
or all GSA's as a result of an accumulated deficit, even if unaudited.

                                       44
<PAGE>

47.      DATA EXCHANGE REQUIREMENT

The Contractor is authorized to exchange data with AHCCCSA relating to the
information requirements of this contract and as required to support the data
elements to be provided AHCCCSA in the format specified in the AHCCCS Technical
Interface Guidelines which is available in the Bidder's Library. The information
so recorded and submitted to AHCCCSA shall be in accordance with all procedures,
policies, rules, or statutes in effect during the term of this contract. If any
of these procedures, policies, rules, regulations or statutes are hereinafter
changed both parties agree to conform to these changes following appropriate
notification to both parties by AHCCCSA.

The Contractor is responsible for any incorrect data, delayed submission or
payment (to the Contractor or its subcontractors), and/or penalty applied due to
any error, omission, deletion, or erroneous insert caused by
Contractor-submitted data. Any data that does not meet the standards required by
AHCCCSA shall not be accepted by AHCCCSA.

The Contractor is responsible for identifying any inconsistencies immediately
upon receipt of data from AHCCCSA. If any unreported inconsistencies are
subsequently discovered, the Contractor shall be responsible for the necessary
adjustments to correct its records at its own expense.

The Contractor shall accept from AHCCCSA original evidence of eligibility and
enrollment in a form appropriate for electronic data exchange. Upon request by
AHCCCSA, the Contractor shall provide to AHCCCSA updated date-sensitive PCP
assignments in a form appropriate for electronic data exchange.

The Contractor shall be provided with a Contractor-specific security code for
use in all data transmissions made in accordance with contract requirements.
Each data transmission by the Contractor shall include the Contractor's security
code. The Contractor agrees that by use of its security code, it certifies that
any data transmitted is accurate and truthful, to the best of the Contractor's
knowledge. The Contractor further agrees to indemnify and hold harmless the
State of Arizona and AHCCCSA from any and all claims or liabilities, including
but not limited to consequential damages, reimbursements or erroneous billings
and reimbursements of attorney fees incurred as a consequence of any error,
omission, deletion or erroneous insert caused by the Contractor in the submitted
input data. Neither the State of Arizona nor AHCCCSA shall be responsible for
any incorrect or delayed payment to the Contractor's AHCCCS services providers
(subcontractors) resulting from such error, omission, deletion, or erroneous
input data caused by the Contractor in the submission of AHCCCS claims.

The publication AHCCCS Contracted Health Plan Technical Interface Guidelines
describes the specific technical and procedural requirements for interfaces
between AHCCCS and the Contractor and its subcontractors. The Contractor is
responsible for complying with all technical requirements as stated in this
manual as well as any subsequent changes to the manual. A copy may be found in
the Bidder's Library.

The costs of software changes are included in administrative costs paid to the
Contractor. There is no separate payment for software changes. A PMMIS systems
contact will be assigned after contract award. AHCCCSA will work with the health
plans as they evaluate Electronic Data Interchange options.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA): The Contractor
shall comply with the Administrative Simplification requirements of Subpart F of
the HIPPA of 1996 (Public Law 107-191, 110 Statutes 1936) and all federal
regulations implementing that Subpart that are applicable to the operations of
the Contractor by the dates required by the implementing federal regulations.
Failure to comply with the requirements of this paragraph constitute grounds for
the termination of this contract.

CONTRACT TERMINATION FOR FAILURE TO COMPLY WITH HIPAA: The Contractor shall
notify AHCCCS no later than one hundred and twenty (120) days prior to any
required compliance date if the Contractor is unwilling to or anticipates that
it will be unable to comply with any of the requirements of the preceding
paragraph. Receipt by AHCCCS of a notice of anticipated inability of
unwillingness to comply as required by this paragraph constitute grounds for the
termination of this contract.

48.      ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to the success of
the AHCCCS program. AHCCCSA uses encounter data to pay reinsurance benefits, set
fee-for-service and capitation rates, determine disproportionate share payments
to hospitals, and to determine compliance with performance standards. The
Contractor shalt submit encounter data to AHCCCSA for all covered services for
which the Contractor incurred a financial liability, including services provided
during prior period coverage. This requirement is a condition of the CMS grant
award.

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<PAGE>

Encounter data must be provided to AHCCCSA by electronic media and must be
submitted in the PMMIS AHCCCSA supplied formats. Formatting and specific
requirements for encounter data are described in the AHCCCS Encounter Reporting
User Manual and the AHCCCS Technical Interface Guidelines, copies of which may
be found in the Bidder's Library. The Encounter Submission Requirements are
included herein as Attachment I.

An Encounter Submission Tracking Report must be maintained and made available to
AHCCCSA upon request. The Tracking Report's purpose is to link each claim to an
adjudicated or pended encounter returned to the Contractor. Further information
regarding the Encounter Submission Tracking Report may be found in The Encounter
User's Manual.

49.      MONTHLY ROSTER RECONCILIATION

AHCCCSA produces daily roster updates identifying new members and changes to
members' demographic, eligibility and enrollment data, which the Contractor
shall use to update its member records. The daily roster which is run prior to
the monthly roster is referred to as the "last daily" and will contain all rate
code changes made for the prospective month, as well as any new enrollments and
disenrollments.

The monthly roster is generally produced two days before the end of every month.
The roster will identify the total active population for the Contractor as of
the first day of the next month. This roster contains the information used by
AHCCCSA to produce the monthly capitation payment for the next month. The
Contractor will reconcile their member files with the AHCCCS monthly roster.
After reconciling the monthly roster information, the Contractor resumes posting
daily roster updates beginning with the last two days of the month. The last two
daily rosters are different from the regular daily rosters in that they pay
and/or recoup capitation into the next month.

Refer to the AHCCCS Contracted Health Plan Technical Interface Guidelines
available in the Bidder's Library for additional information.

50.      TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/97 through 9/30/98. In addition,
AHCCCSA reserves the sole option to extend the term of the contract. Legislation
was passed that allows AHCCCSA the right to extend the contract in excess of
five years. As a result of this legislation, AHCCCSA is exercising it's right to
extend the contract to 9/30/03. The new contract cycle will be effective
10/01/03. All contract extensions shall be through contract amendment. If, in
conjunction with a contract extension, AHCCCSA elects to increase the capitation
rate for any new category, such increase will not exceed in aggregate the
inflation rate recognized by the Arizona Legislature.

If the Contractor has been awarded a contract in more than one GSA, each such
contract will be considered separately renewable. AHCCCSA may renew the
Contractor's contract in one GSA but not in another. In addition, if the
Contractor has had significant problems of non-compliance in one GSA, it may
result in the capping of the Contractor's enrollment in another. Further,
AHCCCSA may require a contractor to renew all GSA's, or may terminate remaining
GSA's if the Contractor does not agree to renew all GSA's.

When AHCCCSA issues an amendment to extend the contract, the provisions of such
extension will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the extension amendment has not been signed by the
Contractor, unless within that time the Contractor notifies AHCCCSA in writing
that it refuses to sign the extension amendment. If the Contractor provides such
notification, AHCCCSA will initiate contract termination proceedings.

CONTRACTOR'S NOTICE OF INTENT NOT TO RENEW: If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the Contractor
provides AHCCCSA written notice of its intent not to renew this contract at
least 180 days before its expiration, this liability for transition costs may be
waived by AHCCCSA.

51.      SUBCONTRACTS

The Contractor shall be legally responsible for contract performance whether or
not subcontracts are used. No subcontract shall operate to terminate the legal
responsibility of the Contractor to assure that all activities carried out by
the subcontractor

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<PAGE>

conform to the provisions of this contract. Subject to such conditions, any
function required to be provided by the Contractor pursuant to this contract may
be subcontracted to a qualified person or organization. All such subcontracts
must be in writing. See policy on claims processing by subcontracted providers
in the Bidder's Library.

All subcontracts entered into by the Contractor are subject to prior review and
approval by AHCCCSA, Contracts and Purchasing, and shall incorporate by
reference the terms and conditions of this contract. The following subcontracts
shall be submitted to AHCCCSA Contracting Office for prior approval at least 30
days prior to the beginning date of the subcontract:

a.       Automated data processing
b.       Third-party administrators
c.       Management Services (See also Section D, Paragraphs 53 & 54)
d.       Model subcontracts
e.       Capitated or other risk subcontracts requiring claims processing by the
         subcontractor must be submitted to AHCCCSA, Office of Managed Care.

The Contractor shall maintain a fully executed original of all subcontracts,
which shall be accessible to AHCCCSA within two working days of request by
AHCCCSA. A subcontract is violable and subject to immediate cancellation by
AHCCCSA in the event any subcontract pertinent to "a" through "e" above is
implemented without the prior written approval of AHCCCSA. All subcontracts
shall comply with the applicable provisions of Federal and State laws,
regulations and policies.

The Contractor shall not include covenant-not-to-compete requirements in its
provider agreements. Specifically, the Contractor shall not contract with a
provider and require that the provider not provide services for any other AHCCCS
contractor.

The Contractor must enter into a written agreement with any provider the
Contractor reasonably anticipates will be providing services on its behalf more
than 25 times during the contract year. Exceptions to this requirement include
the following:

a.       If a provider who provides services more than 25 times during the
         contract year refuses to enter into a written agreement with the
         Contractor, the Contractor shall submit documentation of such refusal
         to AHCCCS Office of Managed Care within seven days of its final attempt
         to gain such agreement.
b.       If a provider performs emergency services such as an emergency room
         physician or an ambulance company, a written agreement is not required.

These and any other exceptions to this requirement must be approved by AHCCCS
Office of Managed Care. Each subcontract must contain verbatim all the
provisions of Attachment A, Minimum Subcontract Provisions. In addition, each
subcontract must contain the following:

a.       Full disclosure of the method and amount of compensation or other
         consideration to be received by the subcontractor.
b.       Identification of the name and address of the subcontractor.
c.       Identification of the population, to include patient capacity, to be
         covered by the subcontractor.
d.       The amount, duration and scope of medical services to be provided, and
         for which compensation will be paid.
e.       The term of the subcontract including beginning and ending dates,
         methods of extension, termination and renegotiation.
f.       The specific duties of the subcontractor relating to coordination of
         benefits and determination of third-party liability.
g.       A provision that the subcontractor agrees to identify Medicare and
         other third-party liability coverage and to seek such Medicare or third
         party liability payment before submitting claims to the Contractor.
h.       A description of the subcontractor's patient, medical and cost record
         keeping system.
i.       Specification that the subcontractor shall cooperate with quality
         assurance programs and comply with the utilization control and review
         procedures specified in 42 CFR Part 456, as implemented by AHCCCSA.
j.       A provision stating that a merger, reorganization or change in
         ownership of a subcontractor that is related to or affiliated with the
         Contractor shall require a contract amendment and prior approval of
         AHCCCSA.
k.       Procedures for enrollment or re-enrollment of the covered population
         (may also refer to the Provider Manual).
1.       A provision that the subcontractor shall be fully responsible for all
         tax obligations, Worker's Compensation Insurance, and all other
         applicable insurance coverage obligations which arise under this
         subcontract, for itself and its employees, and that AHCCCSA shall have
         no responsibility or liability for any such taxes or insurance
         coverage.
m.       A provision that the subcontractor must obtain any necessary
         authorization from the Contractor or AHCCCSA for services provided to
         eligible and/or enrolled members.
n.       A provision that the subcontractor must comply with encounter reporting
         and claims submission requirements as described in the subcontract.

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<PAGE>

52.      SPECIALTY CONTRACTS

AHCCCSA may at any time negotiate or contract on behalf of the Contractor and
AHCCCSA for specialized hospital and medical services. AHCCCSA will consider
existing Contractor resources in the development and execution of specialty
contracts. AHCCCSA may require the Contractor to modify its delivery network to
accommodate the provisions of specialty contracts. Specialty contracts shall
take precedence over and supersede existing and future subcontracts for services
that are subject to specialty contracts. AHCCCSA may consider waiving this
requirement in particular situations if such action is determined to be in the
best interest of the State; however, in no case shall reimbursement exceed that
payable under the relevant AHCCCSA specialty contract.

During the term of specialty contracts, AHCCCSA may act as an intermediary
between the Contractor and specialty contractors to enhance the cost
effectiveness of service delivery. AHCCCSA reserves the right to make direct
payments to specialty contractors on behalf of the Contractor. Adjudication of
claims related to such payments provided under specialty contracts shall remain
the responsibility of the Contractor. AHCCCSA may provide technical assistance
prior to the implementation of any specialty contracts.

AHCCCSA shall provide at least 60 days advance written notice to the Contractor
prior to the implementation of any specialty contract.

53.      MANAGEMENT SERVICES SUBCONTRACTORS

All proposed management services subcontracts and/or corporate cost allocation
plans must be approved in advance by AHCCCSA Contracting Office as described in
Section D, Paragraph 51, Subcontracts. Cost allocation plans must be submitted
with the proposed management fee agreement. AHCCCSA reserves the right to
perform a thorough review of actual management fees charged and/or corporate
allocations made. If the fees or allocations actually paid out are determined to
be unjustified or excessive, amounts may be subject to repayment to the
Contractor, the Contractor may be placed on monthly financial reporting, and/or
financial sanctions may be imposed.

54.      MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

All management services subcontractors that have oversight responsibilities for
the Contractor's program operations (such as third-party administrators) are
required to have an annual financial audit. A copy of this audit shall be
submitted to AHCCCSA, Office of Managed Care, within 120 days of the
subcontractor's fiscal year end.

If services billed by a consultant or actuary are less than $50,000, AHCCCSA
will waive the requirement for an audit of that consultant or actuary.

55.      MINIMUM CAPITALIZATION REQUIREMENTS

In order to be considered for contract award, the Offeror must meet a minimum
capitalization requirement for each GSA bid. The capitalization requirement for
both new and continuing offerors must be met within 15 days after contract
award.

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<PAGE>

Minimum capitalization requirements by GSA are as follows:

<TABLE>
<CAPTION>
                        Capitalization Requirement   Capitalization Requirement
                  <S>        <C>                     <C>
                  GSA #2     Yuma                           $1,400,000
                  GSA #4     Mohave, La Paz                  1,150,000
                  GSA #6     Yavapai, Coconino               1,250,000
                  GSA #8     Pinal, Gila                     1,450,000
                  GSA #10    Pima                            1,250,000
                  GSA #12    Maricopa                        2,500,000
                  GSA #14    Graham, Greenlee                  350,000
                  GSA #16    Apache, Navajo                    650,000
                  GSA #18    Cochise, Santa Cruz             1,450,000
</TABLE>

NEW OFFERORS: To be considered for a contract award in a given GSA or group of
GSA's, a new offeror must meet the minimum capitalization requirements listed
above. The capitalization requirement is subject to a $5,000,000 ceiling
regardless of the number of GSA's awarded. This requirement is in addition to
the Performance Bond requirements defined in Paragraphs 56 and 57 below and must
be met with cash with no encumbrances, such as a loan subject to repayment. The
capitalization requirements may be applied toward meeting the equity per member
requirement (see Section D, Paragraph 58, Financial Viability Criteria) and is
intended for use in operations of the Contractor.

CONTINUING OFFERORS: Continuing offerors that are bidding a county or GSA that
they are currently servicing must meet the equity per member standard (see
Section D, Paragraph 58, Financial Viability Criteria) for their current
membership. Continuing offerors that do not meet the equity standard must fund
through capital contribution the necessary amount to meet this requirement.
Continuing offerors that are bidding a new GSA must provide the additional
capitalization for the new GSA they are bidding. (See the table of requirements
by GSA above). Continuing offerors will not be required to provide additional
capitalization if they currently meet the equity per member standard with their
existing membership and their excess equity is sufficient to cover the proposed
additional members, or they have at least $5,000,000 in equity.

56.      PERFORMANCE BOND OR BOND SUBSTITUTE

The Contractor shall be required to provide a performance bond of standard
commercial scope issued by a surely company doing business in this State, an
irrevocable letter of credit, or a cash deposit ("Performance Bond") to AHCCCSA
for as long as the Contractor has AHCCCS-related liabilities of $50,000 or more
outstanding, or 15 months following the effective date of this contract,
whichever is later, to guarantee: (1) payment of the Contractor's obligations to
providers, non-contracting providers, and non-providers; and (2) performance by
the Contractor of its obligations under this contract. The Performance Bond
shall be in a form acceptable to AHCCCSA as described in the AHCCCS Performance
Bond policy available in the Office of Managed Care.

In the event of a default by the Contractor, AHCCCSA shall, in addition to any
other remedies it may have under this contract, obtain payment under the
Performance Bond or substitute security for the purposes of the following:

a.       Paying any damages sustained by providers, non-contracting providers
         and nonproviders by reason of a breach of the Contractor's obligations
         under this contract,
b.       Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of the
         Contractor, and
c.       Reimbursing AHCCCSA for any extraordinary administrative expenses
         incurred by reason of a breach of the Contractor's obligations under
         this contract, including, but not limited to, expenses incurred after
         termination of this Contract for reasons other than the convenience of
         the State by AHCCCSA.

In the event AHCCCSA agrees to accept substitute security in lieu of the
Performance Bond, irrevocable letter of credit or cash deposit, the Contractor
agrees to execute any and all documents and perform any and all acts necessary
to secure and enforce AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and necessary UCC filings
pursuant to the Arizona Uniform Commercial Code. In the event such substitute
security is agreed to and accepted by AHCCCSA, the Contractor acknowledges that
it has granted AHCCCSA a security interest in such substitute security to secure
performance of its obligations under this contract. The Contractor is solely
responsible for establishing the credit-worthiness of all forms of substitute
security. AHCCCSA may, after written notice to the Contractor, withdraw its
permission for substitute security, in which case the Contractor shall provide
AHCCCSA with a form of security described above. The Contractor may not change
the amount, duration or scope of the performance bond without prior written
approval from AHCCCSA, Office of Managed Care.

                                       49
<PAGE>

The Contractor shall not leverage the bond for another loan or create other
creditors using the bond as security.

57.      AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110% of the total
capitation payment expected to be paid in the month of October 1997, or as
determined by AHCCCSA. The total capitation amount shall include SOBRA
supplemental payments. This requirement must be satisfied by the Contractor not
later than 15 days after notification by AHCCCSA of the amount required.
Thereafter, AHCCCSA shall evaluate the enrollment statistics of the Contractor
on a monthly basis. If there is an increase in capitation payment that exceeds
10% of the performance bond amount, AHCCCSA may require an increase in the
amount of the Performance Bond. The Contractor shall have 15 days following
notification by AHCCCSA to increase the amount of the Performance Bond. The
Performance Bond amount that must be maintained after the contract term shall be
sufficient to cover all outstanding liabilities and will be determined by
AHCCCSA. The Contractor may not change the amount of the performance bond
without prior written approval from AHCCCSA, Office of Managed Care.

58.      FINANCIAL VIABILITY STANDARDS/PERFORMANCE GUIDELINES

AHCCCSA has established the following financial viability standards/performance
guidelines. On a quarterly basis, AHCCCSA will review the following ratios with
the purpose of monitoring the financial health of the Contractor. The two
Financial Viability Standards, the Current Ratio and Equity per Member, are the
standards that best represent the financial solvency of the Contractor.
Therefore, the Contractor must comply with these two financial viability
standards.

AHCCCSA will also monitor the Medical Expense Ratio, the Administrative Cost
Percentage, and the RBUC's Days Outstanding. These guidelines are analyzed as
part of AHCCCSA's due diligence in financial statement monitoring. Sanctions
will not be imposed if the Contractor does not meet these performance
guidelines. However, if a critical combination of the Financial Viability
Standards and Performance Guidelines are not met, additional monitoring, such as
monthly reporting, may be required.

FINANCIAL VIABILITY STANDARDS:

CURRENT RATIO                       Current assets* divided by current
                                    liabilities. "Current assets" includes any
                                    long-term investments that can be converted
                                    to cash within 24 hours without significant
                                    penalty (i.e., greater than 20%). Standard:
                                    At least 1.00

                                    *if current assets includes a receivable
                                    from a parent company, the parent company
                                    must have liquid assets that support the
                                    amount of the intercompany loan.

EQUITY PER MEMBER                   Equity*, less on-balance sheet performance
                                    bond, divided by the number of non- SOBRA
                                    Family Planning Extension Services members
                                    enrolled at the end of the period. Standard.
                                    At least $150 (Failure to meet this standard
                                    may result in an enrollment cap being
                                    imposed in any or all contracted GSAs.)

                                    *for purposes of this measurement, the
                                    equity to be measured must be supported by
                                    unencumbered current assets.

PERFORMANCE GUIDELINES:

MEDICAL EXPENSE RATIO               Total medical expenses (net of reinsurance,
                                    TPL, HIV/AIDS Supplement) divided by total
                                    capitation + Delivery Supplement. Standard:
                                    At least 85%

ADMINISTRATIVE COST PERCENTAGE      Total administrative expenses (excluding
                                    income taxes), divided by total capitation +
                                    Delivery Supplement + TPL + reinsurance +
                                    HIV/AIDS Supplement. Standard:      No more
                                    than 10%

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59.      MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

A proposed merger, reorganization or change in ownership of the Contractor
health plan shall require prior approval of AHCCCSA and a subsequent contract
amendment. The Contractor must submit a detailed merger, reorganization and/or
transition plan to AHCCCSA Contracting Office for AHCCCSA review. The purpose of
the plan review is to ensure uninterrupted services to members, evaluate the new
entity's ability to support the provider network, ensure that services to
members are not diminished and that major components of the organization and
AHCCCS programs are not adversely affected by such merger, reorganization or
change in ownership.

60.      SANCTIONS

AHCCCSA may impose sanctions, suspend, deny, refuse to renew, or terminate this
contract or any related subcontracts in accordance with AHCCCS Rules R9-22-606
and the terms of this contract and applicable federal or State law and
regulations. Written notice will be provided to the Contractor specifying the
sanction to be imposed, the grounds for such sanction and either the length of
suspension or the amount of capitation prepayment to be withheld. The Contractor
may appeal the decision to impose a sanction in accordance with AHCCCS Rule
R9-22-804.

In lieu of the above remedies, AHCCCSA may, at its option, impose partial or
full enrollment caps on the Contractor. Among the contract violations that may
result in an enrollment cap are, but are not limited to, the following:

a.       Marketing violations
b.       Failure to meet AHCCCS Financial Viability Standards
c.       Material deficiency in the Contractor's provider network
d.       Quality of care and quality management issues
e.       Failure to meet AHCCCS encounter standards

CURE NOTICE PROCESS: Prior to the imposition of a sanction for non-compliance,
AHCCCSA may provide a written cure notice to the Contractor regarding the
details of the non-compliance. The cure notice will specify the period of time
during which the Contractor must bring its performance back into compliance with
contract requirements. If, at the end of the specified time period, the
Contractor has complied with the cure notice requirements, AHCCCSA will take no
further action. If, however, the Contractor has not complied with the cure
notice requirements, AHCCCSA will proceed with the imposition of sanctions.

61.      AUTO-ASSIGNMENT ALGORITHM

Members who do not exercise their right to choose and don't have family
continuity, are assigned to Contractors through an auto-assignment algorithm.
The algorithm is a mathematical formula used to distribute members to the
various Contractors in a manner that is predictable and consistent with AHCCCSA
goals. The algorithm favors those Contractors with lower capitation rates. For
further details on the AHCCCS Auto-Assignment Algorithm, refer to Attachment G.
AHCCCSA may change the algorithm at any time during the term of the contract and
frequently does so in response to Contractor-specific issues of non-compliance
(e.g. imposition of an enrollment cap). The Contractor should consider this in
preparing its response to this RFP. AHCCCSA is not obligated to adjust for any
financial impacts this may have on the Contractor.

62.      GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS

The Contractor shall have in place a written grievance and request for hearing
process for members and providers which defines and explains their rights
regarding any adverse action by the Contractor. The Contractor shall provide the
appropriate personnel to establish, implement and maintain the necessary
functions related to grievances, requests for hearing, and denials and
reductions of services. Refer to Attachment H for Grievance and Request for
Hearing Process and Standards and Paragraph 5, Denials and Reductions of
Services.

The grievance and request for hearing process shall be in accordance with
applicable federal and state laws, AHCCCS rules and policies, including, but not
limited to R9-22-Article 8, R9-31-Article 8 and the Members Rights and
Responsibilities Policy. The Contractor must ensure that the Contractor's
grievance and request for hearing policies include processing procedures and
documentation requirements. The Contractor must ensure that it provides written
information to both members and providers which clearly explains the grievance
and request for hearing process.

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The Contractor shall be responsible to provide the necessary professional,
paraprofessional, and clerical services for the representation of the Contractor
in all issues relating to grievances, denials and reductions of services and any
other matters arising under this contract which rise to the level of
administrative hearing or a judicial proceeding.

63.      QUARTERLY GRIEVANCE REPORT

The Contractor shall submit a Quarterly Grievance Report to AHCCCSA, Office of
Legal Assistance, using the Quarterly Grievance Report Format on file in the
Bidder's Library. The Quarterly Grievance Report must be received by the
AHCCCSA, Office of Legal Assistance, no later than 45 days from the end of the
quarter.

64.      KIDSCARE

On November 1, 1998, AHCCCSA implemented a Title XXI Children's Health Insurance
Program, referred to as "KidsCare". KidsCare provides health care coverage
statewide to eligible children under age 19 and is provided through the existing
AHCCCS health plans, state employee HMOs that elect to participate at the
beginning of a contract cycle, and tribal facilities or Indian Health Service
for Native Americans who elect to receive services through them.

The KidsCare service package is established by the legislature and approved by
CMS through the State Plan. Capitation rates payable to the Contractor for
KidsCare members will be set by AHCCCSA in conjunction with an independent
actuary.

KidsCare members in families with gross household income over 150% and up to
200% of the federal poverty limit shall pay a premium to AHCCCSA. The premium
amount shall be based on the number of members in the household and the gross
family income in accordance with 9 A.A.C., Article 14.

TITLE XVI PARENT/GUARDIAN HEALTH INSURANCE COVERAGE: A.R.S. ss.36-2984 mandates
that the Contractor offer health insurance coverage to the parent(s) or legal
guardian(s) of a child who is eligible for Title XXI. The Contractor shall
establish rates for this coverage, which must be approved by AHCCCSA, Office of
Managed Care, prior to implementation. Title XXI funds or any other federal or
state funds shall not be used to subsidize family coverage. The full cost of the
premium shall be paid by the parent or legal guardian who elects this coverage.
The Contractor may include provisions for pre-existing conditions and any other
medical underwriting considerations that are necessary to protect it from
adverse risk. For further information, refer to the Title XXI Parent/Guardian
Health Insurance Coverage Guidelines on file in the Bidder's Library.

65.      PENDING LEGISLATIVE ISSUES

In addition to the requirements described in this RFP, there are several
legislative issues that will have an impact on services provided by the
Contractor on or after October 1, 2001. The following is a brief summary of the
issues.:

BREAST AND CERVICAL CANCER: Legislation was passed to adopt a federal program
that expands Title XIX eligibility to women under the age of 65 who are between
100% and 250% of FPL that have been diagnosed with either breast or cervical
cancer. This program will be implemented early in 2002.

TICKET TO WORK: Legislation was passed to adopt a federal program that expands
Title XIX eligibility to individuals, 16 through 64 years old who meet SSI
eligibility criteria, and whose earned income is at or below 250% FPL. This
program will be implemented early in 2002.

AHCCCS COVERAGE FOR THE PARENTS OF CHILDREN ELIGIBLE FOR KIDSCARE: During the
2001 legislative session, AHCCCS is required to apply for an 1115 Waiver to
cover the parents of children eligible for KidsCare up to 200% of FPL. AHCCCS
will need state match if the waiver is approved, and will seek legislative
expenditure authority. It is anticipated that this program will be effective
October 1, 2002.

In addition to the above pending legislative issues, the final regulations for
the Budget Balanced Act of 1997 have not been finalized. Contractors shall
comply with the BBA regulations upon finalization.

66.      SEPARATE INCORPORATION

As specified in A.R.S. ss. 36-2906.01, within 60 days of contract award, a
non-governmental Contractor shall have established a separate corporation for
the purposes of this contract, whose sole activity is the performance of
contract function with

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<PAGE>

AHCCCS.

67.      CULTURAL COMPETENCY

The Contractor shall have a Cultural Competency Plan that meets the requirements
of the AHCCCS Cultural Competency Policy. The Contractor must identify a staff
member responsible for the cultural competency plan and inform the office of
Managed Care of that person's identity.

68.      MEDICAID IN THE PUBLIC SCHOOLS

Pursuant to an Intergovernmental Agreement with the Department of Education, and
a contract with a Third Party Administrator, AHCCCS began paying participating
school districts for specifically identified Medicaid services when provided to
Medicaid-eligible children who are included under the Individuals with
Disabilities Education Act (IDEA). The Medicaid services must be identified in
the member's Individual Education Plan (IEP) as medically necessary for the
child to obtain a public school education. In the first phase of the Medicaid in
the Public Schools (MIPS) program, AHCCCS began reimbursement to school
districts for services provided beginning July 1, 2000. These services included
speech, physical and occupational therapies, nursing services, attendant care
(health aid services provided in the classroom), transportation to and from
school on days when the child receives an AHCCCS-covered MIPS service, and
behavioral health services.

Services provided through MIPS are specifically intended to allow children to
attend school and do not replace medically necessary services provided outside
the educational setting. Thus, the Contractor's determination of whether
services are medically necessary and should be provided to a child shall be made
independently of whether that child also is receiving MIPS services. If a
request is made for services that also are covered under the MIPS program for a
child enrolled with the Contractor, the request shall be evaluated on the same
basis as any request for a covered service.

[END OF SECTION D]

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SECTION E: CONTRACT CLAUSES

1.       APPLICABLE LAW

ARIZONA LAW - The law of Arizona applies to this contract including, where
applicable, the Uniform Commercial Code, as adopted in the State of Arizona.

IMPLIED CONTRACT TERMS - Each provision of law and any terms required by law to
be in this contract are a part of this contract as if fully stated in it.

2.       AUTHORITY

This contract is issued under the authority of the Contracting Officer who
signed this contract. Changes to the contract, including the addition of work or
materials, the revision of payment terms, or the substitution of work or
materials, directed by an unauthorized state employee or made unilaterally by
the Contractor are violations of the contract and of applicable law. Such
changes, including unauthorized written contract amendments, shall be void and
without effect, and the Contractor shall not be entitled to any claim under this
contract based on those changes.

3.       ORDER OF PRECEDENCE

The parties to this contract shall be bound by all terms and conditions
contained herein. For interpreting such terms and conditions the following
sources shall have precedence in descending order: The Constitution and laws of
the United States and applicable federal regulations; the terms of the CMS 1115
waiver for the State of Arizona; the Constitution and laws of Arizona, and
applicable State rules; the terms of this contract, including all attachments
and executed amendments and modifications; AHCCCSA policies and procedures.

4.       CONTRACT INTERPRETATION AND AMENDMENT

NO PAROL EVIDENCE - This contract is intended by the parties as a final and
complete expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term used in
this contract.

NO WAIVER - Either party's failure to insist on strict performance of any term
or condition of the contract shall not be deemed a waiver of that term or
condition even if the party accepting or acquiescing in the non-conforming
performance knows of the nature of the performance and fails to object to it.

WRITTEN CONTRACT AMENDMENTS - The contract shall be modified only through a
written contract amendment within the scope of the contract signed by the
procurement officer on behalf of the State.

5.       SEVERABILITY

The provisions of this contract are severable to the extent that any provision
or application held to be invalid shall not affect any other provision or
application of the contract, which may remain in effect without the invalid
provision, or application.

6.       RELATIONSHIP OF PARTIES

The Contractor under this contract is an independent contractor. Neither party
to this contract shall be deemed to be the employee or agent of the other party
to the contract.

7.       ASSIGNMENT AND DELEGATION

The Contractor shall not assign any right nor delegate any duty under this
contract without prior written approval of the Contracting Officer, who will not
unreasonably withhold such approval.

8.       GENERAL INDEMNIFICATION

The Contractor shall defend, indemnify and hold harmless the State from any
claim, demand, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation) arising out of or relating to injury, disease, or
death of persons or damage to or loss of property resulting from or in
connection with the negligent performance of this contract by the

                                       54
<PAGE>

Contractor, its agents, employees, and subcontractors or anyone for whom the
Contractor may be responsible. The obligations, indemnities and liabilities
assumed by the Contractor under this paragraph shall not extend to any liability
caused by the negligence of the State or its employees. The Contractor's
liability shall not be limited by any provisions or limits of insurance set
forth in this contract. The State shall reasonably notify the Contractor of any
claim for which it may be liable under this paragraph. The Administration shall
bear no liability for subcontracts that a contractor executes with other parties
for the provision of administrative or management services, medical services or
covered health care services, or for any other purposes.

9.       INDEMNIFICATION -- PATENT AND COPYRIGHT

The Contractor shall defend, indemnify and hold harmless the State against any
liability including costs and expenses for infringement of any patent, trademark
or copyright arising out of contract performance or use by the State of
materials furnished or work performed under this contract. The State shall
reasonably notify the Contractor of any claim for which it may be liable under
this paragraph.

10.      COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS

The materials and services supplied under this contract shall comply with all
applicable federal, state and local laws, and the Contractor shall maintain all
applicable licenses and permits.

11.      ADVERTISING AND PROMOTION OF CONTRACT

The Contractor shall not advertise or publish information for commercial benefit
concerning this contract without the prior written approval of the Contracting
Officer.

12.      PROPERTY OF TILE STATE

Any materials, including reports, computer programs and other deliverables,
created under this contract are the sole property of AHCCCSA. The Contractor is
not entitled to a patent or copyright on those materials and may not transfer
the patent or copyright to anyone else. The Contractor shall not use or release
these materials without the prior written consent of AHCCCSA.

13.      THIRD PARTY ANTITRUST VIOLATIONS

The Contractor assigns to the State any claim for overcharges resulting from
antitrust violations to the extent that those violations concern materials or
services supplied by third parties to the Contractor toward fulfillment of this
contract.

14.      RIGHT TO ASSURANCE

If AHCCCSA, in good faith, has reason to believe that the Contractor does not
intend to perform or continue performing this contract, the procurement officer
may demand in writing that the Contractor give a written assurance of intent to
perform. The demand shall be sent to the Contractor by certified mail, return
receipt required. Failure by the Contractor to provide written assurance within
the number of days specified in the demand may, at the State's option, be the
basis for terminating the contract.

15.      TERMINATION FOR CONFLICT OF INTEREST

AHCCCSA may cancel this contract without penalty or further obligation if any
person significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of AHCCCSA is, or becomes at any time while the
contract or any extension of the contract is in effect, an employee of, or a
consultant to, any other party to this contract with respect to the subject
matter of the contract. The cancellation shall be effective when the Contractor
receives written notice of the cancellation unless the notice specifies a later
time.

16.      GRATUITIES

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that employment or a gratuity was offered or made by
the Contractor or a representative of the Contractor to any officer or employee
of the State for the purpose of influencing the outcome of the procurement or
securing the contract, an amendment to the contract, or favorable

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<PAGE>

treatment concerning the contract, including the making of any determination or
decision about contract performance. AHCCCSA, in addition to any other rights or
remedies, shall be entitled to recover exemplary damages in the amount of three
times the value of the gratuity offered by the Contractor.

17.      SUSPENSION OR DEBARMENT

The Contractor shall not employ, consult, subcontract or enter into any
agreement for Title XIX services with any person or entity who is debarred,
suspended or otherwise excluded from federal procurement activity. This
prohibition extends to any entity which employs, consults, subcontracts with or
otherwise reimburses for services any person substantially involved in the
management of another entity which is debarred, suspended or otherwise excluded
from federal procurement activity.

The Contractor shall not retain as a director, officer, partner or owner of 5%
or more of the Contractor entity, any person, or affiliate of such a person, who
is debarred, suspended or otherwise excluded from federal procurement activity.

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that the Contractor has been debarred, suspended or
otherwise lawfully prohibited from participating in any public procurement
activity.

18.      TERMINATION FOR CONVENIENCE

AHCCCSA reserves the right to terminate the contract in whole or in part at any
time for the convenience of the State without penalty or recourse. The
Contracting Officer shall give written notice by certified mail, return receipt
requested, to the Contractor of the termination at least 90 days before the
effective date of the termination. In the event of termination under this
paragraph, all documents, data and reports prepared by the Contractor under the
contract shall become the property of and be delivered to AHCCCSA. The
Contractor shall be entitled to receive just and equitable compensation for work
in progress, work completed and materials accepted before the effective date of
the termination.

19.      TERMINATION FOR DEFAULT

AHCCCSA reserves the right to terminate this contract in whole or in part due to
the failure of the Contractor to comply with any term or condition of the
contract or failure to take corrective action as required by AHCCCSA to comply
with the terms of the contract. If the Contractor is providing services under
more than one contract with AHCCCSA, AHCCCSA may deem unsatisfactory performance
under one contract to be cause to require the Contractor to provide assurance of
performance under any and all other contracts. In such situations, AHCCCSA
reserves the right to seek remedies under both actual and anticipatory breaches
of contract if adequate assurance of performance is not received. The
Contracting Officer shall mail written notice of the termination and the
reason(s) for it to the Contractor by certified mail, return receipt requested.

In the event the Contractor requests a hearing prior to termination, AHCCCSA is
required by the Balanced Budget Act of 1997 to oversee the operation of the
Contractor entity through appointment of temporary management prior to the
hearing.

Upon termination under this paragraph, all documents, data, and reports prepared
by the Contractor under the contract shall become the property of and be
delivered to AHCCCSA on demand.

AHCCCSA may, upon termination of this contract, procure, on terms and in the
manner that it deems appropriate, materials or services to replace those under
this contract. The Contractor shall be liable for any excess costs incurred by
AHCCCSA in re-procuring the materials or services.

20.      TERMINATION - AVAILABILITY OF FUNDS

Funds are not presently available for performance under this contract beyond the
current fiscal year. No legal liability on the part of AHCCCSA for any payment
may arise under this contract until funds are made available for performance of
this contract.

21.      RIGHT OF OFFSET

AHCCCSA shall be entitled to offset against any amounts due the Contractor any
expenses or costs incurred by AHCCCSA concerning the Contractor's non-conforming
performance or failure to perform the contract.

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22.      NON-EXCLUSIVE REMEDIES

The rights and the remedies of AHCCCSA under this contract are not exclusive.

23.      NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 99-4, which mandates
that all persons, regardless of race, color, religion, sex, national origin or
political affiliation, shall have equal access to employment opportunities, and
all other applicable federal and state laws, rules and regulations, including
the Americans with Disabilities Act and Title VI. The Contractor shall take
positive action to ensure that applicants for employment, employees, and persons
to whom it provides service are not discriminated against due to race, creed,
color, religion, sex, national origin or disability.

24.      EFFECTIVE DATE

The effective date of this contract shall be the date that the Contracting
Officer signs the award page (page 1) of this contract.

25.      INSURANCE

A certificate of insurance naming the State of Arizona and AHCCCSA as the
"additional insured" must be submitted to AHCCCSA within 10 days of notification
of contract award and prior to commencement of any services under this contract.
This insurance shall be provided by carriers rated as "A+" or higher by the A.M.
Best Rating Service. The following types and levels of insurance coverage are
required for this contract:

a.       Commercial General Liability: Provides coverage of at least $1,000,000
         for each occurrence for bodily injury and property damage to others as
         a result of accidents on the premises of or as the result of operations
         of the Contractor.

b.       Commercial Automobile Liability: Provides coverage of at least
         $1,000,000 for each occurrence for bodily injury and property damage to
         others resulting from accidents caused by vehicles operated by the
         Contractor.

c.       Workers Compensation: Provides coverage to employees of the Contractor
         for injuries sustained in the course of their employment. Coverage must
         meet the obligations imposed by federal and state statutes and must
         also include Employer's Liability minimum coverage of $100,000.
         Evidence of qualified self-insured status will also be considered.

d.       Professional Liability (if applicable): Provides coverage for alleged
         professional misconduct or lack of ordinary skills in the performance
         of a professional act of service.

The above coverage's may be evidenced by either one of the following:

a.       The State of Arizona Certificate of Insurance: This is a form with the
         special conditions required by the contract already pre-printed on the
         form. The Contractor's agent or broker must fill in the pertinent
         policy information and ensure the required special conditions are
         included in the Contractor's policy.

b.       The Accord form: This standard insurance industry certificate of
         insurance does not contain the pine-printed special conditions required
         by this contract. These conditions must be entered on the certificate
         by the agent or broker and read as follows:

The State of Arizona and Arizona Health Care Cost Containment System are hereby
added as additional insureds. Coverage afforded under this Certificate shall be
primary and any insurance carried by the State or any of its agencies, boards,
departments or commissions shall be in excess of that provided by the insured
Contractor. No policy shall expire, be canceled or materially changed without 30
days written notice to the State. This Certificate is not valid unless
countersigned by an authorized representative of the insurance company.

26.      DISPUTES

The exclusive manner for the Contractor to assert any claim, grievance, dispute
or demand against AHCCCSA shall be in accordance with AHCCCS Rule R9-28-804(C).
Pending the final resolution of any disputes involving this contract, the
Contractor shall proceed with performance of this contract in accordance with
AHCCCSA's instructions, unless AHCCCSA specifically, in writing, requests
termination or a temporary suspension of performance.

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27.      RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS

AHCCCSA may, at reasonable times, inspect the part of the plant or place of
business of the Contractor or subcontractor that is related to the performance
of this contract, in accordance with A.R.S. ss.41-2547.

28.      INCORPORATION BY REFERENCE

This solicitation and all attachments and amendments, the Contractor's proposal,
best and final offer accepted by AHCCCSA, and any approved subcontracts are
hereby incorporated by reference into the contract.

29.      COVENANT AGAINST CONTINGENT FEES

The Contractor warrants that no person or agency has been employed or retained
to solicit or secure this contract upon an agreement or understanding for a
commission, percentage, brokerage or contingent fee. For violation of this
warranty, AHCCCSA shall have the right to annul this contract without liability.

30.      CHANGES

AHCCCSA may at any time, by written notice to the Contractor, make changes
within the general scope of this contract. If any such change causes an increase
or decrease in the cost of, or the time required for, performance of any part of
the work under this contract, the Contractor may assert its right to an
adjustment in compensation paid under this contract. The Contractor must assert
its right to such adjustment within 30 days from the date of receipt of the
change notice. Any dispute or disagreement caused by such notice shall
constitute a dispute within the meaning of Section E, Paragraph 26, Disputes,
and be administered accordingly.

When AHCCCSA issues an amendment to modify the contract, the provisions of such
amendment will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the amendment has not been signed by the Contractor, unless
within that time the Contractor notifies AHCCCSA in writing that it refuses to
sign the amendment. If the Contractor provides such notification, AHCCCSA will
initiate termination proceedings.

31.      TYPE OF CONTRACT

Firm Fixed-Price

32.      AMERICANS WITH DISABILITIES ACT

People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling Michael Veit at (602) 417-4762.

33.      WARRANTY OF SERVICES

The Contractor warrants that all services provided under this contract will
conform to the requirements stated herein. AHCCCSA's acceptance of services
provided by the Contractor shall not relieve the Contractor from its obligations
under this warranty. In addition to its other remedies, AHCCCSA may, at the
Contractor's expense, require prompt correction of any services failing to meet
the Contractor's warranty herein. Services corrected by the Contractor shall be
subject to all of the provisions of this contract in the manner and to the same
extent as the services originally furnished.

34.      NO GUARANTEED QUANTITIES

AHCCCSA does not guarantee the Contractor any minimum or maximum quantity of
services or goods to be provided under this contract.

35.      CONFLICT OF INTEREST

The Contractor shall not undertake any work that represents a potential conflict
of interest, or which is not in the best interest of AHCCCSA or the State
without prior written approval by AHCCCSA. The Contractor shall fully and
completely disclose

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any situation that may present a conflict of interest. If the Contractor is now
performing or elects to perform during the term of this contract any services
for any AHCCCS health plan, provider or Contractor or an entity owning or
controlling same, the Contractor shall disclose this relationship prior to
accepting any assignment involving such party.

36.      DISCLOSURE OF CONFIDENTIAL INFORMATION

The Contractor shall not, without prior written approval from AHCCCSA, either
during or after the performance of the services required by this contract, use,
other than for such performance, or disclose to any person other than AHCCCSA
personnel with a need to know, any information, data, material, or exhibits
created, developed, produced, or otherwise obtained during the course of the
work required by this contract. This nondisclosure requirement shall also
pertain to any information contained in reports, documents, or other records
furnished to the Contractor by AHCCCSA.

37.      COOPERATION WITH OTHER CONTRACTORS

AHCCCSA may award other contracts for additional work related to this contract
and Contractor shall fully cooperate with such other contractors and AHCCCSA
employees or designated agents, and carefully fit its own work to such other
contractors' work. Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor or by AHCCCSA
employees.

38.      ASSIGNMENT OF CONTRACT AND BANKRUPTCY

This contract is voidable and subject to immediate cancellation by AHCCCSA upon
Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or assigning rights or obligations
under this contract without the prior written consent of AHCCCSA.

39.      OWNERSHIP OF INFORMATION AND DATA

Any data or information system, including all software, documentation and
manuals, developed by Contractor pursuant to this contract, shall be deemed to
be owned by AHCCCSA. The federal government reserves a royalty-free,
nonexclusive, and irrevocable license to reproduce, publish, or otherwise use
and to authorize others to use for federal government purposes, such data or
information system, software, documentation and manuals. Proprietary software
which is provided at established catalog or market prices and sold or leased to
the general public shall not be subject to the ownership or licensing provisions
of this section.

Data, information and reports collected or prepared by Contractor in the course
of performing its duties and obligations under this contract shall be deemed to
be owned by AHCCCSA. The ownership provision is in consideration of Contractor's
use of public funds in collecting or preparing such data, information and
reports. These items shall not be used by Contractor for any independent project
of Contractor or publicized by Contractor without the prior written permission
of AHCCCSA. Subject to applicable state and federal laws and regulations,
AHCCCSA shall have full and complete rights to reproduce, duplicate, disclose
and otherwise use all such information. At the termination of the contract,
Contractor shall make available all such data to AHCCCSA within 30 days
following termination of the contract or such longer period as approved by
AHCCCSA, Office of the Director. For purposes of this subsection, the term
"data" shall not include member medical records.

Except as otherwise provided in this section, if any copyrightable or patentable
material is developed by Contractor in the course of performance of this
contract, the federal government, AHCCCSA and the State of Arizona shall have a
royalty-free, nonexclusive, and irrevocable right to reproduce, publish, or
otherwise use, and to authorize others to use, the work for state or federal
government purposes. Contractor shall additionally be subject to the applicable
provisions of 45 CFR Part 74 and 45 CFR Parts 6 and 8.

40.      AHCCCSA RIGHT TO OPERATE CONTRACTOR

If, in the judgment of AHCCCSA, Contractor's performance is in material breach
of the contract or Contractor is insolvent, AHCCCSA may directly operate
Contractor to assure delivery of care to members enrolled with Contractor until
cure by Contractor of its breach, by demonstrated financial solvency or until
the successful transition of those members to other contractors.

If AHCCCS undertakes direct operation of the Contractor, AHCCCS, through
designees appointed by the Director, shall be vested with full and exclusive
power of management and control of the Contractor as necessary to ensure the
uninterrupted

                                       59
<PAGE>

care to persons and accomplish the orderly transition of persons to a new or
existing Contractor, or until the Contractor corrects the Contract Performance
failure to the satisfaction of AHCCCS. AHCCCS shall have the power to employ any
necessary assistants, to execute any instrument in the name of the Contractor,
to commence, defend and conduct in its name any action or proceeding in which
the Contractor may be a party.

All reasonable expenses of AHCCCS related to the direct operation of the
Contractor, including attorney fees, cost of preliminary or other audits of the
Contractor and expenses related to the management of any office or other assets
of the Contractor, shall be paid by the Contractor or withheld from payment due
from AHCCCS to the Contractor.

41.      AUDITS AND INSPECTIONS

The Contractor shall comply with all provisions specified in applicable AHCCCS
Rule R9-22-519, -520 and -521 and AHCCCS policies and procedures relating to the
audit of Contractor's records and the inspection of Contractor's facilities.
Contractor shall fully cooperate with AHCCCSA staff and allow them reasonable
access to Contractor's staff, subcontractors, members, and records.

At any time during the term of this contract, the Contractor's or any
subcontractor's books and records shall be subject to audit by AHCCCSA and,
where applicable, the federal government, to the extent that the books and
records relate to the performance of the contract or subcontracts.

AHCCCSA and the federal government may evaluate through on-site inspection or
other means, the quality, appropriateness and timeliness of services performed
under this contract.

42.      FRAUD AND ABUSE

It shall be the responsibility of the Contractor to report all cases of
suspected fraud and abuse by subcontractors, members or employees. The
Contractor shall provide written notification of all such incidents to AHCCCSA.
The Contractor shall comply with the AHCCCS Health Plans and Program Contractors
Policy for Prevention, Detection and Reporting of Fraud and Abuse which is
available in the Bidder's Library and incorporated herein by reference.

As stated in A.R.S. ss. 13-2310, incorporated herein by reference, any person
who knowingly obtains any benefit by means of false or fraudulent pretenses,
representations, promises or material omissions is guilty of a class 2 felony.

Contractors are required to research potential overpayments identified by a
fraud and abuse investigation or audit conducted by AHCCCSA. After conducting a
cost benefit analysis to determine if such action is warranted, the Contractor
should attempt to recover any overpayments identified due to erroneous, false or
fraudulent billings.

43.      LOBBYING

No funds paid to the Contractor by AHCCCSA, or interest earned thereon, shall be
used for the purpose of influencing or attempting to influence an officer or
employee of any federal or State agency, a member of the United States Congress
or State Legislature, an officer or employee of a member of the United States
Congress or State Legislature in connection with awarding of any federal or
State contract, the making of any federal or State grant, the making of any
federal or State loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment or modification of any federal or
State contract, grant, loan, or cooperative agreement. The Contractor shall
disclose if any funds other than those paid to the Contractor by AHCCCSA have
been used or will be used to influence the persons and entities indicated above
and will assist AHCCCSA in making such disclosures to CMS.

44.      CHOICE OF FORUM

The parties agree that jurisdiction over any action arising out of or relating
to this contract shall be brought or filed in a court of competent jurisdiction
located in the State of Arizona.

[END OF SECTION E]

                                       60
<PAGE>
ATTACHMENT A

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS

[The following provisions must be included verbatim in every subcontract.]

1.       EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES

The Arizona Health Care Cost Containment System Administration (AHCCCSA) or the
U.S. Department of Health and Human Services may evaluate, through inspection or
other means, the quality, appropriateness or timeliness of services performed
under this subcontract.

2.       RECORDS AND REPORTS

The Contractor shall maintain all forms, records, reports and working papers
used in the preparation of reports, files, correspondence, financial statements,
records relating to quality of care, medical records, prescription files,
statistical information and other records specified by AHCCCSA for purposes of
audit and program management. The Contractor shall comply with all
specifications for record-keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as shall properly reflect
each service provided and all net costs, direct and indirect, of labor,
materials, equipment, supplies and services, and other costs and expenses of
whatever nature for which payment is made to the Contractor. Such material shall
be subject to inspection and copying by the state, AHCCCSA and the U.S.
Department of Health and Human Services during normal business hours at the
place of business of the person or organization maintaining the records.

The Contractor agrees to make available at the office of the Contractor, at all
times reasonable times, any of its records for inspection, audit or
reproduction, by any authorized representative of the state or federal
governments.

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this subcontract except as
provided in paragraphs a. and b. below:

a.    If this subcontract is completely or partially terminated, the records
      relating to the work terminated shall be preserved and made available for
      a period of five years from the date of any such termination.

b.    Records which relate to disputes, litigation or the settlement of claims
      arising out of the performance of this subcontract, or costs and expenses
      of this subcontract to which exception has been taken by the state, shall
      be retained by the Contractor until such disputes, litigation, claims or
      exceptions have been disposed of.

The Contractor shall provide all reports requested by AHCCCSA, and all
information from records relating to the performance of the Contractor which
AHCCCSA may reasonably require. The Contractor reporting requirements may
include, but are not limited to, timely and detailed utilization statistics,
information and reports.

3.       LIMITATIONS ON BILLING AND COLLECTION PRACTICES

The Contractor shall not bill, nor attempt to collect payment directly or
through a collection agency from a person claiming to be AHCCCS eligible without
first receiving verification from AHCCCSA that the person was ineligible for
AHCCCS on the date of service, or that services provided were not AHCCCS covered
services. This provision shall not apply to patient contributions to the cost of
services delivered by nursing homes.

4.       ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES

No payment due the Contractor under this subcontract may be assigned without the
prior approval of AHCCCSA. No assignment or delegation of the duties of this
subcontract shall be valid unless prior written approval is received from
AHCCCSA.

5.       APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS

This subcontract is subject to prior approval by AHCCCSA. The prime contractor
shall notify AHCCCSA in the event of any proposed amendment or termination
during the term hereof. Any such amendment or termination is subject to the
prior approval of AHCCCSA. Approval of the subcontract may be rescinded by the
Director of AHCCCSA for violation of federal or state laws or rules.

                                      A-1
<PAGE>

6.       WARRANTY OF SERVICES

The Contractor, by execution of this subcontract, warrants that it has the
ability, authority, skill, expertise and capacity to perform the services
specified in this contract.

7.       SUBJECTION OF SUBCONTRACT

The terms of this subcontract shall be subject to the applicable material terms
and conditions of the contract existing between the Contractor and AHCCCSA for
the provision of covered services.

8.       AWARDS OF OTHER SUBCONTRACTS

AHCCCSA and/or the prime contractor may undertake or award other contracts for
additional or related work to the work performed by the Contractor and the
Contractor shall fully cooperate with such other contractors, subcontractors or
state employees. The Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor, subcontractor or
state employee.

9.       INDEMNIFICATION BY CONTRACTOR

The Contractor agrees to hold harmless the state, all state officers and
employees, AHCCCSA and other appropriate state agencies, and all officers and
employees of AHCCCSA and all AHCCCS eligible persons in the event of nonpayment
to the Contractor. The Contractor shall further indemnify and hold harmless the
state, AHCCCSA, other appropriate state agencies, AHCCCS contractors, and their
agents, officers and employees against all injuries, deaths, losses, damages,
claims, suits, liabilities, judgments, costs and expenses which may, in any
manner, accrue against the State, AHCCCSA or its agents, officers or employees,
or AHCCCS contractors, through the intentional conduct, negligence or omission
of the Contractor, its agent, officers or employees.

10.      MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES

The Contractor shall be registered with AHCCCSA and shall obtain and maintain
all licenses, permits and authority necessary to do business and render service
under this subcontract and, where applicable, shall comply with all laws
regarding safety, unemployment insurance, disability insurance and worker's
compensation.

11.      COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS

The Contractor shall comply with all federal, State and local laws, rules,
regulations, standards and executive orders governing performance of duties
under this subcontract, without limitation to those designated within this
subcontract.

12.      SEVERABILITY

If any provision of these standard subcontract terms and conditions is held
invalid or unenforceable, the remaining provisions shall continue valid and
enforceable to the full extent permitted by law.

13.      VOIDABILITY OF SUBCONTRACT

This subcontract is voidable and subject to immediate termination by AHCCCSA
upon the Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or upon assignment or delegation of
the subcontract without AHCCCSA's prior written approval.

14.      CONFIDENTIALITY REQUIREMENT

Confidential information shall be safeguarded pursuant to 42 CFR Part 431,
Subpart F, A.R.S. ss.36-107, 36-2903, 41-1959 and 46-135, and AHCCCS and/or
ALTCS Rules.

                                      A-2
<PAGE>

15.      GRIEVANCE AND REQUEST FOR HEARING PROCEDURES

Any grievance and request for hearings filed by the Contractor shall be
adjudicated in accordance with AHCCCS Rules. However, on a case by case basis,
the parties may agree to resolve the dispute through binding arbitration.

16.      TERMINATION OF SUBCONTRACT

AHCCCSA may, by written notice to the Contractor, terminate this subcontract if
it is found, after notice and hearing by the State, that gratuities in the form
of entertainment, gifts, or otherwise were offered or given by the Contractor,
or any agent or representative of the Contractor, to any officer or employee of
the State with a view towards securing a contract or securing favorable
treatment with respect to the awarding, amending or the making of any
determinations with respect to the performance of the Contractor; provided, that
the existence of the facts upon which the state makes such findings shall be in
issue and may be reviewed in any competent court. If the subcontract is
terminated under this section, unless the prime contractor is a governmental
agency, instrumentality or subdivision thereof, AHCCCSA shall be entitled to a
penalty, in addition to any other damages to which it may be entitled by law,
and to exemplary damages in the amount of three times the cost incurred by the
Contractor in providing any such gratuities to any such officer or employee.

17.      PRIOR AUTHORIZATION AND UTILIZATION REVIEW

The prime contractor and Contractor shall develop, maintain and use a system for
Prior Authorization and Utilization Review which is consistent with AHCCCS Rules
and the prime contractor's policies.

18.      NON-DISCRIMINATION REQUIREMENTS

If applicable, the Contractor shall comply with:

a.   The Equal Pay Act of 1963, as amended, which prohibits sex discrimination
     in the payment of wages to men and women performing substantially equal
     work under similar working conditions in the same establishment.

b.   Title VI of the Civil Rights Act of 1964, as amended, which prohibits the
     denial of benefits of, or participation in, contract services on the basis
     of race, color, or national origin.

c.   Title VII of the Civil Rights Act of 1964, as amended which prohibits
     private employers, state and local governments, and educational
     institutions from discriminating against their employees and job applicants
     on the basis of race, religion, color, sex, or national origin.

d.   Title I of the Americans with Disabilities Act of 1990, as amended, which
     prohibits private employers and state and local governments from
     discriminating against job applicants and employees on the basis of
     disability.

e.   The Civil Rights Act of 1991, which reverses in whole or in part, several
     recent Supreme Court decisions interpreting Title VII.

f.   The Age Discrimination in Employment Act (A.R.S. Title 41-1461, et seq.);
     which prohibits discrimination based on age.

g.   State Executive Order 99-4 and Federal Order 11246 which mandates that all
     persons, regardless of race, color, religion, sex, age, national origin or
     political affiliation, shall have equal access to employment opportunities.

h.   Section 503 of the Rehabilitation Act of 1973, as amended, which prohibits
     discrimination in the employment or advancement of the employment of
     qualified persons because of physical or mental handicap.

i.   Section 504 of the Rehabilitation Act of 1973, as amended, which prohibits
     discrimination on the basis of handicap in delivering contract services.

19.      COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND INSPECTION

The Contractor shall comply with all applicable AHCCCS Rules and Audit Guide
relating to the audit of the Contractor's records and the inspection of the
Contractor's facilities. If the Contractor is an inpatient facility, the
Contractor shall file uniform reports and Title XVIII and Title XIX cost reports
with AHCCCSA.

                                      A-3
<PAGE>

20.      CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION

By signing this subcontract, the Contractor certifies that all representations
set forth herein are true to the best of its knowledge.

21.      CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING

By signing this subcontract, the Contractor certifies that it has not engaged in
any violation of the Medicare Anti-Kickback statute (42 USC ss.ss. 1320a-76) or
the "Stark I" and "Stark II" laws governing related-entity referrals (PL 101-239
and PL 101-432) and compensation therefrom. If the Contractor provides
laboratory testing, it certifies that it has complied with 42 CFR ss. 411.361
and has sent to AHCCCSA simultaneous copies of the information required by that
rule to be sent to the Health Care Financing Administration.

22.      CONFLICT IN INTERPRETATION OF PROVISIONS

In the event of any conflict in interpretation between provisions of this
subcontract and the AHCCCS Minimum Subcontract Provisions, the latter shall take
precedence.

23.      ENCOUNTER DATA REQUIREMENT

If the Contractor does not bill the prime contractor (e.g., Contractor is
capitated), the Contractor shall submit encounter data to the prime contractor
in a form acceptable to AHCCCSA.

24.      CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988

The Clinical Laboratory Improvement Amendment (CLIA) of 1988 requires
laboratories and other facilities that test human specimens to obtain either a
CLIA Waiver or CLIA Certificate in order to obtain reimbursement from the
Medicare and Medicaid (AHCCCS) programs. In addition, they must meet all the
requirements of 42 CFR 493, Subpart A.

To comply with these requirements, AHCCCSA requires all clinical laboratories to
provide verification of CLIA Licensure or Certificate of Waiver during the
provider registration process. Failure to do so shall result in either a
termination of an active provider ID number or denial of initial registration.
These requirements apply to all clinical laboratories.

Pass-through billing or other similar activities with the intent of avoiding the
above requirements are prohibited. Prime contractor may not reimburse providers
who do not comply with the above requirements.

25.      INSURANCE

[This provision applies only if the Contractor provides services directly to
AHCCCS members]

The Contractor shall maintain for the duration of this subcontract a policy or
policies of professional liability insurance, comprehensive general liability
insurance and automobile liability insurance. The Contractor agrees that any
insurance protection required by this subcontract, or otherwise obtained by the
Contractor, shall not limit the responsibility of Contractor to indemnify, keep
and save harmless and defend the State and AHCCCSA, their agents, officers and
employees as provided herein. Furthermore, the Contractor shall be fully
responsible for all tax obligations, Worker's Compensation Insurance, and all
other applicable insurance coverage, for itself and its employees, and AHCCCSA
shall have no responsibility or liability for any such taxes or insurance
coverage.

26.      FRAUD AND ABUSE

If the Contractor discovers, or is made aware, that an incident of potential
fraud or abuse has occurred, the Contractor shall report the incident to the
prime contractor, who shall proceed in accordance with the AHCCCS Health Plans
and Program Contractors Policy for Prevention, Detection and Reporting of Fraud
and Abuse Incidents involving potential member eligibility fraud should be
reported to AHCCCSA, Office of Program Integrity, Member Fraud Unit. All other
incidents of potential fraud should be reported to AHCCCSA, Office of the
Director, Office of Program Integrity. (See AHCCCS Rule R9-22-511.)

                                      A-4
<PAGE>

ATTACHMENT B

                    ATTACHMENT B: MINIMUM NETWORK STANDARDS

                          (By Geographic Service Area)

INSTRUCTIONS:

Contractors shall have in place an adequate network of providers capable of
meeting contract requirements. The information that follows describes the
minimum network requirements by Geographic Service Area (GSA). In some GSA's
there are required service sites located outside of the geographical boundary of
a GSA. The reason for this relates to practical access to care. In certain
instances, a member must travel a much greater distance to receive services
within their assigned GSA, if the member were not allowed to receive services in
an adjoining GSA or state.

Split zip codes occur in some counties. Split zip codes are those which straddle
two different counties. Enrollment for members residing in these zip codes is
based upon the county and GSA to which the entire zip code has been assigned by
AHCCCS. The Contractor shall be responsible for providing services to members
residing in the entire zip code that is assigned to the GSA for which the
Contractor has agreed to provide services. The split zip codes GSA assignments
are as follows:

<TABLE>
<CAPTION>
                          SPLIT BETWEEN
      ZIP CODE            THESE COUNTIES               COUNTY ASSIGNED TO      ASSIGNED GSA
      <S>              <C>                             <C>                    <C>
        85220           Pinal and Maricopa                 Maricopa                12
        85242           Pinal and Maricopa                 Maricopa                12
        85292             Gila and Pinal                     Gila                   8
        85342          Yavapai and Maricopa                Maricopa                12
        85358          Yavapai and Maricopa                Maricopa                12
        85390          Yavapai and Maricopa                Maricopa                12
        85643           Graham and Cochise                 Cochise                 18
        85645          Pima and Santa Cruz                Santa Cruz               18
        85943           Apache and Navajo                   Navajo                 16
        86336          Coconino and Yavapai                Yavapai                  6
        86351          Coconino and Yavapai                Coconino                 6
        86434           Mohave and Yavapai                 Yavapai
</TABLE>

If outpatient specialty services (OB, family planning, and pediatrics) are not
included in the primary care provider contract, at least one subcontract is
required for each of these specialties in the service sites specified. General
surgeons must be available within 50 miles of service sites.

In Tucson (GSA 10) and Metropolitan Phoenix (GSA 12), the Contractor must
demonstrate its ability to provide PCP, dental and pharmacy services so that
members don't need to travel more than 5 miles from their residence.
Metropolitan Phoenix is defined on the Minimum Network Standard page specific to
GSA #6.

At a minimum, the Contractor shall have a physician with admitting and treatment
privileges with each hospital in its network. Contractors in GSA 10 and/or GSA
12 must have at least one hospital contract in each service district. This
requirement is part of the Hospital Subcontracting and Reimbursement Pilot
Program, described more fully in Section D, Paragraph 35, Hospital
Reimbursement. A list of Phoenix and Tucson area hospitals are included.

Provider categories required at various service delivery sites included in the
Service Area Minimum Network Standards are indicated as follows:

<TABLE>
         <S>      <C>
         H        Hospitals
         P        Primary Care Providers (physicians, certified nurse
                  practitioners and physician assistants)
         D        Dentists
         PH       Pharmacies
</TABLE>

                                      B-1
<PAGE>

HOSPITALS IN PHOENIX METROPOLITAN AREA (BY SERVICE DISTRICT, BY ZIP CODE)

DISTRICT 1

<TABLE>
<S>      <C>
85006    Good Samaritan Regional Medical Center
         Phoenix Children's Hospital
         St. Luke's Medical Center
85007    Phoenix Memorial Hospital
85008    Maricopa Medical Center
85013    St. Joseph's Hospital & Medical Center
85015    Phoenix Baptist Hospital & Medical Center
85020    John C. Lincoln Hospital -North Mountain
85027    John C. Lincoln Hospital -Deer Valley
</TABLE>

DISTRICT 2

<TABLE>
<S>      <C>
85031    Maryvale Hospital Medical Center
85031    Paradise Valley Hospital
85306    Thunderbird Samaritan Medical Center
85308    Arrowhead Community Hospital & Medical Center
85351    Walter O. Boswell Memorial Hospital
85375    Del E. Webb Memorial Hospital
85054    Mayo Clinic Hospital
</TABLE>

DISTRICT 3

<TABLE>
<S>      <C>
85201    Mesa General Hospital Medical Center
         Mesa Lutheran Hospital
85202    Desert Samaritan Medical Center
85206    Valley Lutheran Hospital
85224    Chandler Regional Hospital
85251    Scottsdale Healthcare- Osborn
85261    Scottsdale Healthcare- Shea
85281    Tempe St. Luke's Hospital
</TABLE>

HOSPITALS IN TUCSON METROPOLITAN AREA (BY SERVICE DISTRICT, BY ZIP CODE)

DISTRICT 1

<TABLE>
<S>      <C>
85719    University Medical Center
85741    Northwest Hospital
85745    Carondelet St. Mary's Hospital
</TABLE>

DISTRICT 2

<TABLE>

<S>      <C>
85711    Carondelet St. Joseph's Hospital
85712    El Dorado Hospital
         Tucson Medical Center
85713    Kino Community Hospital
</TABLE>

                                      B-2
<PAGE>

                                                    Attachment B
                                             Minimum Network Standards
COUNTIES: LA PAZ AND MOHAVE                  Geographic Service Area 4

HOSPITALS

Bullhead City
Kingman
Lake Havasu City
Parker
St. George, Utah

PRIMARY CARE PROVIDERS                       [MAP OF KINGMAN, BULLHEAD
Blythe                                       CITY, LAKE HAVASU CITY AND
Bullhead City                                         PARKER]
Colorado City/Hilldale/Knab, Utah
Kingman
Lake Havasu City
Parker
St. George, Utah/Mesquite

DENTIST
Blythe
Bullhead City
Colorado City/Hilldale/Kanab, Utah
Kingman
Lake Havasu city
Parker
St. George, Utah/Mesquite

PHARMACIES
Blythe
Bullhead City
Kanab, Utah
Kingman
Lake Havasu City
Parker
St. George, Utah/Mesquite

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-3
<PAGE>

                                                    Attachment B
                                             Minimum Network Standards
COUNTY: YUMA                                 Geographic Service Area 2

HOSPITALS
Yuma

PRIMARY CARE PROVIDERS

Yuma
Somerton
Wellton
                                             [MAP OF YUMA, SOMERTON AND
                                                      WELLTON]
DENTIST
Yuma

PHARMACIES
Yuma

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-4
<PAGE>

                                             Minimum Network Standards
COUNTIES: COCONINO AND YAVAPAI               Geographic Service Area 6

       HOSPITALS

       Cottonwood
       Flagstaff
       Kanab, Utah
       Kingman
       Page
       Payson
       Phoenix Wickenburg                       [MAP OF PAGE, WILLIAMS,
       Prescott                              FLAGSTAFF, SEDONA, COTTONWOOD,
       Winslow                                PRESCOTT VALLEY, CAMP VERDE
                                                     AND PRESCOTT]

       PRIMARY CARE PROVIDERS
       Camp Verde
       Cottonwood
       Flagstaff
       Knab, Utah
       Kingman
       Page
       Payson
       Phoenix/Wickenburg
       Prescott
       Prescott Valley
       Sedona
       Williams
       Winslow

       DENTIST
       SAME AS PRIMARY CARE
       PROVIDERS

       PHARMACIES
       SAME AS PRIMARY CARE
       PROVIDERS

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-5
<PAGE>

                                             Minimum Network Standards
COUNTY: MARICOPA                             Geographic Service Area 12

HOSPITAL
Metropolitan Phoenix*
  District 1
      Contract Required
  District 2
      Contract Required
  District 3
      Contract Required
Wickenburg
  Physician(s) w/admit and treatment          [MAP OF WICKENBURG, METRO
  privileges required                                PHOENIX,
                                             AVONDALE/GOODYEAR/LITCHFIELD
PRIMARY CARE PROVIDERS                        PARK/TOLLESON, BUCKEYE AND
Avondale/Goodyear/Litchfield                        GILA BEND]
        Park/Tolleson
Buckeye
Gila Bend
Metropolitan Phoenix*
Queen Creek
Wickenburg

DENTIST
Avondale/Buckeye/Goodyear/Litchfield
        Park/Tolleson
Metropolitan Phoenix*
Wickenburg

PHARMACIES
Avondale/Goodyear/Litchfield
        Park/Tolleson
Buckeye
Metropolitan Phoenix*
Wickenburg

*For Purposes of this RFP, Metropolitan Phoenix encompasses the following:
Phoenix, Paradise Valley, Cave Creek/Carefree, Fountain Hills, Scottsdale,
Glendale, Sun City/Sun City West, Tempe, Mesa, Gilbert, Chandler, Apache
Junction, Peoria, El Mirage, Guadalupe, Surprise and Youngtown. Within this
area, distance standards must be met as specified in Attachment B.

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-6
<PAGE>

                                                    Attachment B
                                             Minimum Network Standards
COUNTY: PIMA                                 Geographic Service Area 10

HOSPITAL
Tucson
   District 1
         Contract Required
   District 2
         Contract Required

Nogales
   Physician(s) w/admit and treatment        [MAP OF MARANA, CATALINA, AJO,
   privileges required                           TUSCON AND GREEN VALLEY
                                                      CONTINENTAL]
PRIMARY CARE PROVIDERS
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

DENTIST
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

PHARMACIES
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-7
<PAGE>

                                                   Attachment B
                                             Minimum Network Standards
COUNTIES: COCONINO AND YAVAPAI               Geographic Service Area 8

HOSPITAL
Casa Grande
Claypool
Mesa
Payson

PRIMARY CARE PROVIDERS
Apache Junction
Casa Grande
Coolidge/Florence                              [MAP OF PAYSON, CLAYPOOL,
Eloy                                           GLOBE, MIAMI, APACHE JCT,
Globe/Miami/Claypool                          FLORENCE, KEARNEY, COOLIDGE,
Kearney                                       CASA GRANDE, MAMMOTH, ELOY,
Mammoth/San Manuel/Oracle                        ORACLE AND SAN MANUEL]
Mesa
Payson

DENTIST
Apache Junction
Casa Grande
Coolidge/Florence
Eloy
Globe/Miami/Claypool
Kearney
Mammoth/San Manuel/Oracle
Mesa
Payson

PHARMACIES
Apache Junction
Casa Grande
Coolidge/Florence
Globe/Miami/Claypool
Kearney
Mammoth/San Manuel/Oracle
Mesa
Payson

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-8
<PAGE>

                                             Minimum Network Standards
COUNTIES: APACHE AND NAVAJO                  Geographic Service Area 16

HOSPITAL

Gallup, NM
Showlow
Springerville
Winslow

PRIMARY CARE PROVIDERS
Gallup, NM
Holbrook
Showlow/Pinetop/Lakeside                      [MAP OF WINSLOW, HOLBROOK,
Snowflake/Taylor                              SNOWFLAKE/TAYLOR, SHOWLOW,
Springerville/Eager                            AND PINETOP/LAKESIDE, ST.
St. Johns                                    JOHN'S, SPRINGERVILLE, EAGER]
Winslow

DENTIST
Gallup, NM
Holbrook
Showlow/Pinetop/Lakeside
Snowflake/Taylor
Springerville/Eager
St. Johns
Winslow

PHARMACIES
Gallup, NM
Holbrook
Showlow/Pinetop/Lakeside
Snowflake/Taylor
Springerville/Eager
St. Johns
Winslow

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-9
<PAGE>

                                             Minimum Network Standards
COUNTIES: GRAHAM AND GREENLEE                Geographic Service Area 14

HOSPITAL
Safford

PRIMARY CARE PROVIDERS

Morenci/Clifton
Safford

DENTIST
Morenci/Clifton
Safford

PHARMACIES
Morenci/Clifton
Safford/Thatcher                             [MAP OF MORENCI, CLIFTON
                                               THATCHER AND SAFFORD]

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-10
<PAGE>

                                             Minimum Network Standards
COUNTIES: COCHISE AND SANTA CRUZ             Geographic Service Area 18

HOSPITAL

Benson
Bisbee
Douglas
Nogales
Sierra Vista
Tucson
Wilcox

PRIMARY CARE PROVIDERS
Benson
Bisbee
Douglas                                     [MAP OF WILLCOX, BENSON,
Nogales                                   SIERRA VISTA, NOGALES, BISBEE
Sierra Vista                                      AND DOUGLAS]
Tucson
Wilcox

DENTIST
Benson/Wilcox
Bisbee
Douglas
Nogales
Sierra Visas
Tucson

PHARMACIES
Benson
Bisbee
Douglas
Nogales
Sierra Vista
Tucson
Wilcox

H=Hospital          P=Primary Care Physician     D=Dentist           Ph=Pharmacy

                                      B-11
<PAGE>
ATTACHMENT F                                             Contract/RFP YH8-0001
==============================================================================
ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

The following table is a summary of the periodic reporting requirements for
AHCCCS acute care contractors and is subject to change at any time during the
term of the contract. The table is presented for convenience only and should not
be construed to limit the Contractor's responsibilities in any manner.
"Reporting Guide" refers to the Reporting Guide for Acute Health Care
Contractors with the Arizona Health Care Cost Containment System.

<TABLE>
<CAPTION>
--------------------------------- ------------------------------- ------------------------------- -------------------------------
REPORT                            WHEN DUE                        SOURCE/REFERENCE                AHCCCS
                                                                                                  CONTACT:
--------------------------------- ------------------------------- ------------------------------- -------------------------------
<S>                               <C>                             <C>                             <C>
Monthly Financial Report          45 days after the end of the    Reporting Guide                 Financial Manager
                                  month, as applicable

Quarterly Financial Report        60 days after the end of each   Reporting Guide                 Financial Manager
                                  quarter

Draft Annual Audit Report         90 days after the end of each   Reporting Guide                 Financial Manager
                                  fiscal year

Draft Management Letter           90 days after the end of each   Reporting Guide                 Financial Manager
                                  fiscal year

Final Annual Audit Report         120 days after the end of       Reporting Guide                 Financial Manager
                                  each fiscal year

Final Management Letter           120 days after the end of       Reporting Guide                 Financial Manager
                                  each fiscal year

Account's Report on Compliance    120 days after the end of       Reporting Guide                 Financial Manager
                                  each fiscal year

Reconciliation - Annual Audit     120 days after the end of       Reporting Guide                 Financial Manager
and Plan Year-to-Date Financial   each fiscal year
Report Information

Financial Disclosure Report       120 days after the end of       Reporting Guide                 Financial Manager
                                  each fiscal year

Annual Analysis of                120 days after the end of       Reporting Guide                 Financial Manager
Profitability by Major Rate       each fiscal year
Code (by County)

PPC Lag Schedules                 120 days after the end of       Reporting Guide                 Financial Manager
                                  each fiscal year

Physician Incentive Plan (PIP)    Annually by October 1st of      RFP, Section D, Paragraph 18    Financial Manager
reporting                         each year

Quarterly FQHC Reports            60 days after the end of each   RFP, Section D, Paragraph 26    Financial Manager
                                  quarter

Provider Affiliation              10 business days after the      PMMIS Provider-to-Health Plan   Health Plan Operations Manager
Transmission                      beginning of each quarter       FTP submission and processing

Corrected Pended Encounter Data   Monthly, according to           Encounter Manual                Encounter Administrator
                                  established schedule

New Day Encounter Data            Monthly, according to           Encounter Manual                Encounter Administrator
                                  established schedule

Medical Records for Data          90 days after the request       RFP, Section C, Paragraph 1     Data Validation Manager
Validation                        received from AHCCCSA

Quarterly Grievance and Appeals   45 days after the end of each   RFP,  Section D, Paragraph 63   Administrative Assistant
Report                            quarter

Comprehensive EPSDT Plan          Annually on December 1          RFP, Section D, Paragraph 16    OMM MCH Manager
including Dental

EPSDT Progress Report including   15 days after the end of each   AMPM, Chapter 400               OMM MCH Manager
Dental - Quarterly Update         quarter
</TABLE>

                                      F-1
<PAGE>
ATTACHMENT F                                             Contract/RFP YH8-0001
==============================================================================
<TABLE>
<S>                               <C>                             <C>                             <C>
Quarterly Inpatient Hospital      15 days after the end of each   State Medicaid Manual and the   OMM CMS Administrator
Showing                           quarter                         AMPM, Chapter 1000

Quarterly Management/             Annually on November 15th       AMPM, Chapter 900               OMM Assistant Medical
Utilization Management Plan                                                                       Director for Quality
Evaluation and Revision

Monthly Pregnancy Termination     End of the month following      AMPM, Chapter 400               OMM MCH Manager
Report                            the pregnancy termination

Maternity Care Plan               Annually on December 1st        AMPM, Chapter 400               OMM MCH Manager

Semi-annual report of number of   30 days after the end of the    AMPM, Chapter 400               OMM MCH Manager
pregnant women who are HIV/AIDS   2nd and 4th quarter of each
positive                          contract year

Quality Improvement Project       Annually on December 15th       AMPM, Chapter 900               OMM Assistant Medical
Proposal (initial/baseline year                                                                   Director for Quality
of the project)

Quality Improvement Project       Annually on December 15th       AMPM, Chapter 90                OMM Assistant Medical
Interim Report (intervention/                                                                     Director for Quality
Measurement year(s) of the
project)

Quality Improvement Project       Within 180 days of the end of   AMPM, Chapter 900               OMM Assistant Medical
Final Report                      the project, as defined in                                      Director for Quality
                                  the project proposal approved
                                  by AHCCCS OMM

Provider Fraud/Abuse Report       Immediately following           AHCCS Internal Audit/Program    Office of Program Integrity
                                  discovery                       Investigation Policy for        Manager
                                                                  Prevention, Detection and
                                                                  Reporting of Fraud and Abuse

Eligible Person Fraud/Abuse       Immediately following           AHCCCS Internal Audit/          Office of Program Integrity
Report                            discovery                       Program Investigation Policy    Manager
                                                                  for Prevention, Detection and
                                                                  Reporting of Fraud and Abuse

Non-Transplant Catastrophic       Annually, within 30 days of     RFP, Section D, Paragraph 39    OMM CMS Reinsurance Manager
Reinsurance covered Diseases      the beginning of the contract
                                  year, enrollment to the plan,
                                  and when newly diagnosed.
</TABLE>

                                      F-2
<PAGE>

ATTACHMENT G                                              Contract/RFP YH8-0001
================================================================================

ATTACHMENT G: AUTO-ASSIGNMENT ALGORITHM

Members who have the right to choose but do not exercise this right, are
assigned to contractors through an auto-assignment algorithm. The algorithm is a
mathematical formula used to distribute members to the various contractors in a
manner that is predictable and consistent with AHCCCSA goals.

The algorithm employs a data table and a formula to assign cases (a case may be
a member or a household of members) to contractors using the target percentages
developed. The algorithm data table consists of all the zip codes in the state,
all contractors serving each zip code area, and the target percentages by rate
code within each zip code.

The contractor farthest away from its target percentage within a zip code and
rate code, the largest negative difference, is assigned the next case for that
zip code. The equation used is:

                  (t/T) - P=d

t= The total members assigned to the zip code per rate code category for the
contractor T=The total members assigned to the zip code per rate code category,
all contractors combined P=The target percentage of members for the rate code
for the contractor d=The difference

The algorithm is calculated after each assignment to give a new difference for
each contractor. When more than one contractor has the same difference, and
their differences are greater than all other contractors, the contractor with
the lowest Health Plan I.D. Number will be assigned the case.

All contractors, within a given geographic service area (GSA) and for each rate
code, will have a placement in the algorithm and will receive members
accordingly. A contractor with a more favorable target percentage in the
algorithm will receive proportionally more members. Conversely, a contractor
with a lower target percentage in the algorithm will receive proportionally
fewer members. The algorithm favors contractors with both lower final bids and
awarded rates. The algorithm also favors those contractors with programs that
score higher based on AHCCCSA's evaluation criteria.

DEVELOPMENT OF THE TARGET PERCENTAGES

For the first year of the contract, the algorithm target percentages will be
developed using the methodology described below. However, for subsequent years,
AHCCCS reserves the right to change the algorithm methodology to assure
assignments are made in the best interest of the AHCCS program and the state.

A contractor's placement in the algorithm is based upon the following three
factors which are weighted equally (i.e., 33.33%):

1.       The final capitation rate bid submitted by the contractor. Final bids
         that are below the bottom of the rate range will be assigned to the
         bottom of the rate range for development of the target percentages.
2.       The contractor's final awarded rate from AHCCCSA.
3.       The contractor's score on the Program component of the proposal.

Points will be assigned to each contractor by rate code by GSA. Based on the
rankings of the final bids submitted and the final awarded rates, each
contractor will be assigned a number of points for each of these two components
separately as follows:

                                      G-1
<PAGE>

                           TABLE FOR FACTORS #1 AND #2

<TABLE>
<CAPTION>
Number of       Lowest       2nd Lowest     3rd Lowest     4th Lowest    5th Lowest     6th Lowest     7th Lowest     8th Lowest
Awards in GSA   Rate         Rate           Rate           Rate          Rate           Rate           Rate           Rate
--------------- ------------ -------------- -------------- ------------- -------------- -------------- -------------- ------------
<S>             <C>          <C>            <C>            <C>           <C>            <C>            <C>            <C>
      2             60            40
      3             44            32             24
      4             35            28             22             15
      5             30            25             20             15            10
      6             26            23             19             15            11              6
      7             25            20             17             14            11              8              5
      8             25            17             15             13            11              8              6             5
</TABLE>

Contractors that have equal bids in a GSA for the same rate code will be given
an equal percentage of the points for all of the positions combined.

The third component of the calculation, program scores, will be assigned a
number of points based on where the contractor ranks among the scores. The
higher the score, the more points assigned. For this component, points will be
assigned as follows:

                               TABLE FOR FACTOR #3

<TABLE>
<CAPTION>
                  Highest      2nd        3rd          4th          5th          6th          7th        8th
Number of Awards  Program      Highest    Highest      Highest      Highest      Highest      Highest    Highest
in GSA            Score        Score      Score        Score        Score        Score        Score      Score
---------------   --------     --------   -------      -------      -------      -------      -------    ---------
<S>                <C>         <C>        <C>          <C>           <C>          <C>          <C>          <C>
        2              60          40
        3              44          32       24
        4              35          28       22            15
        5              30          25       20            15           10
        6              26          23       19            15           11          6
        7              25          20       17            14           11          8            5
        8              25          17       15            13           11          8            6              5
</TABLE>

Contractors that have equal program scores will be given an equal percentage of
the points for all of the positions combined.

The points awarded for the three components will be combined as follows to give
the target percentage for each contractor by GSA by rate code.

Final Bid Points + Awarded Bid Points + Program Score Points = TARGET PERCENTAGE
------------------------------------------------------------
                           300

Contractors that have equal bids in a GSA for the same rate code will be given
an equal percentage of the positions combined.

                                      G-2

<PAGE>
ATTACHMENT H                                             Contract/RFP YH8-0001
================================================================================

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS

The Contractor shall have in place a written grievance and request for hearing
policy for members and providers which defines and explains their rights
regarding any adverse action by the Contractor. The Contractor shall also ensure
compliance with the Members' Rights and Responsibilities Policy, as well as
R9-22-Article 13 and R9-31-Article 13. The written grievance and request for
hearing policy shall be in accordance with applicable federal and State laws and
AHCCCS rules and policies including, but not limited to R9-22-Article 8 and
R9-31-Article 8. The grievance and request for hearing policy shall include the
following provisions:

a.       The grievance and request for hearing policy shall be provided to
         members at the time of enrollment with the Contractor.

b.       The grievance and request for hearing policy shall be provided to all
         subcontractors at the time of contract. For providers without a
         contract, the grievance and request for hearing policy may be mailed
         with a remittance advice, provided the remittance is sent within 45
         days of receipt of a claim.

c.       The grievance and request for hearing policy must specify that all
         grievances, with the exception of those challenging claim denials, must
         be filed with the Contractor no later than 60 days from the date of the
         adverse action. Grievances challenging claim denials must be filed in
         writing with the Contractor no later than 12 months from the date of
         service, 12 months after the date of eligibility posting or within 60
         days after the date of a timely claim submission, whichever is later.

d.       Specific individuals are appointed with authority to require corrective
         action and with requisite experience to administer the grievance and
         request for hearing policy.

e.       A log is maintained for all grievances and requests for hearing
         containing sufficient information to identify the Complainant, date of
         receipt, nature of the grievance and the date the grievance is
         resolved. Separate logs must be maintained for provider and member
         grievances.

f.       Within five working days of receipt, the Complainant is informed by
         letter that the grievance has been received.

g.       All correspondence must be provided in a second language in accordance
         with the Member information standards set forth in Section D, Paragraph
         8. In addition, the Contractor must make arrangements to ensure that it
         complies with "cultural competency requirements."

h.       Each grievance and request for hearing is thoroughly investigated using
         the applicable statutory, regulatory, contractual and policy
         provisions, ensuring that facts are obtained from all parties.

i.       All documentation received and mailed by the Contractor during the
         grievance and request for hearing process is dated upon receipt.

j.       All grievances and requests for hearing are filed in a secure
         designated area and are retained for five years following the
         Contractor's decision, the Administration's decision, judicial appeal
         or close of the grievance, whichever is later.

k.       A copy of the Contractor's decision will be either hand-delivered or
         delivered by certified mail to all parties whose interest has been
         adversely affected by the decision. The decision shall be mailed to all
         other individuals by regular mail. The date of the decision shall be
         the date of personal delivery or, if mailed, the postmark date of the
         mailing, the postmark date of the mailing. The decision must include
         and describe in detail, the following:
         1.       the nature of the grievance
         2.       the issues involved
         3.       the reasons supporting the Contractor's decision, explained in
                  easy to understand terms for members, including references to
                  applicable statute, rule, applicable contractual provisions,
                  policy and procedure
         4.       the Complainant's right to request a hearing by filing the
                  request for hearing to the Contractor no later than 30 days
                  after the date of the Contractor's decision.

l.       If the Contractor's decision is appealed and a request for hearing is
         filed, the Contractor must ensure that all supporting documentation is
         received by the AHCCCSA, Office of Legal Assistance no later than five
         working days from the date the Contractor receives the request for
         hearing or from the date of the verbal or written request from AHCCCSA,
         Office of Legal Assistance. The file sent by the Contractor must
         contain a cover letter that includes:
         1.       Complainant's name
         2.       Complainant's AHCCCS ID number
         3.       Complainant's address
         4.       Complainant's phone number (if applicable)
         5.       date of receipt of grievance

                                      H-1

<PAGE>
ATTACHMENT H                                             Contract/RFP YH8-0001
================================================================================

         6.       summary of the Contractor's actions undertaken to resolve the
                  grievance and basis of the determination.

m.       The following material shall be included in the file sent by the
         Contractor;
         1.       written request of the Complainant asking for the request for
                  hearing
         2.       copies of the entire file which includes the investigations
                  and /or medical records; and the Contractor's decision
         3.       other information relevant to the resolution of the grievance

n.       The Contractor may attempt to use alternative resolution procedures to
         resolve disputes presented to the Contractor verbally or in writing. If
         the Contractor elects to use an alternative resolution process, it must
         be administered and completed within 10 days from receipt of the
         dispute. If the matter is not resolved to the Complainant's
         satisfaction within the 10-day time period, the dispute must then be
         adjudicated using the grievance and request for hearing standards
         referenced above. However, the Contractor must render the written
         decision no later than 30 days from the date of the initial filing of
         the grievance or dispute unless a longer period was agreed to by the
         parties involved.

o.       For all disputes where an alternative resolution is proposed, the
         Contractor must maintain a separate log, complying with the relevant
         paragraphs above.

                                      H-2
<PAGE>
ATTACHMENT I                                             Contract/RFP YH8-0001
================================================================================

ATTACHMENT I:  ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed for noncompliance with encounter submission
requirements. AHCCCSA may also perform special reviews of encounter data, such
as comparing encounter reports to the Contractor's claims files. Any findings of
incomplete or inaccurate encounter data may result in the imposition of
sanctions or requirement of a corrective action plan.

PENDED ENCOUNTER CORRECTIONS

The Contractor must resolve all pended encounters within 120 days of the
original processing date. Sanctions will be imposed according to the following
schedule for each encounter pended for more than 120 days unless the pend is due
to AHCCCSA error:

<TABLE>
<S>               <C>               <C>                       <C>                       <C>
0 - 120 days      121-180 days      181-240 days              241-360 days              361 + days
No sanction       $ 5 per month     $ 10 month                $ 15 per month            $20 per month
</TABLE>

"AHCCCSA error" is defined as a pended encouter which (1) AHCCCSA acknowledges
to be the result of its own error, and (2) requires a change to the system
programming, an update to the database reference table, or further research by
AHCCCSA. AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA in writing that the resolution of a pended
encounter depends on AHCCCSA rather than the Contractor, AHCCCSA will respond in
writing within 30 days of receipt of such notification. The AHCCCSA response
will report the status of each pending encounter problem or issue in question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA reviews the
Contractor's notification and asks the Contractor to research the issue and
provide additional substantiating documentation, or if AHCCCSA disagrees with
the Contractor's claim of AHCCCSA error. If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error, the Contractor
may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor in writing of the
total number of sanctionable encounters pended more than 120 days.

Pended encounters shall not be deleted by the Contractor as a means of avoiding
sanctions for failure to correct encounters within 120 days. The Contractor
shall document deleted encounters and shall maintain a record of the deleted
CRNs with appropriate reasons indicated. The Contractor shall, upon request,
make this documentation available to AHCCCSA for review.

ENCOUNTER VALIDATION STUDIES

Per CMS requirement, AHCCCSA will conduct encounter validation studies of the
Contractor's encounter submissions, and sanction the Contractor for
noncompliance with encounter submission requirements. The purpose of encounter
validation studies is to compare recorded utilization information from a medical
record or other source with the Contractor's submitted encounter date. Any and
all covered services may be validated as part of these studies. Encounter
validation studies will be conducted at least yearly.

The following reflects AHCCCA's encounter validation study process and sanction
policy as of 10/1/97. AHCCCSA may revise study methodology, timelines, and
sanction amounts based on agency review or as a result of consultations with
CMS. The Contractor will be notified in writing of any significant change in
study methodology.

AHCCSA will conduct two encounter validation studies. Study "A" examines
non-institutional services (form HCFA 1500 encounters), and Study "B" examines
institutional services (form UB-92 encounters).

AHCCCSA will notify the Contractor in writing of the sanction amounts and of the
selected data needed for encounter validation studies. The Contractor will have
90 days to submit the requested data to AHCCCSA. In the case of medical records
requests, the Contractor's failure to provide AHCCCSA with the records requested
within 90 days may result in a sanction of $1,000 per missing medical record. If
AHCCCSA does not receive a sufficient number of medical records from the
Contractor to select a statistically valid sample for a study, the Contractor
may be sanctioned up to 5% of its annual capitation payment.

                                      I-1
<PAGE>
ATTACHMENT I                                             Contract/RFP YH8-0001
================================================================================

The criteria used in encounter validation studies may include timeliness,
correctness, and omission of encounters. These criteria are defined as follows:

Timeliness: The time elapsed between the date of service and the date that the
encounter is received at AHCCCS. All encounters must be received by AHCCCSA no
later than 240 days after the end of the month in which the service was
rendered, or the effective date of enrollment with the Contractor, whichever is
later. For all encounters for which timeliness is evaluated, a sanction per
encounter error extrapolated to the population of encounters may be assessed if
the encounter record is received by AHCCCSA more than 240 days after the date
determined above. It is anticipated that the sanction amount will be $1.00 per
error extrapolated to the population of encounters; however, sanction amounts
may be adjusted if AHCCCSA determines that encounter quality has changed, or if
CMS changes sanction requirements. The Contractor will be notified of the
sanction amount in effect for the studies at the time the studies begin.

Correctness: A correct encounter contains a complete and accurate description of
AHCCS covered services provided to a member. A sanction per encounter error
extrapolated to the population of encounters may be assessed if the encounter is
incomplete or incorrectly coded. It is anticipated that the sanction amount will
be $1.00 per error extrapolated to the population of encounter; however,
sanction amounts may be adjusted if AHCCCS determines that encounter quality has
changed, or if CMS changes sanction requirements. The Contractor will be
notified of the sanction amount in effect for the studies at the time the
studies begin.

Omission of data: An encounter not submitted to AHCCCSA or an encounter
inappropriately deleted from AHCCCSA's pending encounter file or historical
files in lieu of correction of such record. For Study "A" and for Study "B", a
sanction per encounter error extrapolated to the population of encounters may be
assessed for an omission. It is anticipated that the sanction amount will be
$5.00 per error extrapolated to the population of encounters for Study "A" and
$10.00 per error extrapolated to the population of encounters for Study "B";
however, sanction amounts may be adjusted if AHCCCSA determines that encounter
quality has changed, or if CMS changes sanction requirements. The Contractor
will be notified of the sanction amount in effect for the studies at the time
the studies begin.

For encounter validation studies, AHCCCSA will select all approved and pended
encounters to be studied no earlier than 240 days after the end of the month in
which the service was rendered. Once AHCCCSA has selected the Contractor's
encounters for encounter validation studies, subsequent encounter submissions
for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters, or may select a
sample. The sample size, or number of encounters to be reviewed, will be
determined using statistical methods in order to accurately estimate the
Contractor's error rates. Error rates will be calculated by dividing the number
of errors found by the number of encounters reviewed. A 95% confidence interval
will be used to account for limitations caused by sampling. The confidence
interval shows the range within which the true error rate is estimated to be. If
error rates are based on a sample, the error rate used for sanction purposes
will be the lower limit of the confidence interval.

Encounter validation methodology and statistical formulas are provided in the
AHCCCS Encounter Data Validation Technical Document, which is available in the
Bidders Library. This document also provides examples, which illustrate how
AHCCCSA determines study sample sizes, error rates, confidence intervals, and
sanction amounts.

Written preliminary results of all encounter validation studies will be sent to
the Contractor for review and comment. The Contractor will have a maximum of 30
days to review results and provide AHCCCSA with additional documentation that
would affect the final calculation of error rates and sanctions. AHCCCSA will
examine the Contractor's documentation and may revise study results if
warranted. Written final results of the study will then be sent to the
Contractor and communicated to CMS, and any sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed by AHCCCSA not
more than 35 days after the Contractor receives final study results from
AHCCCSA. Challenges will be reviewed by AHCCCSA and a written decision will be
rendered no later than 60 days from the date of receipt of a timely challenge.
Sanctions shall not apply to encounter errors successfully challenged. A
challenge must be filed on a timely basis and a decision must be rendered by
AHCCCSA prior to filing a grievance and request for hearing pursuant to Article
8 of AHCCCS Rules. Sanction amounts will be deducted from the Contractor's
capitation payment.

                                      I-2
<PAGE>
ATTACHMENT I                                             Contract/RFP YH8-0001
================================================================================

ENCOUNTER ADJUSTMENTS

Contractors are required to submit adjusted or voided encounters in the event
that claims are subsequently adjusted or denied after the initial encounter
submission. This includes adjustments for inaccuracies identified by fraud and
abuse audits or investigations conducted by AHCCCSA or the Contractor.
Contractors shall refer to the Encounter User's Manual for further instructions
regarding adjustments to encounters.

                                      I-3
<PAGE>
           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                        DIVISION OF BUSINESS AND FINANCE
                               CONTRACT AMENDMENT

[AHCCCS LOGO]                                                        Page 1 of 3

<TABLE>
<CAPTION>
---------------------------- ------------------------- ------------------------------------------ --------------------------
<S>                      <C>                       <C>                                        <C>
1.   AMENDMENT           2.  CONTRACT              6. EFFECTIVE DATE OF                       4.  PROGRAM
     NUMBER:                     NO.:                     AMENDMENT:
                            YH8-0001-05                  October 1, 2001                            OMC
         16
----------------------------------------------------------------------------------------------------------------------------
5.   CONTRACTOR'S NAME AND ADDRESS:
         Health Choice Arizona
         1600 W. Broadway, Suite 260
         Tempe, AZ  85282-1502
----------------------------------------------------------------------------------------------------------------------------
6.   PURPOSE OF AMENDMENT:  To establish new capitation rates and allow the Contractor to elect their risk band method of
     the Title XIX Waiver Group.
----------------------------------------------------------------------------------------------------------------------------
7.   THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

     A.  New Capitation Rates are provided on page two (2) of this amendment; and

     B.  The Contractor must select one of the two methods of the Title XIX
         Waiver Group risk bands. The election form is page three (3) of this
         amendment and incorporated by reference herein.

         NOTE:  PLEASE SIGN AND DATE BOTH AND THEN RETURN ONE TO:               MICHAEL VEIT, MD 5700
                                                                                AHCCCS CONTRACTS AND PURCHASING
                                                                                701 E JEFFERSON STREET
                                                                                PHOENIX, AZ 85034
----------------------------------------------------------------------------------------------------------------------------
8.   EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
     CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN UNCHANGED AND IN FULL
     EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT
----------------------------------------------------------------------------------------------------------------------------
9.   SIGNATURE OF AUTHORIZED                                  10.   SIGNATURE OF AHCCCSA CONTRACTING
     REPRESENTATIVE:                                                OFFICER:
                  /s/ Greg Martenson CFO                                             /s/Michael Veit
----------------------------------------------------------------------------------------------------------------------------
TYPED NAME:
                        CAROLYN ROSE                                                  MICHAEL VEIT
----------------------------------------------------------------------------------------------------------------------------
TITLE:                                                                           CONTRACTS & PURCHASING
                  CHIEF EXECUTIVE OFFICER                                             ADMINISTRATOR
----------------------------------------------------------------------------------------------------------------------------
DATE:                                                                                     DATE:
                          9/28/01                                                        9/11/01
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
                   ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
                      CAPITATION RATE SUMMARY - ACUTE RATES
                              HEALTH CHOICE ARIZONA
                            CYE '02 (AS OF 10/01/01)

<TABLE>
<CAPTION>

                  TANF      TANF      TANF     TANF      TANF      SSI      SSI             DELIVERY     TITLE XIX     HOSPITALIZED
TITLE XIX RATE   <1,M/F   1-13,M/F   14-44,F  14-44,M   45+,M/F   W/MED   W/O MED    SFP      KICK     WAIVER GROUP        KICK
--------------   ------   --------   -------  -------   -------   -----   -------    ---      ----     ------------        ----
<S>              <C>      <C>        <C>      <C>       <C>       <C>     <C>       <C>     <C>        <C>           <C>
  10   Pima      $335.79   $75.04   $131.46   $ 99.61  $271.97   $180.88  $396.01  $18.84  $4,831.84      $321.65       $12,871.62
  12   Maricopa  $347.38   $76.75   $117.99   $100.83  $280.82   $196.56  $385.26  $19.68  $4,911.82      $314.65       $12,591.60

<CAPTION>

                  KIDSCARE   KIDSCARE   KIDSCARE   KIDSCARE                                        DELIVERY
 TITLE XXI RATES   <1,M/F    1-13,M/F    14-44,F    14-44,M                                          KICK
 ---------------  --------   --------   --------   --------                                          ----
<S>               <C>        <C>        <C>        <C>                                            <C>
  10   Pima         $270.86    $79.24    $128.04     $80.71                                       $4,831.84
  12   Maricopa     $281.63    $82.56    $118.58     $81.01                                       $4,911.82

<CAPTION>

                    TANF       TANF       TANF       TANF      TANF       SSI      SSI            TITLE XIX
    PPC RATES:     <1,M/F    1-13,M/F    14-44,F    14-44,M   45+,M/F    W/MED   W/O MED         WAIVER GROUP
    ---------      ------    --------    -------    -------   -------    -----   -------         ------------
  <S>             <C>        <C>         <C>        <C>       <C>        <C>     <C>             <C>
  10   Pima       $1,164.82    $32.70    $136.50     $76.91   $180.25    $14.50   $61.79            $234.28
  12   Maricopa    1,164.82    $32.70    $136.50     $76.91   $180.25    $14.50   $61.79            $229.19
</TABLE>

*Rates have been adjusted for $35,000 Reinsurance Deductible

<PAGE>
                                                                     Page 3 of 3

                        TITLE XIX WAIVER GROUP RISK BAND

                                  ELECTION FORM

Per Contract YH8-0001, Paragraph 37, Compensation, Risk Sharing for Title XIX
Waiver Members: For CYE '02 and CYE '03, AHCCCSA will reconcile the contractor's
PPC and prospective medical cost expenses to PPC capitation, prospective
capitation, and hospitalized supplements paid to the Contractor during the year.
For CYE '02, the contractor has a choice to elect:

[  ]     Default Method: This reconciliation will limit the Contractor's losses
         to 2% and profits to 4%. Any losses in excess of 2% will be reimbursed
         to the Contractor, and likewise, profits in excess of 1% will be
         recouped.

[  ]     Alternative Method: This reconciliation will limit the Contractor's
         losses to 1% and profits to 1%. Any losses in excess of 1% will be
         reimbursed to the Contractor, and likewise, profits in excess of 1%
         will be recouped.

------------------------------------                 -------------------------
Signature                                                    Date

--------------------------------------------------------------------------------
Health Plan

* Please sign and return this form to AHCCCS by December 1, 2001. If not
  returned, AHCCCS will assign the Default Method as stated above.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00032-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00032-of-00352.parquet"}]]