Document:

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                                                                    Exhibit 10.7

                                STATE OF ILLINOIS
                            DEPARTMENT OF PUBLIC AID

                     CONTRACT FOR FURNISHING HEALTH SERVICES
                                      BY A
                         HEALTH MAINTENANCE ORGANIZATION

                                  APRIL 1, 2000

                        ILLINOIS DEPARTMENT OF PUBLIC AID
                          DIVISION OF MEDICAL PROGRAMS
                             BUREAU OF MANAGED CARE
                           201 SOUTH GRAND AVENUE EAST
                        SPRINGFIELD, ILLINOIS 62763-0001

                                    ANN PATLA
                                    DIRECTOR

                           MATT POWERS, ADMINISTRATOR
                          DIVISION OF MEDICAL PROGRAMS

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                                TABLE OF CONTENTS

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                                                                                                                   PAGE(s)
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Article I

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Definitions...........................................................................................................2

Article II

Terms and Conditions..................................................................................................8
2.1         Specification.............................................................................................8
2.2         Rules of Construction.....................................................................................8
2.3         Performance of Services and Duties........................................................................9
2.4         Language Requirements.....................................................................................9

            (a)         Key Oral Contacts.............................................................................9
            (b)         Written Material.............................................................................10

2.5         List of Individuals in an Administrative Capacity........................................................10
2.6         Certificate of Authority.................................................................................10
2.7         Obligation to Comply with other Laws ....................................................................10

Article III

Eligibility..........................................................................................................12
3.1         Determination of Eligibility.............................................................................12
3.2         Enrollment Generally.....................................................................................12
3.3         Enrollment Limits........................................................................................12
3.4         Expansion to Other Contracting Areas.....................................................................13

Article IV

Enrollment, Coverage and Termination of Coverage.....................................................................14
4.1         Enrollment Process.......................................................................................14
4.2         Initial Coverage.........................................................................................16
4.3         Period of Enrollment.....................................................................................17
4.4         Termination of Coverage..................................................................................17
4.5         Preexisting Conditions and Treatment.....................................................................19
4.6         Continuity of Care.......................................................................................19
4.7         Change of Site and Primary Care Provider or Women's Health Care Provider.................................19

Article V

Duties of Contractor.................................................................................................21
5.1         Services.................................................................................................21

            (a)         Amount, Duration and Scope of Coverage.......................................................21
            (b)         Enumerated Covered Services..................................................................21
            (c)         Behavioral Health Services...................................................................22
            (d)         Services to Prevent Illness and Promote Health...............................................23
</TABLE>

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<TABLE>
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            (e)         Exclusions from Covered Services.............................................................24
            (f)         Limitations on Covered Services..............................................................24
            (g)         Right of Conscience..........................................................................25
            (h)         Emergency Services...........................................................................25
            (i)         Post-Stabilization Services..................................................................26
            (j)         Additional Services or Benefits..............................................................26
            (k)         Telephone Access.............................................................................27
            (l)         Pharmacy Formulary...........................................................................27
5.2         Certified Local Health Department Services...............................................................28
5.3         Marketing................................................................................................29
5.4         Inappropriate Activities.................................................................................34
5.5         Obligation to Provide Information .......................................................................35
5.6         Quality Assurance, Utilization Review and Peer Review....................................................36
5.7         Physician Incentive Plan Regulations.....................................................................37
5.8         Prohibited Affiliations..................................................................................37
5.9         Records..................................................................................................38
            (a)         Maintenance of Business Records..............................................................38
            (b)         Availability of Business Records.............................................................38
            (c)         Patient Records..............................................................................38

5.10        Computer System Requirements ............................................................................39
5.11        Regular Report and Submission Requirements...............................................................40
5.12        Health Education.........................................................................................45
5.13        Required Minimum Standards of Care.......................................................................46
            (a)         Healthy Kids/EPSDT Services to Beneficiaries Under Twenty-One (21) Years.....................46
            (b)         Preventive Medicine Schedule (Services to Beneficiaries Twenty-One (21) Years of Age and
                        Over)........................................................................................47
            (c)         Maternity Care...............................................................................50
            (d)         Complex and Serious Medical Conditions.......................................................51
            (e)         Access Standards.............................................................................51
            (f)         Linkages to Other Services...................................................................52
5.14        Choice of Physicians.....................................................................................53
5.15        Timely Payments to Providers.............................................................................53
5.16        Grievance Procedure and Beneficiary Satisfaction Survey..................................................54
5.17        Provider Agreements and Subcontracts.....................................................................55

5.18        Site Registration and Primary Care Provider/Women's Health Care Provider Approval and Credentialing......57
5.19        Advance Directives.......................................................................................58
5.20        Fees to Beneficiaries Prohibited.........................................................................58
5.21        Fraud and Abuse Procedures...............................................................................58
5.22        Beneficiary-Provider Communications......................................................................59
</TABLE>

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<TABLE>
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Article VIDuties of the Department...................................................................................61
6.1         Enrollment...............................................................................................61
6.2         Payment..................................................................................................61
6.3         Limitation of Payment by the Department..................................................................61
6.4         Department Review of Contractor Materials................................................................61
6.5         Eligible Enrollee Education Program......................................................................62

Article VII

Payment and Funding..................................................................................................63
7.1         Payment Rates............................................................................................63
7.2         Adjustments..............................................................................................64
7.3         Copayments under KidCare.................................................................................64
7.4         Availability of Funds....................................................................................64
7.5         Hold Harmless............................................................................................65
7.6         Payment in Full..........................................................................................65

Article VIII

Term Renewal and Termination.........................................................................................66
8.1         Term.....................................................................................................66
8.2         Continuing Duties in the Event of Termination............................................................66
8.3         Termination With and Without Cause.......................................................................66
8.4         Automatic Termination....................................................................................67
8.5         Reimbursement in the Event of Termination................................................................67

Article IX

General Terms........................................................................................................68
9.1         Records Retention, Audits, and Reviews...................................................................68
9.2         Nondiscrimination........................................................................................69
9.3         Confidentiality of Information...........................................................................69
9.4         Notices..................................................................................................70
9.5         Required Disclosures.....................................................................................70
            (a)         Conflict of Interest.........................................................................70
            (b)         Disclosure of Interest.......................................................................71

9.6         HCFA Prior Approval......................................................................................72
9.7         Assignment...............................................................................................72
9.8         Similar Services.........................................................................................72
9.9         Amendments...............................................................................................72
9.10        Sanctions ...............................................................................................73
            (a)         Failure to Report or Submit .................................................................73
            (b)         Failure to Submit Encounter Data.............................................................73
            (c)         Failure to Meet Minimum Standards of Care....................................................74
            (d)         Imposition of Prohibited Charges.............................................................74
            (e)         Misrepresentation or Falsification of Information............................................74
</TABLE>

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<TABLE>
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            (f)         Failure to Comply with the Physician Incentive Plan Requirements.............................74
            (g)         Failure to Meet Access Standards.............................................................75
            (h)         Failure to Provide Covered Services..........................................................75
            (i)         Discrimination Related to Pre-Existing Conditions............................................75
            (j)         Pattern of Marketing Failures................................................................75
            (k)         Other Failures...............................................................................75
9.11        Sale or Transfer.........................................................................................76
9.12        Coordination of Benefits for Beneficiaries...............................................................76
9.13        Agreement to Obey All Laws...............................................................................77
9.14        Severability.............................................................................................77
9.15        Contractor's Disputes With Other Providers...............................................................77
9.16        Choice of Law............................................................................................77
9.17        Debarment Certification..................................................................................77
9.18        Child Support, State Income Tax and Student Loan Requirements............................................78
9.19        Payment of Dues and Fees.................................................................................78
9.20        Federal Taxpayer Identification..........................................................................78
9.21        Drug Free Workplace......................................................................................78
9.22        Lobbying.................................................................................................78
9.23        Early Retirement  .......................................................................................79
9.24        Sexual Harassment  ......................................................................................79
9.25        Independent Contractor  .................................................................................79
9.26        Solicitation of Employees  ..............................................................................80
9.27        Nonsolicitation..........................................................................................80
9.28        Ownership of Work Product................................................................................80
9.29        Bribery Certification....................................................................................81
9.30        Nonparticipation in International Boycott................................................................81
9.31        Computational Error......................................................................................81
9.32        Survival of Obligations..................................................................................81
9.33        Clean Air Act and Clean Water Act Certification..........................................................81
9.34        Non-Waiver...............................................................................................82
9.35        Notice of Change in Circumstances........................................................................82
9.36        Public Release of Information............................................................................82
9.37        Payment in Absence of Federal Financial Participation....................................................82
9.38        Employment Reporting.....................................................................................82
9.39        Certification of Participation...........................................................................83
9.40        Indemnification..........................................................................................83
9.41        Gifts....................................................................................................83
9.42        Business Enterprise for Minorities, Females and Persons with Disabilities................................84
</TABLE>

Attachment I - Rate Sheets
Attachment II -      KidCare Participation Option
Attachment III -     Drug Free Workplace Agreement

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Attachment IV -     Business Enterprise Program Contracting Goal
Exhibit A -         Quality Assurance
Exhibit B -         Utilization Review/Peer Review
Exhibit C -         Summary of Required Reports
Exhibit D -         Summary of Required Submissions
Exhibit E -         Encounter Data Format Requirements

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                                STATE OF ILLINOIS
                            DEPARTMENT OF PUBLIC AID

                     CONTRACT FOR FURNISHING HEALTH SERVICES

            THIS CONTRACT FOR FURNISHING HEALTH SERVICES ("Contract") made,
pursuant to Section 5-11 of the Illinois Public Aid Code (305 ILCS 5/5-11), is
by and between the ILLINOIS DEPARTMENT OF PUBLIC AID ("Department"), acting by
and through its Director, and AMERICAID ILLINOIS, INC. d/b/a/ AMERICAID
COMMUNITY CARE ("Contractor"), who certifies that it is a Health Maintenance
Organization and whose principal office is located at 211 W. Wacker Drive, Suite
1350, Chicago, Illinois 60606.

                                    RECITALS

            WHEREAS, the Contractor is a Health Maintenance Organization
operating pursuant to a Certificate of Authority issued by the Illinois
Department of Insurance and wishes to provide Covered Services to Eligible
Enrollees (as defined herein);

            WHEREAS, the Department, pursuant to the laws of the State of
Illinois, provides for medical assistance under the Medical Assistance Program
or KidCare to Participants wherein Eligible Enrollees may enroll with the
Contractor to receive Covered Services; and

            WHEREAS, the Contractor warrants that it is able to provide and/or
arrange to provide the Covered Services set forth in this Contract to
Beneficiaries under the terms and conditions set forth herein;

            NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties agree as follows:

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                                   Article I

                                      DEFINITIONS

            The following terms as used in this Contract and the attachments,
exhibits and amendments hereto shall be construed and interpreted as follows,
unless the context otherwise expressly requires a different construction and
interpretation:

ABUSE means a manner of operation that results in excessive or unreasonable
costs to the Federal and/or State health care programs.

ADMINISTRATIVE RULES means the rules promulgated by the Department governing the
Medical Assistance Program or KidCare.

AFFILIATED means associated with another party for the purpose of providing
health care services under a Contractor's Plan pursuant to a contract or other
form of written agreement.

AUTHORIZED PERSON means a representative of the Office of Inspector General for
the Department, the Illinois Medicaid Fraud Control Unit, the United States
Department of Health and Human Services, a representative of other State and
federal agencies with monitoring authority related to the Medical Assistance
Program or KidCare, and a representative of any QAO under contract with the
Department.

BENEFICIARY means any Eligible Enrollee whose coverage under the Plan has begun
and remains in effect pursuant to this Contract.

CAPITATION means the reimbursement arrangement in which a fixed rate of payment
per Beneficiary per month is made to the Contractor for the performance of all
of the Contractor's duties and obligations pursuant to this Contract.

CASE means individuals who have been grouped together and assigned a common
identification number by the Department or the Department of Human Services of
which at least one individual in that grouping has been determined by the
Department to be an Eligible Enrollee. An individual is added to a Case when the
Client Information System maintained by the Illinois Department of Human
Services reflects the individual is in the Case.

CERTIFIED LOCAL HEALTH DEPARTMENT means a local government agency that
administers health-related programs and services within its jurisdiction and
that has been certified by the Illinois Department of Public Health pursuant to
77 Ill. Adm. Code 600.

CONTRACT means this document, inclusive of all attachments, exhibits, schedules
and any subsequent amendments hereto.

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CONTRACTING AREA means the area(s) from which the Contractor may enroll Eligible
Enrollees as set forth in Attachment I.

COVERED SERVICES means those benefits and services described in Article V,
Section 5.1.

EARLY INTERVENTION means the program described at 325 ILCS 20/1 et seq., which
authorizes the provision of services to infants and toddlers, birth through two
years of age, who have a disability due to developmental delay or a physical or
mental condition that has a high probability of resulting in developmental delay
or being at risk of having substantial developmental delays due to a combination
of serious factors.

EFFECTIVE DATE shall be April 1, 2000.

ELIGIBLE ENROLLEE means a Participant, except one who:

       -      is receiving Medical Assistance under Aid to the Aged, Blind and
              Disabled; as provided by Title XIX of the Social Security Act (42
              U.S.C. Section 1383c) and 305 ILCS 5/3-1 et seq.

       -      is eligible only through the Transitional Assistance (305 ILCS
              5/6-11) or Refugee Assistance Programs under Title XIX of the
              Social Security Act (42 U.S.C. 1396 et seq.;

              is age 19 or older and eligible only through the State Family and
              Children Assistance Program (305 ILCS 5/6-11);

       -      whose care is subsidized by the Department of Children and Family
              Services;

       -      is residing in a long term care facility including State of
              Illinois operated facilities;

       -      has Medicare coverage under Title XVIII of the Social Security Act
              (42 U.S.C. 1395 et seq.);

       -      has significant medical coverage through a third party for Medical
              Assistance Participants;

       -      is eligible only through the Medicaid Presumptive Eligibility for
              Pregnant Women program under Title XIX of the Social Security Act
              (42 U.S.C. 1396r-1);

       -      is eligible for Medical Assistance only through meeting a
              spend-down obligation;

       -      is a non-citizen receiving only emergency Medical Assistance; or

              is identified with an "R" in the eighth position of a Case
              identification number.

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EMERGENCY SERVICES means the provision of those inpatient and outpatient health
care services that are Covered Services, including transportation, needed to
evaluate or stabilize an Emergency Medical Condition that are furnished by a
Provider qualified to furnish emergency services.

EMERGENCY MEDICAL CONDITION means a medical condition manifesting itself by
acute symptoms of sufficient severity (including, but not limited to, severe
pain) such that a prudent lay person, who possesses an average knowledge of
health and medicine, could reasonably expect the absence of immediate medical
attention to result in (i) placing the health of the individual (or, with
respect to a pregnant woman, the health of the woman or her unborn child) in
serious jeopardy, (ii) serious impairment to bodily functions, or (iii) serious
dysfunction of any bodily organ or part.

ENCOUNTER means an individual service or procedure provided to a Beneficiary
that would result in a claim if the service or procedure were to be reimbursed
fee-for-service under the Medical Assistance Program or KidCare.

ENCOUNTER DATA means the compilation of data elements, as specified by the
Department in written notice to the Contractor, identifying an Encounter that
includes information similar to that required in a claim for fee-for-service
payment under the Medical Assistance Program or KidCare.

ENROLLMENT means the completion and signing of any necessary Enrollment forms by
or on behalf of an Eligible Enrollee in accordance with Enrollment procedures
prescribed in this Contract and concurrent or subsequent entry of the Eligible
Enrollee's Site selection, by the Department, into its database.

FAMILY CASE MANAGEMENT PROVIDER means any agency contracting with the Illinois
Department of Human Services or its successor agency to provide Family Case
Management Services.

FAMILY CASE MANAGEMENT SERVICES means the program described at 77
Ill. Adm. Code 630.220.

FEDERALLY QUALIFIED HEALTH CENTER or FQHC means a health center
that meets the requirements of 89 Ill. Adm. Code 140.461(d).

FRAUD means knowing and willful deception or misrepresentation, or a reckless
disregard of the facts, with the intent to receive an unauthorized benefit.

HCFA means the Health Care Financing Administration under the United States
Department of Health and Human Services.

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HEALTHY KIDS/EPSDT means the Early and Periodic, Screening, Diagnostic and
Treatment services provided to children under Title XIX of the Social Security
Act (42 U.S.C. Section 1396, et seq.).

INELIGIBLE PERSON means a Person which: (i) is or has been terminated, barred,
suspended or otherwise excluded from participation in or has voluntarily
withdrawn as the result of a settlement agreement in any program under federal
law including any program under Titles XVIII, XIX, XX or XXI of the Social
Security Act; (ii) has not been reinstated in the Medical Assistance Program or
Federal health care programs after a period of exclusion, suspension, debarment,
or ineligibility; or (iii) has been convicted of a criminal offense related to
the provision of health care items or services in the last ten (10) years.

KIDCARE means the program operated pursuant to the Children's Health Insurance
Program Act (215 ILCS 106/1 et seq.), but not including the program operated
pursuant to Subsection 25(a)(1) of the Children's Health Insurance Program Act
(215 ILCS 106/25(a)(1)).

MCO means a "managed care organization" that is a federally qualified HMO that
meets the advance directives requirements of subpart I of part 489 of 42 C.F.R.
or any public or private entity that meets the advance directives requirements
set forth in Article V, Section 5.19 and is determined to meet the following
conditions: i) is organized primarily for the purpose of providing health care
services, ii) makes the services it provides to its Medicaid beneficiaries as
accessible (in terms of timeliness, amount, duration and scope) as those
services are to other Medicaid participants within the area served by the entity
and iii) meets the solvency standards of regulations promulgated under 42 C.F.R.
Part 438.

MAG BENEFICIARY means any Participant who is an Eligible Enrollee with a Case
identification number in which the first two digits are 04 or 06.

MANG BENEFICIARY means any Participant who is an Eligible Enrollee with a Case
identification number in which the first two digits are 94, 96 or 07.

MARKETING means any activities, procedures, materials, information or incentives
used to encourage or promote the Enrollment of Eligible Enrollees with the
Contractor.

MARKETING MATERIALS means materials that are produced in any medium, by or on
behalf of an MCO, are used by the MCO to communicate with Eligible Enrollees or
Beneficiaries, and can reasonably be interpreted as intended to influence them
to enroll in that particular MCO.

MEDICAL ASSISTANCE OR MEDICAL ASSISTANCE PROGRAM means the Illinois Medical
Assistance Program administered under Article V of the Illinois Public Aid Code
(305 ILCS 5/5-1 et seq.) or its successor program and Title XIX of the Social
Security Act (42 U.S.C. 1396 et seq.) and Section 12-4.35 of the Illinois Public
Aid Code (305 ILCS 5/12-4.35).

OFFICE OF INSPECTOR GENERAL OR OIG means the Office of Inspector General for the
Illinois Department of Public Aid as set forth in 305 ILCS 5/12-13.1.

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PARTICIPANT means any individual receiving benefits under Medical Assistance or
KidCare.

PERSON means any individual, corporation, proprietorship, firm, partnership,
limited liability company, limited partnership, trust, association, governmental
authority or other entity, whether acting in an individual, fiduciary or other
capacity.

PERSON WITH AN OWNERSHIP OR CONTROLLING INTEREST means a Person that: has a
direct or indirect, singly or in combination, ownership interest equal to five
percent (5%) or more in the Contractor; owns an interest of five percent (5%) or
more in any mortgage, deed of trust, note or other obligations secured by the
Contractor if that interest equals at least five percent (5%) of the value of
the property or assets of the Contractor; is an officer or director of a
Contractor that is organized as a corporation, is a member of the Contractor
that is organized as a limited liability company or is a partner in the
Contractor that is organized as a partnership.

PHYSICIAN means a person licensed to practice medicine in all its branches under
the Medical Practice Act of 1987.

PLAN means the Contractor's program for providing Covered Services pursuant to
this Contract.

POST-STABILIZATION SERVICES means medically necessary non-emergency services
furnished to a Beneficiary after the Beneficiary is stabilized following an
Emergency Medical Condition.

PRELISTING REPORT means the information that the Department provides to the
Contractor prior to the first day of each month of coverage that reflects
changes in Enrollment subsequent to the last monthly payment and that applies to
coverage for the following month.

PRIMARY CARE PROVIDER means a Physician, specializing by certification or
training in obstetrics, gynecology, general practice, pediatrics, internal
medicine or family practice who agrees to be responsible for directing, tracking
and monitoring the health care needs of, and authorizing and coordinating care
for, Beneficiaries.

PROSPECTIVE BENEFICIARY means an Eligible Enrollee who has begun the process of
Enrollment with the Contractor but whose coverage under the Plan has not yet
begun.

PROVIDER means a Person who is approved by the Department to furnish medical,
educational or rehabilitative services to Participants under the Medical
Assistance Program.

QAO means a "Quality Assurance Organization" that is the Department's external
quality review organization under contract to perform quality oversight and
monitoring, medical record reviews and technical assistance for managed care.

REMITTANCE ADVICE means the list that will be supplied to the Contractor with
each monthly payment. The Remittance Advice will list each Beneficiary for whom
payment is being made.

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SITE means any contracted Provider (IPA, PHO, FQHC, individual physician,
physician groups, etc.) through which the Contractor arranges the provision of
primary care to Beneficiaries.

STABILIZATION OR STABILIZED means, with respect to an Emergency Medical
Condition, to provide such medical treatment of the Emergency Medical Condition
as may be necessary to assure, within reasonable medical probability, that no
material deterioration of the condition is likely to result upon discharge or
transfer to another facility.

STATE means the State of Illinois.

TITLE X FAMILY PLANNING PROVIDER means an agency that receives grants from the
Illinois Department of Human Services to provide comprehensive family planning
services pursuant to Title X of the Public Health Services Act, 42 U.S.C. 300
and 77 Ill. Adm. Code 635.

WOMEN'S HEALTH CARE PROVIDER means a Physician, specializing by certification or
training in obstetrics, gynecology or family practice.

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                                   ARTICLE II

                              TERMS AND CONDITIONS

2.1         SPECIFICATION

            This Contract is for the delivery of Covered Services to
            Beneficiaries and the administrative responsibilities attendant
            thereto. The terms and conditions of this Contract, along with the
            applicable Administrative Rules and the Departmental materials
            described in this Article II, Section 2.3 below, shall constitute
            the entire and present agreement between the parties. This Contract,
            including all attachments, exhibits and amendments constitutes a
            total integration of all rights, benefits and obligations of both
            parties for the performance of all duties and obligations hereunder
            including, but not limited to, the provision of, and payment for
            Covered Services under this Contract. This Contract is contingent
            upon receipt of approval from HCFA.

            There are no extrinsic conditions or collateral agreements or
            undertakings of any kind. It is the express intention of both the
            Department and the Contractor that any and all prior or
            contemporaneous agreements, promises, negotiations or
            representations, either oral or written, except as provided herein
            are to have no force, effect or legal consequences of any kind, nor
            shall any such agreements, promises, negotiations or
            representations, either oral or written, have any bearing upon this
            Contract or the duties or obligations hereunder. This Contract and
            any amendment hereto shall be deemed the full and final expression
            of the parties' agreement.

2.2         RULES OF CONSTRUCTION

            (a)         Unless the context otherwise requires:

                        (1)  Provisions apply to successive events and
                             transactions;

                        (2)  "Or" is not exclusive;

                        (3)  Unless otherwise specified, references to
                             statutes, regulations, and rules include
                             subsequent amendments and successors
                             thereto;

                        (4)  The various headings of this Contract are
                             provided for convenience only and shall not
                             affect the meaning or interpretation of this
                             Contract or any provision hereof;

                        (5)  If any payment or delivery hereunder between
                             the Contractor and the Department shall be
                             due on any day that is not a business day,
                             such payment or delivery shall be made on
                             the next succeeding business day;

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                        (6)  Words in the plural that should be singular
                             by context shall be so read, and words in
                             the singular shall be read as plural where
                             the context dictates;

                        (7)  Days shall mean calendar days unless
                             otherwise designated by the context; and

                        (8)  References to masculine or feminine pronouns
                             shall be interchangeable where the context
                             requires.

            (b)         References in the Contract to Eligible Enrollee,
                        Prospective Beneficiary and Beneficiary shall include
                        the parent, caretaker relative or guardian where such
                        Eligible Enrollee, Prospective Beneficiary or
                        Beneficiary is a minor child or an adult for whom a
                        guardian has been named.

2.3         PERFORMANCE OF SERVICES AND DUTIES

            The Contractor shall perform all services and other duties as set
            forth in this Contract in accordance with, and subject to, the
            Administrative Rules and Departmental materials, including, but not
            limited to, Departmental policies, Department Provider Notices,
            Provider Handbooks and any other rules and regulations that may be
            issued or promulgated from time to time during the term of this
            Contract. The Department shall provide copies of such materials to
            the Contractor upon the Contractor's written request, if such are in
            existence upon the Effective Date, or upon issuance or promulgation
            if issued or promulgated after the Effective Date. Changes in such
            materials after the Effective Date shall be binding on the parties
            hereto but shall not be considered amendments to the Contract. To
            the extent the Department proposes a change in policy that may have
            a material impact on the Contractor's ability to perform under this
            Contract, the proposed change will be subject to good faith
            negotiations between both parties before it shall be binding
            pursuant to this Article II, Section 2.3.

2.4         LANGUAGE REQUIREMENTS

            (a)   Key Oral Contacts

                  The Contractor shall conduct key oral contacts with
                  Eligible Enrollees, Prospective Beneficiaries or
                  Beneficiaries in a language the Eligible Enrollees,
                  Prospective Beneficiaries and Beneficiaries understand.
                  Where the language is other than English, the Contractor
                  shall offer and, if accepted by the Eligible Enrollee,
                  Prospective Beneficiary or Beneficiary, shall supply
                  interpretive services. Such services may not be rendered
                  by any individual who is under the age of eighteen (18).
                  Key oral contacts include, but are not limited to:
                  Marketing contacts; enrollment communications;
                  explanations of benefits; Site, Primary Care and Women's
                  Health Care Provider selection activity; educational
                  information; telephone calls to the toll-free hotline(s)
                  described in Article V, Section 5.1(k); and face-to-face
                  encounters with Providers rendering care.

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            (b)   Written Material

                  Written materials described herein that are to be
                  provided to Eligible Enrollees, Prospective
                  Beneficiaries or Beneficiaries shall be easily
                  understood by individuals who have a sixth grade reading
                  level. If five percent (5%) or more (according to Census
                  Bureau data as determined by the Department) of those
                  low income households in the relevant Department of
                  Human Services local office area are of a
                  single-language minority, the Contractor's written
                  materials provided to Eligible Enrollees, Prospective
                  Beneficiaries or Beneficiaries must be available in that
                  language as well as English. Translations of written
                  material are subject to prior approval by the Department
                  and must be accompanied by a certification that the
                  translation is accurate and complete. Written materials,
                  as described herein, shall mean Marketing Materials,
                  Beneficiary Handbooks and any information or notices
                  required to be distributed to Eligible Enrollees,
                  Prospective Beneficiaries or Beneficiaries by the
                  Department or regulations promulgated from time to time
                  under 42 C.F.R. Part 438.

2.5         LIST OF INDIVIDUALS IN AN ADMINISTRATIVE CAPACITY

            Upon execution of this Contract, the Contractor shall provide the
            Department with a list of individuals who have responsibility for
            monitoring and ensuring the performance of each of the duties and
            obligations under this Contract. This list shall be updated
            throughout the term of this Contract as necessary and as changes
            occur, and written notice of such changes shall be given to the
            Department within ten (10) business days of such changes occurring.

2.6         CERTIFICATE OF AUTHORITY

            The Contractor must obtain and maintain during the term of the
            Contract a valid Certificate of Authority as a Health Maintenance
            Organization under 215 ILCS 125/1-1, et seq..

2.7         OBLIGATION TO COMPLY WITH OTHER LAWS

            No obligation imposed herein on the Contractor shall relieve the
            Contractor of any other obligation imposed by law or regulation,
            including, but not limited to, those imposed by The Managed Care
            Reform and Patient Rights Act (215 ILCS 134/1 et seq.), the federal
            Balanced Budget Act of 1997 (Public Law 105-33) and regulations
            promulgated by the Illinois Department of Insurance, the Illinois
            Department of Public Health or HCFA. The Department shall report all
            information it receives indicating a violation of a law or
            regulation to the appropriate agency.

            If the Contractor believes that it is impossible to comply with a
            provision of this Contract because of a contradictory provision of
            applicable State or federal law, the Contractor shall immediately
            notify the Department. The Department then will make a

                                       16
<PAGE>   17

            determination of whether a contract amendment is necessary. The fact
            that either the Contract or an applicable law imposes a more
            stringent standard than the other does not, in and of itself, render
            it impossible to comply with both.

                                       17
<PAGE>   18

                                  ARTICLE III

                                   ELIGIBILITY

3.1         DETERMINATION OF ELIGIBILITY

            The State has the exclusive right to determine an individual's
            eligibility for the Medical Assistance Program and KidCare and
            eligibility to become a Beneficiary. Such determination shall be
            final and is not subject to review or appeal by the Contractor.
            Nothing in this Article III, Section 3.1 prevents the Contractor
            from providing the Department with information the Contractor
            believes indicates that a Beneficiary's eligibility has changed.

3.2         ENROLLMENT GENERALLY

            Any Eligible Enrollee who resides, at the time of Enrollment, in the
            Contracting Area shall be eligible to become a Beneficiary except as
            described in Article IX, Section 9.12. However, an Eligible Enrollee
            who is a KidCare Participant is only eligible to become a
            Beneficiary if the Contractor has signed Attachment II indicating
            that the Contractor will accept KidCare Participants as
            Beneficiaries. Enrollment shall be voluntary, except as provided in
            Article IV, Section 4.1(b). Except as provided herein, Enrollment
            shall be open during the entire period of this Contract until the
            Enrollment limit of the Contractor, as set forth in Attachment I, is
            reached. The Contractor must continue to accept Enrollment until
            such Enrollment limit is reached. Such Enrollment shall be without
            restriction and in the order in which Eligible Enrollees apply. The
            Contractor shall not discriminate against Eligible Enrollees on the
            basis of such individuals' health status or need for health
            services. The Contractor shall accept each Beneficiary whose name
            appears on the Prelisting Report.

3.3         ENROLLMENT LIMITS

            The Department will limit the number of Beneficiaries enrolled with
            the Contractor by Contracting Area to a level that will not exceed
            its physical and professional capacity. In its determination of
            capacity, the Department will only consider Providers that are
            approved by the Department. When the capacity is reached, no further
            applications will be submitted for Enrollment unless termination or
            disenrollment of Beneficiaries create room for additions. The
            capacity limits for the Contractor are specified in Attachment I.
            Prior to the Contractor's reaching its capacity, the Department will
            perform a threshold review at the Enrollment level(s) set forth in
            Attachment I. Should the Department determine that the Contractor's
            operating or financial performance reasonably indicates a lack of
            additional Provider or administrative capacity, the review of
            capacity may be conducted prior to the Contractor reaching the
            threshold review enrollment level specified in Attachment I. This
            threshold review shall examine the Contractor's Provider and
            administrative capacity in each Contracting Area. The Department's
            standards for the review shall be reasonable and timely and be
            consistent with the terms of this Contract. The threshold review
            shall take place as

                                       18
<PAGE>   19

            determined by the Department based on the rate of Enrollment in the
            Contractor's Plan in each Contracting Area or upon the request of
            the Contractor and the subsequent agreement of the Department. The
            Department shall use its best efforts to complete the review before
            the Contractor reaches the threshold levels set forth in Attachment
            I. Should the Department determine that the Contractor does not have
            the necessary Provider and administrative capacity to service any
            additional Enrollments, the Department may freeze Enrollment until
            such time that the Plan's Provider and administrative capacity have
            increased to the Department's satisfaction. Nothing in this Contract
            shall be deemed to be a guarantee of any Eligible Enrollee's
            Enrollment in the Contractor's Plan.

            If the Contractor signs Attachment II indicating that it will accept
            KidCare Participants as Beneficiaries and later determines that it
            can no longer accept the rates, cost sharing, premium collection or
            other program provisions applicable only to KidCare, then upon
            written notice to the Department an amendment to this Contract shall
            be executed as soon as practicable that ends the Contractor's
            participation in KidCare. The amendment shall provide, at a minimum,
            60 days for disenrollment. During the disenrollment process, the
            Contractor must assist the Department, as the Department requests,
            in disenrolling the Beneficiaries who are KidCare Participants and
            such assistance will be at no additional cost charged by the
            Contractor to the Department. The Contractor shall continue to
            provide Covered Services to Beneficiaries who are KidCare
            Participants until termination of coverage as a result of
            disenrollment or by operation of Article IV, Section 4.6, whichever
            is later.

3.4         EXPANSION TO OTHER CONTRACTING AREAS

            The Contractor may, during the term of this Contract and any renewal
            thereof, request of the Department the opportunity to offer Covered
            Services to Eligible Enrollees in areas other than the Contracting
            Area(s) specified in Attachment I. The Contractor must make this
            request in writing to the Department. To be considered by the
            Department, the written request must include a demonstration, by the
            Contractor, of a sufficient network of Providers to adequately
            provide Covered Services to Eligible Enrollees in the Contracting
            Area identified by the Contractor for expansion. The Department will
            provide a format and requirements for the written request. The
            Department shall review the Contractor's request in a timely manner
            and may at any time request additional information of the
            Contractor. It is in the sole discretion of the Department, upon
            review of the Contractor's written request, the needs of the
            Eligible Enrollee population and other factors as determined by the
            Department, as to whether the Contractor's request for expansion
            shall be granted. Should the Department agree to the expansion
            request, the Department and the Contractor shall agree to execute an
            amendment to Attachment I of the Contract to reflect the additional
            Contracting Areas in which the Contractor will provide Covered
            Services.

                                       19
<PAGE>   20

                                   ARTICLE IV

                            ENROLLMENT, COVERAGE AND
                             TERMINATION OF COVERAGE

4.1         ENROLLMENT PROCESS

            (a)   The Contractor and the Department, acting directly or
                  through its agent, shall be responsible for the
                  Enrollment of Eligible Enrollees.

                  When the Contractor enrolls an Eligible Enrollee, the
                  Contractor shall initiate the processing of the
                  Enrollment by submitting a Managed Care Enrollment Form,
                  Form No. DPA 2575A, completed in accordance with
                  Department instructions for completing such forms, and
                  signed by the individual who is recognized as the
                  caretaker relative by the Department. This form will be
                  supplied to the Contractor by the Department. The
                  Contractor is responsible for submitting such forms to
                  the Department or its agent, as directed. The Department
                  agrees to act in good faith and use its best efforts to
                  see that Managed Care Enrollment Forms submitted for
                  Eligible Enrollees are processed within fifteen (15)
                  business days of receipt by the Department or its agent.

                  Only a caretaker relative may enroll another Eligible
                  Enrollee. A caretaker relative may enroll all other
                  Eligible Enrollees in his Case. An adult Eligible
                  Enrollee, who is not a caretaker relative, may enroll
                  himself only.

                  A member of the Contractor's management staff may
                  correct a Managed Care Enrollment Form only in
                  accordance with Department instructions. The corrections
                  must be initialed by the Contractor's manager or his
                  designated staff person.

            (b)   The Department may enroll Eligible Enrollees with the
                  Contractor by means of any process the Department uses
                  for the Enrollment of Eligible Enrollees into managed
                  care.  This may include any program the Department
                  implements during the term of this Contract whereby
                  Eligible Enrollees who do not affirmatively choose
                  between enrollment in an MCO or the alternative
                  delivery system offered by the Department will be
                  enrolled in MCOs.

            (c)   When the Department receives an Eligible Enrollee's
                  selection directly, the Department will electronically
                  communicate a request for Site assignment to the
                  Contractor on the day after the Department enters the
                  selection in its records.  The Contractor shall
                  subsequently contact the Eligible Enrollee, assist the
                  Eligible Enrollee in selecting a Site, Primary Care
                  Provider or Women's Health Care Provider and provide
                  education in accordance with this Article IV, Section
                  4.1(d).  Once selected, the Contractor shall
                  electronically communicate the Site to the

                                 20
<PAGE>   21

                  Department.  Upon one hundred and twenty (120) days
                  notice to Contractor, the Department may require that
                  the Contractor electronically communicate the Primary
                  Care Provider or Women's Health Care Provider
                  selection to the Department.  When the Site, and in
                  the future the Provider, selection is received from
                  the Contractor, the Department will enroll the
                  Eligible Enrollee with the Contractor.

            (d)   The Contractor shall conduct Enrollment activities that
                  include the information distribution requirements of
                  Article V, Section 5.5 hereof and are designed and
                  implemented so as to maximize Eligible Enrollees'
                  understanding of the following:

                        (1) that all Covered Services must be received
                            from or through the Plan with the exception
                            of family planning and other Medical
                            Assistance services as described in Article
                            V, Section 5.1(e) with provisions made to
                            clarify when such services may also be
                            obtained elsewhere;

                        (2) that once enrolled, the Beneficiaries will
                            receive a card from the Department which
                            identifies such Beneficiaries as enrolled in
                            an MCO; and

                        (3) that the Contractor must inform Eligible
                            Enrollees of any Covered Services that will
                            not be offered by the Contractor due to the
                            Contractor's exercise of a right of
                            conscience.

            (e)         Upon the Contractor's request, the Department may refuse
                        Enrollment for at least a six-month period to those
                        former Beneficiaries previously terminated from coverage
                        by the Contractor for "good cause," as specified in
                        Article IV, Section 4.4(a)(1).

            (f)         When a Beneficiary, who is a caretaker relative, gives
                        birth and the newborn is added to a Case before the
                        newborn is forty-five (45) days old, coverage shall be
                        retroactive to the date of birth. Coverage for all other
                        newborns shall be prospective according to standard
                        Enrollment terms of this Contract.

            (g)         From birth through age eighteen (18), Eligible
                        Enrollees who are added to a Case in which all members
                        of the Case are enrolled with the Contractor, will
                        also be enrolled with the Contractor automatically.
                        Coverage shall begin as designated by the Department
                        on the first day of a calendar month no later than
                        three (3) calendar months from the date the Eligible
                        Enrollee was added to the Case.

            (h)         No later than ten (10) business days following receipt
                        of the Prelisting Report, the Contractor must provide
                        new Beneficiaries with an identification card bearing
                        the

                                       21
<PAGE>   22

                        name of the Contractor's Plan; the effective date
                        of coverage; the twenty-four-hour telephone number to
                        confirm eligibility for benefits and authorization for
                        services and the name and phone number of the Primary
                        Care Provider or Women's Health Care Provider.  The
                        identification of the Site must appear on the card
                        until such time as the name and phone number of the
                        Primary Care Provider and Women's Health Care Provider
                        can be placed on the card.

                        (1) If the Contractor requires a female Beneficiary
                            who wishes to use a Women's Health Care Provider
                            to designate a specific Women's Health Care
                            Provider and if a female Beneficiary does so
                            designate a Women's Health Care Provider, the
                            name and phone number of that Women's Health Care
                            Provider must appear on the identification card.

                        (2) Where the Contractor can make a compelling
                            argument to the Department that due to its
                            Plan design it is unable to place the name
                            of the Primary Care Provider on the card,
                            the Department in its discretion may allow
                            the Contractor to place the name of a clinic
                            or Site on the card.

                        Samples of the identification cards described above
                        shall be submitted for Department approval by the
                        Contractor prior to use by the Contractor and as
                        revised. The Contractor shall not be required to submit
                        for prior approval format changes, provided there is no
                        change in the information conveyed.

4.2         INITIAL COVERAGE

            Coverage shall begin as designated by the Department on the first
            day of a calendar month no later than three (3) calendar months from
            the date the Enrollment is entered into the Department's database.
            Enrollment can occur only upon the Prospective Beneficiary's
            selection of a Site and the communication of that Site by the
            Contractor to the Department.

            The Contractor shall provide reasonable coordination of care
            assistance to Prospective Beneficiaries to access a Primary Care
            Provider or Women's Health Care Provider before the Contractor's
            coverage becomes effective, if requested to do so by Prospective
            Beneficiaries or if the Contractor has knowledge of the need for
            such assistance. The Primary Care Provider or Women's Health Care
            Provider selected by the Prospective Beneficiary must provide
            necessary service including providing pregnant women with priority
            services in an expedient manner in order for such Prospective
            Beneficiaries to establish a relationship with the Primary Care
            Provider or Women's Health Care Provider, promoting and ensuring
            continuity of care, and determining any special needs as early in
            the pregnancy as possible. Any payment for those services rendered
            to Prospective Beneficiaries described herein shall be made directly
            by the Department to such Providers under the provisions of the
            Medical Assistance Program or KidCare.

                                       22
<PAGE>   23

4.3         PERIOD OF ENROLLMENT

            Every Beneficiary shall remain enrolled until the Beneficiary's
            coverage is ended pursuant to Article IV, Section 4.4.

4.4         TERMINATION OF COVERAGE

            (a)   A Beneficiary's coverage shall be terminated, subject to
                  Department approval, upon the occurrence of any of the
                  following conditions:

                  (1)   dismissal from the Plan by the Contractor for "good
                        cause" shown may only occur upon receipt by the
                        Contractor of written approval of such termination by
                        the Department. For purposes of this paragraph, "good
                        cause" may include, but is not limited to fraud or other
                        misrepresentation by a Beneficiary, threats or physical
                        acts constituting battery to the Contractor, the
                        Contractor's personnel or the Contractor's participating
                        Providers and staff, chronic abuse of emergency rooms,
                        theft of property from the Contractor's Affiliated
                        Sites, a Beneficiary's sustained noncompliance with the
                        Plan physician's treatment recommendations (excluding
                        preventive care recommendations) after repeated and
                        aggressive outreach attempts are made by the Plan or
                        other acts of a Beneficiary presented and documented to
                        the Department by the Contractor which the Department
                        determines constitute "good cause." Termination of
                        coverage shall take effect at 11:59 p.m. on a date
                        specified by the Department, which shall be no later
                        than the last day of the third month after the
                        Department determines that good cause exists;

                  (2)   when the Department determines that the Beneficiary no
                        longer qualifies as an Eligible Enrollee. Termination of
                        coverage shall take effect at 11:59 p.m. on the last day
                        of the month in which the Department determines that the
                        Beneficiary no longer is an Eligible Enrollee;

                  (3)   upon the Beneficiary's death. Termination of coverage
                        shall take effect at 11:59 p.m. on the last day of the
                        month in which the Beneficiary dies;

                  (4)   when a Beneficiary elects to terminate coverage by so
                        informing the Contractor or the Department, at the
                        Contractor's Sites, or at such other locations as
                        designated by the Department. Beneficiaries may elect to
                        disenroll at any time. The Contractor shall comply with
                        the Department's policy to promote and allow interaction
                        between the Contractor and the Beneficiary seeking
                        disenrollment prior to the disenrollment. The Contractor
                        shall immediately make available to the Beneficiaries
                        the Managed Care Disenrollment Form, DPA Form 2575B,
                        upon request, and shall not delay the provision or
                        processing of this form for the purpose of

                                 23
<PAGE>   24

                        arranging informational interviews with the
                        Beneficiaries, or for any other purpose. The Contractor
                        shall forward to the Department information concerning
                        the disenrollment by the end of the fifth (5th) business
                        day following the Beneficiary's completion of a Managed
                        Care Disenrollment Form. Termination of coverage shall
                        take effect at 11:59 p.m. on a date specified by the
                        Department, which shall be no later than the last day of
                        the third month after the Department is notified of the
                        request for disenrollment;

                  (5)   when a Beneficiary no longer resides in the Contractor's
                        Contracting Area, unless waiver of this subparagraph is
                        approved in writing by the Department and assented to by
                        the Contractor and Beneficiary. If a Beneficiary is to
                        be disenrolled at the request of a Contractor, the
                        Contractor first must provide documentation satisfactory
                        to the Department that the Beneficiary no longer resides
                        in the Contractor's Contracting Area. Termination of
                        coverage shall take effect at 11:59 p.m. on the last day
                        of the month prior to the month in which the Department
                        determines that the Beneficiary no longer resides in the
                        Contractor's Contracting Area. This date may be
                        retroactive if the Department can determine the month in
                        which the Beneficiary moved from the Contractor's
                        Contracting Area;

                  (6)   when a KidCare Participant receives medical confirmation
                        that she is pregnant and the Department is so notified.
                        Termination of coverage shall take effect at 11:59 p.m.
                        on the last day of the month prior to the month in which
                        the Beneficiary received medical confirmation that she
                        was pregnant; or

                  (7)   when a Beneficiary has been determined eligible for
                        Social Security disability benefits (SSI) and the
                        Department is so notified. Termination of coverage shall
                        take effect at 11:59 p.m. on the last day of the month
                        prior to the month in which SSI eligibility begins.

                  (8)   when the Department determines, pursuant to Article IX,
                        that a Beneficiary has other significant insurance
                        coverage. The Contractor shall be notified by the
                        Department of such disenrollment on the monthly
                        Prelisting Report. Termination of coverage shall take
                        effect at 11:59 p.m. on a date specified by the
                        Department, which shall be no later than the last day of
                        the third month after the Department determines that the
                        Beneficiary has other significant insurance.

            (b)   In conjunction with a request by the Contractor to disenroll a
                  Beneficiary, the Contractor shall furnish to the Department
                  all information requested regarding the basis for
                  disenrollment and all information regarding the utilization of
                  services by

                                       24
<PAGE>   25

                  that Beneficiary.

            (c)   The Contractor will not seek to terminate Enrollment because
                  of an adverse change in the Beneficiary's health or cost of
                  medical care. Such attempts may be considered in violation of
                  the terms of this Contract.

            (d)   Except as otherwise provided in this Article IV, Section 4.6,
                  the termination of this Contract terminates coverage for all
                  persons who become Beneficiaries under it. Termination of
                  coverage under this provision will take effect at 11:59 p.m.
                  on the last day of the last month for which the Contractor
                  receives payment, unless otherwise agreed to, in writing, by
                  the parties to this Contract.

4.5         PREEXISTING CONDITIONS AND TREATMENT

            The Contractor shall assume, upon the effective date of coverage,
            full responsibility for any medical conditions that may have been
            preexisting prior to Enrollment in the Contractor's Plan and for any
            existing treatment plans under which a Beneficiary is currently
            receiving medical care provided that the Beneficiary's current
            in-Plan physician determines that such treatment plan is medically
            necessary for the health and well-being of the Beneficiary.

4.6         CONTINUITY OF CARE

            If a Beneficiary is receiving medical care or treatment as an
            inpatient in an acute care hospital at the time coverage commences
            under this Contract, the Contractor shall assume responsibility for
            the management of such care as of the effective date of coverage and
            shall be liable for all claims for covered services from the
            effective date of coverage.

            If a Beneficiary is receiving medical care or treatment as an
            inpatient in an acute care hospital at the time coverage under this
            Contract is terminated, the Contractor shall arrange for the
            continuity of care or treatment for the current episode of illness
            until such medical care or treatment has been fully provided as
            evidenced by discharge from the hospital. The subsequent appropriate
            payor for the Beneficiary shall be liable for payment for any
            medical care or treatment provided after termination of coverage.

4.7         CHANGE OF SITE AND PRIMARY CARE PROVIDER OR WOMEN'S HEALTH
            CARE PROVIDER

            The Contractor shall permit a Beneficiary to change Site, Primary
            Care Provider and Women's Health Care Provider upon request. The
            Contractor shall process such changes within thirty (30) days of
            receipt of a Beneficiary's request.

            Within three (3) business days of processing such change, the
            Contractor shall electronically transmit a Site transfer record to
            the Department in a format designated by the Department. Such record
            shall contain the following data fields: Case name and

                                       25
<PAGE>   26

            identification number; Beneficiary name and identification number;
            old Site number; and, new Site number. The Department will provide
            the Contractor with no less than one hundred twenty (120) days
            advance notification prior to imposing a requirement that the
            Contractor electronically communicate old and new Primary Care
            Provider numbers and old and new Women's Health Care Provider
            numbers with this record.

                                       26
<PAGE>   27

                                   ARTICLE V

                              DUTIES OF CONTRACTOR

5.1         SERVICES

            (a)        Amount, Duration and Scope of Coverage

                       The Contractor shall provide or arrange to have provided
                       to all Beneficiaries all services described in 89 Ill.
                       Adm. Code, Part 140 as amended from time to time and not
                       specifically excluded therein or in this Article V,
                       Section 5.1 in accordance with the terms of this
                       Contract. Covered Services shall be provided in the
                       amount, duration and scope as set forth in 89 Ill. Adm.
                       Code, Part 140 and this Contract. This duty shall
                       commence at the time of initial coverage as to each
                       Beneficiary. The Contractor shall not refer Beneficiaries
                       to publicly supported health care entities to receive
                       Covered Services, for which the Contractor receives
                       payment from the Department, unless such entities are
                       Affiliated with the Contractor's Plan. Such publicly
                       supported health care entities include, but are not
                       limited to, Chicago Department of Public Health and its
                       clinics, Cook County Bureau of Health Services, and local
                       health departments.

            (b)        Enumerated Covered Services

                       The following services and benefits shall be specifically
                       included as Covered Services under this Contract and will
                       be provided to Beneficiaries whenever medically
                       necessary:

                             Assistive/augmentative communication devices;
                             Audiology services, physical therapy, occupational
                             therapy and speech therapy;
                             Behavioral health services, including subacute
                             alcohol and substance abuse services and mental
                             health services, in accordance with subsection (c)
                             hereof;
                             Blood, blood components and the administration
                             thereof;
                             Certified hospice services;
                             Chiropractic services;
                             Clinic services (as described in 89 Ill. Adm. Code,
                             Part 140.62);
                             Diagnosis and treatment of medical conditions of
                             the eye;*
                             Durable and nondurable medical equipment and
                             supplies;
                             Emergency Services;
                             Family planning services;
                             Home health care services;
                             Inpatient hospital services (including dental
                             hospitalization in case of trauma or when related
                             to a medical condition and acute medical
                             detoxification);
                             Inpatient psychiatric care;

                                       27
<PAGE>   28

                             Laboratory and x-ray services; The drawing of blood
                             for lead screening shall take place within the
                             Contractor's Affiliated facilities or elsewhere at
                             the Contractor's expense.**
                             Medical procedures performed by a dentist;
                             Nurse midwives services;
                             Nursing facility services for the first ninety (90)
                             days;***
                             Orthotic/prosthetic devices, including prosthetic
                             devices or reconstructive surgery incident to a
                             mastectomy;
                             Outpatient hospital services;
                             Pharmacy services (including drugs prescribed by
                             a dentist participating in the Medical Assistance
                             Program provided they are filled by an Affiliated
                             pharmacy Provider);
                             Physicians' services, including psychiatric care;
                             Podiatric services;
                             Routine care in conjunction with certain
                             investigational cancer treatments, as provided in
                             Public Act 91-0406;
                             Services required to treat a condition diagnosed as
                             a result of Healthy Kids/EPSDT services, in
                             accordance with 89 Ill. Adm. Code 140.485;
                             Services to Prevent Illness and Promote Health in
                             accordance with subsection (d) hereof
                             Transplants covered under 89 Ill. Adm. Code 140
                             (using transplant providers certified by the
                             Department, if the procedure is performed in the
                             State); and
                             Transportation to secure medical services.

                             *        Covered Services may be provided by an
                                 optometrist operating within the scope of
                                 his license.

                             **       All laboratory tests for children being
                                      screened for lead must be sent to the
                                      Illinois Department of Public Health's
                                      laboratory.

                             ***      Contractors will be responsible for
                             covering up to a maximum of ninety (90) days
                             nursing facility care (or equivalent care provided
                             at home because a skilled nursing facility
                             is not available) annually per Beneficiary.
                             Periods in excess of ninety (90) days
                             annually will be paid by the Department
                             according to its prevailing reimbursement
                             system.

            (c)         Behavioral Health Services

                        The Contractor will provide behavioral health services
                        that are Covered Services, including but not limited to
                        inpatient hospital, pharmaceutical, laboratory,
                        physician services, and outpatient services. If a
                        Beneficiary presents himself to the Contractor for
                        behavioral health services, or is referred through a
                        third party, the Contractor will complete a behavioral
                        health assessment.
                        (1) If the assessment indicates that all services needed
                        are within the scope of

                                       28
<PAGE>   29

                        Covered Services, the Contractor will arrange for the
                        provision of all such Covered Services.

                        (2)   If the assessment indicates that outpatient
                              services are needed beyond the scope of Covered
                              Services, the Contractor will explain to the
                              Beneficiary the services needed and the importance
                              of obtaining them and provide the Beneficiary with
                              a list of Community Behavioral Health Providers
                              (CBHP). The Contractor will assist the Beneficiary
                              in contacting a CBHP chosen by the Beneficiary,
                              unless the Beneficiary objects.

                        (3)   If a Beneficiary obtains needed comprehensive
                              services through a CBHP, the Contractor will be
                              responsible for payment for drugs prescribed by a
                              Physician and laboratory services in connection
                              with the comprehensive services provided by the
                              CBHP. The Contractor shall not be liable for other
                              Covered Services provided by the CBHP. The
                              Contractor may require that drugs and laboratory
                              services are provided by Providers that are
                              Affiliated with the Contractor.

                  (d)   Services to Prevent Illness and Promote Health

                        The Contractor shall exercise reasonable efforts to
                        provide initial health screenings and preventive care to
                        all Beneficiaries. The Contractor shall provide, or
                        arrange to provide, the following Covered Services to
                        all Beneficiaries, as appropriate, to prevent illness
                        and promote health:

                        (1)   Healthy Kids/EPSDT services in accordance with 89
                              Ill. Adm. Code 140.485 and described in this
                              Article V, Section 5.13(a);

                        (2)   Preventive Medicine Schedule which shall address
                              preventive health care issues for Beneficiaries
                              twenty-one (21) years of age or older (Article V,
                              Section 5.13(b));

                        (3)   Maternity care for pregnant Beneficiaries (Article
                              V, Section 5.13(c)); and

                        (4)   Family planning services and supplies, including
                              physical examination and counseling provided
                              during the visit, annual physical examination for
                              family planning purposes, pregnancy testing,
                              voluntary sterilization, insertion or injection of
                              contraceptive drugs or devices, contraceptive
                              drugs and supplies, and related laboratory and
                              diagnostic testing.

                  (e)   Exclusions from Covered Services

                        In addition to those services and benefits excluded from
                        Covered Services by 89 Ill. Adm. Code, Part 140, as
                        amended from time to time, the following services

                                       29
<PAGE>   30

                        and benefits shall NOT be included as Covered Services:

                        (1)   Dental services;

                        (2)   Routine examinations to determine visual acuity
                              and the refractive state of the eye, eyeglasses,
                              other devices to correct vision, and any
                              associated supplies and equipment. The Contractor
                              shall refer Beneficiaries needing such services to
                              Providers participating in the Medical Assistance
                              Program able to provide such services, or to a
                              central referral entity that maintains a list of
                              such Providers;

                        (3)   Nursing facility services beginning on the
                              ninety-first (91st) day;

                        (4)   Services provided in an Intermediate Care Facility
                              for the Mentally Retarded/Developmentally Disabled
                              and services provided in a nursing facility to
                              mentally retarded or developmentally disabled
                              Participants;

                        (5)   Early intervention services, including case
                              management, provided pursuant to the Early
                              Intervention Services System Act (325 ILCS 20 et
                              seq.);

                        (6)   Services provided through school-based clinics as
                              such clinics are defined by the Department;

                        (7)   Services provided through local education agencies
                              under an approved individual education plan (IEP);

                        (8)   Services provided under Section 1915(c) home and
                              community-based waivers;

                        (9)   Services funded through the Juvenile
                              Rehabilitation Services Medicaid Matching Fund;
                              and

                        (10)  Services that are experimental and/or
                              investigational in nature.

                  (f)   Limitations on Covered Services

                        The following services and benefits shall be limited as
                        Covered Services:

                        (1)   Termination of pregnancy shall be provided only as
                              allowed by applicable State and federal law (42
                              C.F.R. Part 441, Subpart E). In any such case, the
                              requirements of such laws must be fully complied
                              with and DPA Form 2390 must be completed and filed
                              in the Beneficiary's medical record. Termination
                              of pregnancy shall not be provided to KidCare

                                       30
<PAGE>   31

                              Beneficiaries.

                        (2)   Sterilization services may be provided only as
                              allowed by State and federal law (see 42 C.F.R.
                              Part 441, Subpart F). In any such case, the
                              requirements of such laws must be fully complied
                              with and a DPA Form 2189 must be completed and
                              filed in the Beneficiary's medical record.

                        (3)   If a hysterectomy is provided, a DPA Form 1977
                              must be completed and filed in the Beneficiary's
                              medical record.

            (g)         Right of Conscience

                        The parties acknowledge that pursuant to 745 ILCS 70/1
                        et seq., a Contractor may choose to exercise a right of
                        conscience by not rendering certain Covered Services.
                        Should the Contractor choose to exercise this right, the
                        Contractor must promptly notify the Department of its
                        intent to exercise its right of conscience in writing.
                        Such notification shall contain the services that the
                        Contractor is unable to render pursuant to the exercise
                        of the right of conscience. The parties agree that at
                        that time the Department shall adjust the Capitation
                        payment to the Contractor and amend the contract
                        accordingly.

            (h)         Emergency Services

                        (1)   The Contractor shall cover Emergency Services for
                              all Beneficiaries whether the Emergency Services
                              are provided by an Affiliated or non-Affiliated
                              Provider.

                        (2)   The Contractor shall not impose any requirements
                              for prior approval of Emergency Services. If a
                              Beneficiary calls the Contractor to request
                              Emergency Services, such call shall receive an
                              immediate response.

                        (3)   The Contractor shall cover Emergency Services for
                              Beneficiaries who are temporarily away from their
                              residence and outside the Contracting Area for all
                              Emergency Services to which they would be entitled
                              within the Contracting Area.

                        (4)   Elective care or care required as a result of
                              circumstances that could reasonably have been
                              foreseen prior to the Beneficiary's departure from
                              the Contracting Area are not covered. Payment
                              shall be made for unexpected hospitalization due
                              to complications of pregnancy. Routine delivery at
                              term outside the Contracting Area, however, shall
                              not be covered if the Beneficiary is outside the
                              Contracting Area against medical advice unless the
                              Beneficiary is outside of the Contracting Area due
                              to circumstances beyond her control. The
                              Contractor must educate the

                                31
<PAGE>   32

                              Beneficiary of the medical and financial
                              implications of leaving the Contracting Area
                              and the importance of staying near the treating
                              Provider throughout the last month of pregnancy.

                        (5)   The Contractor shall pay for all appropriate
                              Emergency Services rendered by a Provider with
                              whom the Contractor does not have arrangements
                              within thirty (30) days of receipt of a complete
                              and correct claim. If the Contractor determines it
                              does not have sufficient information to make
                              payment, the Contractor shall request all
                              necessary information from the Provider within
                              thirty (30) days of receiving the claim, and shall
                              pay the Provider within thirty (30) days after
                              receiving such information. Such payment shall be
                              made at the same rate the Department would pay for
                              such services according to the level of services
                              provided. Within the time limitation stated above,
                              the Contractor may review the need for, and the
                              intensity of, the services provided by Providers
                              with whom the Contractor does not have
                              arrangements. Determination of levels of service
                              shall be based upon the symptoms and condition of
                              the Beneficiary at the time the Beneficiary is
                              initially examined by the Physician and not upon
                              the final determination of the Beneficiary's
                              actual medical condition, unless the actual
                              medical condition is more severe.

                        (6)   The Contractor shall provide ongoing education to
                              Beneficiaries regarding the appropriate use of
                              Emergency Services.

                  (i)   Post-Stabilization Services

                        (1)   Subject to the prior approval procedure described
                              below, the Contractor shall cover
                              Post-Stabilization Services whether such Services
                              are provided by an Affiliated or non-Affiliated
                              Provider.

                        (2)   The Contractor shall pay for all
                              Post-Stabilization Services as a Covered Service
                              if the Contractor approved those services or if
                              the Provider of the services complied with all
                              legal requirements in attempting to contact the
                              Contractor and the Contractor could not be
                              contacted or the Contractor did not deny
                              authorization within one hour of the request for
                              authorization.

                  (j)   Additional Services or Benefits

                        The Contractor shall obtain prior approval from the
                        Department before offering any additional service or
                        benefit not required under this Contract to all
                        Beneficiaries. The Contractor shall notify Beneficiaries
                        before discontinuing an additional service or benefit.
                        The notice to Beneficiaries must be approved in advance
                        by the Department. The Contractor shall continue any
                        ongoing course of treatment for a Beneficiary then
                        receiving such service or benefit.

                                       32
<PAGE>   33

                  (k)   Telephone Access

                        The Contractor shall establish a toll-free twenty-four
                        (24) hour telephone number to confirm eligibility for
                        benefits and seek prior approval for treatment where
                        required under the Plan, and shall assure twenty-four
                        (24) hour access, via telephone(s), to medical
                        professionals, either to the Plan directly or to the
                        Primary Care Providers, for consultation to obtain
                        medical care. The Contractor must also make a toll-free
                        number available, at a minimum during the business hours
                        of 9:00 a.m. until 5:00 p.m. on regular business days.
                        This number also will be used to confirm eligibility for
                        benefits, for approval for non-emergency services and
                        for Beneficiaries to call to request Site, Primary Care
                        Provider, or Women's Health Care Provider changes, to
                        make complaints or grievances, to request disenrollment
                        and to ask questions. The Contractor may use one
                        toll-free number for these purposes or may establish two
                        separate numbers.

                  (l)   Pharmacy Formulary

                        The Contractor shall establish a pharmacy formulary that
                        is no more restrictive than the Department's
                        pharmaceutical program. In particular, the Contractor
                        shall comply with the following requirements:

                        (1)   For drugs included in the Department's formulary:

                              (A)       the Contractor may not require prior
                                        approval of any drug product unless the
                                        Department has also placed such drug
                                        product on prior approval under the
                                        fee-for-service Medical Assistance
                                        Program;

                              (B)       the Contractor's formulary must include
                                        every single source drug product covered
                                        by the Department under the Medical
                                        Assistance Program; and

                              (C)       if the Contractor does not provide
                                        coverage for all drugs from
                                        manufacturers having products listed in
                                        the State of Illinois Drug Product
                                        Selection Program's current formulary,
                                        the Contractor shall be considered in
                                        compliance so long as the Contractor's
                                        formulary provides coverage of at least
                                        one manufacturer's product for each drug
                                        covered by the Department under the
                                        Medical Assistance Program that is
                                        listed in the State of Illinois Drug
                                        Product Selection Program's current
                                        formulary.

                        (2)   If the Contractor requires prior approval for
                              drugs not included in the Department's pharmacy
                              formulary, decisions must be based on medical
                              necessity without regard to cost, except for drugs
                              identified in

                                       33
<PAGE>   34

                              Section 1927(d)(2) of Title XIX of the Social
                              Security Act.

                        (3)   The Contractor shall provide a mechanism whereby a
                              prescribing Provider may request approval of drugs
                              requiring prior approval or drugs not included on
                              the Contractor's formulary. The Contractor shall
                              provide a response by telephone or other
                              telecommunication device within one (1) hour of
                              receipt of the request in the case of Emergency
                              Services or Post-Stabilization Services and, in
                              other cases, within twenty-four (24) hours of
                              receipt of the request. The Contractor's pharmacy
                              formulary shall provide a process for appealing
                              denials of prescription drug coverage that is
                              timely and not unduly cumbersome.

                        (4)   The Contractor shall not, without the prescriber's
                              explicit approval, require a pharmacist to
                              substitute a drug that is not strictly
                              bioequivalent to the one prescribed.

                        (5)   The Contractor shall inform its Providers of the
                              pharmacy formulary policy required in this
                              Section.

                        (6)   The Contractor shall not set a limit on the
                              quantities of drugs that a Beneficiary may obtain
                              at one time with a prescription unless that limit
                              is applied uniformly to all pharmacy providers in
                              the Contractor's network.

      5.2   CERTIFIED LOCAL HEALTH DEPARTMENT SERVICES

            (a)   The Contractor shall work in good faith to assist the
                  Department to achieve its objective of supporting Certified
                  Local Health Departments. To this end, the Contractor shall
                  seek to negotiate and execute one of the following documents
                  with each Certified Local Health Department serving a
                  jurisdiction in which Beneficiaries reside:

                  (1)   the Contractor shall subcontract with Certified Local
                        Health Departments to provide, at a minimum, the
                        services listed in this Article V, Section 5.2(b); or

                  (2)   the Contractor shall enter into linkage agreements with
                        Certified Local Health Departments. Such linkage
                        agreements shall conform to the Department's model
                        Certified Local Health Department Linkage Agreement. Any
                        variation in terms from the model agreements is subject
                        to the mutual agreement of the Contractor and the
                        Certified Local Health Department and prior approval by
                        the Department. A copy of all executed linkage
                        agreements shall be filed promptly by the Contractor
                        with the Department.

                                       34
<PAGE>   35

            (b)   The following services, at a minimum, shall be encompassed in
                  the subcontracts or linkage agreements entered into by the
                  Contractor pursuant to this Article V, Section 5.2(a) to the
                  extent these services are within the Certified Local Health
                  Department's scope of services as established by the
                  appropriate board of health or other governing body:

                  (1)   the following Healthy Kids/EPSDT Services: childhood
                        immunizations as recommended by the Advisory Committee
                        on Immunization Practices and adopted by the Illinois
                        Department of Public Health, well-child screening, blood
                        draw for lead testing, make-up visit, hearing screening,
                        vision screening and developmental screening;

                  (2)   adult immunizations for disease outbreak control and
                        those determined necessary for public health protection;

                  (3)   testing, screening and initial treatment for sexually
                        transmitted infections;

                  (4)   tuberculosis screening and one month's initial
                        treatment; and

                  (5)   HIV screening and counseling.

            (c)   If the Contractor elects to execute a document described in
                  this Article V, Section 5.2 (a)(1) with a Certified Local
                  Health Department, the prospective add-on to the Capitation
                  rates paid to the Contractor for Beneficiaries residing in
                  areas covered by such Certified Local Health Department shall
                  be agreed upon by the Contractor and the Department and
                  reflected in an amendment to Attachment I and shall be
                  implemented on a date designated by the Department.

            (d)   If the Contractor elects to execute a document described in
                  this Article V, Section 5.2(a)(2) with a Certified Local
                  Health Department, payment for the services listed in this
                  Article V, Section 5.2(b) and provided by a Certified Local
                  Health Department on behalf of Beneficiaries residing in areas
                  covered by such Certified Local Health Department shall be the
                  responsibility of the Department. These payments by the
                  Department will be implemented on a date designated by the
                  Department.

            (e)   The Contractor shall be considered to have satisfied the
                  requirement set forth in this Article V, Section 5.2 if it has
                  offered to enter into the model Certified Local Health
                  Department Linkage Agreement, but the Certified Local Health
                  Department has refused to enter into the model agreement.

      5.3   MARKETING

            The Contractor shall, initially and as revised, submit to the
            Department for the

                                       35
<PAGE>   36

            Department's prior written approval all of the following materials:
            Certificate of Coverage or Document of Coverage; Beneficiary
            Handbooks; Marketing Materials, including Marketing brochures and
            fliers; Marketing plans, including descriptions of proposed
            Marketing approaches and Marketing procedures; training materials
            and training schedules relating to services under this Contract;
            and all other materials and procedures utilized by the Contractor
            in connection with Marketing and training. Any substantive revisions
            to the foregoing materials that will either directly or indirectly
            affect interpretation of benefits, the delivery of services or the
            administration of benefits are subject to the Department's prior
            written approval as set forth in this paragraph.

            Marketing by mail, mass media advertising and community oriented
            Marketing directed at Eligible Enrollees will be allowed subject to
            the Department's prior approval. The Contractor shall be responsible
            for all costs of mailing, including labor costs. The Department
            reserves the right to determine and set the sole process of, cost,
            and payment for Marketing by mail, using names and addresses of
            Participants supplied by the Department, including the right to
            limit Marketing by mail to a vendor under contract to the Department
            and the terms and conditions set forth in that vendor contract. The
            Contractor shall distribute Marketing materials to the entire
            Contracting Area, but to the extent permitted by law and approved by
            the Department, Contractors may market selectively by eligibility
            category, by Contracting Area, by county, by local Department of
            Human Services office area or by other geographic area.

            The Contractor agrees to be bound by the following requirements for
            Marketing:

            (a)   The Contractor shall not engage in Marketing practices that
                  mislead, confuse or defraud either Eligible Enrollees or the
                  Department;

            (b)   Marketing Materials must be clear and must include, at a
                  minimum, the information required in Article V, Section 5.5;

            (c)   Eligible Enrollees shall be solicited from a geographic area
                  that does not exceed the Contracting Area(s);

            (d)   All Eligible Enrollees must be considered as potential
                  Beneficiaries and may not be discriminated against on the
                  basis of health status or need for health care services or on
                  any illegal basis;

            (e)   The Contractor's Marketing shall be designed to reach a
                  distribution of Eligible Enrollees across age and sex
                  categories, as such categories are established for rates as
                  set forth in Attachment I, in the Contracting Area(s). The
                  Contractor's Marketing shall not be designed to achieve
                  favorable reimbursement by enrolling a disproportionate
                  percentage of Beneficiaries from a particular age and sex
                  category or family income level;

                                 36
<PAGE>   37

            (f)   The Contractor shall not actively facilitate disenrollment of
                  Beneficiaries from other plans, by providing Managed Care
                  Disenrollment Forms or otherwise, including transporting
                  Beneficiaries for the purpose of their disenrollment. The
                  Contractor may educate Beneficiaries on the disenrollment
                  process. The Contractor shall not offer gifts or incentives to
                  Beneficiaries of other plans that are not offered to all
                  Eligible Enrollees;

            (g)   Marketing personnel who engage in Marketing services under
                  this Contract are considered the agents of the Contractor,
                  whether they are employees, independent contractors, or
                  independent insurance brokers. The Contractor shall be held
                  responsible for any misrepresentation or inappropriate
                  activities by such Marketing personnel. All Marketing
                  personnel are required to participate in training sessions
                  that may be developed and presented by the Department, and
                  which sessions set forth the Department requirements,
                  expectations and limitations on Marketing practices in which
                  the Contractor's personnel will engage. The individual
                  salaries, benefits or other compensation paid by the
                  Contractor to each of its Marketing personnel shall consist of
                  no less than seventy-five percent (75%) salary and benefits
                  and no more than twenty-five percent (25%) commission in cash
                  or kind. The salary, benefit and other compensation schedules
                  for such personnel are subject to audits by the Department,
                  Office of Inspector General and as set forth in Article IX,
                  Section 9.1. All salary schedules shall be kept by the
                  Contractor to enable the Department or any Authorized Persons
                  to identify a specific enunciation of each Marketing
                  personnel's total salary, benefit and other compensation, the
                  percentage of that salary, benefits or other compensation that
                  was based on commission and the basis for such commission. The
                  Contractor shall hold the Department harmless for any and all
                  claims, complaints or causes of action that shall arise as a
                  result of this contractually imposed salary, benefit and other
                  compensation structure for Marketing personnel.

                  Compensation of independent insurance brokers who hold a
                  producers license issued by the State of Illinois Department
                  of Insurance is not subject to the limitations on commission
                  described in the above paragraph. All other provisions of the
                  Contract regarding Marketing shall apply to the Contractor
                  with respect to the activities of independent insurance
                  brokers.

            (h)   It shall be the duty and obligation of the Contractor to
                  credential and where necessary or appropriate, recredential
                  all Marketing personnel, including trainers and field
                  supervisors. Recredentialing shall be performed at the time
                  the Department of Insurance renews the individual's license or
                  certification. Recredentialing activity that changes the
                  status of Marketing personnel shall be submitted to the
                  Department as changes occur. No current or future personnel of
                  the Contractor may engage in Marketing activities hereunder
                  without first meeting all credentialing requirements set forth
                  herein as well as in the regulations,

                                 37
<PAGE>   38

                  guidelines or policies of the Department. At a minimum, all
                  Marketing personnel of the Contractor, including independent
                  insurance brokers, must meet the following credentialing
                  requirements:

                  (1)   must have been trained in all provisions of the
                        Contractor's Department approved training manual for
                        marketers;

                  (2)   must hold a valid license or certification as issued by
                        the State of Illinois, Department of Insurance, a copy
                        of which must be submitted to the Department prior to
                        any Marketing personnel's engaging in Marketing
                        activities hereunder;

                  (3)   may not engage in Marketing activities for any other MCO
                        that has a contract with the Department;

                  (4)   may not also be Providers of medical services;

                  (5)   may not have been convicted of any felony within the
                        last ten (10) years;

                  (6)   may not have been terminated from employment in the
                        previous twelve (12) months by any MCO for engaging in
                        any prohibited Marketing practices or misconduct
                        associated with or related to Marketing activities. The
                        Contractor shall obtain a written consent from all
                        Marketing personnel for prior employers to release
                        employment information to the Contractor concerning any
                        prior or current employment in which Marketing
                        activities were performed by any Marketing personnel and
                        contact the previous employer(s). The Contractor may use
                        any other employment practices it deems appropriate to
                        obtain and meet these credentialing requirements; and

                  (7)   must not be an Ineligible Person.

            (i)   The Department may at any time, in its own discretion and
                  without notification to the Contractor, attend any Marketing
                  training session conducted by the Contractor.

            (j)   The Contractor must immediately notify the Department, in
                  writing, of any individual who is hired by the Contractor who
                  has previously been employed by an agent for the Department
                  responsible for the education of Eligible Enrollees about
                  managed care.

            (k)   The Contractor shall immediately notify the Department and the
                  Office of Inspector General, in writing, of any inappropriate
                  Marketing activities.

                                         38
<PAGE>   39

            (l)   Before any individual may engage in any Marketing activity
                  under this Contract, the Contractor shall provide, in a format
                  designated by the Department, the name and Social Security
                  number and a copy of the Department of Insurance license or
                  certification of that individual to the Department and certify
                  to the Department that the individual meets the minimum
                  credentialing requirements above. The Department must provide
                  written approval of such individual before the individual may
                  engage in any Marketing activity under this Contract.

                  Thereafter, on a monthly basis, the Contractor shall report,
                  in a format designated by the Department, the name and Social
                  Security numbers of all Marketing personnel to the Department.
                  It is the obligation of the Contractor to ensure that the
                  Department has a current list of all Marketing personnel. The
                  Contractor must immediately notify the Department, in writing,
                  of any Marketing personnel who terminate employment with the
                  Contractor either voluntarily or involuntarily. If termination
                  is involuntary, the Contractor must notify the Department if
                  the reason for termination is related to misconduct under this
                  Contract.

            (m)   The Contractor shall not engage in any Marketing activities
                  directed at enrolling Eligible Enrollees while they are
                  admitted to any inpatient facilities.

            (m)   Marketing in or immediately outside of any Department or
                  Department of Human Services field office is strictly
                  prohibited.

            (o)   Marketing at Provider offices or facilities is permissible
                  under the following circumstances:

                  (1)   the Contractor must have a written agreement with the
                        Provider, signed by the Provider or his designee, a copy
                        of which shall be kept on file by the Contractor and
                        submitted to the Department upon request. Such written
                        agreement shall set forth specifically what Marketing
                        may be conducted at that Provider office or facility,
                        the frequency with which those Marketing activities may
                        occur and a description of the setting in which the
                        Marketing activities will occur;

                  (2)   no Marketing activities may be conducted in emergency
                        room waiting areas or in treatment areas at any Provider
                        office or facility; and

                  (3)   at no time shall any Marketing personnel have access to
                        an Eligible Enrollee's medical records regardless of
                        whether such Marketing activity is conducted at the
                        Provider office or facility or another location.

            (p)   Direct or indirect door-to-door, telephonic, or other cold
                  call Marketing is strictly prohibited. Door-to-door Marketing
                  is direct or indirect "cold call" or unsolicited Marketing
                  activities at an individual's residence. "Cold call" Marketing
                  means

                                       39
<PAGE>   40

                  any unsolicited personal contact by MCO personnel with the
                  Eligible Enrollee at that individual's residence for the
                  purpose of influencing the individual to enroll with that MCO
                  and includes unsolicited telephone contact and any other type
                  of contact made without the individual's written consent. Such
                  written consent may be obtained at the initiation of a visit
                  to an individual's residence as long as the Contractor has
                  obtained the individual's oral consent prior to the visit and
                  has documented such consent in a written form that identifies
                  the person granting the consent and the person receiving the
                  consent, as well as the date, time and place that the oral
                  consent was given. Any contacts at the individual's residence
                  must be made within thirty (30) days from the date the
                  individual gave oral consent. Soliciting individuals to
                  provide the names of other Eligible Enrollees is also strictly
                  prohibited. Nothing in this section shall prohibit the
                  Contractor from distributing unsolicited Marketing materials
                  via the United States Postal Service or a commercial delivery
                  service where such service is unrelated to the Contractor.

      5.4   INAPPROPRIATE ACTIVITIES

            The Contractor shall not:

            (a)   provide cash to Eligible Enrollees, Prospective Beneficiaries
                  or Beneficiaries, except for stipends, in an amount approved
                  by the Department, and reimbursement of expenses provided to
                  Beneficiaries for participation on committees or advisory
                  groups;

            (b)   provide gifts or incentives to Eligible Enrollees or
                  Prospective Beneficiaries unless such gifts or incentives: (1)
                  are provided to meet the objectives of the Medical Assistance
                  Program or KidCare; (2) are related to health care; (3) do not
                  exceed a nominal value (i.e., an individual gift or incentive
                  may not exceed ten dollars ($10)); and (4) have been
                  pre-approved by the Department;

            (c)   provide gifts or incentives to Beneficiaries unless such gifts
                  or incentives (1) are provided to promote preventive care; (2)
                  are not in the form of cash or an instrument that may be
                  converted to cash; and (3) have been pre-approved by the
                  Department;

            (d)   seek to influence an Eligible Enrollee's Enrollment with the
                  Contractor in conjunction with the sale of any other
                  insurance;

            (e)   induce providers or employees of the Department or the
                  Department of Human Services to reveal confidential
                  information regarding Participants or otherwise use such
                  confidential information in a fraudulent manner;

            (f)   threaten, coerce or make untruthful or misleading statements
                  to Eligible Enrollees,

                                       40
<PAGE>   41

                  Prospective Beneficiaries or Beneficiaries regarding the
                  merits of Enrollment in the Contractor's Plan or any other
                  plan; or

            (g)   present an incomplete Managed Care Enrollment Form to an
                  Eligible Enrollee for his signature.

      5.5   OBLIGATION TO PROVIDE INFORMATION

            The Contractor agrees to provide Basic Information to the
            individuals and at the times described below:

            (a)   to each Beneficiary or Prospective Beneficiary within a
                  reasonable time after it receives notice of his enrollment;

            (b)   to any Eligible Enrollee who requests it; or

            (c)   once a year Contractor must notify its Beneficiaries of their
                  right to request and obtain the Basic Information.

            (d)   "Basic Information" as used herein shall mean:

                  (1)   kinds of benefits, and amount, duration and scope of
                        benefits available under the Plan. There must be
                        sufficient detail to ensure Beneficiaries receive the
                        Covered Services to which they are entitled, including
                        pharmaceuticals, mental health and substance abuse
                        services;

                  (2)   procedures for obtaining Covered Services, including
                        approval requirements, if any;

                  (3)   information, as provided by the Department, regarding
                        any benefits to which they may be entitled under the
                        Medical Assistance Program or KidCare that are not
                        provided under the Plan and specific instructions on
                        where and how to obtain those benefits, including how
                        transportation is provided and that family planning
                        services may be obtained from an Affiliated or
                        non-Affiliated Provider;

                  (4)   any restrictions on a Beneficiary's freedom of choice
                        among Affiliated Providers;

                  (5)   the extent to which a Beneficiary may obtain Covered
                        Services from non-Affiliated Providers;

                  (6)   the extent to which after-hours and emergency coverage
                        are provided;

                                       41
<PAGE>   42

                  (7)   policy on referrals for specialty care and for Covered
                        Services not furnished by a Beneficiary's Primary Care
                        Provider;

                  (8)   cost sharing, if any;

                  (9)   the rights and responsibilities of a Beneficiary such as
                        those pertaining to enrollment and disenrollment and
                        Beneficiary rights under State and Federal law;

                  (10)  complaint, grievance, and fair hearing procedures;

                  (11)  appeal rights and procedures;

                  (12)  names and locations of current Affiliated Providers,
                        including identification of those who are not accepting
                        new patients; and

                  (13)  a copy of the Contractor's Certificate of Coverage or
                        Document of Coverage.

            (e)   The following additional information must be provided by
                  Contractor upon request to any Beneficiary, Prospective
                  Beneficiary, and Eligible Enrollee:

                  (1)   MCO and health care facility licensure; and

                  (2)   information about Affiliated Providers of health care
                        services, including education, Board certification and
                        recertification.

      5.6   QUALITY ASSURANCE, UTILIZATION REVIEW AND PEER REVIEW

            (a)   All services provided by or arranged for by the Contractor to
                  be provided shall be in accordance with prevailing community
                  standards. The Contractor must have in effect a program
                  consistent with the utilization control requirements of 42
                  C.F.R. Part 456. This program will include, when so required
                  by the regulations, written plans of care and certifications
                  of need of care.

            (b)   The Contractor agrees to comply with the quality assurance
                  standards attached hereto as Exhibit A.

            (c)   The Contractor shall have a Utilization Review Program that
                  includes a utilization review plan, a utilization review
                  committee, and appropriate mechanisms covering
                  preauthorization and review requirements.

            (d)   The Contractor shall establish and maintain a Peer Review
                  Program approved by the Department to review the quality of
                  care being offered by the Contractor,

                                       42
<PAGE>   43

                  employees and subcontractors.

            (e)   The Contractor agrees to comply with the utilization review
                  standards and peer review standards attached hereto as Exhibit
                  B.

      5.7   PHYSICIAN INCENTIVE PLAN REGULATIONS

            The Contractor shall comply with the provisions of 42 C.F.R. 434.70.
            This shall include submission to the Department, at required
            intervals, the information described in 42 C.F.R. 417.479(h) and
            (i). If, to conform with these regulations, the Contractor performs
            Beneficiary satisfaction surveys, such surveys may be combined with
            those required by the Department pursuant to Article V, Section 5.16
            of this Contract.

      5.8   PROHIBITED AFFILIATIONS

            (a)   The Contractor shall assure that any Affiliated Provider,
                  including out-of-State Providers, is enrolled in the Medical
                  Assistance Program, if such enrollment is required for such
                  Provider by Department rules or policy in order to submit
                  claims for reimbursement or otherwise participate in the
                  Medical Assistance Program. The Contractor shall assure that
                  any non-Affiliated Illinois provider billing for services is
                  enrolled in the Medical Assistance Program prior to paying
                  claims.

            (b)   The Contractor shall not employ, subcontract with, or
                  affiliate itself with or otherwise accept any Ineligible
                  Person into its network.

            (c)   The Contractor shall screen all current and prospective
                  employees, contractors, and sub-contractors, prior to engaging
                  their services under this Contract by: (i) requiring them to
                  disclose whether they are Ineligible Persons; (ii) reviewing
                  the OIG's list of sanctioned persons (available on the World
                  Wide Web at http:www.arnet.gov/epls) and the HHS/OIG List of
                  Excluded Individuals/Entities (available on the World Wide Web
                  at http://www.dhhs.gov/oig). The Contractor shall annually
                  screen all current employees, contractors and sub-contractors
                  providing services under this Contract. The Contractor shall
                  screen out-of-State non-Affiliated Providers billing for
                  Covered Services prior to payment and shall not pay such
                  Providers who meet the definition of Ineligible Persons.

            (d)   The Contractor shall terminate its relations with any
                  Ineligible Person immediately upon learning that such Person
                  or Provider meets the definition of an Ineligible Person and
                  notify the OIG of the termination.

      5.9   RECORDS

            (a)   Maintenance of Business Records

                                       43
<PAGE>   44

                  The Contractor shall maintain all business and professional
                  records that are required by the Department in accordance with
                  generally accepted business and accounting principles. Such
                  records shall contain all pertinent information about the
                  Beneficiary including, but not limited to, the information
                  required under this Article V, Section 5.9. Medical records
                  reporting requirements shall be adequate to ensure acceptable
                  continuity of care to Beneficiaries.

            (b)   Availability of Business Records

                  Records shall be made available in Illinois to the Department
                  and Authorized Persons for inspection, audit, and/or
                  reproduction as required in Article IX, Section 9.1. These
                  records will be maintained as required by 45 C.F.R. Part 74.
                  As a part of these requirements, the Contractor will retain
                  all records for at least five (5) years after final payment is
                  made under the Contract. If an audit, litigation or other
                  action involving the records is started before the end of the
                  five-year (5 year) period, the records must be retained until
                  all issues arising out of the action are resolved.

            (c)   Patient Records

                  (1)   Treatment Plans

                        The Contractor must develop and use treatment plans for
                        chronic disease follow-up care that are tailored to the
                        individual Beneficiary. The purpose of the plan is to
                        assure appropriate ongoing treatment reflecting the
                        prevailing community standards of medical care designed
                        to minimize further deterioration and complications.
                        Treatment plans shall be on file with the permanent
                        record for each Beneficiary with a chronic disease and
                        with sufficient information to explain the progress of
                        treatment.

                  (2)   Permanent Records

                        A permanent medical record shall be maintained at the
                        Primary Care Site for every Beneficiary and be available
                        to the Primary Care Provider, Women's Health Care
                        Provider and other Providers. Copies of the medical
                        record shall be sent to any new Site to which the
                        Beneficiary transfers, provided the Beneficiary consents
                        to the transfer. The Contractor shall make good faith
                        efforts to obtain such consent. Copies of records shall
                        be released only to Authorized Individuals. Original
                        medical records shall be released only in accordance
                        with Federal or State law, court orders, subpoenas, or a
                        valid records release form executed by a Beneficiary.
                        The Contractor shall ensure that Beneficiaries have
                        timely access to the records. The Contractor shall
                        protect the confidentiality and privacy of minors, and
                        abide by all Federal and State laws regarding the

                                       44
<PAGE>   45

                        confidentiality and disclosure of medical records,
                        mental health records, and any other information about
                        Beneficiary. The Contractor shall produce such records
                        for the Department upon request. Medical records must
                        include Provider identification and Beneficiary
                        identification. All entries in the medical record must
                        be legible and dated, and the following, where
                        applicable, shall be included:

                                patient identification;
                                personal health, social history and family
                                history, with updates as needed;
                                obstetrical history (if any) and/or profile;
                                hospital admissions and discharges;
                                relevant history of current illness or injury
                                (if any) and physical findings;
                                diagnostic and therapeutic orders;
                                clinical observations, including results of
                                treatment;
                                reports of procedure, tests and results;
                                diagnostic impressions;
                                patient disposition and pertinent
                                instructions to patient for follow-up care;
                                immunization record;
                                allergy history;
                                periodic exam record;
                                growth chart;
                                referral information, if any;
                                health education provided; and
                                family planning and/or counseling.

      5.10  COMPUTER SYSTEM REQUIREMENTS

            (1)   The Contractor must establish and maintain a computer system
                  compatible with the Department's system, and execute an
                  electronic communication agreement provided by the Department.
                  The system must be able to exchange data using Connect Direct,
                  a product of Sterling Software, or other products as allowed
                  by the Department.

            (2)   The Contractor shall pay for a line connection for
                  communication between the Contractor and the Department that
                  shall be established by the Department. A 56KB or faster
                  dedicated telecommunication line or multiple 56KB or faster
                  circuits will be necessary to interface directly with the
                  State. All costs associated with interfacing with the
                  Department shall be borne by the Contractor.

            (3)   The Contractor must provide staff with proficient knowledge in
                  telecommunications to ensure communication connectivity is
                  established and

                                       45
<PAGE>   46

                  maintained.

      5.11  REGULAR REPORT AND SUBMISSION REQUIREMENTS

            (a)   The Contractor shall submit to the Department regular reports
                  and special reports as set forth in this Section. Reports
                  shall be submitted in a format and medium designated by the
                  Department.

                  (1)   Quality Assurance, Utilization Review and Peer Review
                        Report (QA/UR/PR Report). This report shall provide a
                        summary review of the effectiveness of the Contractor's
                        Quality Assurance Plan, including that implemented in
                        the area of behavioral health. The summary review shall
                        contain the Contractor's processes for quality
                        assurance, utilization review and peer review. The
                        report's content, as determined by the Department, will
                        include, but is not limited to: quality assurance,
                        utilization and peer review activities during the fiscal
                        year; quality indicators and methodology for measuring
                        those indicators; trending and comparison of clinical,
                        including behavioral health, and service indicators and
                        health outcomes; results of the medical record reviews
                        and quality assurance studies (focused medical studies);
                        aggregate data on utilization of services, including the
                        Contractor's progress toward meeting the Department's
                        established preventive care participation goals set
                        forth in this Article V, Section 5.13(a), (b), and (c);
                        summary of oversight activities and outcomes; quality
                        improvement strategies (including those identified
                        through the grievance process); implemented and
                        demonstrated improvements; summary of credentialing and
                        peer review activities; Beneficiary Satisfaction Survey
                        analysis; and changes in the Contractor's Quality
                        Assurance, Utilization Review or Peer Review program
                        planned for the next fiscal year. In the QA/UR/PR
                        Report, the five (5) HEDIS indicators mutually selected
                        by the MCOs and the Department shall be reported. In the
                        second year of the Contract, an additional set of
                        mutually agreed upon common HEDIS indicators will be
                        added and reported in the QA/UR/PR Report.

                  (2)   Summary of Grievances and Resolutions and External
                        Independent Reviews and Resolutions. This quarterly
                        report shall provide a summary of the grievances filed
                        by Beneficiaries and the resolution of such grievances
                        as well as a summary of all external independent reviews
                        and the resolution of such reviews. Such report shall
                        include types of grievances and external independent
                        reviews by category and totals, the number and levels at
                        which the grievances/reviews were resolved, the types of
                        resolutions and the number pending resolution by
                        category.

                  (3)   Behavioral Health Report. On a quarterly basis, the
                        Contractor shall

                                       46
<PAGE>   47

                        submit to the Department behavioral health utilization
                        statistics and analysis as specified in Paragraph 12 of
                        Exhibit A.

                  (4)   Marketer Training Schedule and Agenda. On a quarterly
                        basis, two weeks prior to the beginning of the report
                        quarter, the Contractor shall provide the Department
                        with its schedule for training of Marketing personnel.
                        The model agenda for each type of training must
                        accompany the schedule. The Contractor shall provide the
                        Department with written notice of any changes to the
                        quarterly schedule at least seventy-two (72) hours prior
                        to the scheduled training.

                  (5)   Marketing Representative Listing. On a monthly basis, on
                        the first of day of the month for that month, the
                        Contractor shall provide the Department with a list of
                        all Marketing personnel who are active as well as any
                        Marketing personnel for whom a change of status has
                        occurred since the last report month.

                  (6)   Fraud and Abuse Report. The Contractor shall report all
                        allegations of Fraud, Abuse or misconduct of Providers,
                        Beneficiaries or Department employees to the OIG
                        immediately upon knowledge of such Fraud, Abuse or
                        misconduct. If no Fraud, Abuse or misconduct is reported
                        to the OIG during a quarter, the Contractor shall file a
                        certification of such with the OIG within thirty (30)
                        days of the end of the quarter.

            (b)   Submissions

                  (1)   Encounter Data

                        (A)   Submission. The Contractor must report, in
                              accordance with Subsections (B) and (C) of this
                              Article V, Section 5.11(b)(1), all services
                              received by Beneficiaries. On a monthly basis, the
                              Contractor shall provide the Department with files
                              in the format and medium designated by the
                              Department, prepared with claims level detail as
                              required herein and in Exhibit E attached hereto,
                              for all services received by Beneficiaries during
                              a given month. This data must be received by the
                              Department within one hundred twenty (120) days of
                              the last day of the service month. Any claims
                              processed by the Contractor for services provided
                              in a given report month subsequent to submission
                              of the monthly Encounter Data Report shall be
                              reported on the next submission of the monthly
                              Encounter Data Report.

                        (B)   Testing. Upon receipt of each submitted data file,
                              the Department shall perform two distinct levels
                              of review. The first level of review

                                       47
<PAGE>   48

                              and edits performed by the Department shall check
                              the data file format. These edits shall include,
                              but are not limited to the following: check the
                              data file for completeness of records; correct
                              sort order of records; proper field length and
                              composition; and correct file length. The format
                              of the file, to be accepted by the Department,
                              must be one hundred percent (100%) correct.

                              If the format is correct, the Department shall
                              then perform the second level of review. This
                              second review shall be for standard claims
                              processing edits. These edits shall include, but
                              are not limited to the following: correct Provider
                              numbers; valid recipient numbers; valid procedure
                              and diagnosis codes; cross checks to assure
                              Provider and recipient numbers match their names;
                              and the procedures performed are correct for the
                              age and sex of the recipient. The acceptable error
                              rate of claims processing edits of the Illinois
                              Medicaid UB92 Billing Specification data file, the
                              HCFA National Standard Format for noninstitutional
                              claims data file, and the IDPA Direct Tape format
                              for pharmacy claims file shall be determined by
                              the Department. Once an acceptable error rate has
                              been achieved, as determined by the Department,
                              the Contractor shall be instructed that the
                              testing phase is complete and that data should be
                              sent in production.

                        (C)   Production. Once the Contractor's testing of data
                              specified in (B) above is completed, the
                              Contractor will be certified for production. Once
                              certified for production, the data shall continue
                              to be submitted in accordance with (A) above. The
                              data will continue to be reviewed for correct
                              format and quality. The Contractor shall submit as
                              many files as possible in a time frame agreed upon
                              by the Department and the Contractor, to ensure
                              all data is current.

                        (D)   Within thirty (30) days of the date of receipt by
                              the Department, records that fail the edits
                              described above in (B) or (C) will be returned to
                              the Contractor for correction. Corrected data must
                              be returned to the Department for re-processing.

                  (2)   Provider Network Submissions. The Contractor shall
                        submit to the Department, in a format and medium
                        designated by the Department, Provider network reports
                        that shall include the following: monthly Provider
                        Affiliation with Sites as set forth in the format given
                        to the Contractor by the Department; monthly updating of
                        all Providers who have either become a Provider in the
                        Contractor's network or who have left the network since
                        the last report; New Site Provider Affiliations as new
                        Sites are added; Site terminations immediately as they
                        occur; and Beneficiary Site Assignments/Site Transfers
                        as they occur. New Site/PCP

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<PAGE>   49

                        information shall be reported in a format and medium as
                        required by the Department. During the term of this
                        Contract, this report shall be converted to electronic
                        data transmission. The Department will give the
                        Contractor no less than one hundred twenty (120) days
                        notice prior to conversion of this report to electronic
                        data transmission.

                  (3)   Disclosure Statements. The Contractor shall submit
                        disclosure statements to the Department initially,
                        annually, on request and as changes occur.

                  (4)   Beneficiary Materials:

                        (A)   Certificate or Document of Coverage and Any
                              Changes or Amendments. The Contractor shall submit
                              these documents to the Department for prior
                              approval initially and as revised.

                        (B)   Beneficiary Handbook. The Contractor shall submit
                              the handbook to the Department for prior approval
                              initially and as revised. The Contractor shall not
                              be required to submit for prior approval format
                              changes, provided there is no change in the
                              information conveyed.

                        (C)   Identification Card. The Contractor shall submit
                              the identification card to the Department for
                              prior approval initially and as revised. The
                              Contractor shall not be required to submit for
                              prior approval format changes, provided there is
                              no change in the information conveyed.

                  (5)   Subcontracts and Provider Agreements:

                        (A)   Model Subcontracts and Provider Agreements. The
                              Contractor shall provide copies of model
                              subcontracts and Provider agreements related to
                              Covered Services, assignment of risk and data
                              reporting functions, including the form of all
                              proposed schedules or exhibits, intended to be
                              used therewith, and any substantial deviations
                              from these model subcontracts and Provider
                              agreements to the Department initially and as
                              revised.

                        (B)   Executed Subcontracts and Provider Agreements. The
                              Contractor shall provide copies of any subcontract
                              and Provider agreement to the Department upon
                              request.

                        (C)   Executed Linkage Agreements. The Contractor shall
                              provide copies of executed linkage agreements to
                              the Department immediately upon execution by the
                              Contractor.

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<PAGE>   50

                        (6)   Marketing Materials. The Contractor shall submit
                              all Marketing Materials to the Department for
                              prior approval initially and as revised. The
                              Contractor shall not be required to submit for
                              prior approval format changes, provided there is
                              no change in the information conveyed.

                        (7)   Marketing Representative Terminations. The
                              Contractor shall submit names of Marketing
                              personnel who have terminated employment or
                              association with the Contractor as such
                              terminations occur. The submission shall indicate
                              whether the termination was voluntary or
                              involuntary and, if involuntary, shall state
                              whether the reason for termination was related to
                              misconduct under this Contract.

                        (8)   Quality Assurance/Medical:

                              (A)       Quality Assurance, Utilization Review,
                                        Peery Review and Health Education Plans.
                                        The Contractor shall submit such plans
                                        to the Department for prior approval
                                        initially and as revised. The Contractor
                                        shall not be required to submit for
                                        prior approval format changes, provided
                                        there is no change in the information
                                        conveyed.

                              (B)       QA/UR/PR Committee Meeting Minutes. The
                                        Contractor shall submit the minutes of
                                        these meetings to the Department on a
                                        quarterly basis.

                              (C)       Grievance Procedures. The Contractor
                                        shall submit Grievance Procedures to the
                                        Department for prior approval initially
                                        and as revised. The Contractor shall not
                                        be required to submit for prior approval
                                        format changes, provided there is no
                                        change in the information conveyed.

                  (c)   Additional Reports. The Contractor shall submit to the
                        Department additional reports or submissions at the
                        frequency set forth in Exhibit C and Exhibit D and all
                        other reports and information required by the provisions
                        of this Contract.

                  (d)   Unless otherwise specified, the Contractor shall submit
                        all reports to the Department within thirty (30) days
                        from the last day of the reporting period or as defined
                        in Exhibit C and Exhibit D. All reports and submissions
                        listed in this Article V, Section 5.11 must be submitted
                        to the Department in a Department designated format and
                        at the intervals set forth in Exhibit C and Exhibit D.
                        The Department may require additional reports throughout
                        the term of this Contract. The Department will provide
                        adequate notice before requiring production of any new
                        reports or information, and will consider concerns
                        raised by Contractors about potential burdens associated
                        with producing the proposed additional reports. The
                        Department will provide the basis (reason) for any such
                        request. Failure of

                                       50
<PAGE>   51

                  the Contractor to follow reporting requirements shall subject
                  the Contractor to the sanctions in Article IX, Section 9.10.

                  A schedule of all reports and the reporting frequency required
                  under this Contract is provided in Exhibit C. A schedule of
                  all submissions and the submitting frequency required under
                  this Contract is provided in Exhibit D. For purposes of this
                  Article V, Section 5.11, the following terms shall have the
                  following meanings:

                        annual shall be defined by the State fiscal year
                        beginning July first of each year and ending on but
                        including June thirtieth of the following year; and

                        quarter shall be defined as three consecutive calendar
                        months of the State's fiscal year.

            (e)   Unless otherwise stated, all reports required herein shall
                  differentiate between MAG Beneficiaries, MANG Beneficiaries
                  and KidCare Beneficiaries, where applicable, and insofar as
                  Beneficiaries can be differentiated by an identifiable code
                  available to the Contractor.

      5.12  HEALTH EDUCATION

            The Contractor shall establish and maintain an ongoing program of
            health education as delineated in its written plan and submitted
            annually to the Department. The health education program will advise
            Beneficiaries concerning appropriate health care practices and the
            contributions they can make to the maintenance of their own health.
            All health education materials must be approved by the Contractor's
            medical director. Providing material during Marketing and Enrollment
            does not satisfy the requirements of this Article V, Section 5.12.
            The Contractor must make good faith efforts to ensure that Primary
            Care Providers are active participants in the health education
            program. The health education program shall provide, at a minimum,
            the following:

            (a)   Information on how to use the Plan, including information on
                  how to receive Emergency Services in and out of the
                  Contracting Area.

            (b)   Information on preventive care including the value and need
                  for screening and preventive maintenance.

            (c)   Counseling and patient education as to the health risks of
                  obesity, smoking, alcoholism, substance abuse and improper
                  nutrition, and specific information for persons who have a
                  specific disease.

            (d)   Information on disease states, that may affect the general
                  population.

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<PAGE>   52

            (e)   Educational material in the form of printed, audio, visual or
                  personal communication.

            (f)   Information will be provided in language that the Beneficiary
                  understands and that meets the requirements set forth in
                  Article II, Section 2.4.

            (g)   A single individual appointed by the Contractor to be
                  responsible for the coordination and implementation of the
                  program.

            The Contractor further agrees to review the health education
            program, at reasonable intervals, for the purpose of amending same,
            in order to improve said program. The Contractor further agrees to
            supply the Department or its designee with the information and
            reports prescribed in its approved health education program or the
            status of such program.

      5.13  REQUIRED MINIMUM STANDARDS OF CARE

            The Contractor shall make a good faith effort to provide or arrange
            to provide to all Beneficiaries medical care consistent with
            prevailing community standards at locations serving the Contracting
            Area that assure reasonable availability and accessibility to
            Beneficiaries.

            The Contractor will provide a system to notify Beneficiaries on an
            ongoing basis of the need for and benefits of health screenings and
            physical examinations. The Contractor will exercise reasonable
            efforts to provide or arrange to provide such examinations to all
            its Beneficiaries.

            (1)   Healthy Kids/EPSDT Services to Beneficiaries Under Twenty-One
                  (21) Years

                  All Beneficiaries under twenty-one (21) years of age should
                  receive screening examinations including appropriate childhood
                  immunizations at intervals as specified by the Healthy
                  Kids/EPSDT Program as set forth in Sections 1902(a)(43)and
                  1905(a)(4)(B) of the Social Security Act and 89 Ill. Adm. Code
                  140.485. Any condition discovered during the screening
                  examination or screening test requiring further diagnostic
                  study or treatment must be provided if within the scope of
                  Covered Services. The Contractor shall refer the Beneficiary
                  to an appropriate source of care for any required services
                  that are not Covered Services. If, as a result of Healthy
                  Kids/EPSDT services, the Contractor determines a Beneficiary
                  is in need of services that are not Covered Services but are
                  services otherwise provided for under the Medical Assistance
                  Program, the Contractor will ensure that the Beneficiary is
                  referred to an appropriate source of care. The Contractor
                  shall have no obligation to pay for services that are not
                  Covered Services.

                  At a minimum, the Contractor shall provide or arrange to
                  provide all appropriate

                                       52
<PAGE>   53

                  screening and vaccinations in accordance with OBRA 1989
                  guidelines to eighty percent (80%) of Beneficiaries younger
                  than twenty-one (21) years of age.

            (b)   Preventive Medicine Schedule (Services to Beneficiaries
                  Twenty-One (21) Years of Age and Over)

                  The following preventive medicine services and age schedule is
                  the minimum acceptable range and scope of required services
                  for adults. The Contractor may substitute an alternate
                  schedule for adult preventive medicine services as long as
                  such schedule is based upon recognized guidelines such as
                  those recommended by the current U.S. Preventive Services Task
                  Force's "Guide to Clinical Preventive Services" and the
                  Contractor submits the schedule to the Department and receives
                  the Department's written approval for the alternate schedule
                  prior to implementing it.

                                       53
<PAGE>   54

<TABLE>
<CAPTION>
        Service
        -------
        <S>  <C>                                       <C>
        1    Complete                                  To be provided during first year
             history/physical                          of Enrollment, plus complete
                                                       physical exam when indicated, but minimally
                                                       at five (5) years when there are no other
                                                       indications.

        2    Circulatory &                             When indicated in any Beneficiary,
             Fundoscopy                                but every year in diabetics,
             Evaluation                                hypertensives, and those with
                                                       prior history of circulatory
                                                       and/or retinal disease.

        3    Rectal Exam & hemocult                    Minimally every year in any Beneficiaries
                                                       with history of G.I. bleeding, disease of
                                                       colon, history of colon polyps and any history of
                                                       prior carcinoma of G.I. tract. An annual digital
                                                       rectal exam for asymptomatic men age
                                                       fifty (50) and over, African-American men age
                                                       forty (40) and over; and men age 40 and over with
                                                       a family history of prostate cancer.

        4    Clinical Breast                            1.   Minimally, every year in any Beneficiary
             Examination                                        with history of fibrocystic disease or
                                                                other benign lump in breast, and in those
                                                                with prior carcinoma.
                                                        2. Every two (2) years in all females with no other
                                                                indications for exam.
                                                        3. For all females, patient instruction in
                                                                self-examination of breasts.

        5    CBC                                       When indicated by complaints, history or physical
                                                       findings.

        6    Urinalysis                                When indicated by complaints, history or physical
                                                       findings, at least annually in all diabetics,
                                                       hypertensives and those with history of renal or
                                                       prostatic disease.  Should also document urine culture
                                                       and sensitivity in all recurrent or chronic urinary or
                                                       prostatic infections prior to any long-term antibiotic
                                                       therapy.

        7    Blood Chemistries,                        When indicated by complaints, history or physical findings,
             Enzymes, or other                         and as indicated by specific diagnosis and/or therapy as
             Laboratory Profiles                       as blood sugar in diabetics or dilantin level in epileptics,
                                                       and including annual prostate-specific antigen tests for
                                                       males.

        8    EKG                                       Baseline, at age fifty (50), if not before; only when
                                                       indicated thereafter.

        9    Mammography                               1.  Baseline in females at age thirty-five (35) or
                                                              older;
</TABLE>

                                       54
<PAGE>   55

<TABLE>
        <S>  <C>                                       <C>
                                                       2.  Every year for women age forty (40) and
                                                               older; and

                                                       3. As indicated for women with personal or
                                                               family history.

        10   Sigmoidoscopy                             With each complete physical exam, whenever
                                                       indicated.

        11   Respiratory                               In all patients with a chronic respiratory disease
             Testing                                   diagnosis and, as baseline, in all patients who smoke.
                                                       (Recommendations made to this patient after examination
                                                       and testing should be documented).

        12   Blood Pressure                            Annually after age eighteen (18).
             Check

        13   Papanicolaou Smear                        Routine annual screening including a cervical smear or
                                                       Papanicolaou Smear and pelvic-exam for females who are
                                                       eighteen (18) years of age and older, or at the onset of
                                                       becoming sexually active, whichever is earlier.

        14   Prostate Specific                         Annually for asymptomatic men age
             Antigen Test                              fifty (50) and older, African
                                                       American men age forty (40) and
                                                       older, and all men age forty (40)
                                                       and older with a family history of
                                                       prostate cancer.
</TABLE>

                                       55
<PAGE>   56

                  At a minimum, the Contractor shall make good faith efforts to
                  provide or arrange to provide the initial history and physical
                  examination to fifty percent (50%) of all Beneficiaries in
                  their first twelve (12) months of coverage, to seventy percent
                  (70%) of all Beneficiaries in their second twelve (12) months
                  of coverage and eighty percent (80%) of all Beneficiaries in
                  their third twelve (12) months of coverage or more. For
                  purposes of this subsection, "twelve (12) months of coverage"
                  may include up to forty-five (45) days interrupted coverage.

            (c)   Maternity Care

                  The Contractor shall provide or arrange to provide quality
                  care for pregnant Beneficiaries. At a minimum, the Contractor
                  shall make good faith efforts to provide, or arrange to
                  provide, and document:

                  (1)   A comprehensive prenatal evaluation and care in
                        accordance with the latest standards published by the
                        American College of Obstetrics and Gynecology or the
                        American Academy of Family Physicians. The specific
                        areas to be addressed in regard to the provision of care
                        include, but are not limited to, the following items:
                        content of the initial assessment, including history,
                        physical, lab tests and risk assessment including HIV
                        counseling and voluntary HIV testing; follow-up
                        laboratory testing; nutritional assessment and
                        counseling; frequency of visits; content of follow-up
                        visits; anticipatory guidance and appropriate referral
                        activities.

                  (2)   At least seventy percent (70%) of all pregnant
                        Beneficiaries shall receive the minimum level of
                        prenatal visits adjusted for the date of coverage under
                        the Plan. For the exclusive purpose of calculating this
                        rate, women who deliver within sixty (60) days of the
                        first day of coverage under the Plan shall be excluded.

                  (3)   The Contractor shall provide or arrange to provide
                        nutritional assessment and counseling to all pregnant
                        Beneficiaries. Individualized diet counseling is to be
                        provided as indicated.

                  (4)   The Contractor shall require its Primary Care Providers
                        and Women's Health Care Providers to identify maternity
                        cases presenting the potential for high-risk maternal or
                        neonatal complications and arrange appropriate referral
                        to physician specialist or transfer to Level III
                        perinatal facilities as required. The Contractor shall
                        utilize, for such high-risk consultation or referrals,
                        the standards of care promulgated by the Statewide
                        Perinatal Program of the Illinois Department of Human
                        Services.

                  (5)   The consulting physician at the perinatal center will
                        determine the

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                  management of the Beneficiary at that point in time. Should
                  transport be required, the consultant at the perinatal center
                  will identify the most appropriate mode of transport for such
                  a transfer. Should the perinatal center be unable to accept
                  the Beneficiary due to bed unavailability, that center will
                  arrange for admission of the Beneficiary to an alternate Level
                  III perinatal center. All records required for appropriate
                  management of the high-risk Beneficiary receiving consultation
                  or referral to a perinatal center will be provided to the
                  consulting physician as indicated. The Contractor will obtain
                  from the consulting physician all necessary correspondence to
                  enable the Primary Care Provider to provide, or arrange for
                  the provision of, appropriate follow-up care for the mother or
                  neonate following discharge.

      (d)   Complex and Serious Medical Conditions

            (1)   The Contractor shall provide or arrange to provide quality
                  care for Beneficiaries with complex and serious medical
                  conditions. At a minimum, the Contractor shall provide and
                  document the following:

                  (A)   Timely identification of Beneficiaries with complex and
                        serious medical conditions.

                  (B)   Assessment of such conditions and identification of
                        appropriate medical procedures for monitoring or
                        treating them.

                  (C)   Implementation of a treatment plan in accordance with
                        this Article V, Section 5.9(c)(1).

      (e)   Access Standards

            (1)   Appointments

                  Time specific appointments for routine, preventive care shall
                  be made available within five (5) weeks from the date of
                  request for such care. Beneficiaries with more serious
                  problems not deemed Emergency Medical Conditions shall be
                  triaged and provided same day service, if necessary.
                  Beneficiaries with problems or complaints that are not deemed
                  serious shall be seen within three (3) weeks from the date of
                  request for such care. The Contractor shall have an
                  established policy that scheduled Beneficiaries shall not
                  routinely wait for more than one (1) hour to be seen by a
                  Provider and no more than six (6) scheduled appointments shall
                  be made for each Primary Care Provider per hour.
                  Notwithstanding this limit, the Department recognizes that
                  physicians supervising other licensed health care Providers
                  may routinely account for more than six (6)

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                  appointments per hour.

            (2)   Services Requiring Prior Authorization

                  The Contractor shall provide, or arrange for the provision of,
                  Covered Services as expeditiously as the Beneficiary's health
                  condition requires. Ordinarily, Covered Services shall be
                  provided within fourteen (14) calendar days after receiving
                  the request for service from a Provider, with a possible
                  extension of up to fourteen (14) calendar days, if the
                  Beneficiary requests the extension or the Contractor provides
                  written justification to the Department that there is a need
                  for additional information and the Beneficiary will not be
                  harmed by the extension. If the Physician indicates, or the
                  Contractor determines that following the ordinary time frame
                  could seriously jeopardize the Beneficiary's life or health,
                  the Contractor shall provide, or arrange for the provision of,
                  the Covered Service no later than seventy-two (72) hours after
                  receipt of the request for service, with a possible extension
                  of up to fourteen (14) calendar days, if the Beneficiary
                  requests the extension or the Contractor provides written
                  justification to the Department that there is a need for
                  additional information and the Beneficiary will not be harmed
                  by the extension.

            (f)   Linkages to Other Services

                  (1)   The Contractor shall use reasonable efforts to encourage
                        the Plan Providers and subcontractors to cooperate with
                        and communicate with other service providers who serve
                        Beneficiaries. Such other service providers may include:
                        CBHPs; Women-Infant and Children (WIC) programs; Head
                        Start programs; Early Intervention programs; Public
                        Health providers; school-based clinics; and school
                        systems. Such cooperation may include performing annual
                        physical examinations for school and the sharing of
                        information (with the consent of the Beneficiary).

                  (2)   The Contractor shall participate in the Family Case
                        Management Program, which shall include, but is not
                        limited to:

                        (A)   Coordinating services and sharing information with
                              existing Family Case Management Providers for its
                              Beneficiaries;

                        (B)   Developing internal policies, procedures, and
                              protocols for the organization and its provider
                              network for use with Family Case Management
                              Providers serving Beneficiaries; and

                        (C)   Conducting periodic meetings with Family Case
                              Management

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                              Providers performing problem resolution and
                              handling of grievances and issues, including
                              policy review and technical assistance.

      5.14  CHOICE OF PHYSICIANS

            The Contractor shall afford to each Beneficiary a Primary Care
            Provider and, where appropriate, a Women's Health Care Provider.

            In each Contracting Area, there shall be at least one (1) full-time
            equivalent Physician for each 1,200 Beneficiaries, including one (1)
            full-time equivalent Primary Care Provider for each 2,000
            Beneficiaries. In each Contracting Area, there shall be at least one
            (1) Women's Health Care Provider for each 2,000 female Beneficiaries
            between the ages of eighteen (18) and forty-four (44), at least one
            (1) Physician specializing in obstetrics for each 300 pregnant
            female Beneficiaries and at least one (1) pediatrician for each
            2,000 Beneficiaries under age seventeen (17). All Physicians
            providing services shall have and maintain admitting privileges and,
            as appropriate, delivery privileges at an Affiliated Plan hospital;
            or, in lieu of these admitting and delivery privileges, the
            Physicians shall have a written referral agreement with a Physician
            who is in the Contractor's network and who has such privileges at an
            Affiliated Plan hospital. The agreement must provide for the
            transfer of medical records and coordination of care between
            Physicians.

            In any Contracting Area in which the Contractor does not satisfy the
            full-time equivalent provider requirements set forth above, the
            Contractor may demonstrate compliance with these requirements by
            demonstrating that (i) the Contractor's full time equivalent
            Physician ratios exceed ninety percent (90%) of the requirements set
            forth above, and (ii) that Covered Services are being provided in
            such Contracting Area in a manner which is timely and otherwise
            satisfactory. The Contractor shall comply with Section 1932(b)(7) of
            the Social Security Act.

      5.15  TIMELY PAYMENTS TO PROVIDERS

            The Contractor shall make payments to Providers for Covered Services
            on a timely basis consistent with the Claims Payment Procedure
            described at 42 U.S.C. Section 1396a(a)(37)(A), unless the Provider
            and the Contractor agree to an alternate payment schedule.
            Complaints or disputes concerning payments for the provision of
            services as described in this paragraph shall be subject to the
            Contractor's Provider grievance resolution system.

            The Contractor shall pay for all appropriate Emergency Services
            rendered by a Provider with whom the Contractor does not have
            arrangements within thirty (30) days of receipt of a complete and
            correct claim. If the Contractor determines it does not have
            sufficient information to make payment, the Contractor shall request
            all necessary information from the Provider within thirty (30) days
            of receiving the claim, and shall pay the Provider within thirty
            (30) days after receiving such information. Such payment shall be
            made at

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<PAGE>   60

            the same rate the Department would pay for such services
            according to the level of services provided.

            The Contractor shall pay for all authorized Post-Stabilization
            services rendered by a non-Affiliated hospital Provider at the same
            rate the Department would pay for such services unless a different
            rate was agreed upon by the Contractor and Provider. Authorized
            Post-Stabilization services include such services rendered under the
            circumstances described in Section 70(c)(2) of the Illinois Managed
            Care Reform and Patient Rights Act.

            The Contractor shall accept claims from non-Affiliated Providers for
            at least one (1) year after the date the services are provided. The
            Contractor shall not be required to pay for claims initially
            submitted by such Providers more than one (1) year after the date of
            service.

      5.16  GRIEVANCE PROCEDURE AND BENEFICIARY SATISFACTION SURVEY

            (a)   The Contractor shall establish and maintain a procedure for
                  reviewing complaints registered by Beneficiaries. The
                  Contractor's procedures must: (1) be submitted to the
                  Department in writing and approved in writing by the
                  Department; (2) provide for prompt resolution, and (3) assure
                  the participation of individuals with authority to require
                  corrective action. The Contractor must have a Grievance
                  Committee for reviewing administrative complaints registered
                  by its Beneficiaries, and Beneficiaries must be represented on
                  the Grievance Committee. At a minimum, the following elements
                  must be included in the grievance process:

                  (1)   An informal system, available internally, to attempt to
                        resolve all complaints;

                  (2)   A formally structured system that is compliant with
                        Section 45 of the Managed Care Reform and Patient Rights
                        Act to handle all complaints subject to the provisions
                        of that section of the Act;

                  (3)   A formally structured Grievance Committee must be
                        available for Beneficiaries whose complaints cannot be
                        handled informally and are not appropriate for the
                        procedures set up under the Managed Care Reform and
                        Patient Rights Act. All Beneficiaries must be informed
                        that such a system exists. Complaints at this stage must
                        be in writing and sent to the Grievance Committee for
                        review;

                  (4)   The Grievance Committee must have at least twenty-five
                        percent (25%) representation by members of Contractor's
                        prepaid plans, with at least one (1) Beneficiary of
                        Contractor's services under this Contract on the
                        Committee. The Department may require that one (1)
                        member of the

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                        Grievance Committee be a representative of the
                        Department;

                  (5)   Final decisions under the Managed Care Reform and
                        Patient Rights Act procedures and those of the Grievance
                        Committee may be appealed by the Beneficiary to the
                        Department under its Fair Hearings system;

                  (6)   A summary of all complaints heard by the Grievance
                        Committee and by independent external reviewers and the
                        responses and disposition of those matters must be
                        submitted to the Department quarterly;

                  (7)   A Beneficiary may appoint a guardian, caretaker
                        relative, Primary Care Provider, Women's Health Care
                        Provider, or other Physician treating the Beneficiary to
                        represent him throughout the complaint and appeal
                        process.

            (b)   The Contractor agrees to review its grievance procedures, at
                  reasonable intervals, for the purpose of amending same when
                  necessary. The Contractor shall amend the procedures only upon
                  receiving the prior written consent of the Department. The
                  Contractor further agrees to supply the Department and/or its
                  designee with the information and reports prescribed in its
                  approved procedure. This information shall be furnished to the
                  Department upon its request.

            (c)   The Contractor shall annually conduct a uniform Beneficiary
                  Satisfaction Survey. The Survey shall be administered in a
                  manner consistent with the Department's required procedures
                  and analyzed by the Contractor. The Department shall use
                  reasonable efforts to assure that its required procedures
                  comport with the accreditation requirements which the
                  Contractor must follow when seeking accreditation from NCQA,
                  JCAHO or other accrediting bodies; however, nothing in this
                  Contract shall require such accreditation. The Contractor
                  shall submit its findings and explain what actions it will
                  take on its findings as part of the comprehensive QA/UR/PR
                  Report.

      5.17  PROVIDER AGREEMENTS AND SUBCONTRACTS

            (a)   The Contractor may provide or arrange to provide any Covered
                  Services identified in Article V, Section 5.1 with Affiliated
                  Providers or fulfill any other obligations under this Contract
                  by means of subcontractual relationships.

                  (1)   All Provider agreements and/or subcontracts entered into
                        by the Contractor must be in writing and are subject to
                        the following conditions:

                        (A)   The Affiliated Providers and subcontractors shall
                              be bound by the terms and conditions of this
                              Contract that are appropriate to the service or
                              activity delegated under the subcontract. Such
                              requirements include, but are not limited to, the
                              record keeping and

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                              audit provisions of this Contract, such that the
                              Department or Authorized Persons shall have the
                              same rights to audit and inspect subcontractors as
                              they have to audit and inspect the Contractor.

                        (B)   The Contractor shall remain responsible for the
                              performance of any of its responsibilities
                              delegated to Affiliated Providers or
                              subcontractors.

                        (C)   No Provider agreement or subcontract can terminate
                              the legal responsibilities of the Contractor to
                              the Department to assure that all the activities
                              under this Contract will be carried out.

                        (D)   All Affiliated Providers providing Covered
                              Services for the Contractor under this Contract
                              must currently be enrolled as Providers in the
                              Medical Assistance Program. The Contractor shall
                              not contract or subcontract with an Ineligible
                              Person or a Person who has voluntarily withdrawn
                              from the Medical Assistance Program as the result
                              of a settlement agreement.

                        (E)   All Provider agreements and subcontracts must
                              comply with the Lobbying Certification contained
                              in Article IX, Section 9.22 of this Contract.

            (b)   With respect to all Provider agreements and subcontracts made
                  by the Contractor, the Contractor further warrants:

                  (1)   That such Provider agreements and subcontracts are
                        binding;

                  (2)   That it will promptly terminate contracts with Providers
                        who are terminated, barred, suspended, or have
                        voluntarily withdrawn as a result of a settlement
                        agreement in any program under federal law including any
                        program under Titles XVIII, XIX, XX or XXI of the Social
                        Security Act or are otherwise excluded from
                        participation in the Medical Assistance Program or
                        KidCare; and

                  (3)   That all laboratory testing Sites providing services
                        under this Contract must possess a valid Clinical
                        Laboratory Improvement Amendments ("CLIA") certificate
                        and comply with the CLIA regulations found at 42 C.F.R.
                        Part 493.

            (c)   The Contractor will submit to the Department copies of model
                  Provider agreements and/or subcontracts, initially and
                  revised, that relate to Covered Services, assignment of risk
                  and data reporting functions and any substantial deviations
                  from these model Provider agreements or subcontracts. The
                  Contractor

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                  shall provide copies of any other model Provider agreement or
                  subcontract or any actual Provider agreement or subcontract to
                  the Department upon request. The Department reserves the right
                  to require the Contractor to amend any Provider agreement or
                  subcontract as necessary to conform with the Contractor's
                  duties and obligations under this Contract.

                  The Contractor may designate in writing certain information
                  disclosed under this Article V, Section 5.17 as confidential
                  and proprietary. If the Contractor makes such a designation,
                  the Department shall consider said information exempt from
                  copying and inspection under Section 7(1)(b) or (g) of the
                  State Freedom of Information Act (5 ILCS 140/1 et seq.). If
                  the Department receives a request for said information under
                  the State Freedom of Information Act, however, it may require
                  the Contractor to submit justification for asserting the
                  exemption. Additionally, the Department may honor a criminal
                  subpoena or civil subpoena for such documents without such
                  being deemed a breach of this Contract or any subsequent
                  amendment hereto.

            (d)   Prior to entering into a Provider agreement or subcontract,
                  the Contractor shall submit a disclosure statement to the
                  Department specifying any Provider agreement or subcontract
                  and Providers or subcontractors in which any of the following
                  have a five percent (5%) or more financial interest:

                  (1)   any Person also having a five percent (5%) or more
                        financial interest in the Contractor or its affiliates
                        as defined by 42 C.F.R. 455.101;

                  (2)   any director, officer, trustee, partner or employee of
                        the Contractor or its affiliates; or

                  (3)   any member of the immediate family of any Person
                        designated in (1) or (2) above.

            (e)   Any contract or subcontract between the Contractor and a
                  Federally Qualified Health Center ("FQHC") or a Rural Health
                  Clinic ("RHC") shall be executed in accordance with
                  1902(a)(13)(C) and 1903(m)(2)(A)(ix) of the Social Security
                  Act, as amended by the Balanced Budget Act of 1997 and shall
                  provide payment that is not less than the level and amount of
                  payment which the Contractor would make for the Covered
                  Services if the services were furnished by a Provider which is
                  not an FQHC or a RHC.

      5.18  SITE REGISTRATION AND PRIMARY CARE PROVIDER/WOMEN'S HEALTH CARE
            PROVIDER APPROVAL AND CREDENTIALING

            (a)   The Contractor shall register with the Department each Site
                  prior to assigning Beneficiaries to that Site to receive
                  primary care. A fully executed Provider

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                  agreement must be in place between the Contractor and the Site
                  prior to registration of the Site. All FQHCs and RHCs must be
                  registered as unique sites. The Contractor must give advance
                  notice to the Department as soon as practicable of the
                  anticipated closing of a Site. If it is not possible to give
                  advance notice of a closing of a Site, the Contractor shall
                  notify the Department immediately when a Site is closed.

            (b)   The Contractor shall submit to the Department for approval the
                  name, license numbers, and other information requested in a
                  format designated by the Department of all proposed Primary
                  Care Providers and Women's Health Care Providers, as such new
                  Primary Care Providers and Women's Health Care Providers are
                  added to the Contractor's network through executed Provider
                  agreements. A Primary Care Provider or Women's Health Care
                  Provider may not be offered to Beneficiaries until the
                  Department has given its written approval of the Primary Care
                  Provider or Women's Health Care Provider.

            (c)   All Primary Care Providers and Women's Health Care Providers
                  must be credentialed by the Contractor. The credentialing
                  process may be two-tiered, and the Contractor may assign
                  Beneficiaries to the Primary Care Provider or Women's Health
                  Care Provider following preliminary credentialing. Full
                  credentialing must be completed within a reasonable time
                  following the assignment of Beneficiaries to the Primary Care
                  Provider or Women's Health Care Provider. The Contractor must
                  notify the Department when the credentialing process is
                  completed and the results of the process.

      5.19  ADVANCE DIRECTIVES

            The Contractor shall comply with all rules concerning the
            maintenance of written policies and procedures with respect to
            advance directives as promulgated by HCFA as set forth in 42 C.F.R.
            489, Subpart I and any amendments thereto. The Contractor shall
            provide adult Beneficiaries with oral and written information on
            advance directives policies, and include a description of applicable
            State law. Such information shall reflect changes in State law as
            soon as possible, but no later than ninety (90) days after the
            effective date of the change.

      5.20  FEES TO BENEFICIARIES PROHIBITED

            Neither the Contractor nor its Affiliated Providers shall seek or
            obtain funding through fees or charges to any Beneficiary receiving
            Covered Services pursuant to this Contract, except as permitted or
            required by the Department in 89 Ill. Adm. Code 125. The Contractor
            acknowledges that imposing charges in excess of those permitted
            under this Contract is a violation of Section 1128B(d) of the Social
            Security Act and subjects the Contractor to criminal penalties. The
            Contractor shall have language in all of its Provider subcontracts
            reflecting this requirement.

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      5.21  FRAUD AND ABUSE PROCEDURES

            (a)   The Contractor shall have an affirmative duty to timely report
                  suspected Fraud and/or Abuse in the Medical Assistance Program
                  or KidCare by the Beneficiaries or others, suspected criminal
                  acts by Providers or the Contractor's employees, or Fraud or
                  misconduct of Department employees to the Public Aid Office of
                  Inspector General. To this end, the Contractor shall establish
                  the following procedures, in writing:

                  (1)   the Contractor shall appoint a single individual to
                        serve as liaison to the Department regarding the
                        reporting of allegations of Fraud, Abuse, or misconduct;

                  (2)   the Contractor's procedure shall ensure that any of
                        Contractor's personnel or subcontractors who identify
                        suspected Fraud, Abuse, or misconduct shall make a
                        report to Contractor's liaison;

                  (3)   the Contractor's procedure shall ensure that the
                        Contractor's liaison shall provide notice of any
                        allegation to the OIG immediately upon receiving such
                        report. If no reports are received in a quarter, the
                        liaison shall certify, in writing, to the OIG that no
                        such reports were received. Reports shall be considered
                        timely if they are made as soon as the Contractor knew
                        or should have known of the suspected Fraud, Abuse, or
                        misconduct, or if no reports were filed, the
                        certification is received within thirty (30) days after
                        the end of the quarter; and

                  (4)   the Contractor shall ensure that all its personnel and
                        subcontractors receive notice of these procedures.

            (b)   The Contractor shall not conduct any investigation of the
                  suspected Fraud, Abuse, or misconduct of Department personnel,
                  but shall report all incidents immediately to the OIG.

                  The Contractor may conduct investigations of its personnel,
                  Providers, subcontractors, or Beneficiaries. If the
                  investigation discloses potential Fraud and Abuse, as defined
                  in this Contract, the Contractor must immediately notify the
                  OIG and, if so directed, cease its internal investigation.
                  Should the allegation or investigation disclose potential
                  criminal acts by the Contractor's personnel, Providers,
                  subcontractors, or Beneficiaries, the Contractor shall cease
                  its internal investigation and immediately notify the OIG.

            (c)   The Contractor shall cooperate with all investigations of
                  suspected Fraud, Abuse, or Department employee misconduct.

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      5.22  BENEFICIARY-PROVIDER COMMUNICATIONS

            Subject to this Article V, Section 5.1(g), and in accordance with
            the Managed Care Reform and Patient Rights Act, the Contractor shall
            not prohibit or otherwise restrict a Provider from advising a
            Beneficiary about the health status of the Beneficiary or medical
            care or treatment for the Beneficiary's condition or disease
            regardless of whether benefits for such care or treatment are
            provided under this Contract, if the Provider is acting within the
            lawful scope of practice, and shall not retaliate against a Provider
            for so advising a Beneficiary.

                                   ARTICLE VI

                            DUTIES OF THE DEPARTMENT

      6.1   ENROLLMENT

            Once the Department has determined that an individual is an Eligible
            Enrollee and after the Eligible Enrollee has selected the
            Contractor's Plan, such individual shall become a Prospective
            Beneficiary. A Prospective Beneficiary shall become a Beneficiary on
            the effective date of coverage. Coverage shall begin as designated
            by the Department no later than the first day of a calendar month no
            later than three (3) calendar months from the date the Enrollment is
            entered into the Department's database, after Site assignment, to
            ensure that Contractor's Plan is reflected on the Department-issued
            medical card. The Department shall transmit to the Contractor, prior
            to the first day of each month of coverage, a Prelisting Report.

      6.2   PAYMENT

            The Department shall pay the Contractor for the performance of the
            Contractor's duties and obligations hereunder. Such payment amounts
            shall be as set forth in Article VII of this Contract and Attachment
            I hereto. Unless specifically provided herein, no payment shall be
            made by the Department for extra charges, supplies or expenses,
            including, but not limited to, Marketing costs incurred by the
            Contractor.

      6.3   LIMITATION OF PAYMENT BY THE DEPARTMENT

            The payments made by the Department to the Contractor for services
            rendered pursuant to this Contract will not exceed the upper payment
            limits set forth in 42 C.F.R. 447.361, namely that "Medicaid
            payments to the Contractor, for a defined scope of services to be
            furnished to a defined number of recipients, may not exceed the cost
            to the agency of providing those same services on a fee-for-service
            basis to an actuarial equivalent nonenrolled population group." This
            payment limit has been utilized in determining the monthly
            Capitation rate specified in Attachment I.

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      6.4   DEPARTMENT REVIEW OF CONTRACTOR MATERIALS

            Review of all Marketing Materials required by this Contract to be
            submitted to the Department for prior approval shall be completed by
            the Department on a timely basis not to exceed thirty (30) days from
            the date of receipt by the Department. The date of receipt shall be
            as confirmed by the Department to the Contractor via facsimile. If
            the Department does not notify the Contractor of approval or
            disapproval of submitted materials within such thirty (30) days, the
            Contractor may begin to use such materials. However, the Department,
            at any time, reserves the right to disapprove any materials that did
            not receive the Department's express written approval. In the event
            the Department disapproved any materials, the Contractor immediately
            shall cease use and/or distribution of such materials.

      6.5   ELIGIBLE ENROLLEE EDUCATION PROGRAM

            If the Department implements the enrollment process described in
            Article IV, Section 4.1(b), the Department will develop and
            implement, either internally or through a contractor, a program to
            educate Eligible Enrollees about their choice of health care
            delivery systems and the advantages of each, as well as other health
            care issues. The program will be designed to reach Eligible
            Enrollees early in the process of applying for Medical Assistance
            and KidCare.

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                                  ARTICLE VII

                               PAYMENT AND FUNDING

      7.1   PAYMENT RATES

            (a)   The Department will pay the Contractor on a Capitation basis,
                  based on the eligibility classification, age and gender
                  categories of the Beneficiary as shown on the applicable
                  tables in Attachment I, a sum equal to the product of the
                  approved Capitation rate and the number of Beneficiaries
                  enrolled in that category as of the first day of that month.

            (b)   The Capitation for Beneficiaries residing in areas served by a
                  Certified Local Health Department with which the Contractor
                  has executed a subcontract, pursuant to Article V, Section
                  5.2(c), shall be adjusted by the amount of the Certified Local
                  Health Department add-on specified in Attachment I. Pursuant
                  to Article V, Section 5.2(c), this provision concerning
                  Certified Local Health Departments shall be implemented on a
                  date designated by the Department.

            (c)   Fee-for-service Equivalent

                  The maximum which the Contractor's rate may not exceed is
                  based on the fee-for-service experience of an equivalent
                  population for an equivalent scope of benefits.

                  (1)   Capitation

                        Specific geographic estimates of the maxima for the
                        eligibility classification, age and gender categories
                        are developed based on actual paid claims for a date of
                        service (DOS) period. In order to account for all claims
                        related to the DOS period, historical data are used and
                        inflated forward to the midpoint of the period for which
                        the fee-for-service equivalents are being calculated.
                        The total dollars expended for the DOS period are then
                        aggregated by eligibility classification, age and gender
                        category of the fee-for-service population eligible
                        during the DOS period. (The age cohorts utilized by the
                        Department are listed in Attachment I.)

                        The total dollar amount expended for the DOS period is
                        then divided by the total number of eligible recipient
                        months for the DOS period, resulting in a per member per
                        month fee-for-service equivalent amount, based on the
                        fee levels paid by the Department to Providers, and
                        anticipated levels of service utilization.

                  (2)   Upper Payment Limit

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                        This formula is the required calculation for the upper
                        payment limits for Capitation and other payments (the
                        fee-for-service equivalent). The sum of the Capitation
                        and other rates set forth in Attachment I do not exceed
                        those limits and are the rates agreed to by the parties
                        hereto.

            (d)   The financial impact of any new services added to the
                  Contractor's responsibilities will be actuarially evaluated by
                  the Department and, if material, this Contract shall be
                  amended accordingly.

      7.2   ADJUSTMENTS

            Monthly payments to the Contractor will be adjusted for retroactive
            disenrollments of Beneficiaries, retroactive Enrollments of
            newborns, changes to Beneficiary information that affect the monthly
            Capitation rate (i.e., region of residence, eligibility
            classification, age, gender), financial sanctions imposed in
            accordance with Article IX, Section 9.10, rate changes in accordance
            with amendments to Attachment I or third-party liability collections
            received by the Contractor, or other miscellaneous adjustments
            provided for herein.

      7.3   COPAYMENTS UNDER KIDCARE

            The Contractor may charge copayments to KidCare Participants in a
            manner consistent with 89 Ill. Adm. Code, Part 125. If the
            Contractor desires to charge such copayments, the Contractor must
            provide written notice to the Department before charging such
            copayments. Such written notice to the Department shall include a
            copy of the policy the Contractor intends to give the Providers in
            its network. This policy must set forth the amount, manner, and
            circumstances in which copayments may be charged. Such policy is
            subject to the prior written approval of the Department. In the
            event the Contractor wishes to impose a charge for copayments after
            enrollment of a KidCare Participant, it must first provide at least
            sixty (60) days prior written notice to such KidCare Participant.
            The Contractor shall be responsible for promptly refunding to a
            KidCare Participant any copayment that, in the sole discretion of
            the Department, has been inappropriately collected for Covered
            Services. The Contractor shall not charge copayments to any
            Beneficiary who is an American Indian or Alaska Native. The
            Department will prospectively identify Beneficiaries who are
            American Indians or Alaska Natives.

      7.4   AVAILABILITY OF FUNDS

            Payment of obligations of the Department under this Contract are
            subject to the availability of funds and the appropriation authority
            as provided by law. Obligations of the State will cease immediately
            without penalty of further payment being required if in any State
            fiscal year the Illinois General Assembly or federal funding source
            fails to appropriate or otherwise make available sufficient funds
            for this Contract within thirty (30) days of the end of the State's
            fiscal year.

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            (a)   If State funds become unavailable, as set forth herein, to
                  meet the Department's obligations under this Contract in whole
                  or in part, the Department will provide the Contractor with
                  written notice thereof prior to the unavailability of such
                  funds, or as soon thereafter as the Department can provide
                  written notice.

            (b)   In the event that funds become unavailable to fund this
                  Contract in whole, this Contract shall terminate in accordance
                  with Article VIII, Section 8.4(c) of this Contract. In the
                  event that funds become unavailable to fund this Contract in
                  part, it is agreed by both parties that this Contract may be
                  renegotiated (as to premium or scope of services) or amended
                  in accordance with Article IX, Section 9.9(c). Should the
                  Contractor be unable or unwilling to provide fewer Covered
                  Services at a reduced Capitation rate, or otherwise be
                  unwilling or unable to amend this Contract within ten (10)
                  business days after receipt of a proposed amendment, the
                  Contract shall be terminated on a date set by the Department
                  not to exceed thirty (30) days from the date of such notice.

      7.5   HOLD HARMLESS

            The Contractor shall indemnify and hold the Department harmless from
            any and all claims, complaints or causes of action which arise as a
            result of the Contractor's failure to pay either any Provider for
            rendering Covered Services to Beneficiaries or any vendor,
            subcontractor, or the Department's mail vendor, either on a timely
            basis or at all, regardless of the reason or for any dispute arising
            between the Contractor and a vendor, mail vendor, Provider, or
            subcontractor; provided, however, that this provision will not
            nullify the Department's obligation under Article V, Sections 5.1
            and 5.2 to cover services that are not Covered Services under this
            Contract, but that are eligible for payment by the Department.

            The Contractor warrants that Beneficiaries will not be liable for
            any of the Contractor's debts should the Contractor become insolvent
            or subject to insolvency proceedings as set forth in 215 ILCS
            125/1-1 et seq.

      7.6   PAYMENT IN FULL

            Acceptance of payment of the rates specified in this Article VII for
            any Beneficiary is payment in full for all Covered Services provided
            to that Beneficiary.

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                                  ARTICLE VIII

                          TERM RENEWAL AND TERMINATION

      8.1   TERM

            This Contract shall take effect on April 1, 2000 and shall continue
            for a period of one calendar year. This Contract shall renew
            automatically for two consecutive one-year terms, unless either
            party gives the other party written notice ninety (90) days prior to
            the end of the then-current term. Once either party receives notice
            of the other party's intent not to renew, such nonrenewal shall be
            irrevocable.

      8.2   CONTINUING DUTIES IN THE EVENT OF TERMINATION

            Upon termination of this Contract, the parties are obligated to
            perform those duties which remain under this Contract. Such duties
            include, but are not limited to, payment to Affiliated or
            non-Affiliated Providers, completion of customer satisfaction
            surveys, cooperation with medical records review, all reports for
            periods of operation, including Encounter Data, and retention of
            records. Termination of this Contract does not eliminate the
            Contractor's responsibility to the Department for overpayments which
            the Department determines in a subsequent audit may have been made
            to the Contractor, nor does it eliminate any responsibility the
            Department may have for underpayments to the Contractor. The
            Contractor warrants that if this Contract is terminated, the
            Contractor shall promptly supply all information in its possession
            or that may be reasonably obtained, which is necessary for the
            orderly transition of Beneficiaries and completion of all Contract
            responsibilities.

      8.3   TERMINATION WITH AND WITHOUT CAUSE

            (a)   This Contract may be terminated by the Department with cause
                  upon, at least, fifteen (15) days written notice to the
                  Contractor for any reason set forth in Section 1932(e)(4)(A)
                  of the Social Security Act. In the event such notice is given,
                  the Contractor may request in writing a hearing, in accordance
                  with Section 1932 of the Balanced Budget Act of 1997 by the
                  date specified in the notice. If such a request is made by the
                  date specified, then a hearing under procedures determined by
                  the Department will be provided prior to termination. The
                  Department reserves the right to notify Beneficiaries of the
                  hearing and its purpose, to inform them that they may
                  disenroll, and to suspend further Enrollment with the
                  Contractor during the pendency of the hearing and any related
                  proceedings.

            (b)   This Contract may be terminated by the Department or the
                  Contractor without cause upon ninety (90) days written notice
                  to the other party. Any such date of termination established
                  by the Contractor shall coincide with the last day of a

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                  coverage month.

      8.4   AUTOMATIC TERMINATION

            This Contract may, in the sole discretion of the Department,
            automatically terminate on a date set by the Department for any of
            the following reasons:

            (a)   refusal by the Contractor to sign an amendment to this
                  Contract as described in Article IX, Section 9.9(c); or

            (b)   legislation or regulations are enacted or a court of competent
                  jurisdiction interprets a law so as to prohibit the
                  continuance of this Contract or the Medical Assistance
                  Program; however, this provision shall not apply should
                  KidCare be terminated; or

            (c)   funds become unavailable as set forth in Article VII, Section
                  7.4(b); or

            (d)   the Contractor fails to maintain a Certificate of Authority,
                  as required by Article II, Section 2.6.

      8.5   REIMBURSEMENT IN THE EVENT OF TERMINATION

            In the event of termination of this Contract, reimbursement for any
            and all claims for Covered Services rendered to Beneficiaries prior
            to the effective termination date shall be the Contractor's
            responsibility.

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                                   ARTICLE IX

                                  GENERAL TERMS

      9.1   RECORDS RETENTION, AUDITS, AND REVIEWS

            The Contractor shall maintain all business, professional and other
            records in accordance with 45 C.F.R. Part 74 and the specific terms
            and conditions of this Contract and pursuant to generally accepted
            accounting and medical practice. The Contractor shall maintain, for
            a minimum of five (5) years after completion of the Contract and
            after final payment is made under the Contract, adequate books,
            records, and supporting documents to verify the amounts, recipients,
            and uses of all disbursements of funds passing in conjunction with
            the Contract. If an audit, litigation or other action involving the
            records is started before the end of the five (5) year period, the
            records must be retained until all issues arising out of the action
            are resolved.

            The Contract and all books, records, and supporting documents
            related to the Contract shall be made available, at no charge, in
            Illinois, by the Contractor for review and audit by the Department,
            the Auditor General or other Authorized Persons. The Contractor
            agrees to cooperate fully with any audit conducted by the
            Department, the Auditor General or other Authorized Persons and to
            provide full access in Illinois to all relevant materials.

            Failure to maintain the books, records, and supporting documents
            required by this Section shall establish a presumption in favor of
            the State for the recovery of any funds paid by the State under the
            Contract for which adequate books, records, and supporting
            documentation are not available, in Illinois, to support their
            purported disbursement.

            The Contractor shall provide any information necessary to disclose
            the nature and extent of all expenditures made under this Contract.
            Such information must be sufficient to fully disclose all
            compensation of Marketing personnel pursuant to Article V, Section
            5.3(g). The Department, the Auditor General or other Authorized
            Persons may inspect and audit any financial records of the
            Contractor or its subcontractors relating to the Contractor's
            capacity to bear the risk of financial losses.

            The Department, the Auditor General or other Authorized Persons may
            also evaluate, through inspection or other means, the quality,
            appropriateness, and timeliness of services performed under this
            Contract.

            The Department shall perform quality assurance reviews to determine
            whether the Contractor is providing quality and accessible health
            care to Beneficiaries under this Contract. The reviews may include,
            but are not limited to, a sample review of medical records of
            Beneficiaries, Beneficiary surveys and examination by consultants.
            The specific points of quality assurance which will be reviewed
            include, but are not limited to:

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                  (1)   legibility of records
                  (2)   completeness of records
                  (3)   peer review and quality control
                  (4)   utilization review
                  (5)   availability, timeliness, and accessibility of care
                  (6)   continuity of care
                  (7)   utilization reporting
                  (8)   use of services
                  (9)   quality and outcomes of medical care

            The Department shall provide for an annual (as appropriate) external
            independent review of the above that is conducted by a qualified
            independent entity.

            The Department shall adjust future payments or final payments if the
            findings of a Department audit indicate underpayments or
            overpayments to the Contractor. If no payments are due and owing to
            the Contractor, the Contractor shall immediately refund all amounts
            which may be due the Department.

      9.2   NONDISCRIMINATION

            (a)   The Contractor shall abide by all Federal and state laws,
                  regulations, and orders that prohibit discrimination because
                  of race, color, religion, sex, national origin, ancestry, age,
                  physical or mental disability, including, but not limited to,
                  the Federal Civil Rights Act of 1964, the Americans with
                  Disabilities Act or 1990, the Federal Rehabilitation Act of
                  1973, the Illinois Human Rights Act, and Executive Orders
                  11246 and 11375. The Contractor further agrees to take
                  affirmative action to ensure that no unlawful discrimination
                  is committed in any manner including, but not limited to, the
                  delivery of services under this Contract.

            (b)   The Contractor will not discriminate against Eligible
                  Enrollees, Prospective Beneficiaries, or Beneficiaries on the
                  basis of health status or need for health services.

      9.3   CONFIDENTIALITY OF INFORMATION

            All information, records, data and data elements collected and
            maintained for the operation of the Plan and pertaining to
            Providers, Beneficiaries, applicants for public assistance,
            facilities, and associations shall be protected by the Contractor
            and the Department from unauthorized disclosure, pursuant to 305
            ILCS 5/11.9, 5/11.10, and 5/11.12; 42 U.S.C. 654(2)(b); 42 C.F.R.
            Part 431, Subpart F; and 45 C.F.R. Part 303.21.

      9.4   NOTICES

            Notices required or desired to be given either party under this
            Contract, unless

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            specifically required to be given by a specific method, may be given
            by any of the following methods: 1) United States mail, certified,
            return receipt requested; 2) a recognized overnight delivery
            service; or 3) via facsimile. Notices shall be deemed given on the
            date sent and shall be addressed as follows:

                  Contractor:   AMERICAID Illinois, Inc.
                                d/b/a Americaid Community Care
                                211 W. Wacker Drive, Suite #1350
                                Chicago, IL  60606
                                Attn: Dwight Jones, MD, President and CEO

                  Department:   Illinois Department of Public Aid
                                Bureau of Managed Care
                                201 South Grand Avenue East
                                Springfield, Illinois  62763-0001
                                Facsimile: (217) 524-7535

      9.5   REQUIRED DISCLOSURES

            (a)   Conflict of Interest

                  (1)   The Contractor, by signing this Contract, covenants that
                        the Contractor is not prohibited from contracting with
                        State on any of the bases provided in 30 ILCS 500/50-13.
                        The Contractor further covenants that it neither has nor
                        shall acquire any interest, public or private, direct or
                        indirect, which conflicts in any manner with the
                        performance of Contractor's services and obligations
                        under this Contract. The Contractor further covenants
                        that it shall not employ any person having such an
                        interest in connection with the Contractors performance
                        hereunder. The Contractor shall be under a continuing
                        obligation to disclose any conflicts to the Department,
                        which shall, in its good faith discretion, determine
                        whether any conflict is cause for the nonexecution or
                        termination of this Contract and any amendments hereto.

                  (2)   The Contractor will provide information intended to
                        identify any potential conflicts of interest regarding
                        its ability to perform the duties of this Contract
                        through the filing of a disclosure statement upon the
                        execution of this Contract, annually on or before the
                        anniversary date of this Contract, and within
                        thirty-five (35) days of any change occurring or of any
                        request by the Department. The disclosure statement
                        shall contain the following information:

                        (A)   The identities of any Persons that directly or
                              indirectly provide

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                              service or supplies to the Medical Assistance
                              Program or KidCare with which the Contractor has
                              any type of business or financial relationship;
                              and

                        (B)   A statement describing how the Contractor will
                              avoid any potential conflict of interest with
                              such Persons related to its duties under this
                              Contract.

            (b)   Disclosure of Interest

                  The Contractor shall comply with the disclosure requirements
                  specified in 42 C.F.R. Part 455, including, but not limited
                  to, filing with the Department upon the execution of this
                  Contract and within thirty-five (35) days of a change
                  occurring, a disclosure statement containing the following:

                  (1)   The name, FEIN and address of each Person With An
                        Ownership Or Controlling Interest in the Contractor, and
                        for individuals include home address, work address, date
                        of birth, Social Security number and gender.

                  (2)   Whether any of the individuals so identified are related
                        to another so identified as the individual's spouse,
                        child, brother, sister or parent.

                  (3)   The name of any Person With an Ownership or Controlling
                        Interest in the Contractor who also is a Person With an
                        Ownership or Controlling Interest in another managed
                        care organization that has a contract with the
                        Department to furnish services under the Medical
                        Assistance Program or KidCare, and the name or names of
                        the other managed care organization.

                  (4)   The name and address of any Person With an Ownership or
                        Controlling Interest in the Contractor or who is an
                        agent or employee of the Contractor who has been
                        convicted of a criminal offense related to that Person
                        With an Ownership or Controlling Interest's involvement
                        in any program under Federal law including any program
                        under Titles XVIII, XIX, XX or XXI of the Social
                        Security Act, since the inception of such programs.

                  (5)   Whether any Person identified in subsections (1) through
                        (4) of this section, is currently terminated, suspended,
                        barred or otherwise excluded from participation, or has
                        voluntarily withdrawn as the result of a settlement
                        agreement, in any program under Federal law including
                        any program under Titles XVIII, XIX, XX or XXI of the
                        Social Security Act or has within the last five (5)
                        years been reinstated to participation in any program
                        under Federal law including any program under Titles
                        XVIII, XIX, XX or XXI of the Social Security Act and
                        prior to said reinstatement had been terminated,
                        suspended, barred or otherwise

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                        excluded from participation or has voluntarily withdrawn
                        as the result to a settlement agreement in such
                        programs.

                  (6)   Whether the Medical Director of the Plan is a Person
                        With an Ownership or Controlling Interest.

      9.6   HCFA PRIOR APPROVAL

            The parties acknowledge that the terms of this Contract and any
            amendments must receive the prior approval of HCFA, and that failure
            of HCFA to approve any provision of this Contract will render that
            provision null and void. The parties understand and agree that the
            Department's duties and obligations under this Contract are
            contingent upon such approval.

      9.7   ASSIGNMENT

            This Contract, including the rights, benefits and duties hereunder,
            shall not be assignable by either party without the prior written
            consent of the other party.

      9.8   SIMILAR SERVICES

            Nothing in this Contract shall prevent the Contractor from
            performing similar services for other parties. However, the
            Contractor warrants that at no time will the compensation paid by
            the Department for services rendered under this Contract exceed the
            rate the Contractor charges for the rendering of a similar benefit
            package of services to others in the Contracting Area. The
            Contractor also warrants that the services it provides to its
            Beneficiaries will be as accessible to them (in terms of timeliness,
            amount, duration and scope) as those services are to nonenrolled
            Participants within the Contracting Area.

      9.9   AMENDMENTS

            (a)   This Contract may be modified or amended by the mutual consent
                  of both parties at any time during its term. Amendments to
                  this Contract must be in writing and signed by authorized
                  representatives of both parties.

            (b)   No change in, addition to or waiver of any term or condition
                  of this Contract shall be binding on the Department or the
                  Contractor unless approved in writing by authorized
                  representatives of both parties.

            (c)   The Contractor shall, upon request by the Department and upon
                  receipt of a proposed amendment to this Contract, amend this
                  Contract, if and when required in the opinion of the
                  Department, to comply with federal or State laws or
                  regulations. If the Contractor refuses to sign such amendment
                  by the date specified by the Department, which may not be less
                  than ten (10) business days

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                  after receipt, this Contract may terminate as provided in
                  Article VIII, Section 8.4(a).

      9.10  SANCTIONS

            In addition to termination for cause pursuant to Article VIII,
            Section 8.3(a), the Department may impose sanctions on the
            Contractor for the Contractor's failure to substantially comply with
            the terms of this Contract. Monetary sanctions imposed pursuant to
            this section may be collected by deducting the amount of the
            sanction from any payments due to the Contractor or by demanding
            immediate payment by the Contractor. The Department, at its sole
            discretion, may establish an installment payment plan for payment of
            any sanction. The determination of the amount of any sanction shall
            be at the sole discretion of the Department, within the ranges set
            forth below. Self-reporting by the Contractor will be taken into
            consideration in determining the sanction amount.

            The Department shall not impose any sanction where the noncompliance
            is directly caused by the Department's action or failure to act or
            where an act of God delays performance by the Contractor. The
            Department, in its sole discretion, may waive the imposition of
            sanctions for failures that it judges to be minor or insignificant.

            Upon determination of substantial noncompliance, the Department
            shall give written notice to the Contractor describing the
            noncompliance, the opportunity to cure the noncompliance where a
            cure is allowed under this Contract and the sanction which the
            Department will impose hereunder.

            (a)   Failure to Report or Submit

                  If the Contractor fails to submit any report or other material
                  required by the Contract to be submitted to the Department,
                  other than Encounter Data, by the date due, the Department
                  will give notice to the Contractor of the late report or
                  material and the Contractor must submit it within thirty (30)
                  days following the notice. If the report or other material has
                  not been submitted within thirty (30) days following the
                  notice, the Department will give the Contractor notice of its
                  continued failure to submit and the Contractor must submit the
                  report or other material within thirty (30) days following the
                  second notice. If the Contractor has not submitted the report
                  or other material within (30) days following the second
                  notice, the Department, without further notice, shall impose a
                  sanction of $1,000.00 to $5,000.00 for the late report.

            (b)   Failure to Submit Encounter Data

                  If the Department determines that the Contractor has not
                  been making good faith efforts for a period of at least
                  thirty (30) days to work with Department in making
                  progress toward compliance with the requirement of
                  Article V, Section 5.11(b)(1)

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                  regarding Encounter Data, the Department will send the
                  Contractor a notice of non-compliance. If the Contractor does
                  not show good faith efforts to comply with these requirements
                  by the end of the thirty day period following the notice, the
                  Department, without further notice, may impose a sanction of
                  $1,000.00 to $5,000.00. At the end of each subsequent period
                  of thirty (30) days in which no good faith efforts are made
                  toward compliance, the Department may, without further
                  notice, impose a further sanction of $1,000.00 to $5,000.00.

            (c)   Failure to Meet Minimum Standards of Care

                  If the Department determines that the Contractor has not
                  been making good faith efforts to meet any of the
                  minimum standards of care set forth in Article V,
                  Section 5.13, the Department will send the Contractor a
                  notice of noncompliance. If the Contractor does not show
                  good faith efforts to establish an acceptable plan to
                  meet the minimum standard of care referenced in the
                  notice by the end of the thirty day period following the
                  notice, the Department will send another notice of
                  noncompliance. If the Contractor does not show good
                  faith efforts to comply with these requirements by the
                  end of the thirty (30) day period following the second
                  notice the Department may, without further notice,
                  impose a sanction of $1,000.00 to $5,000.00. At the end
                  of each subsequent period of thirty (30) days in which
                  no good faith efforts are made toward compliance, the
                  Department may, without further notice, impose a further
                  sanction of $1,000.00 to $5,000.00.

            (d)   Imposition of Prohibited Charges

                  If the Department determines that the Contractor has
                  imposed a charge on a Beneficiary that is prohibited by
                  this Contract, the Department may impose a sanction of
                  $1,000.00 to $5,000.00.

            (e)   Misrepresentation or Falsification of Information

                  If the Department determines that the Contractor has
                  misrepresented or falsified information furnished to an
                  Eligible Enrollee, Prospective Beneficiary, Beneficiary,
                  Provider, the Department or HCFA, the Department may
                  impose a sanction of $1,000.00 to $5,000.00.

            (f)   Failure to Comply with the Physician Incentive Plan
                  Requirements

                  If the Department determines that the Contractor has
                  failed to comply with the Physician Incentive Plan
                  requirements of Article V, Section 5.7, the Department
                  may impose a sanction of $1,000.00 to $5,000.00.

            (g)   Failure to Meet Access Standards

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                  If the Department determines that the Contractor has not
                  met the Provider to Beneficiary access standards
                  established in Article V, Section 5.13(e) the Department
                  will send the Contractor a notice of noncompliance. If
                  the Contractor does not show good faith efforts to
                  comply with these requirements by the end of the thirty
                  day period following the notice the Department may
                  impose a sanction of $1,000.00 to $5,000.00, the
                  Department may, without further notice, suspend
                  Enrollment of Eligible Enrollees with the Contractor or
                  the Department may impose both sanctions.

            (h)   Failure to Provide Covered Services

                  If the Department determines that the Contractor has
                  failed to provide, or arrange to provide, a medically
                  necessary service that the Contractor is required to
                  provide under law or this Contract, the Department may
                  impose a sanction of $5,000.00 to $25,000.00.

            (i)   Discrimination Related to Pre-Existing Conditions

                  If the Department determines that discrimination related
                  to pre-existing conditions has occurred, the Department
                  may impose a sanction of $5,000.00 to $25,000.00, the
                  Department may suspend Enrollment of Eligible Enrollees
                  with the Contractor or the Department may impose both
                  sanctions.

            (j)   Pattern of Marketing Failures

                  Where the Department determines a pattern of Marketing
                  failures, the Department may impose a sanction of
                  $5,000.00 to $25,000.00, the Department may suspend
                  Enrollment of Eligible Enrollees with the Contractor or
                  the Department may impose both sanctions.

            (k)   Other Failures

                  If the Department determines that the Contractor is in
                  substantial noncompliance with any material terms of
                  this Contract not specifically enunciated herein and
                  which the Department reasonably deems sanctionable, the
                  Department shall provide written notice to the
                  Contractor setting forth the specific failure or
                  noncompliant activity. If the Contractor does not
                  correct the noncompliance within thirty (30) days of the
                  notice the Department, without further notice, may
                  impose a sanction of $1,000.00 to $5,000.00.

      9.11  SALE OR TRANSFER

            The Contractor shall provide the Department with the earliest
            possible actual notice of any sale or transfer of the Contractor's
            business as it relates to this Contract. If the

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            Contractor is otherwise subject to SEC rules and regulations,
            actual notice shall be given to the Department as soon as those SEC
            rules and regulations permit. The Department agrees that any such
            notice shall be held in the strictest confidence until such sale or
            transfer is publicly announced or consummated. The Department shall
            have the right to terminate the Contract and any amendments
            thereto, without cause, upon notification of such sale or transfer,
            in accordance with Article VIII, Section 8.3(b).

      9.12  COORDINATION OF BENEFITS FOR BENEFICIARIES

            (a)   The Department is responsible for the identification of
                  Beneficiaries with health insurance coverage provided by a
                  third party and ascertaining whether third parties are liable
                  for medical services provided to such Beneficiaries.  Money
                  which the Department receives as a result of these collection
                  activities shall belong to the Department to the extent the
                  Department has incurred any expense or paid any claim and
                  thereafter any excess receipts shall belong to the
                  Contractor, to the extent the Contractor has incurred any
                  expense or paid any claim, to the extent permitted by law.

            (b)   The Contractor will conduct a data match for the Department
                  to identify Illinois Medical Assistance Program and KidCare
                  Participants with active private health insurance through the
                  Contractor.  The Department will assume the reasonable and
                  customary costs of these semi-annual matches. The discovery
                  of a third party liability match will prevent the Department
                  from paying premiums for recipients already covered by the
                  Contractor.  The Contractor will further make available to
                  the Department a contact person from whom the Department can
                  request to make third party liability inquiries for the
                  purpose of maintaining accurate eligibility information for
                  these recipients.

            (c)   Upon the Department's verification that a Beneficiary has
                  third party coverage for major medical benefits, the
                  Department shall disenroll  such Beneficiary from the
                  Contractor's Plan.  Such disenrollment shall be effective the
                  first day of the calendar month no later than three (3)
                  months from the date the disenrollment is entered into the
                  Department's computer system.  The monthly Capitation
                  payments shall be adjusted accordingly on the first day of
                  the month the disenrollment is effective.  The Contractor
                  shall be notified of the disenrollment on the Prelisting
                  Report.

            (d)   The Contractor shall report with the reported Encounter Data
                  any and all third party liability collections it receives so
                  the Department can offset the next month's Capitation payment
                  accordingly.

            (e)   The Contractor shall report to the Department any health
                  insurance coverage for Beneficiaries it discovers at any
                  time.

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      9.13  AGREEMENT TO OBEY ALL LAWS

            The Contractor's obligations and services hereunder are hereby made
            and must be performed in compliance with all applicable federal and
            State laws, including, but not limited to, applicable provisions of
            45 C.F.R. Part 74 not hereto specified.

      9.14  SEVERABILITY

            Invalidity of any provision, term or condition of this Contract for
            any reason shall not render any other provision, term or condition
            of this Contract invalid or unenforceable.

      9.15  CONTRACTOR'S DISPUTES WITH OTHER PROVIDERS

            All disputes between the Contractor and any Affiliated or
            non-Affiliated Provider, or between the Contractor and any other
            subcontractor, shall be solely between such Provider or
            subcontractor and the Contractor.

      9.16  CHOICE OF LAW

            This Contract shall be governed and construed in accordance with the
            laws of the State of Illinois. Should any provision of this Contract
            require judicial interpretation, the parties agree and stipulate
            that the court interpreting or considering this Contract shall not
            apply any presumption that the terms of this Contract shall be more
            strictly construed against a party who itself or through its agents
            prepared this Contract. The parties acknowledge that all parties
            hereto have participated in the preparation of this Contract either
            through drafting or negotiation and that each party has had full
            opportunity to consult legal counsel of choice before execution of
            this Contract. Any claim against the Department arising out of this
            Contract must be filed exclusively with the Illinois Court of Claims
            (as defined in 705 ILCS 505/1) of, if jurisdiction is not accepted
            by that court, with the appropriate State or federal court located
            in Sangamon County, Illinois. The State does not waive sovereign
            immunity by entering into this Contract.

      9.17  DEBARMENT CERTIFICATION

            The Contractor certifies that it is not barred from being awarded a
            contract or subcontract under Section 50-5 of the Illinois
            Procurement Code (30 ILCS 500/1-1). The Contractor certifies that it
            has not been barred from contracting with a unit of State or local
            government as a result of a violation of 720 ILCS 5/33-E3 or
            5/33-E4.

      9.18  CHILD SUPPORT, STATE INCOME TAX AND STUDENT LOAN REQUIREMENTS

            The Contractor certifies that its officers, directors and partners
            are not in default on an educational loan as provided in 5 ILCS
            385/0.01 et seq., and is in compliance with State income tax
            requirements and with child support payments imposed upon it
            pursuant to a

                                       82
<PAGE>   83

            court or administrative order of this or any state. The Contractor
            will not be considered out of compliance with this requirement if
            (a) the Contractor provides proof of payment of past due amounts in
            full or (b) the alleged obligation of past due amounts is being
            contested through appropriate court or administrative agency
            proceedings and the Contractor provides proof of the pendency of
            such proceedings or (c) the Contractor provides proof of entry into
            payment arrangements acceptable to the appropriate State agency are
            entered into. For purposes of this paragraph, a partnership shall
            be considered barred if any partner is in default.

      9.19  PAYMENT OF DUES AND FEES

            The Contractor certifies that it is not prohibited from selling
            goods or services to the State because it pays dues or fees on
            behalf of its employees or agents or subsidizes or otherwise
            reimburses them for payment of dues or fees to any club which
            unlawfully discriminates (See 775 ILCS 25/1--25/3).

      9.20  FEDERAL TAXPAYER IDENTIFICATION

            Under penalties of perjury, the Contractor certifies that it has
            affixed its correct Federal Taxpayer Identification Number on the
            signature page of this Contract. The Contractor certifies that it
            is not: 1) a foreign corporation, partnership, limited liability
            company, estate, or trust; or 2) a nonresident alien individual
            except for those corporations registered in Illinois as a foreign
            corporation.

      9.21  DRUG FREE WORKPLACE

            The Contractor certifies that it is in compliance with the
            requirements of 30 ILCS 580/1 et seq., and has completed Attachment
            III to this Contract.

      9.22  LOBBYING

            The Contractor certifies to the best of his knowledge and belief,
            that:

            (a)   No federal appropriated funds have been paid or will be paid
                  by or on behalf of the Contractor, to any Person for
                  influencing or attempting to influence an officer or employee
                  of any agency, a Member of Congress, an officer or employee of
                  Congress, or an employee of a Member of Congress in connection
                  with the awarding of any federal contract, the making of any
                  federal loan or grant, the entering into of any cooperative
                  agreement, or the extension, continuation , renewal,
                  amendment, or modification of any federal contract, grant,
                  loan, or cooperative agreement.

            (b)   If any funds other than federal appropriated funds have been
                  paid or will be paid to any Person for influencing or
                  attempting to influence an officer or employee of

                                       83
<PAGE>   84

                 any agency, a Member of Congress, an officer or employee of
                 Congress, or an employee of a Member of Congress in connection
                 with this federal contract, grant, loan, or cooperative
                 agreement, the Contractor shall complete and submit a Federal
                 Standard Form LLL, "Disclosure Form to Report Lobbying," in
                 accordance with its instructions.  Such Disclosure Form may be
                 obtained by request from the Illinois Department of Public
                 Aid, Bureau of Fiscal Operations.

            (c)  The Contractor shall require that the language of this
                 certification be included in all subcontracts and shall
                 ensure that such subcontracts disclose accordingly.

            This certification is a material representation of fact upon which
            reliance was placed when this transaction was made or entered into.
            Submission of this certification is a prerequisite for making or
            entering into the transaction imposed by 31 U.S.C. Section 1352. Any
            person who fails to file the required certification shall be subject
            to a civil penalty of not less than ten thousand dollars
            ($10,000.00) and not more than one hundred thousand dollars
            ($100,000.00) for each such failure.

      9.23  EARLY RETIREMENT

            If the Contractor is an individual, the Contractor certifies it has
            informed the director of the Department in writing if it was
            formerly employed by that agency and has received an early
            retirement incentive under Section 14-108.3 or Section 16-133.3 of
            the Illinois Pension Code (40 ILCS 5/13 et seq.). Contractor
            acknowledges and agrees that if such early retirement incentive was
            received, this Contract is not valid unless the official executing
            the Contract has made the appropriate filing with the Auditor
            General prior to execution.

      9.24  SEXUAL HARASSMENT

            The Contractor shall have written sexual harassment policies that
            shall comply with the requirements of 75 ILCS 5/2-105.

      9.25  INDEPENDENT CONTRACTOR

            The Contractor is an independent contractor for all purposes under
            this Contract. The Contractor is not a Provider as defined by the
            Public Aid Code and the Administrative Rules. Employees of the
            Contractor are not employees of the State of Illinois, and are,
            therefore, not entitled to any benefits provided employees of the
            State under the Personnel Code and regulations or other laws of the
            State of Illinois. The Contractor shall be responsible for
            accounting for the reporting of State and Federal Income Tax and
            Social Security Taxes, if applicable.

      9.26  SOLICITATION OF EMPLOYEES

                                       84
<PAGE>   85

            The Contractor and the Department agree that they shall not, during
            the term of this Contract and for a period of one (1) year after its
            termination, solicit for employment or employ, whether as employee
            or independent contractor, any person who is or has been employed by
            the other during the term of this Contract, in a managerial or
            policy-making role relating to the duties and obligations under this
            Contract, without written notice to the other. However, should an
            employee of the Contractor, without the prior knowledge of the
            management of the Department, take and pass all required employment
            examinations and meet all relevant employment qualifications, the
            Department may employ that individual and no breach of this Contract
            shall be deemed to have occurred. The Contractor shall immediately
            notify the Department's Ethics Officer in writing if the Contractor
            solicits or intends to solicit for employment any of the
            Department's employees during the term of this Contract. The
            Department will be responsible for keeping the Contractor informed
            as to the name and address of the Ethics Officer.

      9.27  NONSOLICITATION

            The Contractor warrants that it has not employed or retained any
            company or person, other than a bona fide employee working solely
            for the Contractor, to solicit or secure this Contract, and that he
            has not paid or agreed to pay any company or person, other than a
            bona fide employee working solely for the Contractor, any fee,
            commission, percentage, brokerage fee, gifts or any other
            consideration contingent upon or resulting from the award or making
            of this Contract. For breach or violation of this warranty, the
            Department shall have the right to annul this Contract without
            liability, or in its discretion, to deduct from compensation
            otherwise due the Contractor the commission, percentage, brokerage
            fee, gift or contingent fee.

      9.28  OWNERSHIP OF WORK PRODUCT

            Any documents prepared by the Contractor solely for the Department
            upon the Department's request or as required under this Contract,
            shall be the property of the Department, except that the Contractor
            is hereby granted permission to use, without payment, all such
            materials as it may desire. Standard documents and reports, claims
            processing data and Beneficiary files and information prepared or
            maintained by the Contractor in order to perform under this Contract
            are and shall remain the property of the Contractor, subject to
            applicable confidentiality statutes; however, the Department shall
            be entitled to copies of all such documents, reports or claims
            processing information which relate to Beneficiaries or services
            performed hereunder. In the event of any termination of the
            Contract, the Contractor shall cooperate with the Department in
            supplying any required data in order to ensure a smooth termination
            and provide for continuity of care of all Beneficiaries enrolled
            with the Contractor. Notwithstanding anything to the contrary
            contained in this Contract, all computer programs, electronic data
            bases, electronic data processing documentation and source materials
            collected, developed, purchased or used by the Contractor in order
            to perform its duties under this Contract, shall be and remain the
            sole property of the Contractor.

                                       85
<PAGE>   86

      9.29  BRIBERY CERTIFICATION

            By signing this Contract, the Contractor certifies that neither it
            nor any of its officers, directors, partners, or subcontractors have
            been convicted of bribery or attempting to bribe an officer or
            employee of the State of Illinois, nor has the Contractor, its
            officers, directors, or partners made an admission of guilt of such
            conduct which is a matter of record, nor has an official, agent, or
            employee of the Contractor committed bribery or attempted bribery on
            behalf of the Contractor, its officers, directors, partners or
            subcontractors and pursuant to the direction or authorization of any
            responsible official of the Contractor. The Contractor further
            certifies that it will not subcontract with any subcontractors who
            have been convicted of bribery or attempted bribery.

      9.30  NONPARTICIPATION IN INTERNATIONAL BOYCOTT

            The Contractor certifies that neither it nor any
            substantially owned Affiliated company is participating or
            shall participate in an international boycott in violation
            of the provisions of the U.S. Export Administration Act of
            1979 or the regulations of the U.S. Department of Commerce
            promulgated under that Act.

      9.31  COMPUTATIONAL ERROR

            The Department reserves the right to correct any mathematical or
            computational error in payment subtotals or total contractual
            obligation. The Department will notify the Contractor of any such
            corrections.

      9.32  SURVIVAL OF OBLIGATIONS

            The Contractor's and the Department's obligations under this
            Contract that by their nature are intended to continue beyond the
            termination or expiration of this Contract will survive the
            termination or expiration of this Contract.

      9.33  CLEAN AIR ACT AND CLEAN WATER ACT CERTIFICATION

            The Contractor certifies that it is in compliance with all
            applicable standards, orders or regulations issued pursuant to the
            Clean Air Act (42 U.S.C. 7401 et seq.) and the Federal Water
            Pollution Control Act, as amended (33 U.S.C. 1251 et seq.). The
            Department shall report violations to the United States Department
            of Health and Human Services and the appropriate Regional Office of
            the United States Environmental Protection Agency.

      9.34  NON-WAIVER

            Failure of either party to insist on performance of any term or
            condition of this Contract or to exercise any right or privilege
            hereunder shall not be construed as a continuing or

                                       86
<PAGE>   87

            future waiver of such term, condition, right, or privilege.

      9.35  NOTICE OF CHANGE IN CIRCUMSTANCES

            In the event the Contractor, its parent or related corporate entity
            becomes a party to any litigation, investigation, or transaction
            that may reasonably be considered to have a material impact on the
            Contractor's ability to perform under this Contract, the Contractor
            will immediately notify the Department in writing.

      9.36  PUBLIC RELEASE OF INFORMATION

            News releases directly pertaining to this Contract or the services
            or project to which it relates shall not be made without prior
            approval by, and in coordination with, the Department, subject
            however, to any disclosure obligations of the Contractor under
            applicable law, rule or regulation.

            The parties will cooperate in connection with media inquiries and in
            regard to media campaigns or media initiatives involving this
            project.

            The Contractor shall not disseminate any publication, presentation,
            technical paper or other information related to the Contractor's
            duties and obligations under this Contract unless such dissemination
            has been approved in writing by the Department.

      9.37  PAYMENT IN ABSENCE OF FEDERAL FINANCIAL PARTICIPATION

            In addition to any assessment of sanctions, pursuit of actual
            damages, or termination or nonextension of this Contract, if any
            failure of the Contractor to meet the requirements, including time
            frames, of this Contract results in the deferring or disallowance of
            federal funds from the State, the Department will withhold and
            retain an equivalent amount from payment(s) to the Contractor until
            such federal funds are released to the State (at which time the
            Department will release to the Contractor such funds as the
            Department was retaining as a result thereof).

      9.38  EMPLOYMENT REPORTING

            The Contractor certifies that it shall comply with the requirements
            of 820 ILCS 405/1801.1, concerning newly hired employees.

      9.39  CERTIFICATION OF PARTICIPATION

            (a)  The Contractor certifies that neither it, nor any employees,
                 partners, officers or shareholders owning at least five
                 percent (5%) of said Contractor is currently barred, suspended
                 or terminated from participation in the Medicaid or Medicare
                 programs, nor are any of the above persons currently under
                 sanction for, or serving a sentence for conviction of any
                 Medicaid or Medicare program offenses.

                                       87
<PAGE>   88

            (b)  If Contractor, any employee, partner, officer or shareholder
                 owning at least five percent (5%) was ever (but is not
                 currently) barred, suspended or terminated from participation
                 in the Medicaid or Medicare programs or was ever sanctioned
                 for or convicted of any Medicaid or Medicare program offenses,
                 the Contractor must immediately report to the Department in
                 writing, including for each offense, the date the offense
                 occurred, the action causing the offense, the penalty or
                 sentence assessed and the date the penalty was paid or the
                 sentence completed.

      9.40  INDEMNIFICATION

            To the extent allowed by law, the Contractor and the Department
            agree to indemnify, defend and hold harmless the other party, its
            officers, agents, designees, and employees from any and all claims
            and losses accruing or resulting in connection with the performance
            of this Agreement which are due to the negligent or willful acts or
            omission of the other party. In the event either party becomes
            involved as a party to litigation in connection with services or
            products provided under this Agreement, that party agrees to
            immediately give the other party written notice. The Party so
            notified, at its sole election and cost, may enter into such
            litigation to protect its interests.

            This indemnification is conditioned upon (1) the right of the
            Department or the Contractor when such party is the indemnifying
            party pursuant to this Article IX, Section 9.40 ("indemnifying
            party") to defend against any such action or claim and to settle,
            compromise or defend same in the sole discretion of the indemnifying
            party; (2) receipt of written notice by the indemnifying party as
            soon as practicable after the party seeking indemnification's first
            notice of an action or claim for which indemnification is sought
            hereunder; and (3) the full cooperation of the party seeking
            indemnification in defense or handling of any such action or claim.

      9.41  GIFTS

            (a)  The Contractor and the Contractor's principals, employees, and
                 subcontractors are prohibited from giving gifts to employees
                 of the Department, and are prohibited from giving gifts to, or
                 accepting gifts from, any Person who has a contemporaneous
                 contract with the Department involving duties or obligations
                 related to the Contract.

            (2)  The Contractor will provide the Department with advance notice
                 of the Contractor's providing gifts, excluding charitable
                 donations, given as incentives to community-based
                 organizations in Illinois and Participants or KidCare
                 Participants in Illinois to assist the Contractor in carrying
                 out its responsibilities under this Contract.

      9.42  BUSINESS ENTERPRISE FOR MINORITIES, FEMALES AND PERSONS WITH
            DISABILITIES.

                                       88
<PAGE>   89

            The Contractor certifies that it is in compliance with 30 ILCS
            575/0.01 et seq., and has completed attachment IV.

                                       89
<PAGE>   90

            IN WITNESS WHEREOF, the Department and the Contractor hereby execute
and deliver this Contract effective as of the Effective Date.

STATE OF ILLINOIS
DEPARTMENT OF PUBLIC AID

                          BY:

        Ann Patla

TITLE:   Director

DATE:
     -------------------------
CONTRACTOR

                          BY:

                    TITLE:

                    DATE:

                                FEIN:

                                       90
<PAGE>   91

                                  ATTACHMENT I

                                   RATE SHEETS

(a)   Contractor Name:   AMERICAID Illinois, Inc.
                         d/b/a Americaid Community Care

      Address:           211 W. Wacker Drive, Suite #1350
                         Chicago, IL  60606

(b)   Contracting Area(s) Covered by the Contractor and Enrollment Limit:

<TABLE>
<S>                                                                           <C>
-------------------------------------------------------------------------------------------------------------------------------
                               Contracting Area                               Enrollment Limit
-------------------------------------------------------------------------------------------------------------------------------
                                  Region IV                                       100,000
-------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

</TABLE>

(c)         Total Enrollment Limit for all Contracting Areas:      100,000

(d)         Threshold Review Levels:   80,000

                                       91
<PAGE>   92

(e) Standard Capitation Rates for MAG Beneficiaries for each Region:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
        Age/Gender      Region I         Region II       Region III        Region IV         Region V
                         (N.W.            (Central        (Southern          (Cook           (Collar
                       Illinois)         Illinois)        Illinois)         County)         Counties)
                          PMPM              PMPM             PMPM             PMPM             PMPM
------------------------------------------------------------------------------------------------------
<S>                    <C>               <C>              <C>              <C>              <C>
          0-2 F         $214.19           $149.47          $206.08          $254.29          $181.15
------------------------------------------------------------------------------------------------------
          0-2 M         $242.48           $183.18          $263.92          $300.07          $183.68
------------------------------------------------------------------------------------------------------
          3-13 F         $39.63            $41.98           $47.02           $40.55           $32.21
------------------------------------------------------------------------------------------------------
          3-13 M         $47.40            $52.61           $55.95           $49.60           $40.28
------------------------------------------------------------------------------------------------------
         14-20 F        $209.65           $181.58          $204.84          $169.14          $167.32
------------------------------------------------------------------------------------------------------
         14-20 M         $74.37            $70.44           $75.51           $63.46           $46.99
------------------------------------------------------------------------------------------------------
         21-44 F        $201.77           $186.87          $206.99          $203.22          $181.66
------------------------------------------------------------------------------------------------------
         21-44 M        $100.41           $111.11          $132.34          $148.11          $102.05
------------------------------------------------------------------------------------------------------
          45+ F         $324.75           $292.50          $269.83          $245.81          $236.39
------------------------------------------------------------------------------------------------------
          45+ M         $195.92           $304.26          $291.83          $221.72          $177.78
------------------------------------------------------------------------------------------------------
</TABLE>

           Certified Local Health Department add-on: To be determined.

(f) Standard Capitation Rates for MANG Beneficiaries for each Region:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
        Age/Gender        Region I         Region II        Region III         Region IV          Region V
                           (N.W.            (Central        (Southern           (Cook            (Collar
                         Illinois)         Illinois)        Illinois)          County)          Counties)
                            PMPM              PMPM             PMPM             PMPM              PMPM
----------------------------------------------------------------------------------------------------------
<S>                      <C>               <C>              <C>               <C>               <C>
          0-2 F           $277.63           $270.73          $276.42           $221.95           $175.33
----------------------------------------------------------------------------------------------------------
          0-2 M           $337.39           $320.77          $236.83           $259.94           $203.36
----------------------------------------------------------------------------------------------------------
          3-13 F           $46.02            $44.62           $52.51            $43.55            $39.42
----------------------------------------------------------------------------------------------------------
          3-13 M           $58.45            $63.44           $67.51            $55.10            $51.37
----------------------------------------------------------------------------------------------------------
         14-20 F          $260.15           $234.40          $246.15           $238.15           $260.81
----------------------------------------------------------------------------------------------------------
         14-20 M           $79.62           $119.09          $121.82            $82.31           $181.38
----------------------------------------------------------------------------------------------------------
         21-44 F          $245.64           $245.87          $226.89           $266.25           $244.39
----------------------------------------------------------------------------------------------------------
         21-44 M          $145.22           $107.80          $103.83            $98.85           $119.40
----------------------------------------------------------------------------------------------------------
          45+ F           $279.44           $329.92          $300.30           $255.70           $270.54
----------------------------------------------------------------------------------------------------------
          45+ M           $340.30           $205.30          $239.31           $247.28           $292.90
----------------------------------------------------------------------------------------------------------
</TABLE>

           Certified Local Health Department add-on: To be determined.

                                       92
<PAGE>   93

(g) Capitation Rates for KidCare Participants for each Region:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------
        Age/Gender        Region I         Region II        Region III          Region IV        Region V
                           (N.W.            (Central         (Southern           (Cook          (Collar
                         Illinois)         Illinois)         Illinois)           County)        Counties)
                            PMPM              PMPM              PMPM              PMPM            PMPM

----------------------------------------------------------------------------------------------------------
<S>                      <C>               <C>               <C>                <C>             <C>
          1-2 F            $66.34            $67.54            $73.13             $74.63          $60.58
----------------------------------------------------------------------------------------------------------
          1-2 M            $92.26            $75.87            $96.90             $86.82          $73.08
----------------------------------------------------------------------------------------------------------
          3-13 F           $39.25            $41.38            $46.47             $40.71          $32.31
----------------------------------------------------------------------------------------------------------
          3-13 M           $47.00            $51.79            $55.68             $49.87          $40.63
----------------------------------------------------------------------------------------------------------
         14-18 F           $87.57            $85.98            $99.19             $77.53          $73.22
----------------------------------------------------------------------------------------------------------
         14-18 M           $73.14            $69.51            $75.56             $63.48          $46.69
----------------------------------------------------------------------------------------------------------

</TABLE>
           Certified Local Health Department add-on: To be determined.

                                       93
<PAGE>   94

                                  ATTACHMENT II

                          KIDCARE PARTICIPATION OPTION

     The Contractor shall indicate by signing the appropriate line below whether
     or not it agrees to accept KidCare Participants as Beneficiaries in
     accordance with the terms and conditions of this Contract.

     KIDCARE PARTICIPATION

     The Contractor agrees to accept KidCare Participants as Beneficiaries in
     accordance with the terms of this Contract.

     CONTRACTOR

     By:
        -------------------------------------
     Its:
         ------------------------------------
     Date:
          -----------------------------------

     MEDICAL ASSISTANCE PARTICIPATION ONLY

     The Contractor does not agree to accept KidCare Participants as
     Beneficiaries under this Contract.

     CONTRACTOR

     By:
        -------------------------------------
     Its:
         ------------------------------------
     Date:
          -----------------------------------

                                       94
<PAGE>   95

                                 ATTACHMENT III

                          DRUG FREE WORKPLACE AGREEMENT

The contractor certifies that he/she/it will not engage in the unlawful
manufacture, distribution, dispensation, possession, or use of a controlled
substance in the performance of the Agreement.

CHECK THE BOX THAT APPLIES:

            This business or corporation does not have twenty-five (25) or more
            employees.

            This business or corporation has twenty-five (25) or more employees,
            and the contractor certifies and agrees that it will provide a drug
            free workplace by:

A)    Publishing a statement:

      1)    Notifying employees that the unlawful manufacture, distribution,
            dispensation, possession or use of a controlled substance, including
            cannabis, is prohibited in the grantee's or contractor's workplace.

      2)    Specifying the actions that will be taken against employees for
            violations of such prohibition.

      3)    Notifying the employees that, as a condition of employment on such
            contract, the employee will:

            a)    abide by the terms of the statement; and

            b)    notify the employer of any criminal drug statute conviction
                  for a violation occurring in the workplace no later than five
                  (5) days after such conviction.

B)    Establishing a drug free awareness program to inform employees about:

      1)    the dangers of drug abuse in the workplace;

      2)    the contractor's policy of maintaining a drug free workplace;

      3)    any available drug counseling, rehabilitation, and employee
            assistance programs; and

      4)    the penalties that may be imposed upon an employee for drug
            violations.

C)    Providing a copy of the statement required by subparagraph (a) to each
      employee

                                       95
<PAGE>   96

      engaged in the performance of the contract or grant and to post the
      statement in a prominent place in the workplace.

D)    Notifying the contracting or granting agency within ten (10) days after
      receiving notice under part (B) or paragraph (3) of subsection (a) above
      from an employee or otherwise receiving actual notice of such conviction.

E)    Imposing a sanction on, or requiring the satisfactory participation in a
      drug abuse assistance or rehabilitation program by, any employee who is so
      convicted, as required by section 5 of the Drug Free Workplace Act, 1992
      Illinois Compiled Statute, 30 ILCS 580/5.

F)    Assisting employees in selecting a course of action in the event drug
      counseling, treatment, and rehabilitation is required and indicating that
      a trained referral team is in place.

G)    Making a good faith effort to continue to maintain a drug free workplace
      through implementation of the Drug Free Workplace Act, 1992 Illinois
      Compiled Statute, 30 ILCS 580/1 et seq.

THE UNDERSIGNED AFFIRMS, UNDER PENALTIES OF PERJURY, THAT HE OR SHE IS
AUTHORIZED TO EXECUTE THIS CERTIFICATION ON BEHALF OF THE DESIGNATED
ORGANIZATION.

Printed Name of Organization

Signature of Authorized Representative      Requisition/Contract/Grant ID Number

Printed Name and Title                      Date

                                       96
<PAGE>   97

                                  ATTACHMENT IV

                  BUSINESS ENTERPRISE PROGRAM CONTRACTING GOAL

The Business Enterprise Program Act for Minorities, Females and Persons with
Disabilities (30 ILCS 575/1) establishes a goal that not less than 12% of the
total dollar amount of State contracts be awarded to businesses owned and
controlled by persons who are minority, female or who have disabilities (the
percentages are 5%/5%/2% respectively) and have been certified as such ("BEPs").
This goal can be met by contracts let directly to such businesses by the State,
or indirectly by the State's contractor ordering goods or services from BEPs
when suppliers or subcontractors are needed to fulfill the contract. Call the
Business Enterprise Program at 312/814-4190 (Voice & TDD), 800/356-9206 (Toll
Free), or 800/526-0844 (Illinois Relay Center for Hearing Impaired) for a list
of certified businesses appropriate for the particular contract.

1.    If you are a BEP, please identify which agency certified the business and
      in what capacity by checking the applicable blanks:

Certifying Agency:                                   Capacity:

___ Department of Central Management Services        ___ Minority

___ Women's Business Development Center              ___ Female

___ Chicago Minority Business Development Council    ___ Person with Disability

___ Illinois Department of Transportation            ___ Disadvantaged

                                ___ Other (identify)

2.    If the "Capacity" blank is not checked, do you have a written policy or
      goal regarding contracting with BEPs?

            Yes ___                 No ___

            -     If "Yes", please attach a copy.

            -     If "No", will you make a commitment to contact BEPs and
                  consider their proposals?

            Yes ___                 No ___

3.    Do you plan on ordering supplies or services in furtherance of this
      project from BEPs?

            Yes ___                 No ___

            -     If "Yes", please identify what you plan to order, the
                  estimated value as a percentage of your total proposal, and
                  the names of the BEPs you plan to use.

                                       97
<PAGE>   98

                                      This information is submitted on behalf of
                                      (Name of Vendor)

                     Name (printed):                                      Title:

                           Signature:                                     Date:

                                       98
<PAGE>   99

                                    EXHIBIT A

                             QUALITY ASSURANCE (QA)

1.    All services provided by or arranged by the Contractor to be provided
      shall be in accordance with prevailing professional community standards.
      The Contractor shall establish a program that systematically and routinely
      collects data to review that includes quality oversight and monitoring
      performance and patient results. The program shall include provision for
      the interpretation of such data to the Contractor's practitioners. The
      Contractor shall have in effect a program consistent with the utilization
      control requirements of 42 C.F.R. Part 456. This program will include,
      when required by the regulations, written plans of care and certifications
      of need of care.

2.    The Contractor shall establish procedures such that the Contractor shall
      be able to demonstrate that it meets the requirements of the HMO Federal
      qualification regulations (42 C.F.R. 417.106 and/or the Medicare HMO/CMP
      regulations (42 C.F.R. 417.418(c)). These regulations require that an
      HMO/CMP have an ongoing fully implemented Quality Assurance program for
      health services that:

      a.    monitors the health care services it provides or arranged to
            provide;

      b.    stresses health outcomes;

      c.    provides review by Physicians licensed to practice medicine in all
            its branches and other health professionals of the process followed
            in the provision of health services;

      d.    includes fraud control provisions;

      e.    establishes and monitors access standards;

      f.    uses systematic data collection of performance and patient results,
            provides interpretation of these data to its practitioners, and
            institutes needed changes; and

      g.    includes written procedures for taking appropriate remedial action
            whenever, as determined under the quality assurance program,
            inappropriate or substandard services have been furnished or
            services that should have been furnished have not been provided.

3.    The Contractor shall provide to the Department a written description of
      its Quality Assurance Plan (QAP) for the provision of clinical services
      (e.g., medical, medically related, and behavioral health services). This
      written description must meet federal and State requirements:

                                       99
<PAGE>   100

      a.    Goals and objectives - The written description shall contain a
            detailed set of QA objectives that are developed annually and
            include a timetable for implementation and accomplishment.

      b.    Scope - The scope of the QAP shall be comprehensive, addressing both
            the quality of clinical care and the quality of non-clinical aspects
            of service, such as and including: availability, accessibility,
            coordination, and continuity of care.

      c.    Methodology - The QAP methodology shall provide for review of the
            entire range of care provided, by assuring that all demographic
            groups, care settings, (e.g., inpatient, ambulatory, and home care),
            and types of services (e.g., preventive, primary, specialty care,
            behavioral health, and ancillary services) are included in the scope
            of the review. Documentation of the monitoring and evaluation plan
            shall be provided to Department.

      d.    Activities - The written description shall specify quality of care
            studies and other activities to be undertaken over a prescribed
            period of time, and methodologies and organizational arrangements to
            be used to accomplish them. Individuals responsible for the studies
            and other activities shall be clearly identified and shall be
            appropriate. The written description shall provide for continuous
            performance of the activities, including tracking of issues over
            time.

      e.    Provider review - The written description shall document how
            Physicians licensed to practice medicine in all its branches and
            other health professionals will be involved in reviewing quality of
            care and the provision of health services and how feedback to health
            professionals and the Contractor staff regarding performance and
            patient results will be provided.

      f.    Focus on health outcomes - The QAP methodology shall address health
            outcomes; a complete description of the methodology shall be fully
            documented and provided to Department.

      g.    Systematic process of quality assessment and improvement - The QAP
            shall objectively and systematically monitor and evaluate the
            quality and appropriateness of care and service to members, and
            pursue opportunities for improvement on an ongoing basis.
            Documentation of the monitoring activities and evaluation plan shall
            be provided to the Department.

4.    The Contractor shall provide the Department with the QAP written
      guidelines which delineate the QA process, specifying:

      a.    Clinical areas to be monitored:

                                      100
<PAGE>   101

      i.    The monitoring and evaluation of clinical care shall reflect the
            population served by the Contractor in terms of age groups, disease
            categories, and special risk status.

      ii.   The QAP shall, at a minimum, monitor and evaluate care and services
            in certain priority clinical areas of interest specified by the
            Department.

      iii   At its discretion and/or as required by the Department, the
            Contractor's QAP must monitor and evaluate other important aspects
            of care and service.

      iv.   At a minimum, the following areas shall be monitored:

            (a)   for pregnant women:

                  (1)   number of prenatal visits;
                  (2)   provision of ACOG recommended prenatal screening tests;
                  (3)   neonatal deaths;
                  (4)   length of hospitalization for the mother; and
                  (5)   length of newborn hospital stay for the infant.

            (b)   for children:

                  (1)   number of well-child visits appropriate for age;
                  (2)   immunization status;
                  (3)   number of hospitalizations;
                  (4)   length of hospitalizations; and
                  (5)   medical management for a limited number of medically
                        complicated conditions as agreed to by the Contractor
                        and Department.

            (c)   for adults:

                  (1)   preventive health care (e.g., initial health history and
                        physical exam; mammography; papanicolaou smear).

            (d)   for behavioral health:

                  (1)   all areas specified in Paragraph 12 of this Exhibit A.

b.    Use of Quality Indicators - Quality indicators are measurable variables
      relating to a specified clinical area, which are reviewed over a period of
      time to monitor the process of outcomes of care delivered in that clinical
      area:

                                      101
<PAGE>   102

            i.    The Contractor shall identify and use quality indicators that
                  are objective, measurable, and based on current knowledge and
                  clinical experience.

            ii.   The Contractor shall document that methods and frequency of
                  data collected are appropriate and sufficient to detect need
                  for program change.

            iii.  For the priority clinical areas specified by Department, the
                  Contractor shall monitor and evaluate quality of care through
                  studies which address, but are not limited to, the quality
                  indicators also specified by Department.

      c.    Analysis of clinical care and related services, including behavioral
            health services:

            i.    Appropriate clinicians shall monitor and evaluate quality
                  through review of individual cases where there are questions
                  about care, and through studies analyzing patterns of clinical
                  care and related service.

            ii.   Multi disciplinary teams shall be used, where indicated, to
                  analyze and address systems issues.

            iii   Clinical and related service areas requiring improvement shall
                  be identified and documented with a corrective action plan
                  developed and monitored.

      d.    Implementation of Remedial/Corrective Actions - The QAP shall
            include written procedures for taking appropriate remedial action
            whenever, as determined under the QAP, inappropriate or substandard
            services are furnished, including in the area of behavioral health,
            or services that should have been furnished were not. Quality
            assurance actions that result in remedial or corrective actions
            shall be forwarded by the Contractor to the Department on a timely
            basis.

            Written remedial/corrective action procedures shall include:

            i.    specification of the types of problems requiring
                  remedial/corrective action;

            ii.   specification of the person(s) or body responsible for making
                  the final determinations regarding quality problems;

            iii.  specific actions to be taken;

            iv.   a provision for feedback to appropriate health professionals,
                  providers and staff;

            v.    the schedule and accountability for implementing corrective
                  actions;

                                      102
<PAGE>   103

            vi.   the approach to modifying the corrective action if
                  improvements do not occur; and

            vii.  procedures for notifying a Primary Care Provider group that a
                  particular Physician licensed to practice medicine in all its
                  branches is no longer eligible to provide services to
                  Beneficiaries.

      e.    Assessment of Effectiveness of Corrective Actions - The Contractor
            shall monitor and evaluate corrective actions taken to assure that
            appropriate changes have been made. The Contractor shall assure
            follow-up on identified issues to ensure that actions for
            improvement have been effective and provide documentation of same.

      f.    Evaluation of Continuity and Effectiveness of the QAP:

            i.    The Contractor shall conduct a regular (minimum annual)
                  examination of the scope and content of the QAP to ensure that
                  it covers all types of services, including behavioral health
                  services, in all settings, as required.

            ii.   At the end of each year, a written report on the QAP shall be
                  prepared by the Contractor and submitted to the Department as
                  a component part of the QA/UR/PR Report identified in Exhibit
                  C, which report addresses:

                  (a)   QA studies, including quality indicators and
                        methodology, and other activities completed;

                  (b)   peer review (e.g., results of the medical records and
                        credentialing/recredentialing activities);

                  (c)   utilization data including progress toward meeting
                        preventive care participation goals and selected HEDIS
                        measures;

                  (d)   Beneficiary Satisfaction Survey analysis;

                  (e)   trending of clinical and service indicators and other
                        performance data;

                  (f)   demonstrated improvements in quality;

                  (g)   areas of deficiency and recommendations for corrective
                        action;

                  (h)   an evaluation of the overall effectiveness of the QAP;
                        and

                  (i)   changes implemented or to be implemented over the next
                        year.

5.    The Contractor shall have a governing body to which the QAP shall be held
      accountable ("Governing Body"). The Governing Body of the Contractor shall
      be the Board of Directors or, where the Board's participation with quality
      improvement issues is not direct, a designated committee of the senior
      management of the Contractor. This Board of Directors or Governing Body
      shall be ultimately responsible for the execution of the QAP. However,
      changes to the medical quality assurance program shall be by the chair of
      the QA Committee.

                                      103
<PAGE>   104

      Responsibilities of the Governing Body include:

      a.    Oversight of QAP - The Contractor shall document that the Governing
            Body has approved the overall QAP and an annual QA plan.

      b.    Oversight Entity - The Governing Body shall document that it has
            formally designated an accountable entity or entities within the
            organization to provide oversight of QA, or has formally decided to
            provide such oversight as a committee of the whole. Behavioral
            health shall be included in the QAP Report.

      c.    QAP Progress Reports - The Governing Body shall routinely receive
            written reports from the QAP describing actions taken, progress in
            meeting QA objectives, and improvements made.

      d.    Annual QAP Review - The Governing Body shall formally review on a
            periodic basis (but no less frequently than annually) a written
            report on the QAP which includes: studies undertaken, results,
            subsequent actions, and aggregate data on utilization and quantity
            of services rendered, to assess the QAP's continuity, effectiveness
            and current acceptability. Behavioral health shall be included in
            the Annual QAP Review.

      e.    Program Modification - Upon receipt of regular written reports from
            the QAP delineating actions taken and improvements made, the
            Governing Body shall take action when appropriate and direct that
            the operational QAP be modified on an ongoing basis to accommodate
            review findings and issues of concern within the Contractor. This
            activity shall be documented in the minutes of the meetings of the
            Governing Board in sufficient detail to demonstrate that it has
            directed and followed up on necessary actions pertaining to Quality
            Assurance.

6.    The QAP shall delineate an identifiable structure responsible for
      performing QA functions within the Contractor. This committee or other
      structure shall have:

      a.    Regular Meetings - The structure/committee shall meet on a regular
            basis with specified frequency to oversee QAP activities. This
            frequency shall be sufficient to demonstrate that the
            structure/committee is following-up on all findings and required
            actions, but in no case shall such meetings be held less frequently
            than quarterly. A copy of the meeting summaries/minutes shall be
            submitted to the Department no later than thirty (30) days after the
            close of the quarterly reporting period.

      b.    Established Parameters for Operating - The role, structure and
            function of the structure/committee shall be specified.

      c.    Documentation - There shall be records kept documenting the
            structure's/committee's activities, findings, recommendations and
            actions.

                                      104
<PAGE>   105

      d.    Accountability - The QAP committee shall be accountable to the
            Governing Body and report to it (or its designee) on a scheduled
            basis on activities, findings, recommendations and actions.

      e.    Membership - There shall be active participation in the QA committee
            from Plan Providers, who are representative of the composition of
            the Plan's Providers. There shall be a majority of
            Contractor-Affiliated practicing Physicians licensed to practice
            medicine in all its branches.

7.    There shall be a designated senior executive who will be responsible for
      program implementation. The Contractor's Medical Director shall have
      substantial involvement in QA activities and shall be responsible for the
      required reports.

      a.    Adequate Resources - The QAP shall have sufficient material
            resources, and staff with the necessary education, experience, or
            training, to effectively carry out its specified activities.

      b.    Provider Participation in the QAP --

            i.    Participating Physicians licensed to practice medicine in all
                  its branches and other Providers shall be kept informed about
                  the written QA plan.

            ii.   The Contractor shall include in all its Provider subcontracts
                  and employment agreements a requirement securing cooperation
                  with the QAP for both Physicians licensed to practice medicine
                  in all its branches and non-physician Providers.

            iii.  Contracts shall specify that hospitals and other
                  subcontractors will allow access to the medical records of its
                  Beneficiaries to the Contractor.

8.    The Contractor shall remain accountable for all QAP functions, even if
      certain functions are delegated to other entities. If the Contractor
      delegates any QA activities to subcontractors:

      a.    There shall be a written description of the following: the delegated
            activities; the delegate's accountability for these activities; and
            the frequency of reporting to the Contractor.

      b.    The Contractor shall have written procedures for monitoring and
            evaluating the implementation of the delegated functions and for
            verifying the actual quality of care being provided.

      c.    There shall be evidence of continuous and ongoing evaluation of
            delegated

                                      105
<PAGE>   106

            activities, including approval of quality improvement plans and
            regular specified reports.

9.    The QAP shall contain provisions to assure that Physicians licensed to
      practice medicine in all its branches and other health care professionals,
      who are licensed by the State and who are under contract with the
      Contractor, are qualified to perform their services and credentialed by
      the Contractor. Recredentialing shall occur at least once every two (2)
      years.

10.   The Contractor shall put a basic system in place which promotes continuity
      of care and case management. The Contractor shall provide documentation
      on:

      a.    Monitoring the quality of care across all services and all treatment
            modalities.

      b.    Studies, reports, protocols, standards, worksheets, minutes, or such
            other documentation as may be appropriate, concerning its QA
            activities and corrective actions and make such documentation
            available to the Department upon request.

11.   The findings, conclusions, recommendations, actions taken, and results of
      the actions taken as a result of QA activity, shall be documented and
      reported to appropriate individuals within the organization and through
      the established QA channels. The Contractor shall document coordination of
      QA activities and other management activities.

      a.    QA information shall be used in recredentialing, recontracting
            and/or annual performance evaluations.

      b.    QA activities shall be coordinated with other performance monitoring
            activities, including utilization management, risk management, and
            resolution and monitoring of member complaints and grievances.

      c.    There shall be a linkage between QA and the other management
            functions of the Plan such as:

            i.    network changes;

            ii.   benefits redesign;

            iii.  medical management systems (e.g., pre-certification);

            iv.   practice feedback to Physicians licensed to practice medicine
                  in all its branches; and

            v.    patient education.

                                      106
<PAGE>   107

      d.    In the aggregate, without reference to individual Physicians
            licensed to practice medicine in all its branches or Beneficiary
            identifying information, all Quality Assurance findings,
            conclusions, recommendations, actions taken, results or other
            documentation relative to QA shall be reported to Department on a
            quarterly basis or as requested by the Department. The Department
            shall be notified of any Physician licensed to practice medicine in
            all its branches terminated from a subcontract with the Contractor
            for a quality of care issue.

12.   The Contractor shall, through its behavioral health subcontractor and its
      internal QAP, monitor the quality of behavioral health services its
      subcontractor provides. Areas to be monitored include:

      a.    behavioral health network adequacy;

      b.    Beneficiary access to timely behavioral health services through
            self-referral, PCP/specialist referral, MCO referral, CBHP referral,
            or referral by other entities;

      c.    an individual plan or treatment and provision of appropriate level
            of care;

      d.    coordination of care between the CBHPs, MCO behavioral health
            subcontractor, and the Primary Care Provider;

      e.    provision of follow-up services and continuity of care;

      f.    involvement of the Primary Care Provider in aftercare to the extent
            possible, ensuring client confidentiality protections provided under
            law;

      g.    member satisfaction with access to and quality of behavioral health
            services; and

      h.    behavioral health service utilization, as set forth in the following
            chart.

                                      107
<PAGE>   108

The following behavioral health care utilization statistics shall be determined
and reported quarterly to the Department in a format agreed to by the MCOs and
Department:

<TABLE>
<CAPTION>

SUBSTANCE ABUSE/CHEMICAL DEPENDENCY:                                              MENTAL HEALTH:
------------------------------------                                              --------------
<S>                                                                               <C>
Inpatient (Rehab):                                                                Acute Inpatient Psychiatric Admission:
------------------                                                                --------------------------------------
Number of Admits                                                                  Number of Admits
Admits/1000 Beneficiaries                                                         Admits/1000 Beneficiaries
Number of Days of Care                                                            Number of Days of Care
Days/1000 Beneficiaries                                                           Days/1000 Beneficiaries
Average Length of Stay ("ALOS")                                                   ALOS

Inpatient (Detox):
------------------
Number of Admits
Admits/1000 Beneficiaries
Number of Days of Care
Days/1000 Beneficiaries
ALOS

Partial (Day/Night) Treatment:                                                    Partial (Day/Night) Treatment:
------------------------------                                                    ------------------------------
Number of Admits                                                                  Number of Admits
Admits/1000 Beneficiaries                                                         Admits/1000 Beneficiaries
Number of Days of Care                                                            Number of Days of Care
Days/1000 Beneficiaries                                                           Days/1000 Beneficiaries
ALOS                                                                              ALOS

Intensive Outpatient Program:                                                     Intensive Outpatient Program:
-----------------------------                                                     -----------------------------
Number of Outpatients                                                             Number of Outpatients
Outpatients/1000 Beneficiaries                                                    Outpatients/1000 Beneficiaries
Number of Days of Care                                                            Number of Days of Care
Days/1000 Beneficiaries                                                           Days/1000 Beneficiaries
ALOS                                                                              ALOS

Outpatient:                                                                       Outpatient:
-----------                                                                       -----------
Number of Outpatients                                                             Number of Outpatients
Outpatients/1000 Beneficiaries                                                    Outpatients/1000 Beneficiaries
Number of Outpatient Sessions                                                     Number of Outpatient Sessions
Average Number of Sessions                                                        Average Number of Sessions

Follow-up:                                                                        Follow-up:
----------                                                                        ----------
Number of Discharges with                                                         Number of Discharges with
Follow-up Care Plan and Treatment                                                 Follow-up Care Plan and Treatment

</TABLE>

The provision of behavioral health services and appropriate risk assessment and
referral shall be

                                      108
<PAGE>   109

included in the Contractor's medical record review processes and considered for
a clinical evaluation study as further described in Exhibit B, Utilization
Review/Peer Review, under (4).

                                      109
<PAGE>   110

                                    EXHIBIT B

                         UTILIZATION REVIEW/PEER REVIEW

1.    The Contractor shall have a utilization review and peer review
      committee(s) whose purpose will be to review data gathered and the
      appropriateness and quality of care. The committee(s) shall review and
      make recommendations for changes when problem areas are identified and
      report suspected Fraud and Abuse in the Medical Assistance Program or
      KidCare to the Department's Office of Inspector General. The committees
      shall keep minutes of all meetings, the results of each review and any
      appropriate action taken. A copy of the minutes shall be submitted to the
      Department no later than thirty (30) days after the close of the quarterly
      reporting period. At a minimum, these programs must meet all applicable
      federal and State requirements for utilization review. The Contractor and
      Department may further define these programs.

2.    The Contractor shall implement a Utilization Review Plan, including peer
      review. The Contractor shall provide the Department with documentation of
      its utilization review process. The process shall include:

      a.    Written program description - The Contractor shall have a written
            utilization management program description which includes, at a
            minimum, procedures to evaluate medical necessity criteria used and
            the process used to review and approve the provision of medical
            services.

      b.    Scope - The program shall have mechanisms to detect
            under-utilization as well as over-utilization.

      c.    Preauthorization and concurrent review requirements For
            organizations with preauthorization and concurrent review programs:

            i.    review decisions shall be supervised by qualified medical
                  professionals;

            ii    efforts shall be made to obtain all necessary information,
                  including pertinent clinical information, and consultation
                  with the treating Physician licensed to practice medicine in
                  all its branches as appropriate;

            iii.  the reasons for decisions shall be clearly documented and
                  available to the member;

            iv.   there shall be written well-publicized and readily available
                  appeals mechanisms for both Providers and patients;

                                      110
<PAGE>   111

            v.    decisions and appeals shall be made in a timely manner as
                  required by the circumstances of the situation;

            vi.   there shall be mechanisms to evaluate the effects of the
                  program using data on member satisfaction, provider
                  satisfaction or other appropriate measures;

            vii.  if the organization delegates responsibility for utilization
                  management, it shall have mechanisms to ensure that these
                  standards are met by the delegate.

3.    The Contractor further agrees to review the utilization review procedures,
      at reasonable intervals, for the purpose of amending same, as necessary in
      order to improve said procedures. All amendments must be approved by the
      Department. The Contractor further agrees to supply the Department and/or
      its designee with the utilization information and data, and reports
      prescribed in its approved utilization review system or the status of such
      system. This information shall be furnished upon request by the
      Department.

4.    The Contractor shall establish and maintain a peer review program approved
      by the Department to review the quality of care being offered by the
      Contractor, employees and subcontractors. This program shall provide, at a
      minimum, the following:

      a.    A peer review committee comprised of Physicians licensed to practice
            medicine in all its branches, formed to organize and proceed with
            the required reviews for both the health professionals of the
            Contractor's staff and any contracted Providers which include:

            i.    A regular schedule for review;

            ii.   A system to evaluate the process and methods by which care is
                  given; and

            iii.  A medical record review process.

      b.    The Contractor shall maintain records of the actions taken by the
            peer review committee with respect to providers and those records
            shall be available to the Department upon request.

      c.    A system of internal medical review, including behavioral health
            services, medical evaluation studies, peer review, a system for
            evaluating the processes and outcomes of care, health education,
            systems for correcting deficiencies, and utilization review.

                                      111
<PAGE>   112

      d.    At least two medical evaluation studies must be completed yearly
            that analyze pressing problems identified by the Contractor, the
            results of such studies and appropriate action taken. One of the
            studies may address an administrative problem noted by the
            Contractor and one may address a clinical problem or diagnostic
            category. One brief follow-up study shall take place for each
            medical evaluation study in order to assess the actual effect of any
            action taken.

5.    The Contractor further agrees to review the peer review procedures, at
      reasonable intervals, for the purpose of amending same in order to improve
      said procedures. All amendments must be approved by the Department. The
      Contractor further agrees to supply the Department and/or its designee
      with the information and reports related to its peer review program upon
      request.

6.    The Department may request that peer review be initiated on specific
      providers.

7.    The Department will conduct its own peer reviews at its discretion.

                                      112
<PAGE>   113

                                    EXHIBIT C

                           Summary of Required Reports

Report names and reporting frequencies are listed herein. These shall be due to
the Department no later than thirty (30) days after the close of the reporting
period unless otherwise stated. Reports include hard copy reports and/or any
electronic medium as designated by the Department.

Report frequencies are defined as follows:

                 Annually-     The State fiscal year of July 1 - June 30.

                 Quarterly-    The last day of the fiscal quarter grouped as:
                               J/A/S (1st qtr), O/N/D (2nd qtr), J/F/M
                               (3rd qtr), and A/M/J (4th qtr).

                 Monthly-      The last day of a calendar month.

                               NAME OF REPORT                       FREQUENCY

QUALITY ASSURANCE/MEDICAL
QA/UR/PR Report                                                      Annually

Summary of Grievances and                                            Quarterly
Resolutions and External Independent
Reviews and Resolutions

Behavioral Health Report                                 Quarterly, 60 days
                                                         after end of quarter

MARKETING
Marketer Training Schedule and Agenda                    Quarterly, 2 weeks
                                                         prior to the
                                                         beginning of each
                                                         quarter, and as
                                                         revised

Marketing Representative Listing                         Monthly on the
                                                         first day of each
                                                         month for that month

                                      113
<PAGE>   114

     FRAUD/ABUSE
     Fraud and Abuse Report                              Immediately upon
                                                         identification or
                                                         knowledge of
                                                         suspected Fraud,
                                                         Abuse, or misconduct;
                                                         or quarterly
                                                         certification, due 30
                                                         days after the close
                                                         of the quarter, that
                                                         no Fraud, Abuse, or
                                                         misconduct was
                                                         identified during the
                                                         quarter

                                      114
<PAGE>   115

                                    EXHIBIT D

                         Summary of Required Submissions

Submissions and submission frequencies are listed herein. These shall be due to
the Department no later than thirty (30) days after the close of the reporting
period unless otherwise stated. Submissions include hard copy reports and/or any
electronic medium as designated by the Department.

Submission frequencies are defined as follows:

                 Annually-        The State fiscal year of July 1 - June 30
                 Quarterly-       The last day of the fiscal year quarter
                                  grouped as:
                                  J/A/S (1st qtr), O/N/D (2nd qtr), J/F/M (3rd
                                  qtr), and A/M/J (4th qtr).
                 Monthly-         The last day of a calendar month.

<TABLE>
<CAPTION>
                                 NAME OF SUBMISSION                                  FREQUENCY                   DPA PRIOR
                                 ------------------                                  ---------
                                                                                                                 APPROVAL
                                                                                                                 --------
          <S>                                                                     <C>                            <C>
          ADMINISTRATIVE
          --------------
          Disclosure Statements                                                   Initially,                         No
                                                                                  Annually, on
                                                                                  request and as
                                                                                  changes occur

          Encounter Data Report                                                   Monthly no                         No
                                                                                  later than 120
                                                                                  days after the
                                                                                  close of the
                                                                                  reporting
                                                                                  period

          BENEFICIARY MATERIALS
          ---------------------
          Certificate or Document of                                              Initially and                     Yes
          Coverage and Any Changes or                                             as revised
          Amendments

          Beneficiary Handbook                                                    Initially and                     Yes
                                                                                  as revised

          Identification Card                                                     Initially and                     Yes
                                                                                  as revised
</TABLE>

                                      115
<PAGE>   116

<TABLE>
     <S>                                                                          <C>                               <C>

     SUBCONTRACTS
     ------------
     Model Subcontractor                                                          Initially and                     No
     Agreements                                                                   as revised

     Linkage Agreements                                                           As executed                       No
                                                                                  and updated

     Copies of Actual Executed                                                    Upon Request                      No
     Subcontracts

     PROVIDER NETWORK
     ----------------
     New Site Provider                                                            As new                            Yes
     Affiliation File                                                             sites/PCPs are
     (electronic)*                                                                added

     Site/PCP Approvals (paper                                                    As new                            Yes
     format-A&B forms)*                                                           sites/PCPs are
                                                                                  added

     Provider Affiliation with                                                    Monthly on the                     No
     Site Report                                                                  first day of
                                                                                  each month for
                                                                                  that month

     Beneficiary Site                                                             As they occur                      No
     Assignment/Site Transfer

     Site Terminations                                                            As they occur                      No

     MARKETING MATERIALS
     -------------------
     Marketing Plans and Procedures                                               Initially and                      Yes
                                                                                  as revised

     Marketing Training Manuals                                                   Initially and                      Yes
                                                                                  as revised

     Marketing Materials and                                                      Initially and                      Yes
     Information                                                                  as revised

     Marketing Representative                                                     As they occur                      No
     Terminations

</TABLE>

                                      116
<PAGE>   117

<TABLE>
<CAPTION>
     <S>                                                                          <C>                               <C>
     QUALITY ASSURANCE/MEDICAL
     -------------------------
     Quality Assurance,                                                           Initially and                      Yes
     Utilization Review and Peer                                                  as revised
     Review Plan (includes health
     education plan)

     QA/UR/PR Committee Meeting                                                   Quarterly                          No
     Minutes

     Grievance Procedures                                                         Initially and as                   Yes
                                                                                  revised
</TABLE>

     *The approval of Sites/PCPs will transition from paper to electronic format
     during the course of this Contract. Both versions of the submission are
     listed. The electronic format will not be required until such time as the
     Department provides one-hundred twenty (120) days advance notice.

                                      117
<PAGE>   118

                                    EXHIBIT E

                       Encounter Data Format Requirements

Illinois Medicaid UB92 Billing Specification
            (Approved by the Illinois UB92 Billing Committee)

HCFA National Standard Format for non-institutional claims

IDPA Direct Tape format for pharmacy claims<PAGE>   1

                                                                    EXHIBIT 10.8

            STATE OF MARYLAND
            DHMH
            --------------------------------------------------------------------
            Maryland Department of Health and Mental Hygiene
            201 W. Preston Street, Baltimore, Maryland  21201
            Parris N. Glendening, Governor; Georges C. Benjamin, M.D., Secretary

                                                March 17, 2000

Mr. Don Gilmore,
Chief Operating Officer
AMERICAID Community Care
857 Elkridge Landing Road
Suite 300
Linthicum, MD  21090

Dear Mr. Gilmore:

       In accordance with instructions from the Health Care Financing
Administration (HCFA), this letter is to serve as notification that the
Department has amended page 6 of 8; item C. and C.1 of the MCO 2000 contract.
The Contract now reads:

       C.     That the Department reserves the right to terminate this Agreement
              immediately upon receipt of:

              1.     Notification by DHHS that it is terminating Maryland's
                     Section 1115 HealthChoice Waiver and funding thereunder; or

It has been amended to read:

       C.     That the Department reserves the right to terminate this Agreement
              immediately upon:

              1.     Completion of this Section 1115 Research and Demonstration
                     Waiver and Federal funding thereunder; or

<TABLE>
<S>                                                                  <C>
Toll Free 1-877-4MD-DHMH o TTY for Disabled - Maryland Relay Service 1-800-735-2258
                         Web site: www.dhmh.state.md.us
</TABLE>

<PAGE>   2

Mr. Don Gilmore
Page 2

       Please sign and return both copies of the enclosed Amendment to Ms.
Elizabeth Heard, Staff Specialist, Division of HealthChoice Management, Room
133, no later than March 31, 2000.

                                             Sincerely,

                                             /s/ Rosalie Koslof
                                             -----------------------------------

                                             Rosalie Koslof, Chief
                                             Division of HealthChoice Management

Attachments

cc:    Mr. James Hake, HCFA
       Mr. Joseph Davis, DHMH
       Mr. John Folkemer, DHMH
       Mr. Joseph Millstone, DHMH
       Ms. Diane Herr, DHMH
       Ms. Elizabeth Kameen, Asst. Attorney General

<PAGE>   3

                            MANAGED CARE ORGANIZATION
                         HEALTHCHOICE PROVIDER AGREEMENT

       THIS AGREEMENT (the "Agreement"), effective this 1st day of, January,
2000, is entered into by and between the Maryland Department of Health and
Mental Hygiene (the "Department") and AMERIGROUP Maryland Inc., d.b.a. AMERICAID
Community Care (the "MCO"), a Managed Care Organization with authority to
conduct business in the State of Maryland.

       WHEREAS, the Department has established the Maryland Medicaid Man aged
Care Program, also known as the Maryland HealthChoice Program ("HealthChoice"),
a waiver program authorized by the Health Care Financing Administration ("HCFA")
of the U.S. Department of Health and Human Services ("DHHS") under Section 1115
of the Social Security Act and authorized under Maryland Annotated Code,
Health-General Article, Sections 15-101 et seq.

       WHEREAS, the Department desires to provide health care services to
Medicaid recipients through the MCO.

       WHEREAS, the MCO is engaged in the business of arranging health care
services.

       NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:

I.     THE MCO AGREES:

       A.     To comply with the regulations of the HealthChoice Program at
COMAR 10.09.62-10.09.74, several of which are specifically referenced herein, as
well as any other applicable regulations, transmittals, and guidelines issued by
the Department in effect at any time during the term of this Agreement.

       B.     In accordance with COMAR 10.09.63.02, to accept enrollments by the
Department of HealthChoice-eligible Medicaid recipients (the "Enrollees") up to
the maximum numbers specified in Appendix A of this Agreement, and each update
to Appendix A.

       C.     To enter into a contract with any historic provider assigned to
the MCO by the Department in accordance with COMAR 10.09.65.16.

<PAGE>   4

       D.     To maintain, and assure that its subcontractors maintain, adequate
records which fully describe the nature and extent of all goods and services
provided and rendered to Enrollees, including but not limited to, medical
records, charts, laboratory test results, medication records, and appointment
books for a minimum of six (6) years, and to provide certified copies of medical
records and originals of business records upon request to the Department and/or
its designee, the Medicaid Fraud Control Unit, the Insurance Fraud Division of
the Maryland Insurance Administration, or any other authorized State or Federal
agency, or as otherwise required by State or Federal law or regulation, or
pursuant to subpoena or court order.

       E.     To permit the Department, the Maryland Insurance Administration,
and/or DHHS, or any of their respective designees to:

              1.     Evaluate the quality, appropriateness, and timeliness of
services performed through inspection, market conduct reviews or other means,
including accessing the MCO's and its subcontractors' facilities using
enrollment cards and identities established in the manner specified by the
Department. As to market conduct reviews, the costs incurred by the Maryland
Insurance Administration will be the responsibility of the Department.

              2.     Inspect and audit any financial records, including
reimbursement rates, of the MCO and any of its subcontractors relating to the
MCO's capacity to bear the risk of potential financial losses, as required by 42
C.F.R. Section 434.38.

       F.     To protect the confidentiality of all Enrollee information,
including but not limited to, names, addresses, medical services provided, and
medical data about the Enrollee, such as diagnoses, past history of disease, and
disability, and to not release such information to a third party except upon the
consent of the Enrollee or the Department, or as otherwise permitted by State or
Federal law or regulations, or pursuant to a court order.

       G.     To provide information which is necessary to achieve the purpose
of coordinating care and delivering quality health care to the MCO's enrollees,
to the Administrative Services Organization (ASO) of the Specialty Mental Health
System or to any other entity that the Maryland Medicaid Program so directs.

       H.     Not to prohibit or otherwise restrict a health care professional,
with a contractual, referral, or other arrangement with the MCO, from advising
an Enrollee who is a patient of the professional about the health status of the
individual or medical care or treatment for the individual's condition or
disease, regardless of whether benefits for such care or treatment are provided
under this Agreement, if the professional is acting within the lawful scope of
practice.

<PAGE>   5

       I.     Not to discriminate against a recipient on the basis of the
recipient's age, sex, race, creed, color, marital status, national origin,
physical or mental handicap, health status, or need for health care services.
(COMAR 10.09.65.02.H(2))

       J.     To comply with the standards in the Americans with Disabilities
Act, 42 U.S.C. Section 12101 et seq. (COMAR 10.09.65.02.H(1)).

       K.     To accept as payment in full the amounts paid by the Department in
accordance with COMAR 10.09.65.19 and 10.09.65.22 (stop loss), if applicable,
and to not seek or accept additional payment from any Enrollee for any covered
service; provided, however, that nothing in this Agreement shall prevent the MCO
from seeking coordination of benefits or subrogation recoveries in accordance
with applicable rules and regulations.

       L.     To make payment to health care providers for items and services
which are subject to this Agreement and that are furnished to the Enrollees on a
timely basis consistent with the claims payment procedures described in section
Section 1902(a)(37)(A) of the Social Security Act, and Maryland Annotated Code,
Health-General Article, Section 19-712.1, unless the health care provider and
the MCO agree to an alternate payment schedule.

       M.     Not to hold Enrollees, the Department, or DHHS liable for the
debts of the MCO or any of its subcapitated providers in the event of the MCO's
insolvency or the insolvency of its subcapitated provider, but nothing in this
paragraph shall waive the MCO's right to be paid for the services that it has
provided to its members.

       N.     Not to hold Enrollees or DHHS liable for the debts of the MCO for
services provided to the Enrollee:

                     a.     in the event that the MCO fails to receive payment
from the Department for such services, or

                     b.     in the event that a health care provider with a
contractual, referral, or other arrangement with the MCO fails to receive
payment from the Department or the MCO for such services.

       O.     To submit to the Department within thirty (30) days of the date
the MCO receives the monthly enrollment listings from the Department a list of
persons who are known to the MCO to have disenrolled, relocated to a geographic
area not serviced by the MCO, become ineligible to receive HealthChoice services
from the MCO, or died.

<PAGE>   6

       P.     To comply with all provisions of the Balanced Budget Act of 1997
that apply to this Agreement, including the State Medicaid Director's Letters
regarding managed care issued or to be issued in the future. The following
letters attached hereto have been issued to date and incorporated by reference:

<TABLE>
<CAPTION>
Section       Subject                                       Date Issued
-------       -------                                       -----------
<S>           <C>                                           <C>
4704(a)       Emergency Services                            02/20/98
              Emergency Services                            05/06/98
              Post-Stabilization Care                       08/05/98
</TABLE>

       Q.     To inform its subcontractors of the provisions of the Social
Security Act Section 1128 B attached hereto and incorporated by reference.

       R.     Not to knowingly have as a director, officer, partner, or owner of
more than five percent (5%) of the entity's equity, a person who is or has been:

              1.     debarred, suspended or otherwise excluded from
participating in procurement activities under the Federal Acquisition Regulation
or from participating in nonprocurement activities under regulations issued
pursuant to Executive Order No. 12549 or under guidelines implementing such
order; or

              2.     an affiliate of a person described in (1) above.

       S.     To notify the Department, by facsimile and in accordance with
Paragraph O of Section III of this Agreement within five (5) days of any change
in its ownership in excess of five percent (5%).

       T.     Not to knowingly have an employment, consulting, or other
agreement with a person described in Paragraph Q of this Section for the
provision of items and services that are significant and material to the
entity's obligations under this Agreement.

       U.     Notwithstanding any other provision of this Agreement, to be
subject to any change in Federal or State law or regulation, or other policy
guidance from HCFA or the Department that applies during the term of this
Agreement. The Department shall provide at least 15 days notice of any policy
changes and the MCO retains all rights available to challenge the authority or
basis for any such changes.

       V.     To acknowledge the sanction provisions under 42 C.F.R. 434.67 and
Part 1003.

       W.     Pursuant to 42 C.F.R. Section 417.479(a) and Section 422.208, not
to make payment directly or indirectly under a physician incentive plan to a
physician or

<PAGE>   7

physician group as an inducement to reduce or limit medically necessary services
furnished to an individual enrollee.

       X.     To disclose to the Department the information on provider
incentive plans listed in 42 C.F.R. Section 417.479(h)(1) and Section
417.479(I), and Section 422.210 at the times indicated in 42 C.F.R Section
434.70 in order to determine whether the incentive plan(s) meets the
requirements of 42 C.F.R. Section 417.479(d)-(g) and to provide the information
on its physician incentive plans listed in 42 C.F.R. Section 417.479(h)(3) to
any Enrollee, upon request.

       Y.     To execute the State Provider's Amendment to HealthChoice Provider
Service Agreements contained in Appendix B of this Agreement at the same time
that the MCO executes a HealthChoice Provider Service Agreement with a county
health department.

II.    THE DEPARTMENT AGREES:

       A.     To pay the MCO in accordance with COMAR 10.09.65.19.

       B.     If applicable, to pay accrued inpatient hospital charges once the
Stop Loss amount has been reached in accordance with COMAR 10.09.65.22 C,
deducting ten percent (10%) of the amount paid by the Department to the hospital
from the MCO's capitation payments, upon:

              1.     Confirmation of the MCO's eligibility for stop-loss
protection for that Enrollee; and

              2.     Receipt by the Department of adequate documentation of the
charges.

       C.     To produce and make available to the MCO on a monthly basis
remittance advice and the following reports:

              1.     MCO Capitation Detail Report;

              2.     MCO Capitation Summary Report;

              3.     MCO Capitation Report by Rate Group;

              4.     MCO Capitated Enrollment Report;

              5.     MCO Capitated Enrollment Summary;

              6.     MCO Dis-Enrollment Report By Site;

<PAGE>   8

              7.     MCO Capitated Dis-Enrollment Summary; and

              8.     Zip Code Totals Within MCO Provider.

       D.     To include in the monthly enrollment listings sent to the MCO the
adjustments provided by the MCO and accepted by the Department, and other
appropriate debit and credit transactions.

III.   THE DEPARTMENT AND THE MCO MUTUALLY AGREE:

       A.     That the term of this Agreement shall begin on January 1, 2000.

       B.     That this Agreement may be modified only in writing by the
parties.

       C.     That the Department reserves the right to terminate this Agreement
immediately upon receipt of:

              1.     Notification by DHHS that it is terminating Maryland's
Section 1115 HealthChoice Waiver and funding thereunder; or

              2.     Notification by the Maryland Department of Budget and
Management that State funds are not available for the continuation of
HealthChoice.

       D.     That the Department may terminate this Agreement if the MCO fails
to meet any one or more of the provisions of this Agreement or of applicable
laws, rules, regulations, or guidelines effective as of the date of this
Agreement or issued during the term of this Agreement, subject to the MCO's
right to an opportunity to take corrective action pursuant to COMAR 10.09.73.01B
prior to the imposition of a sanction.

       E.     That if the Department terminates this Agreement for any reason,
it shall not be liable for any costs of the MCO associated with the termination,
including but not limited to, any expenditures made by the MCO prior to the
termination or related to implementing the termination; however, this does not
relieve the Department of the obligation to make all payments to the MCO to
which the MCO is entitled under the HealthChoice regulations.

       F.     That the MCO may appeal a termination of the Agreement by the
Department in accordance with COMAR 10.09.72.06.

       G.     That MCO has the right to terminate this Agreement upon ninety
(90) days prior written notice to the Department.

<PAGE>   9

       H.     That termination of this Agreement shall not discharge the
obligations of the MCO with respect to services or items furnished prior to
termination, including payment for covered services delivered during the
contract period, retention of records and restitution to the Department of
overpayments.

       I.     That in the event of the termination of the Agreement either by
the Department or by the MCO, the MCO will furnish to the Department all
information relating to the reimbursement of any outstanding claims for services
rendered to its Enrollees, including those of its subcontractors, within
forty-five (45) days of the effective date of termination.

       J.     That, with the exception of new Enrollees during the period of
time between ten days after the Department's enrollment agent has notified the
MCO of a new enrollment and receipt by the MCO of the Department's next regular
monthly payment of capitation payment rates, the MCO is not required to pay for
or provide services for any Enrollee for which it has not received a prepaid
capitation rate from the Department.

       K.     That payments made under this Agreement will be denied for new
Enrollees when, and for so long as, payments for those Enrollees are denied by
HCFA under 42 C.F.R. Section 434.67(e), for violations of 42 C.F.R. Section
434.67(a).

       L.     That this Agreement shall not be transferable or assignable.

       M.     That any change in Federal or State law or regulation that affects
any provision or term of this Agreement shall automatically become a provision
or term of this Agreement.

       N.     That they shall carry out their mutual obligations as herein
provided in a manner prescribed by law and in accordance with all applicable
regulations and policies as may from time to time be promulgated by DHHS or any
other appropriate Federal or State agency, including compliance with the
contract provisions or conditions required in all procurement contracts and
subcontracts as specified under 45 C.F.R. Part 74.

       O.     That a notice required to be given to the other party under this
Agreement, unless specified otherwise, is effective only if the notice is sent
by first-class mail to the representative and address for that party listed
below:

              1.     Notices to the Department shall be sent to:

                     Ms. Jane Thompson
                     Director of HealthChoice and Acute Care
                     Department of Health and Mental Hygiene

<PAGE>   10

                     201 West Preston Street, 2nd Floor
                     Baltimore, MD 21201

              2.     Notices to the MCO shall be sent to:

                     General Counsel
                     Amerigroup Corporation
                     4425 Corporation Lane
                     Virginia Beach, VA 23462

                            and

                     Chief Operating Officer
                     Americaid Community Care
                     857 Elkridge Landing Road
                     Linthicum, MD 21090

IN WITNESS WHEREOF, the parties hereto have hereunder executed this Agreement
the day and year first above written.

                                             FOR THE DEPARTMENT:

12-21-99                                     /s/ Joseph M. Millstone
--------                                     -----------------------------------
Date                                         Joseph M. Millstone, Director
                                             Medical Care Policy
/s/ Nancy Hall                               Maryland Department of Health and
----------------------------                 Mental Hygiene
Witness

                                             FOR THE MCO:

12/20/99                                     /s/ David E. Ford
----------------------------                 -----------------------------------
Date                                         Signature

/s/ Donald Gilmore                           Pres and CEO MidAtlantic Region
----------------------------                 -----------------------------------
Witness                                      Title

APPROVED AS TO FORM AND LEGAL SUFFICIENCY

/s/ Elizabeth Kameen                         12/2/99
--------------------                         --------------------
Assistant Attorney General                   Date

<PAGE>   11

                                   APPENDIX A
                          MAXIMUM NUMBER OF RECIPIENTS
                        PERMITTED TO BE ENROLLED IN EACH
                      LOCAL ACCESS AREA IN THE MANAGED CARE
                    ORGANIZATIONS'S APPROVED SERVICE AREA(S)

Name of Managed Care Organization;       AMERICAID Community Care

Time Period:  January 1, 2000 to December 31, 2000

<TABLE>
<CAPTION>
Local Access Area                                   Maximum Number of                   Maximum
                                                    Children Under 21                    Number
<S>                                                 <C>                                 <C>

Allegheny
Anne Arundel North                                         22,200                        42,500
AnneArundel South                                          27,500                        51,500
Baltimore City-SE/Dundalk                                  20,900                        53,800
Baltimore City East                                        22,400                        92,500
Baltimore City North Central                               18,000                        28,200
Baltimore City Northeast                                    8,500                        16,700
Baltimore City Northwest                                   28,400                        63,300
Baltimore City South                                       17,700                        33,500
Baltimore City West                                        27,200                        82,400
Baltimore County East                                      18,000                        33,900
Baltimore County North                                     26,100                        66,700
Baltimore County Northwest                                 16,400                        31,200
Baltimore County Southwest                                 24,700                        44,200
Calvert
Caroline
Carroll
Cecil
Charles
Dorchester
Frederick
Garrett
Harford East
Harford West
Howard
Kent
Montgomery - Silver Spring                                 28,100                        68,800
Montgomery Mid-County                                      25,200                        44,800
Montgomery North                                           31,700                        60,800
Prince George's Northeast                                  16,500                        41,900
</TABLE>

<PAGE>   12

<TABLE>
<S>                                                 <C>                                 <C>
Prince George's Northwest                                 32,000                         56,100
Prince George's Southeast                                  6,000                         12,700
Prince George's Southwest                                  9,000                         23,100
Queen Ann"s
Somerset
St. Mary's
Talbot
Washington
Wicomico
Worcester
</TABLE>

<PAGE>   13

                                   APPENDIX B

               STATE PROVIDERS' AMENDMENT TO HEALTHCHOICE PROVIDER
                               SERVICE AGREEMENTS

       THIS AMENDMENT to the HealthChoice Provider Service Agreement, also known
as the__________________________________________________________________________
__________________________________________________________("HCPSA"), is
between:_______________________________________________________________________,
a Managed Care Organization, related managed care entity, provider network, or
subcontractor thereof ("MCO"), which is licensed and doing business as a
_____________________ under the laws of the State of ______________________,
with its principal and local offices at ______________________
__________________________________ and ____________________________________
County Health Department ("LOCAL HEALTH DEPARTMENT" or "LHD").

       WHEREAS, pursuant to Md. Code Ann. Health-Gen. Art. ("HG") Sections
15-101 et. seq., and the Code of Maryland Regulations ("COMAR") Sections
10.09.62-73 (Maryland Medicaid Managed Care Program), MCO and LHD ("THE
PARTIES") executed the HCPSA on __________________________; and

       WHEREAS, for the purposes of HCPSA and this Amendment, the LHD is a
health care provider ("PROVIDER" or "HCP") and an agency or unit of the State of
Maryland ("THE STATE") and the Maryland Department of Health and Mental Hygiene
("DEPARTMENT" or "DHMH"), with LHD operations funded in whole or in part by the
Department's Community and Public Health Administration ("CPHA"), under the
direction of a County (State) Health Officer, as provided at HG Sections 3-301,
et seq.

       NOW, THEREFORE, in consideration of the recitals and the mutual promises
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

       1. PURPOSE AND EFFECT OF AMENDMENT. This Amendment amends the HCPSA and
any amendments, appendices, addenda, supplements, and attachments thereto and
any documents and/or manuals referenced therein (collectively "THE PRINCIPAL
AGREEMENT"). If this Amendment and the Principal Agreement conflict, this
Amendment shall control the construction the Principal Agreement. The Principal
Agreement, so amended, shall be referred to as "THIS AGREEMENT."

       2. STATE OBLIGATIONS AND GENERAL TERMS.

              2.1. MCO Enrollees and Covered Services. LHD shall charge MCO, and
MCO shall reimburse LHD, pursuant to applicable law and the Principal Agreement
for all services provided to MCO's Medicaid-eligible HealthChoice Enrollee(s)
("ENROLLEE") for which the Enrollee(s) qualify under the Plan ("COVERED
SERVICES"). Covered Services include self-referred and emergency services, and
those services that are preauthorized by MCO.

              2.2. Compliance with Laws and Regulations: Notice of State's Legal
Obligations. Pursuant to COMAR Section 10.09.65.02S, LHD and MCO shall comply
with all applicable State and federal laws and regulations throughout the
term(s) of the Principal Agreement, and thereafter as required by law. The
parties acknowledge that LHD is, for purposes of this Agreement, an agency and
body politic and corporate of the State and as such is subject to, and shall
comply with, all applicable laws, including, without limitation: o MD. CODE ANN.
STATE GOV'T ART. ("SG") SECTIONS 10-611, ET SEQ. (Maryland Public Information
Act, or "PIA"), which provides public access to certain public records

<PAGE>   14

and information; o HG SECTIONS 4-301 ET SEQ. (Confidentiality of Medical Records
Act), which, together with other State and federal law, governs the
confidentiality and disclosure of the medical, mental health, dental, substance
abuse/addictions treatment, family planning, social work, professional peer
review, communicable disease, and other health care records and information
("HEALTH CARE RECORDS"), if any, that are maintained on or that identify an
individual; o HG SECTION 16-201 and COMAR SECTION 10.02.07.03 (Schedule of
Charges for Health Facilities Operated by or Funded in Whole or in Part by the
CPHA, or "PUBLISHED SCHEDULE OF CHARGES"); o COMAR SECTION 10.09.65.17A(4)(g),
which requires providers to look solely to Enrollees' MCOs for compensation for
all Covered Services provided; o COMAR SECTION 10.09.65.20, which refers to
established reimbursement rates to be paid to Out-of-Plan Providers for
emergency services or for certain services provided to self-referred Enrollees;
o HG SECTION 16-203(b)(2)(ii)(Liability for Payments) and COMAR SECTION
10.02.01.02a (Definition of Charge), which permits LHD's charge for a Covered
Service to be reduced by the elimination of disallowed costs by a third-party
payor, to determine a net charge, which may be accepted by LHD as reimbursement
or payment in full for the charged Covered Service; o MD. CODE ANN. STATE FIN. &
PROC. ART. ("SFP") SECTION 3-301 ET SEQ. (Central Collection Unit) and COMAR
SECTION 17.01.01.01 ET SEQ., which mandate certain debt service, referral and
collection procedures.

              2.3. Disclosure of Policies. All policies, procedures, protocols,
plans, programs, agreements, reporting and notice requirements, listings of
Covered Services (specified by service codes published in the applicable edition
of the American Medical Association's Physicians Current Procedural
Terminology), reimbursement rates and any other documents ("POLICIES") which
describe the parties' obligations pursuant to the Principal Agreement have been
identified and disclosed to LHD. MCO shall provide reasonable notice to LHD of
new or amended Policies.

       3. RISK ALLOCATION.

              3.1. Immunities and Defenses of the State and LHD Officers and
Personnel. The parties acknowledge that the state, its units, DHMH, CPHA, LHD,
LHD's County Board of Health (in its capacity as an agency of the State), and
their officers, principals, agents, servants, employees, personnel, successors
and assigns (jointly and severally, "THE STATE") retain and do not waive any
privileges, immunities or defenses, including without limitation public
official, sovereign and/or governmental immunity retained at common law and/or
subject to the limited waiver thereof pursuant to SG SECTION 12-101, ET SEQ.,
(the Maryland Tort Claim Act or "MTCA"), COMAR SECTION 25.02.02, and SG Section
12-201 ET SEQ. (Actions in Contract). Pursuant to the MTCA, the County (State)
Health Officer, any other State employees of the LHD, and any State personnel
who act without malice or gross negligence, and within the scope of their
public duties or State employment, are personally immune from suit and liability
for torts committed in the course of providing LHD services pursuant to this
Agreement. The parties acknowledge that a local government and its units and
employees enjoy the limitations on and/or immunities from liability for tortious
acts or omissions set forth at MD. CODE ANN. CTS & JUD. PROC. ART. ("CJP")
SECTION 5-301, ET SEQ., (Local Government Tort Claims Act or "LGTCA").

              3.2. Limited Indemnification and State Liability. THE STATE agrees
to indemnify MCO only to the extent that funds have been lawfully appropriated
by the Maryland General Assembly expressly to pay such an indemnity, and then
only up to the limits of the available appropriated funds, if any, for a
judgment against MCO that results solely from the misfeasance or nonfeasance of
THE STATE. THE STATE has no obligation for the payment of any judgments or the
settlement of any claims made against MCO or its subcontractors as a result of
or relating to MCO's obligations under this Agreement. THE STATE has no
obligation to provide legal counsel or legal defense to the MCO or its
subcontractors in the event that a suit, claim or action of any character is
brought by any person(s) not party to this Agreement against MCO or its
subcontractors as a result of or relating to MCO's obligations under this
Agreement. MCO hereby forever releases THE STATE from any other obligation or
duty to indemnify or defend MCO for any third party claims, including

<PAGE>   15

without limitation tort or malpractice claims, for any direct, indirect,
compensatory, special or punitive damages, or attorney's fees, if any, arising
out of, or in connection with any acts or omissions pursuant to this Agreement.
MCO shall immediately give written notice to LHD of any claim or suit made or
filed against MCO or its subcontractors regarding any matter resulting from or
relating to MCO's obligations under this Agreement, and shall cooperate, assist
and consult with THE STATE in the defense or investigation of any claim, suit,
or action made or filed against THE STATE as a result of or relating to MCO's
obligation under this Agreement. MCO shall indemnify and hold harmless the STATE
against liability for any suits, actions, or claims of any character arising
from or relating to the performance under this Agreement of MCO or its
subcontractors. Any attempt by MCO to limit its liability, if any, to THE STATE
for the negligence or willful misconduct of MCO or of its officers, agents,
servants, employees, successors or assigns is and shall be null, void and of no
force or effect. THE STATE does not waive any right or defense, or forebear any
action, in connection herewith.

              3.3. State Insurance Program and Payment of Settlements and
Judgments. Pursuant to SFP Section 9-101 et seq. (State Insurance Program or
"SIP"), funds are appropriated by the Maryland General Assembly and administered
by the State Treasurer to pay limited claims against the State, pursuant to the
MTCA's limited waiver of sovereign immunity. Pursuant to SG Sections 12-401
(Payment of Settlements and Judgments - Definition of State Personnel), et seq.,
the parties acknowledge that, subject to certain exceptions and limitations, the
Board of Public Works ("BPW") is authorized to pay wholly or partly a settlement
or judgment against any State Personnel, including county employees of the LHD,
if any, who act without malice or gross negligence, and within the scope of
their public duties and responsibilities, to discharge part of the purpose and
sovereignty of the State in connection with this Agreement. In addition to the
self-insurance coverage of the State provided pursuant to SFP SECTIONS 9-101 ET
SEQ., and SG SECTIONS 12-401, ET SEQ., THE STATE may have or obtain such
professional OR other liability insurance coverage as THE STATE deems necessary
and desirable, and for which funds have been appropriated by the General
Assembly expressly for the payments of premiums thereon, but THE STATE shall
have no further obligation, except as may be required by law, to purchase any
policies of insurance. Notwithstanding any right to access public information
reserved under the PIA, the parties hereby stipulate and agree that the
representations and acknowledgments made by THE STATE in this section, and the
legislative declarations made in the statutory authorities cited herein, satisfy
all requirements for MCO subcontracts provided in COMAR Section
10.09.65.17(A)(4)(h)(assurance of professional liability coverage) as well as
any additional contract requirements pertaining to the documentation of LHD's
insurance claims history and coverage.

       4. TERMINATION, CONSTRUCTION AND ENFORCEMENT.

              4.1. Termination. LHD shall have the same discretionary
termination rights as are reserved to MCO in the Principal Agreement. LHD shall
have the right immediately to terminate this Agreement for cause in the event
that LHD reasonably believes that the MCO will not be able to meet its payment
obligations or MCO commits a material breach of its obligations under this
Agreement and does not remedy the breach within ten (10) days of receiving prior
written notice, by certified mail, of the material breach from LHD.

              4.2. Anticompetitive Construction Barred. This Agreement may not
be construed or enforced in violation of applicable Antitrust laws or otherwise
to impair market competition with other MCOs, Health Maintenance Organizations
("HMOs"), or other managed care entities or provider groups providing of health
care services to Medicaid recipients or other individuals eligible for LHD
services. Nor may this Agreement be deemed a restrictive covenant or enforced in
any manner that limits LHD's capacity to enter into HCPSAs with other managed
care entities, including MCOs, HMOs, and their subcontractors.

              4.3. Independent Contractors and Third-Party Beneficiaries. This
Agreement may not be deemed or construed to create any relationship between or
among LHD and MCO other than that of independent entities contracting solely for
the purposes of effectuating the terms of this

<PAGE>   16

Agreement. Except as otherwise expressly provided herein, neither of the parties
to this Agreement, nor any third party, shall be construed to be the agent,
servant, employee, partner, co-venturer, or representative of the other party or
of any third party. The obligations of each party to this Agreement shall inure
solely to the benefit of the other party, and no person or entity shall be a
third-party beneficiary of this Agreement.

              4.4. Entire Understanding, Amendments, and Strict Enforcement.
This Agreement supersedes any prior agreement or understanding of the parties
concerning the matters set forth herein and constitutes the entire understanding
between the parties as to said matters. Amendments to this Agreement shall not
be effective unless reduced to writing. This Agreement shall be deemed amended,
automatically and without prior notice, to incorporate changes in law -
including without limitation changes in Medicaid laws and regulations -
applicable hereto. The failure of LHD to insist on strict compliance and prompt
performance of any terms of this Agreement, followed by the acceptance of such
performance thereafter, shall not constitute or be construed as a waiver or
relinquishment of any right by LHD to enforce all terms strictly in the event of
a continuous or subsequent default. Neither party hereto shall be deemed to be
the principal drafter of this Agreement or any part thereof.

              4.5. Governing Law. The Principal Agreement and this Amendment
shall be construed and enforced in accordance with, and governed by, the laws of
the State of Maryland. MCO agrees to submit to the jurisdiction of the Circuit
Court of Maryland for the county or political subdivision in which the LHD is
located, with respect to the enforcement of the Principal Agreement and/or this
Amendment or any other proceeding arising thereunder.

       IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their undersigned duly authorized representatives, and to be effective as of
the effective date of the Principal Agreement:

FOR (name of MCO):
                  --------------------------------------------------------------

Signed:                                           Date:
       --------------------------------------          -------------------------

NAME:
     --------------------------------------
TITLE:
      -----------------------

                                      * * *

FOR (name of LHD):
                  --------------------------------------------------------------

Signed:                                           Date:
       --------------------------------------          -------------------------

NAME:
     --------------------------------------
TITLE: County (State) Health Officer

Approved for form and legal sufficiency

By: /s/ David S. Morgan     Date: 3/23/99
    -------------------           -------

David R. Morgan, Assistant Attorney General

<PAGE>   17

February 20, 1998

Dear State Medicaid Director:

This letter is one in a series that provides guidance on the implementation of
the Balanced Budget Act of 1997 (BBA). The BBA contains numerous provisions
relating specifically to managed care. In order to provide guidance on these as
quickly as possible, we are issuing a number of managed care letters. (List of
those already issued is attached). This letter is the twelfth in this managed
care series.

The purpose of this letter is to advise you of the changes made by the BBA
regarding coverage of emergency services by managed care organizations (MCOs).
Section 4704 of the BBA added section 1932(b)(2) to the Social Security Act (the
Act) to assure Medicaid managed care beneficiaries have the right to immediately
obtain emergency care and services.

Under the new statutory provision, each contract with an MCO must require the
organization to provide for coverage of emergency services. (For PCCMs, see
Application to PCCMs, below.) We interpret coverage to mean that an MCO must pay
for the cost of emergency services obtained by Medicaid enrollees. In addition
to establishing an obligation to cover emergency services, the law further
stipulates that emergency services must be covered without regard to prior
authorization or the emergency care provider's contractual relationship with the
organization. These provisions collectively enable a Medicaid enrollee to
immediately obtain emergency services at the nearest provider when and where the
need arises. The responsibility of MCOs regarding the coverage of emergency
services is explained in more detail in the attachment.

Emergency services are defined broadly by the BBA to mean covered inpatient and
outpatient services that are needed to evaluate or stabilize an emergency
medical condition that is found to exist using a prudent layperson standard
described below. The services must also be furnished by a provider that is
qualified to furnish such services under Medicaid. Once the individual's
condition is considered stabilized, the MCO may require authorization for
hospital admission or follow-up care.

The BBA defines emergency medical condition as a medical condition manifesting
itself by acute symptoms of sufficient severity (including severe 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 placing the health of the individual (or with respect to a pregnant
woman, the health of the woman or her unborn child) in serious jeopardy, serious
impairment to body functions or serious dysfunction of any bodily organ or part.
While this standard encompasses clinical emergencies, it also clearly requires
MCOs to base coverage decisions for emergency services on the severity of the
symptoms at the time of

<PAGE>   18

presentation and to cover examinations where the presenting symptoms are of
sufficient severity to constitute an emergency medical condition in the judgment
of a prudent layperson.

In addition to covering medical services that are needed to evaluate or
stabilize an emergency medical condition found using a prudent layperson
standard, the contract must require the MCO to comply with the guidelines for
coordinating post-stabilization care established under Medicare Part C. This
particular requirement is effective 30 days after the date Medicare regulations
are promulgated.

Application to PCCMs

The prudent layperson standard should be applied to determine when Medicaid
beneficiaries in a PCCM may immediately seek treatment without having to obtain
prior authorization from the PCCM. However, we realize that the financial
structure of PCCMs is significantly different from that of MCOs and we do not
believe Congress intended to make PCCMs financially responsible for emergency
services furnished on a fee-for-service basis. Therefore, HCFA will not require
changes to PCCM contracts to provide for payment of emergency services.

Sanctions

Medicaid MCOs that fail to cover emergency screening or stabilization services
may be subject to intermediate sanctions or termination. Section 1932(e) of the
Act authorizes States to use intermediate sanctions if an MCO fails
substantially to provide medically necessary items and services that are
required (under law or under the organization's contract with the State) to be
provided to an enrollee covered under the contract. HCFA may also impose
sanctions under 1903(m)(5)(A) of the Act if the failure to cover emergency
services as required under 1932(b)(2) of the Act adversely affects (or has a
substantial likelihood of adversely affecting) a Medicaid beneficiary. Contract
termination may also be imposed for any violation of the requirements in
sections 1903(m) and/or 1932 of the Act.

If you have any questions, please contact Rob Weaver at 410-786-5914.
Sincerely,

/s/

Sally K. Richardson
Director
Center for Medicaid and State Operations

Attachments

cc:
HCFA Regional Administrators

<PAGE>   19

HCFA Associate Regional Administrators
HCFA Press Office
Jennifer Baxendell, National Governors Association
Lee Partridge, American Public Welfare Association
Joy Wilson, National Conference of State Legislatures

<PAGE>   20

              CLARIFICATION OF BENEFICIARY ACCESS AND MCO FINANCIAL
                     RESPONSIBILITIES FOR EMERGENCY SERVICES

MCO RESPONSIBILITY -- BENEFICIARY INFORMATION-- MCOs are required to inform
beneficiaries of their rights and responsibilities and information on covered
items and services. Plans should inform beneficiaries of the following regarding
their rights of access to, and coverage of, emergency services, both inside and
outside of the plan's network.

       BOTH IN-NETWORK AND OUT-OF-NETWORK EMERGENCY SERVICES ARE
       MEDICAID-COVERED BENEFITS

       Definition of Emergency Services -- Emergency services are defined as
       covered inpatient and outpatient services furnished by a qualified
       Medicaid provider that are necessary to evaluate or stabilize an
       emergency medical condition.

       Definition of Emergency Medical Condition -- Coverage of emergency
       services by an MCO will be determined under the prudent layperson
       standard. That standard considers the symptoms (including severe pain) of
       the presenting beneficiary. MCOs must cover cases where the presenting
       symptoms are of sufficient severity that a person with average knowledge
       of health and medicine would reasonably expect the absence of immediate
       medical attention to result in (i) placing their health or the health of
       an unborn child in immediate jeopardy, (ii) serious impairment of bodily
       functions, of (iii) serious dysfunction of any bodily organ or part.

       Prohibition on Retrospective Denial for Services Which Appeared to Be
       Emergencies -- MCOs may not retroactively deny a claim for an emergency
       screening examination because the condition, which appeared to be an
       emergency medical condition under the prudent layperson standard (as
       defined above), turned out to be non-emergency in nature.

       Prohibition on Prior Authorization for Emergency Services--MCOs may not
       require prior authorization for emergency services. This applies to
       out-of-network as well as to in-network services which a beneficiary
       seeks in an emergency.

       MCO RESPONSIBILITY--PAYMENT LIABILITY AND COVERAGE OF EMERGENCY SERVICES
       -- Under the Emergency Medical Treatment and Active Labor Act, also
       commonly referred to as the anti-dumping statute, Medicare participating
       hospitals that offer emergency services are required to perform a medical
       screening examination on all people who come to the hospital seeking
       emergency care, regardless of their insurance status or other personal
       charac-

<PAGE>   21

       teristics. If an emergency medical condition is found to exist, the
       hospital must provide whatever treatment is necessary to stabilize that
       condition. A hospital may not transfer a patient in unstabilized
       emergency condition to another facility unless the medical benefits of
       the transfer outweigh the risks, and the transfer conforms with all
       applicable requirements. When emergency services are provided to an
       enrollee of a MCO, the organizations's liability for payment is
       determined as follows:

       Presence of a Clinical Emergency -- If the screening examination leads to
       a clinical determination by the examining physician that an actual
       emergency medical condition exists, MCOs must pay for both the services
       involved in the screening examination and the services required to
       stabilize the patient.

       Emergency Services Continue Until the Patient Can be Safely Discharged or
       Transferred -- MCOs are required to pay for all emergency services which
       are medically necessary until the clinical emergency is stabilized. This
       includes all treatment that may be necessary to assure, within reasonable
       medical probability, that no material deterioration of the patient's
       condition is likely to result from, or occur during, discharge of the
       patient or transfer of the patient to another facility.

       If there is a disagreement between a hospital and an MCO concerning
       whether the patient is stable enough for discharge or transfer, or
       whether the medical benefits of an unstabilized transfer outweigh the
       risks, the judgment of the attending physician(s) actually caring for the
       beneficiary at the treating facility prevails and is binding on the MCO.
       The MCO may establish arrangements with hospitals whereby the MCO may
       send one of its own physicians with appropriate ER privileges to assume
       the attending physician's responsibilities to stabilize, treat, and
       transfer the patient.

       Absence of a Clinical Emergency -- If the screening examination leads to
       a clinical determination by the examining physician that an actual
       emergency medical condition does not exist, then the determining factor
       for payment liability should be whether the beneficiary had acute
       symptoms of sufficient severity at the time of presentation. In these
       cases, the MCO must review the presenting symptoms of a beneficiary and
       must pay for all services involved in the screening examination where the
       presenting symptoms (including severe pain) were of sufficient severity
       to have warranted emergency attention under the prudent layperson
       standard. If a Medicaid beneficiary believes that a claim for emergency
       services has been inappropriately denied by an MCO, the beneficiary may
       seek recourse through the MCO or State appeal process.

<PAGE>   22

       Referrals -- When a beneficiary's primary care physician or other plan
       representative instructs the beneficiary to seek emergency care
       in-network or out-of-network, the plan is responsible for payment for the
       medical screening examination and for other medically necessary emergency
       services, without regard to whether the patient meets the prudent
       layperson standard described above.

BBA MANAGED CARE STATE LETTERS

<TABLE>
<CAPTION>
Section              Subject                                         Date Issued
<S>                  <C>                                             <C>

4701                 SPA Option for Managed Care                     12/17/97

4704(a)              Specification of Benefits                       12/17/97

4707(a)              Marketing Restrictions                          12/30/97

4704(a)              Miscellaneous Managed Care Provisions           12/30/97
4707(b)
4706
4707(a)
4707(c)
4708(b)
4708(c)
4708(d)

4701                 Choice, MCE Definition, Repeal of 75/25,        1/14/98
4703                 and Approval Threshold
4708(a)

4705                 External Quality Review                         1/20/98

4704(a)              Mental Health Parity                            1/20/98
4701(a)              Enrollment, Termination, and                    1/21/98
                     Default Assignment

4702                 PCCM Services Without Waiver                    1/21/98

4707(a)              Sanctions for Noncompliance                     2/20/98

4701(a)              Provision of Information & Effective Dates      2/20/98
4710(a)
</TABLE>

<PAGE>   23

Dear State Medicaid Direct of:

This letter is a follow up to the State Medicaid Director's (SMD) letter that
was issued on March 25, 1998 (#17 in the series of letters on managed care)
providing guidance on the implementation of the Balanced Budget Act of
1997(BBA). That letter explained the impact of the BBA's limited exemption from
new managed care requirements for waiver programs under section 1115 and 1915(b)
of the Act. This is the eighteenth in the series of letters on the BBA's managed
care provisions. (See the Enclosure to this letter for a list of managed care
letters already issued.)

Section 4710(c) of the BBA provides that none of the provisions contained in
sections 4701 through 4710 of the BBA will affect the terms and conditions of
any approved waiver under section 1915(b) or 1115 of the Act, as the waiver
stood on the date of the BBA enactment (August 5, 1997).

The March 25 letter contained guidance to be used in reviewing each current
waiver programs with regard to each provision in sections 4701 through 4710 (in
consultation with the HCFA Regional Office) to determine whether and to what
extent specific BBA provisions apply to the State's waiver programs. Since that
letter was issued, a number of questions have been raised as to whether a State
which operates a managed care program under a section 1915(b) or 1115 waiver
would be exempt from the prudent layperson's definition of emergency medical
condition contained in section 4704(a) of the BBA.

The primary factor in determining whether a particular BBA provision applies to
a waiver is whether that "revision is specifically addressed in State
documentation approved by HCFA. The use of a prudent person's definition of
emergency medical condition was cited as an example of a BBA provision which
would have to be implemented, in the response to Questions #2 in the enclosure
to the March 25 letter. States which did not previously apply a prudent
layperson concept to their definition of an emergency medical condition in their
section 1915(b) or section 1115 waiver programs would have to implement this
provision with respect to all contracts entered into or renewed on or after
October 1, 1997.

Although the answer in the March 25 letter was written in the context of a
response to a question on 19 15(b) waivers, it was intended that the rule be
applied to all waiver programs. If you have any questions regarding this
provisions, please contact Bruce Johnson in the Center for Medicaid and State
Operations, on (410) 786-0615.

Sincerely,

/s/
----------------------------

Sally Richardson

<PAGE>   24

Director
Center for Medicaid and State Operations

Enclosure

cc:
Partridge, American Public Welfare Association
Jennifer Baxendell, National Governors' Association
Joy Wilson, National Conference of State Legislators
All HCFA Regional Administrators
All HCFA Associate Regional Administrators for Medicaid and State Operations
HCFA Press Office

Enclosure

<PAGE>   25

                         BBA MANAGED CARE STATE LETTERS

<TABLE>
<CAPTION>
SECTION              SUBJECT                                         DATE ISSUED
<S>                  <C>                                             <C>
4701                 SPA Option for Managed Care                     12/17/97

4704(a)              Specification of Benefits                       12/17/97

4707(a)              Marketing Restrictions                          12/30/97

4704(a)              Miscellaneous Managed Care Provisions           12/30/97
4704(b)
4706
4707(a)
4707(c)
4708(b)
4708(c)
4708(d)

4701                 Choice, MCE Definition, Repeal of 75/25,        1/14/98
4703                 and Approval Threshold
4708 (a)
4705                 External Quality Review                         1/20/98
4704(a)              Mental Health Parity                            1/20/98
4701(a)              Enrollment, Termination, and                    1/21/98
                     Default Assignment
4702                 PCCM Services Without Waiver                    1/21/98
4707(a)              Sanctions for Noncompliance                     2/20/98
4701(a)              Provision of Information & Effective Dates      2/20/98
4710 (a)
4704(a)              Emergency Services                              2/20/98
4704(a)              Grievance Procedure                             2/20/98
4707(a)              Prohibiting Affiliations with Debarred          2/20/98
                     Individuals
4704(a)              Anti-discrimination of Providers and            2/20/98
                     Anti-Gag Rule
4707(a)              Marketing Restrictions                          2/20/98
4710(c)               Application to Waivers                         3/25/98
</TABLE>

<PAGE>   26

August 5, 1998

Dear State Medicaid Director

This letter is a follow-up to the State Medicaid Director's (SMD) letter that
was issued on February 20, 1998 (#12 in the series of letters on managed care)
providing guidance on the implementation of the Balanced Budget Act of 1997
(BBA). That letter explained the changes made by the BBA regarding coverage of
emergency services by managed care organizations (MCOs). The purpose of this
letter is to clarify for you changes made by the BBA regarding
post-stabilization care (relating to emergency services coverage) by MCOs. This
is the nineteenth in the series of letters on the BBA's managed care provisions.
(See the Enclosure to this letter for a list of managed care letters already
issued.)

In the previous SMD letter covering emergency services dated February 20, 1998,
we stated that contracts between States and MCOs must require the MCO to comply
with the guidance for coordinating post-stabilization care established for
Medicare+Choice plans 30 days after those regulations are promulgated. HCFA
defines "are promulgated" as "became effective." The Medicare Part C regulation
became effective on July 27, 1998. Therefore, in contracts with MCOs signed on
and after August 26, 1998, States must comply with the language shown in
boldface below, as stated in the Medicare+Choice regulation at 42 C.F.R. 422.
100(b)(1)(iv).

Each MCO must cover the following services without requiring authorization, and
regardless of whether the enrollee obtains the services within or outside the
MCO:

Post-stabilization care services that were preapproved by the entity; or were
not preapproved by the entity because the entity did not respond to the provider
of post-stabilization care services' request for pre-approval within 1 hour
after being requested to approve such care, or could not be contacted for
pre-approval.

Post-stabilization services are services subsequent to an emergency that a
treating physician views as medically necessary AFTER an emergency medical
condition has been stabilized. They are NOT "emergency services," which MCOs are
obligated to cover in-or-out of plan according to the "prudent layperson"
standard. Rather, they are NON-emergency services that the MCO could choose NOT
to cover out-of-plan EXCEPT in the circumstances described above. The intent of
the regulation is to promote efficient and timely coordination of appropriate
care of a managed care enrollee after the enrollee's condition has been
determined to be stable.

If you have any questions, please contact Tim Roe at 41 0-786-2006.

<PAGE>   27

Sincerely,

/s/
----------------------------
Sally K. Richardson
Director
Center for Medicaid and State Operations

<PAGE>   28

188                            SOCIAL SECURITY ACT

<TABLE>
<S>                                                           <C>
the United States, or of any department or agency             (PubLNo 97-248), sections 2306(f)(l) and 2354(a)(3)
thereof, or of any State agency (as defined in                of the "Medicare and Medicaid Budget Reconciliation
subsection (h)(1)), a claim (as defined in                    Amendments of 1984" (PubLNo 98-369), sections
subsequent (h)(2)) that the Secretary determines--            9313(c)(1), and 9317(a) and (b) of the "Omnibus
                                                              Budget Reconciliation Act of 1986" (PubLNo 99-509),
"(1) is for a medical or other item or service--              and section 3 of the "Medicare and Medicaid Patient
                                                              and Program Protection Act of 1987" (PubLNo 100-93),
"(A) that the person knows or has reason to know was          sections 4039(h), 4118(e)(1), (c)(6), (e)(7),
not provided as claimed, or                                   (c)(8), (e)(9), and (e)(10) of the "Omnibus Budget
                                                              Reconciliation Act of 1987" (PubLNo 100-203),
"(B) payment for which may not be made under the              sections 202(c)(2) (but note that this amendment was
program under which such claim was made, pursuant to          repealed by section 201(a)(1) of the "Medicare
a determination by the Secretary under section 1128,          Catastrophic Coverage Repeal Act of 1989" (PubLNo
1160(b), 1862(d), or 1866(b)(2), or                           101-234)), 411(cX3), 411(k)(10)(B) and (D) of the
                                                              "Medicare Catastrophic Coverage Act of 1988" (PubLNo
"(2) is submitted in violation of an agreement                100-360), sections 608(d)(26)(I) and (26)(K)(i) of
between the person and the United States or a State           the "Family Support Act of 1988" (PubLNo 100-485),
agency."                                                      section 6003(g)(D)(i) of the "Omnibus Budget
                                                              Reconciliation Act of 1989" (PubLNo 101-239),
1981 AMENDMENTS:                                              sections 4204(a)(3), 4207(h), 4731(b), and 4753 of
                                                              the "Omnibus Budget Reconciliation Act of 1990"
       Section 1128A was added by section 2105(a) of          (PubLNo 101-508), sections 231 and 232 of the
the "Medicare and Medicaid Amendments of 1981,"               "Health Insurance Portability and Accountability Act
effective August 13, 1981.                                    of 1996" (PubLNo 104-191).

HISTORY:

       Section 2105(a) of the "Medicare and Medicaid
Amendments of 1981" (PubLNo 97-35); as amended by
section 137(b)(26) of the "Tax Equity and Fiscal
Responsibility Act of 1982."
</TABLE>

[P. 16,457B-2]               CRIMINAL PENALTIES FOR
                   ACTS INVOLVING FEDERAL HEALTH CARE PROGRAMS

                          [42 U.S.C. Section 1320a-7b]

Sec. 1128B. (a)   Whoever--

              (1) knowingly and willfully makes or causes to be made any false
       statement or representation of a material fact in any application for any
       benefit or payment under a Federal health care program (as defined in
       subsection (f)),

              (2) at any time knowingly and willfully makes or causes to be made
       any false statement or representation of a material fact for use in
       determining rights to such benefit or payment,

<PAGE>   29

              (3) having knowledge of the occurrence of any event affecting (A)
       his initial or continued right to any such benefit or payment, or (B) the
       initial or continued right to any such benefit or payment of any other
       individual in whose behalf he has applied for or is receiving such
       benefit or payment, conceals or fails to disclose such event with an
       intent fraudulently to secure such benefit or payment either in a greater
       amount or quantity than is due or when no such benefit or payment is
       authorized,

              (4) having made application to receive any such benefit or payment
       for the use and benefit of another and having received it, knowingly and
       willfully converts such benefit or payment or any part thereof to a use
       other than for the use and benefit of such other person,

              (5) presents or causes to be presented a claim for a physician's
       service for which payment may be made under a Federal health care program
       and knows that the individual who furnished the service was not licensed
       as a physician, or

              (6) knowingly and willfully disposes of assets (including by any
       transfer in trust) in order for an individual to become eligible for
       medical assistance under a State plan under title XIX, if disposing of
       the assets results in the imposition of a period of ineligibility for
       such assistance under section 1917(c),

shall (i) in the case of such a statement, representation, concealment, failure,
or conversion by any person in connection with the furnishing (by that person)
of items or services for which payment is or may be made under the program, be
guilty of a felony and upon conviction thereof fined not more than $25,000 or
imprisoned for not more than five years or both, or (ii) in the case of such a
statement, representation, concealment, failure, or conversion by any other
person, be guilty of a misdemeanor and upon conviction thereof fined not more
than $10,000 or imprisoned for not more than one year, or both. In addition, in
any case where an individual who is otherwise eligible for assistance under a
Federal health care program is convicted of an offense under the preceding
provisions of this subsection, the administrator of such program may at its
option (notwithstanding any other provision of such program) limit, restrict, or
suspend the eligibility of that individual for such period (not exceeding one
year) as it deems appropriate; but the imposition of a limitation, restriction,
or suspension with respect to the eligibility of any individual under this
sentence shall not affect the eligibility of any other person for assistance
under the plan, regardless of the relationship between that individual and such
other person.

       (b) (1) Whoever knowingly and willfully solicits or receives any
remuneration (including any kickbacks, bribe, or rebate)directly or indirectly,
overtly or covertly, in cash or in kind--

<PAGE>   30

              (A) in return for referring an individual to a person for the
              furnishing or arranging for the furnishing of any item or service
              for which payment may be made in whole or in part under a Federal
              health care program, or

              (B) in return for purchasing, leasing, ordering, or arranging for
              or recommending purchasing, leasing, or ordering any good,
              facility, service, or item for which payment may be made in whole
              or in part under a Federal health care program,

shall be guilty of a felony and upon conviction thereof, shall be fined not more
than $25,000 or imprisoned for not more than five years, or both.

            (2) Whoever knowingly and willfully offers or pays any
       remuneration (including any kickback, bribe, or rebate) directly or
       indirectly, overtly or covertly, in cash or in kind to any person to
       induce such person--

              (A) to refer an individual to a person for the furnishing or
              arranging for the furnishing of any item or service for which
              payment may be made in whole or in part under a Federal health
              care program, or

              (B) to purchase, lease, order, or arrange for or recommend
              purchasing, leasing, or ordering any good, facility, service, or
              item for which payment may be made in whole or in part under a
              Federal health care program,

shall be guilty of a felony and upon conviction thereof shall be fined not more
than $25,000 or imprisoned for not more than five years, or both.

            (3) Paragraphs (1) and (2) shall not apply to--

              (A) a discount or other reduction in price obtained by a provider
              of services or other entity under this title if the reduction in
              prices is properly disclosed and appropriately reflected in the
              costs claimed or charges made by the provider or entity under a
              Federal health care program;

              (B) any amount paid by an employer to an employee (who has a bona
              fide employment relationship with such employer) for employment in
              the provision of covered items or services;

              (C) any amount paid by a vendor of goods or services to a person
              authorized to act as a purchasing agent for a group of
              individuals or entities who are furnishing services reimbursed
              under a Federal health care program if--

                     (i) the person has a written contract, with each such
                     individual or entity, which specifies the amount to be paid
                     the person, which amount may be

<PAGE>   31

                     a fixed amount or a fixed percentage of the value of the
                     purchases may be made by each such individual or entity
                     under the contract, and

                     (ii) in the case of an entity that is a provider of
                     services (as defined in section 1861(u)), the person
                     discloses (in such form and manner as the Secretary
                     requires) to the entity and, upon request, to the Secretary
                     the amount received from each such vendor with respect to
                     purchases made by or on behalf of the entity;

              (D) a waiver of any coinsurance under part B of title XVIII by a
              Federally qualified health care center with respect to an
              individual who qualifies for subsidized services under a provision
              of the Public Health Service Act;

              (E) any payment practice specified by the Secretary in regulations
              promulgated pursuant to section 14(a) of the Medicare and Medicaid
              Patient and Program Protection Act of 1987; and

              (F) any remuneration between an organization and an individual or
              entity providing items or services, or a combination thereof,
              pursuant to a written agreement between the organization and the
              individual or entity if the organization is an eligible
              organization under section 1876 or if the written agreement,
              through a risk-sharing arrangement, places the individual or
              entity at substantial financial risk for the cost or utilization
              of the items or services, or a combination thereof, which the
              individual or entity is obliged to provide.

       (c) Whoever knowingly and willfully makes or causes to be made, or
induces or seeks to induce the making of any false statement or representation
of a material fact with respect to the conditions or operation of any
institution, facility, or entity in order that such institution, facility, or
entity may qualify (either upon initial certification or upon recertification)
as a hospital, rural primary care hospital, skilled nursing facility, nursing
facility, intermediate care facility for the mentally retarded, home health
agency, or other entity (including an eligible organization under section
1876(b)) for which certification is required under title XVIII or a State health
care program (as defined in section 1128(h)), or with respect to information
required to be provided under section 1124A, shall be guilty of a felony and
upon conviction thereof shall be fined not more than $25,000 or imprisoned for
not more than five years, or both.

       (d) Whoever knowingly and willfully--

            (1) charges, for any service provided to a patient under a State
       plan approved under title XIX, money or other consideration at a rate in
       excess of the rates established by the State, or

<PAGE>   32

            (2) charges, solicits, accepts, or receives, in addition to any
       amount otherwise required to be paid under a State plan approved under
       title XIX, any gift, money, donation, or other consideration (other than
       a charitable, religious, or philanthropic contribution from an
       organization or from a person unrelated to the patient)--

              (A) as a precondition of admitting a patient to a hospital,
              nursing facility, or intermediate care facility for the mentally
              retarded, or

              (B) as a requirement for the patient's continued stay in such a
              facility.

       when the cost of the services provided therein to the patient is paid for
       (in whole or in part) under the State plan.

shall be guilty of a felony and upon conviction thereof shall be fined not more
than $25,000 or imprisoned for not more than five years, or both.

       (e) Whoever accepts assignments described in section 1842(b)(3)(B)(ii) or
agrees to be a participating physician or supplier under section 1842(h)(l) and
knowingly, willfully, and repeatedly violates the term of such assignments or
agreement, shall be guilty of a misdemeanor and upon conviction thereof shall be
fined not more than $2,000 or imprisoned for not more than six months, or both.

       (f) For purposes of this section, the term "Federal health care program"
means--

            (1) any plan or program that provides health benefits, whether
       directly, through insurance, or otherwise, which is funded directly, in
       whole or in part, by the United States Government (other than the health
       insurance program under chapter 89 of title 5, United States Code); or

            (2) any State health care program, as defined in section 1128(h)

1996 AMENDMENTS:

            Section 204 of the "Health Insurance Portability and
Accountability Act of 1996," effective January 1, 1997, amended section 1128B as
follows:

            Changed the heading from "MEDICARE OR STATE, HEALTH CARE PROGRAMS"
to "FEDERAL HEALTH CARE PROGRAMS":

            inserted "a Federal health care program (as defined in subsection
(1)" in lieu of "a program under title XVIII or a State health care program (as
defined in section 1128(h))" in subsection (a)(1);

<PAGE>   33

            inserted "a Federal health care program" in lieu of "a program
under title XVIII or a State health care program" in subsection (a)(5);

            inserted in the second sentence of subsection (a): "a Federal
health care program" in lieu of "a State plan approved under title XIX" and "the
administrator of such program may at its option (notwithstanding any other
provision of such program)" in lieu of "the State may at its option
(notwithstanding any other provision of that title or of such plan)";

            inserted "a Federal health care program" in lieu of "title XVIII
or State health care program" each place it appeared in subsection (b);

<PAGE>   34

                            MANAGED CARE ORGANIZATION
                         HEALTHCHOICE PROVIDER AGREEMENT

       THIS AGREEMENT (the "Agreement"), effective this 1st day of June 1, 1999,
is entered into by and between the Maryland Department of Health and Mental
Hygiene (the "Department") and AMERIGROUP Maryland Inc., d/b/a. AMERICAID
Community Care (the "MCO"), a Managed Care Organization with authority to
conduct business in the State of Maryland.

       WHEREAS, the Department has established the Maryland Medicaid Managed
Care Program, also known as the Maryland HealthChoice Program ("HealthChoice"),
a waiver program authorized by the Health Care Financing Administration ("HCFA")
of the U.S. Department of Health and Human Services ("DHHS") under Section 1115
of the Social Security Act and authorized under Maryland Annotated Code,
Health-General Article, Sections 15-101 et seq.

       WHEREAS, the Department desires to provide health care services to
Medicaid recipients through the MCO.

       WHEREAS, the MCO is engaged in the business of arranging health care
services.

       NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:

I.     THE MCO AGREES:

       A.     To comply with the regulations of the HealthChoice Program at
COMAR 10.09.62-10.09.73, several of which are specifically referenced herein, as
well as any other applicable regulations, transmittals, and guidelines issued by
the Department in effect at any time during the term of this Agreement.

       B.     In accordance with COMAR 10.09.63.02, to accept enrollments by the
Department of HealthChoice-eligible Medicaid recipients (the "Enrollees") up to
the maximum numbers specified in Appendix A of this Agreement.

       C.     To enter into a contract with any historic provider assigned to
the MCO by the Department in accordance with COMAR 10.09.65.16.

       D.     To maintain, and assure that its subcontractors maintain adequate
records which fully describe the nature and extent of all goods and services
provided and rendered to Enrollees, including but not limited to, medical
records, charts,

<PAGE>   35

laboratory test results, medication records, and appointment books for a minimum
of six (6) years, and to provide certified copies of medical records and
originals of business records upon request to the Department and/or its
designee, the Medicaid Fraud Control Unit, the Insurance Fraud Division of the
Maryland Insurance Administration, or any other authorized State or Federal
agency, or as otherwise required by State or Federal law or regulation, or
pursuant to subpoena or court order.

       E.     To permit the Department (or its designee), the Maryland Insurance
Administration, and/or DHHS to:

              1.     Evaluate the quality, appropriateness, and timeliness of
services performed through inspection or other means, including accessing the
MCO's and its subcontractors' facilities using enrollment cards and identities
established in the manner specified by the Department; and

              2.     Inspect and audit any financial records, including
reimbursement rates, of the MCO and any of its subcontractors relating to the
MCO's capacity to bear the risk of potential financial losses, as required by 42
C.F.R. Section 434.38.

       F.     To protect the confidentiality of all Enrollee information,
including but not limited to, names, addresses, medical services provided, and
medical data about the Enrollee, such as diagnoses, past history of disease, and
disability, and to not release such information to a third party except upon the
consent of the Enrollee or the Department, or as otherwise permitted by State or
Federal law or regulations, or pursuant to a court order.

       G.     Not to prohibit or otherwise restrict a health care professional,
with a contractual, referral, or other arrangement with the MCO, from advising
an Enrollee who is a patient of the professional about the health status of the
individual or medical care or treatment for the individual's condition or
disease, regardless of whether benefits for such care or treatment are provided
under this Agreement, if the professional is acting within the lawful scope of
practice.

       H.     Not to discriminate against a recipient on the basis of the
recipient's age, sex, race, creed, color, marital status, national origin,
physical or mental handicap, health status, or need for health care services.
(COMAR 10.09.65.02.H(2)).

       I.     To comply with the standards in the Americans with Disabilities
Act, 42 U.S.C. Section 12101 et seq. (COMAR 10.09.65.02.H(1)).

       J.     To accept as payment in full the amounts paid by the Department in
accordance with COMAR 10.09.65.19 (capitation payments) and 10.09.65.22 (stop

<PAGE>   36

loss), and to not seek or accept additional payment from any Enrollee for any
covered service; provided, however, that nothing in this Agreement shall prevent
the MCO from seeking coordination of benefits or subrogation recoveries in
accordance with applicable rules and regulations.

       K.     To make payment to health care providers for items and services
which are subject to this Agreement and that are furnished to the Enrollees on a
timely basis consistent with the claims payment procedures described in section
Section 1902(a)(37)(A) of the Social Security Act, and Maryland Annotated Code,
Health-General Article, Section 19-712.1, unless the health care provider and
the MCO agree to, an alternate payment schedule.

       L.     Not to hold Enrollees, the Department, or DHHS liable for the
debts of the MCO in the event of the MCO's insolvency.

       M.     Not to hold Enrollees or DHHS liable for the debts of the MCO for
services provided to the Enrollee:

                     a. in the event that the MCO fails to receive payment from
the Department for such services, or

                     b. in the event that a health care provider with a
contractual, referral, or other arrangement with the MCO fails to receive
payment from the Department or the MCO for such services.

       N.     To furnish to the Department within thirty (30) days of the date
the MCO receives the monthly enrollment listings from the Department the
following:

              1.     A listing of known children born to MCO-enrolled mothers
during the month prior to the one in which the payment listing is provided; and

              2.     A listing of persons who are known to the MCO to have
disenrolled, relocated to a geographic area not serviced by the MCO, become
ineligible to receive HealthChoice services from the MCO, or died.

       O.     To disclose to the Department and, upon request, to DHHS the
information on its provider incentive plans listed in 42 C.F.R. Section
417.479(h)(1), at the times indicated in 42 C.F.R. Section 434.70(a)(3), in
order to determine whether the incentive plans meet the requirements of 42
C.F.R. Section 417.479(d) - (g) and, as applicable, (i) when there exist
compensation arrangements under which payment for designated health services
furnished to an individual on the basis of a physician referral would otherwise
be denied under Section 1903(s) of the Social Security Act, 42 U.S.C. Section
1396b(s).

<PAGE>   37

       P.     To comply with all provisions of the Balanced Budget Act of 1997
that apply to this Agreement, including the State Medicaid Director's Letters
regarding managed care issued or to be issued in the future. The following
letters attached hereto have been issued to date and incorporated by reference:

<TABLE>
<CAPTION>
Section                     Subject                          Date Issued
-------                     -------                          -----------
<S>                         <C>                              <C>

4704(a)                     Emergency Services               02/20/98

                            Emergency Services               05/06/98
</TABLE>

       Q.     To inform its subcontractors of the provisions of the Social
Security Act Section 1128 B attached hereto and incorporated by reference.

       R.     Not to knowingly have as a director, officer, partner, or owner of
more than five percent (5%) of the entity's equity, a person who is or has been:

              1.     debarred, suspended, or otherwise excluded from
participating in procurement activities under the Federal Acquisition Regulation
or from participating in nonprocurement activities under regulations issued
pursuant to Executive Order No. 12549 or under guidelines implementing such
order; or

              2.     an affiliate of a person described in (1) above.

       S.     Not to knowingly have an employment, consulting, or other
agreement with a person described in Paragraph Q of this Section for the
provision of items and services that are significant and material to the
entity's obligations under this Agreement.

       T.     Notwithstanding any other provision of this Agreement, to be
subject to any change in Federal or State law or regulation, or other policy
guidance from HCFA or the Department that applies during the term of this
Agreement. The Department shall provide at least 15 days notice of any policy
changes and the MCO retains all rights available to challenge the authority or
basis for any such changes.

       U.     To notify the Department, by facsimile and in accordance with
Paragraph Q of Section III of this Agreement within five (5) days of any change
in its ownership in excess of five percent (5%).

       V.     To acknowledge the sanction provisions under 42 C.F.R. 434.67.

       W.     Pursuant to 42 C.F.R. Section 417.479(a), not to make payment
directly or indirectly under a physician incentive plan to a physician or
physician group as an

<PAGE>   38

inducement to reduce or limit medically necessary services furnished to an
individual enrollee.

       X.     To disclose to the Department the information on provider
incentive plans listed in 42 C.F.R. Section 417.479(h)(1) and Section 417.479(I)
at the times indicated in 42 C.F.R. Section 434.70(a)(3) in order to determine
whether the incentive plan(s) meets the requirements of 42 C.F.R. Section
417.479(d) - (g); to provide, as applicable, the capitation data required under
42 C.F.R. Section 417.479(h)(1)(vi) for the previous calendar year to the
Department by April 1 of each year; and to provide the information on its
physician incentive plans listed in 42 C.F.R. Section 417.479(h)(3) to any
Enrollee, upon request.

II.    THE DEPARTMENT AGREES:

       A.     To pay the MCO a prepaid capitation rate for each Enrollee in
accordance with COMAR 10.09.65.19.

       B.     Pursuant to COMAR 10.09.65.22C, once the stop-loss amount in COMAR
10.09.65.22A has been reached, to pay the accrued inpatient hospital charges for
an Enrollee for the remainder of the contract year, deducting ten percent (10%)
of the amount paid by the Department to the hospital from the MCO's capitation
payments, upon:

              1.     Confirmation of the MCO's eligibility for stop-loss
protection for that Enrollee; and

              2.     Receipt by the Department of adequate documentation of the
charges.

       C.     To produce and make available to the MCO on a monthly basis
remittance advice and the following reports:

              1.     MCO Capitation Detail Report;

              2.     MCO Capitation Summary Report;

              3.     MCO Capitation Report by Rate Group;

              4.     MCO Capitated Enrollment Report;

              5.     MCO Capitated Enrollment Summary;

              6.     MCO Dis-Enrollment Report By Site;

<PAGE>   39

              7.     MCO Capitated Dis-Enrollment Summary; and

              8.     Zip Code Totals Within MCO Provider.

       D.     To include in the monthly enrollment listings sent to the MCO the
adjustments provided by the MCO and accepted by the Department, and other
appropriate debit and credit transactions.

III.   THE DEPARTMENT AND THE MCO MUTUALLY AGREE:

       A.     That the term of this Agreement shall be from the effective date
through June 30, 1999.

       B.     That the term of this Agreement may be extended, upon mutual
written agreement, for a period not to exceed three (3) months.

       C.     That this Agreement may be modified only in writing by the
parties.

       D.     That the Department reserves the right to terminate this Agreement
immediately upon receipt of:

              1.     Notification by DHHS that it is terminating Maryland's
Section 1115 HealthChoice Waiver and funding thereunder; or

              2.     Notification by the Maryland Department of Budget and
Management that State funds are not available for the continuation of
HealthChoice.

       E.     That the Department may terminate this Agreement if the MCO fails
to meet any one or more of the provisions of this Agreement or of applicable
laws, rules, regulations, or guidelines effective as of the date of this
Agreement or issued during the term of this Agreement, subject to the MCO's
right to an opportunity to take corrective action pursuant to COMAR 10.09.73.01B
prior to the imposition of a sanction.

       F.     That if the Department terminates this Agreement for any reason,
it shall not be liable for any costs of the MCO associated with the termination,
including but not limited to, any expenditures made by the MCO prior to the
termination or related to implementing the termination; however, this does not
relieve the Department of the obligation to make all payments to the MCO to
which the MCO is entitled under the HealthChoice regulations.

       G.     That the MCO may appeal a termination of the Agreement by the
Department in accordance with COMAR 10.09.72.06.

<PAGE>   40

       H.     That in the event of the termination of the Agreement, the MCO
will furnish to the Department all information relating to the reimbursement of
any outstanding claims for services rendered to its Enrollees, including those
of its subcontractors, within forty-five (45) days of the effective date of
termination.

       I.     That the MCO has the right to terminate this Agreement upon sixty
(60) days prior written notice to the Department.

       J.     That termination of this Agreement shall not discharge the
obligations of the MCO with respect to services or items furnished prior to
termination, including retention of record and restitution of overpayments.

       K.     That, with the exception of new Enrollees during the period of
time between ten days after the Department's enrollment agent has notified the
MCO of a new enrollment and receipt by the MCO of the Department's next regular
monthly payment of capitation payment rates, the MCO is not required to pay for
or provide services for any Enrollee for which it has not received a prepaid
capitation rate from the Department.

       L.     That this Agreement may be renewed for successive one-year periods
by written agreement between the Department and the MCO.

       M.     That payments made under this Agreement will be denied for new
Enrollees when, and for so long as, payments for those Enrollees are denied by
HCFA under 42 C.F.R. Section 434.67(e).

       N.     That this Agreement shall not be transferable or assignable.

       O.     That any change in Federal or State law or regulation that affects
any provision or term of this Agreement shall automatically become a provision
or term of this Agreement.

       P.     That they shall carry out their mutual obligations as herein
provided in a manner prescribed by law and in accordance with all applicable
regulations and policies as may from time to time be promulgated by DHHS or any
other appropriate Federal or State agency, including compliance with the
contract provisions or conditions required in all procurement contracts and
subcontracts as specified under 45 C.F.R. Part 74.

       Q.     That a notice required to be given to the other party under this
Agreement, unless specified otherwise, is effective only if the notice is sent
by first-class mail to the representative and address for that party listed
below:

<PAGE>   41

              1.     Notices to the Department shall be sent to:

                     Mr. Joseph M. Millstone
                     Director, Medical Care Policy Administration
                     Department of Health and Mental Hygiene
                     201 West Preston Street, 1st Floor
                     Baltimore, MD 21201

              2.     Notices to the MCO shall be sent to:

                     Mr. Joseph M. Millstone
                     Director, Medical Care Policy Administration
                     Department of Health and Mental Hygiene
                     201 West Preston Street, 1st Floor
                     Baltimore, MD 21201

<PAGE>   42

       IN WITNESS WHEREOF, the parties hereto have hereunder executed this
Agreement the day and year first above written.

                                         FOR THE DEPARTMENT:

5/24/99                                  /s/ Joseph M. Milltone
----------------------------             -----------------------------------
Date                                     Joseph M. Millstone, Director
                                         Medical Care Policy
/s/ Katherine Starling                   Maryland Department Of Health
----------------------------             and Mental Hygiene
Witness

                                         FOR THE MCO:

5/17/99                                  [illegible signature]
----------------------------             -----------------------------------
Date                                     Signature

Witness /s/ E Bidder                     Title President and CEO

APPROVED AS TO FORM AND LEGAL SUFFICIENCY

[illegible signature]                    June 11, 1998
----------------------------             -----------------------------------
Assistant Attorney General               Date

<PAGE>   43

                                   APPENDIX A
                          MAXIMUM NUMBER OF RECIPIENTS
               PERMITTED TO BE ENROLLED IN EACH LOCAL ACCESS AREA
              IN THE MANAGED CARE ORGANIZATIONS'S APPROVED SERVICE
                                     AREA(S)

Name of Managed Care Organization: AMERICAID Community Care

<TABLE>
<CAPTION>
Effective:                                                                          June 1, 1999
                                                  Maximum Number of
Local Access Area                                 Children Under 21                Maximum Number
<S>                                               <C>                              <C>
Allegheny
Anne Arundel North                                      37,000                          42,500
Anne ArundelSouth                                       42,500                          51,500
Baltimore City-SE/Dundalk                               24,900                          53,800
Baltimore City East                                     42,800                          92,500
Baltimore City North Central                            20,500                          28,200
Baltimore City Northeast                                 9,400                          16,700
Baltimore City Northwest                                36,300                          63,300
Baltimore City South                                    26,500                          33,500
Baltimore City West                                     48,400                          81,600
Baltimore County East                                   24,000                          33,900
Baltimore County North                                  35,300                          66,700
Baltimore County Northwest                              19,600                          31,200
Baltimore County Southwest                              30,200                          45,200
Calvert
Caroline
Carroll
Cecil
Charles
Dorchester
Frederick
Garrett
Harford East
Harford West
Howard
Kent
Montgomery - Silver Spring                              42,900                          60,000
</TABLE>

<PAGE>   44

<TABLE>
<S>                                               <C>                              <C>
Montgomery Mid-County                                   36,700                          68,800
Montgomery North                                        36,400                          44,800
Prince George's Northeast                               27,300                          41,400
Prince George's Northwest                               41,300                          56,100
Prince George's Southeast                                7,700                          12,700
Prince George's Southwest                               14,700                          23,100
Queen Anne's
Somerset
St. Mazy's
Talbot
Washington
Wicomico
Worcester
</TABLE>

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