Document:

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                                                                    Exhibit 10.3

                                Texas Department
                                       Of
                                 Human Services

                                     [SEAL]

                               STAR+PLUS CONTRACT
--------------------------------------------------------------------------------

                              AMERICAID Texas, Inc.

                               HARRIS SERVICE AREA

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                                TABLE OF CONTENTS

ARTICLE                 I           PARTIES AND AUTHORITY TO CONTRACT.........1

ARTICLE                 II          DEFINITION............................... 2

ARTICLE                 III         PLAN ADMINISTRATIVE AND HUMAN RESOURCE
                                    REQUIREMENTS.............................14

         3.1            ORGANIZATION AND ADMINISTRATION......................14
         3.2            NON-PROVIDER SUBCONTRACTS............................15
         3.3            MEDICAL DIRECTOR.....................................17
         3.4            PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS....17
         3.5            RECORDS REQUIREMENTS AND RECORDS RETENTION...........19
         3.6            HMO REVIEW OF TDHS MATERIALS.........................20
         3.7            REQUIRMENTS FOR EDUCATION, TRAINING, AND ADVISORY
                        COMMITTEE ACTIVITIES.................................20

ARTICLE                 IV          FISCAL, FINANCIAL AND SOLVENCY
                                    REQUIREMENTS.............................20

         4.1            FISCAL SOLVENCY......................................20
         4.2            MINIMUM NET WORTH....................................21
         4.3            PERFORMANCE BOND.....................................21
         4.4            INSURANCE............................................21
         4.5            FRANCHISE TAX........................................22
         4.6            AUDIT................................................22
         4.7            PENDING OR THREATENED LITIGATION.....................22
         4.8            MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA.......22
         4.9            THIRD PARTY RECOVERY.................................23
         4.10           CLAIMS PROCESSING REQUIREMENTS.......................24
         4.11           INDEMNIFICATION......................................26

ARTICLE                 V           STATUTORY AND REGULATORY COMPLIANCE
                                    REQUIREMENTS.............................26

         5.1            COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS.......26
         5.2            PROGRAM INTEGRITY....................................27
         5.3            FRAUD AND ABUSE COMPLIANCE PLAN......................27
         5.4            SAFEGUARDING INFORMATION.............................29
         5.5            NON-DISCRIMINATION...................................30
         5.6            HISTORICALLY UNDERUTILIZED BUSINESS (HUBs)...........30
         5.7            AFFIRMATIVE ACTION...................................31
         5.8            BUY TEXAS............................................31
         5.9            CHILD SUPPORT........................................31
         5.10           REQUEST FOR PUBLIC INFORMATION.......................32
         5.11           NOTICE AND APPEAL....................................32

ARTICLE                 VI          SCOPE OF SERVICES........................33

         6.1            SCOPE OF SERVICES....................................33
         6.2            PRE-EXISTING CONDITIONS..............................35
         6.3            SPAN OF ELIGIBILITY..................................35
         6.4            CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS......36

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         6.5            EMERGENCY CARE.......................................36
         6.6            BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS...37
         6.7            FAMILY PLANNING - SPECIFIC REQUIREMENTS..............39
         6.8            TEXAS HEALTH STEPS (EPSDT)...........................41
         6.9            PERINATAL SERVICES...................................43
         6.10           EARLY CHILDHOOD INTERVENTION.........................44
         6.11           SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN
                        INFANTS, AND CHILDREN (WIC)- SPECIFIC REQUIREMENTS,..45
         6.12           TUBERCULOSIS (TB)....................................45
         6.13           HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS...46
         6.14           CARE COORDINATION AND TRANSITION PLANS
                        FOR LONG TERM CARE SERVICES..........................47
         6.15           1915 (C) WAIVER SERVICE(COMMUNITY BBASED
                        ALTERNATIVES)....................................... 51

ARTICLE                 VII         PROVIDER NETWORK REQUIREMENTS............52

         7.1            NETWORK PROVIDER DIRECTORY...........................52
         7.2            PROVIDER ACCESSIBILITY...............................53
         7.3            PROVIDER CONTRACTS...................................54
         7.4            PHYSICIAN INCENTIVE PLANS............................58
         7.5            PROVIDER MANUAL AND PROVIDER TRAINING................59
         7.6            MEMBER PANEL REPORTS.................................60
         7.7            PROVIDER COMPLAINT AND APPEAL PROCEDURES.............60
         7.8            PROVIDER QUALIFICATIONS - GENERAL....................61
         7.9            PRIMARY CARE PROVIDERS...............................62
         7.10           OB/GYN PROVIDERS.....................................66
         7.11           SPECIALTY CARE PROVIDERS.............................66
         7.12           SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES......67
         7.13           BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY
                        (LMHA)...............................................67
         7.14           SIGNIFICANT TRADITIONAL PROVIDERS (STPS).............69
         7.15           FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND
                        RURAL HEALTH CLINICS (RHC) ..........................70

ARTICLE                 VIII        MEMBER SERVICES REQUIREMENTS.............70

         8.1            MEMBER EDUCATION.....................................70
         8.2            MEMBER HANDBOOK......................................71
         8.3            ADVANCE DIRECTIVES...................................71
         8.4            MEMBER ID CARDS......................................73
         8.5            MEMBER HOTLINE.......................................73
         8.6            MEMBER COMPLAINT PROCESS.............................73
         8.7            MEMBER NOTICES, APPEALS AND FAIR HEARINGS............75
         8.8            MEMBER CULTURAL AND LINGUISTIC SERVICES..............77

ARTICLE                 IX          MARKETING AND PROHIBITED PRACTICES.......78

         9.1            MARKETING MATERIALS..................................78
         9.2            ADHERENCE TO MARKETING GUIDELINES....................78

ARTICLE                 X           MIS SYSTEM REQUIREMENTS..................78

         10.1           MODEL MIS REQUIREMENTS...............................78
         10.2           SYSTEM WIDE FUNCTIONS................................79
         10.3           ENROLLMENT/ELIGIBILITY SUBSYSTEM.....................80
         10.4           PROVIDER SUBSYSTEM...................................81
         10.5           ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM................81

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         10.6           FINANCIAL SUBSYSTEM..................................82
         10.7           UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM............83
         10.8           REPORT SUBSYSTEM.....................................84
         10.9           DATA INTERFACE SUBSYSTEM.............................85
         10.10          TPR SUBSYSTEM........................................86
         10.11          YEAR 2000 COMPLIANCE.................................87

ARTICLE                 XI          QUALITY ASSURANCE AND QUALITY IMPROVEMENT
                                    PROGRAM..................................87

         11.1           QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM.............87
         11.2           WRITTEN QIP PLAN.....................................87
         11.3           QUI SUBCONTRACTING ..................................87
         11.4           BEHAVIORAL HEALTH INTEGRATION INTO QIP...............88
         11.5           QIP REPORTING REQUIREMENTS...........................88

ARTICLE                 XII         REPORTING REQUIREMENTS...................88

         12.1           FINANCIAL REPORTS....................................88
         12.2           STATISTICAL REPORTS..................................89
         12.3           ARBITRATION/LITIGATION CLAIMS REPORT.................90
         12.4           SUMMARY REPORT OF PROVIDER COMPLAINTS................90
         12.5           PROVIDER NETWORK REPORTS.............................91
         12.6           MEMBER COMPLAINTS....................................91
         12.7           FRAUDULENT PRACTICES.................................91
         12.8           UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH...91
         12.9           UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH.....92
         12.10          UTILIZATION MANAGEMENT REPORTS - LONG TERM CARE......92
         12.11          QUALITY IMPROVEMENT REPORTS..........................92
         12.12          HUB QUARTERLY REPORTS................................93
         12.13          THSTEPS REPORTS......................................93

ARTICLE                 XIII        PAYMENT PROVISIONS.......................93

         13.1           CAPATATION AMOUNTS...................................93
         13.2           EXPERIENCE REBATE TO STATE...........................95
         13.3           ADJUSTMENTS TO PREMIUM...............................96

ARTICLE                 XIV         ELIGIBILITY, ENROLLMENT, AND
                                    DISENROLLMENT............................97

         14.1           ELIGIBILITY DETERMINATION............................97
         14.2           ENROLLMENT...........................................98
         14.3           PLAN CHANGES FROM HMO AND DISENROLLMENT FROM
                        MANAGED CARE.........................................99
         14.4           AUTOMATIC RE-ENROLLMENT.............................100
         14.5           ENROLLMENT REPORTS..................................100

ARTICLE                 XV          GENERAL PROVISIONS......................100

         15.1           INDEPENDENT CONTRACTOR..............................100
         15.2           AMENDMENT...........................................100
         15.3           LAW, JURISDICTION AND VENUE.........................101
         15.4           NON-WAIVER..........................................101
         15.5           SEVERABILITY........................................101
         15.6           ASSIGNMENT..........................................101
         15.7           MAJOR CHANGE IN CONTRACTING.........................101

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         15.8           NON-EXCLUSIVE.......................................102
         15.9           DISPUTE RESOLUTION..................................102
         15.10          DOCUMENTS CONSTITUTING CONTRACT.....................102
         15.11          FORCE MAJEURE.......................................102
         15.12          NOTICES.............................................102
         15.13          SURVIVAL............................................102

ARTICLE                 XVI         DEFAULT AND REMEDIES....................103

         16.1           DEFAULT BY TDHS.....................................103
         16.2           REMEDIES AVAILABLE TO HMO FOR TDHS DEFAULT..........103
         16.3           DEFAULT BY HMO......................................103

ARTICLE                 XVII        NOTICE OF DEFAULT AND CURE OF DEFAULT...110

ARTICLE                 XVIII       EXPLANATION OF REMEDIES.................111

         18.1           TERMINATION.........................................111
         18.2           DUTIES OF CONTRACTING PARTIES UPON TERMINATION......113
         18.3           SUSPENSION OF NEW ENROLLMENT........................114
         18.4           LIQUIDATED MONEY DAMAGES............................114
         18.5           APPOINTMENT OF TEMPORARY MANAGEMENT.................116
         18.6           TDHS-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS
                        WITHOUT CAUSE.......................................116
         18.7           RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN
                        AGAINST HMO.........................................117
         18.8           CIVIL MONETARY PENALTIES............................117
         18.9           FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE
                        BOND................................................117
         18.10          REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED..........117

ARTICLE                 XIX         TERM....................................118

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                                   ATTACHMENTS

ATTACHMENT A
           Value Added Services
ATTACHMENT B
           HUB Reporting Requirements and Forms
ATTACHMENT C
           Behavioral Health Value-added Services
ATTACHMENT D
           Required Critical Elements
ATTACHMENT E
           Cost Principles for Administrative Expenses

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                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HUMAN SERVICES
                                       AND
                                       HMO

This Contract is entered into between the Texas Department of Human Services
("TDHS") and AMERICIAD TEXAS, INC. ("HMO"). The purpose of this Contract is to
set forth the terms and conditions for HMO participation as a managed care
organization in the TDHS STAR+PLUS Program ("STAR+PLUS"). Under the terms of
this Contract HMO will provide comprehensive health care services to qualified
and eligible Medicaid recipients through a managed care delivery system. This is
a risk-based Contract. HMO was selected to provide services under this Contract
pursuant to Human Resources Code Section 22.002(f). The HMO's original selection
for this Contract was based on HMOs Application to TDH/TDHS Request for
Application (RFA). Representation and responses contained in HMO's Application
are incorporated into and are enforceable provisions of this Contract, except
where changed by this Contract.

ARTICLE I               PARTIES AND AUTHORITY TO CONTRACT

1.1   The Texas Legislature has designated the Texas Health and Human Services
      Commission ("THHSC") as the single state agency to administer the Medicaid
      program in the state of Texas. THHSC has delegated the authority to
      operate the Medicaid managed care delivery system for the population
      covered by this Contract to TDHS. TDHS has authority to contract with HMO
      to carry out the duties and functions of the Medicaid managed care program
      for the population served by this Contract under the Human Resources Code,
      chapter 32.

1.2   HMO is a corporation with authority to conduct business in the State of
      Texas and has a certificate of authority from the Texas Department of
      Insurance (TDI) to operate as a Health Maintenance Organization (HMO)
      under Chapter 20A of the Insurance Code. HMO is in compliance with all TDI
      rules and laws that apply to HMOs. HMO has been authorized to enter into
      this contract by its Board of Directors or other governing body. HMO is an
      authorized vendor with TDHS and has received a Vendor Identification
      number from the Texas Comptroller of Public Accounts.

1.3   This contract is subject to the approval and ongoing monitoring of the
      federal Health Care Financing Administration (HCFA).

1.4   TDHS is required by Human Resources Code Section 32.043(a) and Government
      Code Section 533.007 to conduct readiness review of HMO's performance and
      compliance with this contract as a condition for retention and renewal.

1.4.1 Readiness review may include a review of HMO's past performance and
      compliance with the requirements of this contract and on-site inspections
      of any or all of HMO's systems or processes.

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1.4.2 The State will provide HMO with at least 30 days written notice prior to
      conducting an HMO readiness review. A report of the results of the
      readiness review findings will be provided to HMO within 10 weeks from the
      completion of the readiness review. The readiness review report will
      include any deficiencies, which must be corrected, and the timeline within
      which the deficiencies must be corrected.

1.4.3 The State reserves the right to conduct on-site inspection of any or all
      of HMO's systems and processes as often as necessary to ensure compliance
      with contract requirements. TDHS may conduct at least one complete on-site
      inspection of all systems and processes every three years.

      The State will provide six weeks advance notice to HMO of the three year
      on-site inspection, unless the State enters into an MOU with the Texas
      Department of Insurance to accept the TDI report in lieu of an on-site
      inspection. The State will notify HMO prior to conducting an onsite visit
      related to a regularly scheduled review specifically described in this
      contract. Even in the case of a regularly scheduled visit, the State
      reserves the right to conduct an onsite review without advance notice if
      the State believes there may be potentially serious or life-threatening
      deficiencies.

1.5   AUTHORITY OF HMO TO ACT ON BEHALF OF THE STATE. HMO is given express,
      limited authority to exercise the State's right of recovery, for expenses
      incurred related to acute care services, as provided in Article 4.9, and
      to enforce provisions of this contract which require providers or
      subcontractors to produce records, reports, encounter data, public health
      data, and other documents to comply with this contract and which the State
      has authority to require under State or federal laws.

      The HMO is obligated to pursue recovery for expenses related to long-term
      care services or to assist the state in pursuit of recovery as required in
      Article 4.9.

ARTICLE II              DEFINITIONS

TERMS USED THROUGHOUT THIS CONTRACT HAVE THE FOLLOWING MEANING, UNLESS THE
CONTEXT CLEARLY INDICATES OTHERWISE:

Abuse means provider practices that are inconsistent with sound fiscal,
business, or medical practices, and result in an unnecessary cost to the
Medicaid program, or in reimbursement for services that are not medically
necessary or that fail to meet professionally recognized standards for health
care. It also includes recipient practices that result in unnecessary cost to
the Medicaid program.

Acute Care means medical care provided under the direction of a physician for a
condition having a relatively short duration.

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Adjudicate means to deny or pay a clean claim.

Adverse action means a denial, termination, suspension, reduction of covered
services, denial of a continued stay in a health facility, a retrospective
denial of a continued service or a denial of prior authorization for covered
services affecting a Member. This term does not include reaching the end of
prior authorized services.

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

Affiliate means any individual or entity: owning or holding more than a five
percent (5%) interest in HMO; in which HMO owns or holds more than a five
percent (5%) interest; or, any parent entity; or any subsidiary entity of HMO,
regardless of the organizational structure of the entity.

Allowable Expenses means all expenses related to the Contract for Services
between TDHS and HMO that are incurred during the term of the Contract that are
not reimbursable or recovered from another source.

Allowable Revenue means all Medicaid managed care revenue received by HMO for
the contract period, including retroactive adjustments made by TDHS.

Appeal of adverse determination means the formal process by which a utilization
review agent offers a mechanism to address adverse determinations as defined in
Article 21.58A, Texas Insurance Code.

Behavioral health services means covered services for the treatment of mental or
emotional disorders and treatment of chemical dependency disorders.

Benchmark means a target or standard based on historical data or an
objective/goal.

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

Care Coordination means a specialized care management service that is performed
by a Care Coordinator and that includes but is not limited to:

      (a)   Identification of needs, including physical health, mental health
            services and long term support services, and development of a Care
            Plan (CP) to address those needs;

      (b)   Assistance to ensure timely and a coordinated access to an array of
            providers and services;

      (c)   Attention to addressing unique needs of Members; and

      (d)   Coordination of Plan services with social and other services
            delivered outside the Plan, as necessary and appropriate.

Care Coordinator means the person with primary responsibility for providing care
coordination/management to members with complex care needs including long term

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care. The Care Coordinator need not be a medical professional. This person is
authorized by HMO to authorize the provision and delivery of long term care
services.

Care Plan (CP) means an individualized plan of care developed with and for
Members who have chronic or complex conditions. A CP includes, but is not
limited to, the following:

      (a)   A Member's history;

      (b)   A summary of current medical and social needs and concerns;

      (c)   Short and long term care needs and goals; and

      (d)   A list of services required their frequency, and a description of
            who will provide the services.

CHIP means Children's Health Insurance Program established by Title XXI of the
Social Security Act to assist state efforts to initiate and expand child health
assistance to uninsured, low-income children.

Chronic or complex condition means a physical, behavioral, or developmental
condition which may have no known cure and/or is progressive and/or can be
debilitating or fatal if left untreated or under-treated.

Clean claim means a TDHS approved or identified claim format that contains all
data fields required by HMO and TDHS for final adjudication of the claim. The
required data fields must be complete and accurate. Clean claim also includes
HMO-published requirements for adjudication, such as medical records, as
appropriate (see definition of Unclean Claim). The TDHS required data fields are
identified in TDHS "HMO Encounter Data Claims Submission Manual".

CLIA means the federal legislation commonly known as the Clinical Laboratories
Improvement Act of 1988 as found at Section 353 of the federal Public Health
Services Act, and regulations adopted to implement the Act.

Community Based Alternatives (CBA) Waiver is the TDHS waiver program, which
provides home and community-based services to aged and disabled adults as
cost-effective alternatives to institutional care in nursing homes.

Community Management Team (CMT) means interagency groups responsible for
developing and implementing the Texas Children's Mental Health Plan (TCMHP) at
the local level. A CMT consists of local representatives from TXMHMR, the Mental
Health Association of Texas, Texas Commission on Alcohol and Drug Abuse, Texas
Department of Protective and Regulatory Services, Texas Department of Human
Services, Texas Department of Health, Juvenile Probation Commission, Texas Youth
Commission, Texas Rehabilitation Commission, Texas Education Agency, Council on
Early Childhood Intervention and a parent representative. This organizational
structure is also replicated in the State Management Team that sets overall
policy direction for the TCMHP.

Community Resource Coordination Groups (CRCGs) means a statewide system of local
interagency groups, including both public and private providers, which
coordinate services for "multi-problem" children and youth. CRCGs develop
individual service plans for children and adolescents whose needs can be met
only through interagency cooperation. CRCGs address complex needs in a model
that promotes local decision-

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making and ensures that children and adolescents receive the integrated
combination of social, medical and other services needed to address their
individual problems.

Complainant means a Member or a treating provider or other individual designated
to act on behalf of the Member who files the complaint.

Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to the HMO, with any aspect of HMO's operation, including, but not
limited to, dissatisfaction with plan administration; procedures related to
review or appeal of an adverse determination, as that term is defined by Texas
Insurance Code Article 20A.12, with the exception of the Independent Review
Organization requirements; the denial, reduction, or termination of a service
for reasons not related to medical necessity; the way a service is provided; or
disenrollment decisions expressed by a complainant. The term does not include
misinformation that is resolved promptly by supplying the appropriate
information or clearing up the misunderstanding to the satisfaction of the
Member. The term also does not include a provider's or enrollee's oral/written
dissatisfaction or disagreement with an adverse determination or a request for a
Fair Hearing to the State.

Complex Need means a condition or situation that results in a need for
coordination or access to services beyond what a PCP would normally provide, and
which triggers the HMO's determination that a Care Coordinator is required.

Comprehensive Care Program See definition for Texas Health Steps.

Continuity of Care means care provided to a Member by the same primary care
provider, specialty provider or other auxiliary provider to the greatest degree
possible, so that the delivery of care to the Member remains stable, and
services are consistent and unduplicated.

Contract means this Contract between TDHS and HMO and documents included by
reference and any of its written amendments, corrections or modifications.

Contract administrator means an entity contracting with the State to carry out
specific administrative functions under the State Medicaid managed care program.

Contract period means the period of time starting with effective date of the
Contract and ending on the termination date of the Contract.

Court-ordered commitment means a commitment of a STAR+PLUS Member to a
psychiatric facility for treatment that is ordered by the court of law pursuant
to the Texas Health and Safety Code, Title VII Subtitle C.

Covered Services means health care services and health related services the HMO
must provide to Members, including all services required by this Contract and
state and federal law, and all value-added services described by the HMO and
approved by TDHS.

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

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Day mean calendar day, unless specified otherwise.

Denied claim means a clean claim or a portion of a clean claim for which a
determination is made that the claim cannot be paid.

Disabled Person or Person with Disability means a person under 65 years of age,
including a child, who qualifies for Medicaid services because of a disability.

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

DSM-IV means the Diagnostic and Statistical Manual of Mental Disorders, Fourth
Edition, which is the American Psychiatric Association's official classification
of behavioral health disorders.

ECI means Early Childhood Intervention which is a federally mandated program for
infants and children under the age of three with or at risk for developmental
delays and/or disabilities. The federal ECI regulations are found at 34 C.F.R.
303.1 et seq. The state ECI rules are found at 25 TAC Section 621.21 et seq.

Effective date of the Contract means the day on which all parties are bound by
the terms and conditions of this Contract.

Emergency Behavioral Health Condition means any condition, without regard to the
nature or cause of the condition, which in the opinion of a prudent layperson
possessing an average knowledge of health and medicine requires immediate
intervention and/or medical attention without which Members would present an
immediate danger to themselves or others or which renders Members incapable of
controlling, knowing or understanding the consequences of their actions.

Emergency services means covered inpatient and outpatient services that are
furnished by a provider that is qualified to furnish such services under this
contract and are needed to evaluate or stabilize an emergency medical condition
and/or and emergency behavioral health condition.

Emergency Medical Condition means 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 care could result in:

      (a)   placing the patient's health in serious jeopardy;
      (b)   serious impairment to bodily functions;
      (c)   serious dysfunction of any bodily organ or part; or
      (d)   serious disfigurement; or
      (e)   in the case of a pregnant woman, serious jeopardy to
            the health of the fetus.

Encounter means a covered service or a group of services delivered by a provider
to a Member during a visit between the Member and provider. This also includes
value-added services.

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Encounter data means data elements from fee-for-service claims or capitated
services proxy claims that are submitted to the State by HMO in accordance with
TDHS "HMOs Encounter Data Claims Submission Manual".

Enrollment Broker means an entity contracting with the State to carry out
specific functions related to Member services (i.e., enrollment/disenrollment,
complaints, etc.) under the State's Medicaid managed care program.

Enrollment Report means the list of Medicaid recipients who are enrolled with an
HMO as Members for the month the report was issued.

EPSDT means the federally mandated Early and Periodic Screening, Diagnosis and
Treatment program contained at 42 United States Code 1396d(r). (See definition
for Texas Health Steps.) The name has been changed to Texas Health Steps
(THSteps) in the State of Texas.

Execution Date means the date this Contract is signed by persons with the
authority to contract for TDHS and HMO.

Experience Rebate means excess of allowable HMO STAR+PLUS revenues over
allowable HMO STAR+PLUS expenses.

Fair Hearing means the process adopted and implemented by the Texas Department
of Health, 25 TAC Chapter 1, in compliance with federal regulations and state
rules relating to Medicaid Fair Hearings for Acute Care Services, found at 42
CFR Part 431, Subpart E, and 1 TAC, Chapter 357., or a hearing conducted under
the rules set forth in 40 TAC chapter 79, Subchapters L, M and N for Long Term
Care services.

FQHC means a Federally Qualified Health Center that has been certified by HCFA
to meet the requirements of Section 1861(aa)(3) of the Social Security Act as a
federally qualified health center and is enrolled as provider in the Texas
Medicaid program.

Fraud means an intentional deception or misrepresentation made by a person with
the knowledge that the deception could result in some unauthorized benefit to
himself or some other person. It includes any act that constitutes fraud under
applicable federal or state law.

HCFA means the Federal Health Care Financing Administration.

Health care services means medically necessary physical medicine, behavioral
health care and health-related services which an enrolled population might
reasonably require in order to be maintained in good health, including, as a
minimum, emergency care and impatient and outpatient services.

Implementation Date means the first date that Medicaid managed care services are
delivered to Members in a service area.

Inpatient Stay means at least a 24 hour stay in a facility licensed to provide
hospital care.

JCAHO means Joint Commission on Accreditation of Health Care Organizations.

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Local Health Department means a local health department established pursuant to
Health and Safety Code, Title 2, Local Public Health Reorganization Act Section
121.031.

Local Mental Health Authority (LMHA) means an entity to which the TXMHMR board
delegates its authority or responsibility within a specified region for
planning, policy development, coordination, and resource development and
allocation and for supervising and ensuring the provision of mental health
services to persons with mental illness in one or more local service areas.

Long term care is a continuum of care and assistance ranging from in-home and
community based services for elderly people and people with disabilities who
need help in maintaining their independence, to institutional care for those who
require that level of support, seeking to maintain independence for the
individual while providing the support required. Long term care services are
listed in Appendices KK and LL of the RFA.

Major life activities means functions such as caring for oneself, performing
manual tasks, walking, seeing, hearing, speaking, breathing, learning, and
working.

Major population group means any population which represents at least 10% of the
Medicaid population in any of the counties in the service area served by the
Contractor.

Medical Assistance Only (MAO) means one of the three primary classes of Texas
Medicaid clients. The other two are Public Assistance and SSI. MAO clients
receive no cash assistance but receive "Medical Assistance Only." MAO clients
are related to the financial assistance programs in that, except for some
eligibility criteria, they would be eligible for money payments. This means that
they are in one of the categories of aged, blind, disabled or families with
dependent children.

Medical Home means a primary care provider or specialty care provider who has
accepted the responsibility to act as a PCP for providing accessible,
continuous, comprehensive and coordinated care to Members participating in the
TDHS Medicaid managed care program.

Medically Necessary Behavioral Health Services means those behavioral health
services which:

      (a)   are reasonable and necessary for the diagnosis or treatment of a
            mental health or chemical dependency disorder or to improve or to
            maintain or to prevent deterioration of functioning resulting from
            such a disorder;
      (b)   are in accordance with professionally accepted clinical guidelines
            and standards of practice in behavioral health care;
      (c)   are furnished in the most appropriate and least restrictive setting
            in which services can be safely provided;
      (d)   are the most appropriate level of supply or service which can safely
            be provided; and
      (e)   could not be omitted without adversely affecting the Member's mental
            and/or physical health or the quality of care rendered.

Medically necessary health services means health services other than behavioral
health services which are:

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      (a)   reasonable and necessary to prevent illnesses or medical conditions,
            or provide early screening, interventions, and/or treatments for
            conditions that cause suffering or pain, cause physical deformity or
            limitations in function, threaten to cause or worsen a handicap,
            cause illness or infirmity of a Member, or endanger life;
      (b)   provided at appropriate facilities and at the appropriate levels of
            care for the treatment of a Member's health conditions;
      (c)   consistent with health care practice guidelines and standards that
            are endorsed by professionally recognized health care organizations
            or governmental agencies;
      (d)   consistent with the diagnoses of the conditions; and
      (e)   no more intrusive or restrictive than necessary to provide a proper
            balance of safety, effectiveness, and efficiency.

Medicare is a health insurance program for people 65 and older and some people
under age 65 who are disabled. It is a federal government program authorized
under Title XVIII of the Social Security Act and is administered by the Health
Care Financing Administration (HCFA). For people with very low incomes, state
Medicaid programs may pay the amounts Medicare does not pay and may pay some
health care expenses not covered by Medicare if the individual is also eligible
for Medicaid.

Member means a person who: is entitled to benefits under Title XIX of the Social
Security Act and the Texas Medical Assistance Program (Medicaid), is in a
Medicaid eligibility category included in the STAR+PLUS Program, and is enrolled
in the STAR+PLUS Program.

Member month means one client enrolled with HMO during any given month. The
total Member months for each month of a year comprise the annual Member months.

Mental health priority population means those individuals served by TXMHMR who
meet the definition of the priority population. The priority population for
mental health services is defined as:

      Children and adolescents under the age of 18 who have a diagnosis of
      mental illness who exhibit severe emotional or social disabilities which
      are life-threatening or require prolonged intervention.

      Adults who have severe and persistent mental illnesses such as
      schizophrenia, major depression, manic depressive disorder, or other
      severely disabling mental disorders which require crisis resolution or
      ongoing and long-term support and treatment.

Minimum Data Set for Home Care (MDS-HC) is the screening component of the
Resident Assessment Instrument for Home Care (RAI-HC) that enables a home care
provider to briefly assess multiple key domains of function, health, social
support, and service use. Particular MDS-HC items also identify clients who
could benefit from further evaluation of specific problems and risks for
functional decline. These items, known as "triggers", link the MDS-HC to a
series of problem-oriented Client Assessment Protocols (CAPs). The MDS-HC
instrument is included in Appendix NN of the RFA.

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Minimum Data Set 2.0 for Nursing Facilities (MDS-NF) is a comprehensive
screening component of the Resident Assessment Instrument for long term care
facilities certified to participate in Medicare or Medicaid that is administered
to all residents upon admission to the nursing facility to facilitate
development of a care plan. The items in the MDS-NF standardize communication
about resident problems and conditions within facilities, between facilities,
and between facilities and outside agencies.

MIS means management information system.

Non-provider subcontracts means contracts between HMO and a third party which
performs a function, excluding delivery of health services, that HMO is required
to perform under its contract with TDHS.

Nursing Facility Level of Care is the determination that a Medicaid recipient
requires the services of licensed nurses in an institutional setting to carry
out the physician's planned regimen for total care. In the STAR+PLUS Program
these services can be provided in the home or in community-based programs as a
cost-effective, least restrictive alternative to institutional care in a nursing
home.

Pended claim means a claim submitted for payment which requires additional
information before the claim can be adjudicated as a clean claim.

Premium means the amount paid by the TDHS to a managed care organization on a
monthly basis and is determined by multiplying the Member months times the
capitation amount for each enrolled Member.

Primary care physician or primary care provider (PCP) means a physician or
provider who has agreed with HMO to provide a medical home to Members and who is
responsible for providing initial and primary care to patients, maintaining the
continuity of patient care, and initiating referrals for care (see also Medical
Home).

Provider means an individual or entity and its employees and Subcontractors that
directly provide health care services to HMOs Members under TDHS Medicaid
managed care program.

Provider contract means an agreement entered into by a direct provider of health
services and HMO or an intermediary entity.

Proxy Claim Form means a form submitted by providers to document services
delivered to Medicaid Members under a capitated arrangement. It is not a claim
for payment.

Public Information means information that is collected, assembled, or maintained
under a law or ordinance or in connection with the transaction of official
business by a governmental body or for a governmental body and the governmental
body owns the information or has a right of access.

Qualified Disabled and Working Individual (QDWI) is one whose only Medicaid
benefit is payment of the Medicare Part A premium. The Omnibus Budget
Reconciliation Act of 1989 requires the state to pay the Medicare Part A
premiums for certain disabled and working individuals who are enrolled in
Medicare Part A, who are not otherwise eligible for Medicaid, who have countable
income of no more than 200% of the Federal poverty

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level, and whose countable resources do not exceed twice the resource limit of
the SSI program.

Qualified Medicare Beneficiary (QMB) is an individual who does not receive
Medicaid benefits other than Medicare premiums, deductible, and coinsurance
liabilities. The Medicare Catastrophic Coverage Act of 1988 requires TDHS to pay
Medicare premiums, deductibles, and coinsurance for individuals who are entitled
to Medicare Part A, whose income does not exceed 100% of the federal poverty
level, and whose resources do not exceed twice the resource limit of the SSI
program.

Real Time Captioning (also known as CART, Communication Access Real-Time
Translation) means a process by which a trained individual uses a shorthand
machine, a computer, and real-time translation software to type and
simultaneously translate spoken language into text on a computer screen. Real
Time Captioning is provided for individuals who are deaf, have hearing
impairments, or have unintelligible speech; and it is usually used to interpret
spoken English into text English but may be used to translate other spoken
languages into text.

Readiness review means a review process conducted by TDHS or its agent(s) to
assess HMOs capacity and capability to perform the duties and responsibilities
required under the Contract. This process is required by Texas Government Code
Section 533.007.

Representative means a person who can make care-related decisions for a Member
who is not able to make such decisions alone. A representative may, in the
following order of priority, be a person who is:

      (a)   A court-appointed guardian of the person;
      (b)   A spouse or other family Member (parent) as designated by the Member
            or the State's surrogate decision maker statute; or
      (c)   Designated as the Member's health care Representative

RFA means the Request for Application issued by TDH/TDHS on January 7, 1997, and
all RFA addenda, appendices, corrections or modifications.

Risk means the potential for loss as a result of expenses and costs of HMO
exceeding payments made by TDHS under this contract.

SED means severe emotional disturbance.

Service area means the counties included in a site selected for the STAR+PLUS
Program, within which a participating HMO must provide services.

Significant Traditional Provider (STP). For acute care services, STP means all
hospitals receiving disproportionate share hospital funds (DSH) in FY'97 and all
other providers in a county that, when listed by provider type in descending
order by the number of recipient encounters, provided the top 80 percent of
recipient encounters for each provider type in FY'97. For Long Term Care
services STP means a provider with whom Medicaid recipients have
well-established or longstanding provider/client relationships, or to whom the
recipients have typically or traditionally gone for health care, emergency care
or family planning advice. A provider falling within this definition shall be
determined by criteria established by the State.

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Special hospital means an establishment that:

      (a)   offers services, facilities, and beds for use for more than 24 hours
            for two or more unrelated individuals who are regularly admitted,
            treated, and discharged and who require services more intensive than
            room, board, personal services, and general nursing care;
      (b)   has clinical laboratory facilities, diagnostic X-ray facilities,
            treatment facilities, or other definitive medical treatment;
      (c)   has a medical staff in regular attendance; and
      (d)   maintains records of the clinical work performed for each patient.

Specified Low-Income Medicare Beneficiary (SLMB) is an individual whose only
Medicaid benefit is payment of the Medicare Part B premium. The Omnibus Budget
Reconciliation Act of 1990 requires the state to pay the Medicare Part B
premiums for individuals who are enrolled in Medicare Part A, whose income is
more than 100% of the federal poverty level (FPL) but less than 120% of the FPL,
and whose resources do not exceed twice the resource limit of the SSI program.
SLMB is considered an extension of QMB.

SPMI means severe and persistent mental illness.

STAR+PLUS is the name of the State of Texas Medicaid managed care program which
provides and coordinates preventive, primary, acute and long term care services
to persons of all ages with disabilities and elderly persons 65 and over who
qualify for Medicaid through SSI/MAO.

State fiscal year means the 12-month period beginning on September 1 and ending
on August 31 of the next year.

Subcontract means any written agreement between HMO and other party to fulfill
the requirements of this Contract. All subcontracts are required to be in
writing.

Subcontractor means any individual or entity which has entered into a
subcontract with HMO.

Supplemental Security Income (SSI) a federal cash assistance program of direct
financial payments to the aged, blind, and disabled. It is federally
administered by the Social Security Administration under Title XVI of the Social
Security Act and funded through general federal tax revenues. All persons who
are certified as eligible for SSI in Texas are eligible for Medicaid. SSI
eligibility determinations are made by local Social Security Administration
(SSA) claims representatives. The transactions are forwarded to SSA in
Baltimore, who then notifies the states through the State Data Exchange (SDX).

Supplemental Security Income (SSI) beneficiary is a person that receives
supplemental security income cash assistance as cited in 42 USCA Section 1320
a-6.

TAC means Texas Administration Code.

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TCADA means Texas Commission on Alcohol and Drug Abuse. State agency responsible
for licensing chemical dependency treatment facilities. TCADA also contracts
with providers to deliver chemical dependency treatment services.

TCMHP stands for Texas Children's Mental Health Plan and means an interagency,
state-funded initiative that plans, coordinates, provides and evaluates service
systems for children and adolescents with behavioral health needs. The Plan is
operated at a state and local level by Community Management Teams representing
the major child-serving state agencies.

TDD means telecommunication device for the deaf. It is interchangeable with the
term teletype machine or TTY.

TDH means the Texas Department of Health

TDHS means the Texas Department of Human Services

TDI means the Texas Department of Insurance.

TDMHMR means the Texas Department of Mental Health and Mental Retardation.

THSteps means Texas Health Steps which is the name adopted by the State of Texas
for the federally mandated Early and Periodic Screening, Diagnostic and
Treatment (EPSDT) program. It includes the state's Comprehensive Care Program
extension to EPSDT, which adds benefits to the federal EPSDT requirements
contained in 42 United States Code Section 1396d(r), and defined and codified at
42 Code of Federal Regulations Section 440.40 and Sections 441.56-62. TDHS rules
are contained in 25 TAC, Chapter 33 (relating to Early and Periodic Screening,
and Diagnosis and Treatment).

Texas Medicaid Provider Procedures Manual means the policy and procedures manual
published by or on behalf of the State which contains policies and procedures
required of all health care providers who participate in the Texas Medicaid
program. The manual is published annually and is updated bi-monthly by the
Medicaid Bulletin.

Texas Medicaid Service Delivery Guide means an attachment to the Texas Medicaid
Provider Procedures Manual.

THHSC means Texas Health & Human Services Commission.

Third Party Liability (TPL) means the legal responsibility of another individual
or entity to pay for all or part of the services provided to Members under this
Contract. (See 25 TAC, Subchapter 28, relating to Third Party Resources).

Third Party Recovery (TPR) means the recovery of payments made on behalf of a
Member by TDHS or HMO from an individual or entity with the legal responsibility
to pay for the services.

TXMHMR means Texas Mental Health and Mental Retardation System which includes
the state agency, TDMHMR, and the Local Mental Health and Mental Retardation
Authorities.

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Unclean claim means a claim that does not contain accurate and complete data in
all claim fields that are required by HMO and TDHS and other HMO-published
requirements for adjudication such as medical records, as appropriate (see
definition of Clean Claim).

Urgent behavioral health situations means conditions which require attention and
assessment within 24 hours but which do not place the Member in immediate danger
to themselves or others and the Member is able to cooperate with treatment.

Urgent condition means a health condition, including an urgent behavioral health
situation, which is not an emergency but is severe or painful enough to cause a
prudent layperson, possessing the average knowledge of medicine, to believe that
his or her condition requires medical treatment evaluation or treatment within
24 hours by the Member's PCP or PCP designee to prevent serious deterioration of
the Member's condition or health.

Value-added services means a service that the state has approved to be included
in this contract for which the HMO does not receive capitation.

ARTICLE III             PLAN ADMINISTRATIVE AND HUMAN RESOURCE
                        REQUIREMENTS

3.1       ORGANIZATION AND ADMINISTRATION

3.1.1     HMO must maintain the organizational and administrative capacity and
          capabilities to carry out all duties and responsibilities under this
          Contract.

3.1.2     HMO must maintain assigned staff with the capacity and capability to
          provide all services to all Members under this Contract.

3.1.3     HMO must maintain an administrative office in the service area (local
          office). The local office must comply with the American with
          Disabilities Act requirements for public buildings.

3.1.4     HMO will maintain full-time medical and administrative staff with
          experience in delivering services to pediatric, geriatric, and
          disabled populations.

3.1.5     HMO will ensure that medical, functional, and/or long term care
          decisions are based on the assessed needs of the member and that
          access to services is not influenced solely by fiscal management
          decisions

3.1.6     The HMO must provide upon request a current organizational chart
          showing:

          -         basic functions
          -         the number of employees for those functions
          -         a list of key managers in the HMO who are responsible for
                    the basic functions of the organization

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          HMO must also submit a description and organizational chart which
          illustrates how behavioral health service administration is integrated
          into the overall administrative structure of the HMO, including
          individuals assigned to be behavioral health liaisons with the State.
          The HMO must notify TDHS within fifteen (15) working days of any
          change in key managers or behavioral health subcontractors. This
          information must be updated when there is a significant change in
          organizational structure or personnel.

3.1.7     Participation in Regional Advisory Committee. HMO must participate on
          a Regional Advisory Committee established in the service area in
          compliance with the Texas Government Code Section 533.021-533.029.

3.2       NON-PROVIDER SUBCONTRACTS

3.2.1     HMO must enter into written contracts with all Subcontractors and
          maintain copies of the subcontracts in HMO's administrative office.
          HMO must submit two copies of all non-provider subcontracts to TDHS
          for approval no later than 60 days after the effective date of this
          contract, unless the contract has already been submitted to and
          approved by TDHS. Subcontracts entered into after the effective date
          of this contract must be submitted no later than 30 days prior to the
          date of execution of the subcontract. HMO must also make non-provider
          subcontracts available to TDHS upon request, at the time and location
          requested by TDHS.

3.2.1.1   TDHS has 15 working days to review the subcontract and recommend any
          suggestions or required changes. If TDHS has not responded to HMO by
          the fifteenth day, HMO may execute the subcontract. TDHS reserves the
          right to request HMO to modify any subcontract that has been deemed
          approved.

3.2.1.2   HMO must notify TDHS not less than 90 days prior to terminating any
          Subcontract affecting a major performance function of this contract.
          All major Subcontractor terminations or substitutions require TDHS
          approval. TDHS may require HMO to provide a transition plan describing
          how the subcontracted function will continue to be provided. All
          subcontracts are subject to the terms and conditions of this contract
          and must contain the provisions of Article V, Statutory and Regulatory
          Compliance, and the provisions contained in Article 3.2.4.

3.2.2     Subcontracts which are requested by any agency with authority to
          investigate and prosecute fraud and abuse must be produced at the time
          and in the manner requested by the requesting Agency. Subcontracts
          requested in response to a public information request must be produced
          within 3 working days from TDHS' notification to HMO of the request.
          All requested records must be provided free of charge.

3.2.3     The form and substance of all Subcontracts including subsequent
          amendments are subject to approval by TDHS. TDHS retains the authority
          to reject or require changes to any provisions of the subcontract

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                                       15
<PAGE>   22

          that do not comply with the requirements or duties and
          responsibilities of this contract or create significant barriers for
          TDHS in carrying out its duty to monitor compliance with the contract.
          HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES
          AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
          RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER.

3.2.4     HMO and all intermediary entities must include the following standard
          language in each subcontract and ensure that this language is included
          in all subcontracts down to the actual provider of the services. The
          following standard language is not the only language which will be
          acceptable by TDHS.

3.2.4.1   Contractor understands that services provided under this contract are
          funded by state and federal funds under the Texas Medical Assistance
          Program (Medicaid). Contractor is subject to all state and federal
          laws, rules and regulations that apply to persons or entities
          receiving state and federal funds. Contractor understands that any
          violation by Contractor of a state or federal law relating to the
          delivery of services under this contract, or any violation of the
          TDHS/HMO contract could result in liability for contract money
          damages, and/or civil and criminal penalties and sanctions under state
          and federal law.

3.2.4.2   The Contractor understands and agrees that the HMO has the sole
          responsibility for payment of services rendered by the Contractor
          under this contract. In the event of HMO insolvency or cessation of
          operations, Contractor's sole recourse is against the HMO through the
          bankruptcy or receivership estate of the HMO.

3.2.4.3   The Contractor understands and agrees that TDHS is not liable or
          responsible for payment for any services provided under this contract.

3.2.4.4   The Contractor agrees that any modification, addition, or deletion of
          the provisions of this agreement will become effective no earlier than
          30 days after the HMO notifies TDHS of the change. If TDHS does not
          provide written approval within 30 days from receipt of notification
          from the HMO, changes may be considered provisionally approved.

3.2.4.5   This contract is subject to state and federal fraud and abuse
          statutes. The Contractor is subject to state and federal fraud and
          abuse statutes. The Contractor will be required to cooperate in the
          investigation and prosecution of any suspected fraud or abuse, and
          must provide any and all requested originals and copies of records and
          information, free of charge on request, to any state or federal agency
          with authority to investigate fraud and abuse in the Medicaid program.

3.2.5     The Texas Medicaid Fraud Control Unit must be allowed to conduct
          private interviews of HMO personnel, Subcontractors and their
          personnel, witnesses, and patients. Requests for information are to be
          complied with, in the form and the language requested. HMO employees
          and contractors and Subcontractors and their employees and contractors

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                                       16
<PAGE>   23
          must cooperate fully in making themselves available in person for
          interviews, consultation, grand jury proceedings, pretrial conference,
          hearings, trial and in any other process, including investigations.
          Compliance with this Article is at the HMO's and subcontractors' own
          expense.

3.3       MEDICAL DIRECTOR

3.3.1     HMO must have the equivalent of a full-time Medical Director licensed
          under the Texas State Board of Medical Examiners (M.D. or D.O.). HMO
          must have a written job description describing the Medical Director's
          authority, duties and responsibilities as follows:

3.3.1.1   Ensure that medical necessity decisions, including prior authorization
          protocols, are rendered by qualified medical personnel and are based
          on TDHS' definition of medical necessity, and is in compliance with
          the Utilization Review Act and 21.58a of the Texas Insurance Code.

3.3.1.2   Oversight responsibility of network providers to ensure that all care
          provided complies with the generally accepted health standards of the
          community.

3.3.1.3   Oversight of HMO's quality improvement process, including establishing
          and actively participating in HMO's quality improvement committee,
          monitoring Member health status, HMO utilization review policies and
          standards and patient outcome measures.

3.3.1.4   Identify problems and develop and implement corrective actions to
          quality improvement process.

3.3.1.5   Develop, implement and maintain responsibility for HMO's medical
          policy.

3.3.1.6   Oversight responsibility for medically related complaints.

3.3.1.7   Participate and provide witnesses and testimony on behalf of HMO in
          the State Medicaid Fair Hearing process.

3.3.2     The Medical Director must exercise independent medical judgement in
          all medical necessity decisions. HMO must ensure that medical
          necessity decisions are not adversely influenced by fiscal management
          decisions. The State may conduct reviews of medical necessity
          decisions by HMO Medical Director at any time.

3.4       PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS

3.4.1     HMO must receive written approval from TDHS for all updated written
          materials, produced or authorized by HMO, containing information about
          the STAR+PLUS Program prior to distribution to Members, prospective
          Members, providers within HMO's network, or potential providers who
          HMO intends to recruit as network providers. This includes Member
          education materials.

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<PAGE>   24

3.4.2     Member materials must meet cultural and linguistic requirements as
          stated in Article VIII. Unless otherwise required, Member materials
          must be written at 4th - 6th grade reading comprehension level and
          translated into the language of any major population group, except
          when the State requires plan to use statutory language (i.e. advanced
          directives, medical necessity, etc.).

3.4.3     All materials regarding the STAR+PLUS Program, including Member
          education materials, must be submitted to TDHS for approval prior to
          distribution. TDHS has 15 working days to review the materials and
          recommend any suggestions or required changes. If TDHS has not
          responded to the HMO by the fifteenth day, HMO may print and
          distribute these materials. TDHS reserves the right to request HMO to
          modify plan materials that are deemed approved and have been printed
          or distributed. These modifications can be made at the next printing
          unless substantial non-compliance exists.

3.4.4     HMO must forward approved English versions of their Member Handbook,
          Member Provider Directory, newsletters, individual Member letters, and
          any written information that applies to Medicaid-specific services to
          TDHS for TDHS to translate into Spanish. TDHS must provide the written
          and approved translation into Spanish to HMO no later than 15 working
          days after receipt of the English version by TDHS. HMO must
          incorporate the approved translation into these materials. If TDHS has
          not responded to HMO by the fifteenth day, HMO may print and
          distribute these materials. TDHS reserves the right to require
          revisions to materials if inaccuracies are discovered or if changes
          are required by changes in policy or law. These changes can be made at
          the next printing unless substantial non-compliance exists. HMO has
          the option of using the TDHS translation unit or their own translators
          for health education materials that do not contain Medicaid-specific
          information and for other marketing materials such as billboards,
          radio spots, and television and newspaper advertisements.

3.4.5     HMO must reproduce all written instructional, educational, and
          procedural documents required under this Contract and distribute them
          to its providers and Members. HMO must reproduce and distribute
          instructions and forms to all network providers who have reporting and
          audit requirements under this Contract.

3.4.6     HMO must provide TDHS with at least three paper copies and one
          electronic copy in a format approved by TDHS of their Member Handbook,
          Provider Manual and Member Provider Directory. If electronic format
          not available, five paper copies are required.

3.4.7     Changes to the Required Critical Elements for the Member Handbook,
          Provider Manual, and Member Provider Directory may be handled as
          inserts until the next printing of these documents.

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<PAGE>   25

3.5       RECORDS REQUIREMENTS AND RECORDS RETENTION

3.5.1     HMO must keep all records required to be created and retained under
          this contract. Records related to Members served in this service area
          must be made available in HMO s local office when requested by TDHS.
          All records must be retained for a period of five (5) years unless
          otherwise specified in this contract. Original records must be kept in
          the form they were created in the regular course of business for a
          minimum of two (2) years following the end of the contract period.
          Microfilm, digital or electronic records may be substituted for the
          original records after the first two (2) years, if the retention
          system is reliable and is supported by a retrieval system which allows
          reasonable access to the records. All copies of original records must
          be made using guidelines and procedures approved by TDHS, if the
          original documents will no longer be available or accessible.

3.5.2     Availability and Accessibility. All records, documents and data
          required to be created under this contract are subject to audit,
          inspection and production. If an audit, inspection or production is
          requested by TDHS, TDHS' designee or TDHS acting on behalf of any
          agency with regulatory or statutory authority over Medicaid Managed
          Care, the requested records must be made available at the time and at
          the place the records are requested. Copies of requested records must
          be produced or provided free-of-charge to the requesting agency.
          Records requested after the second year following the end of contract
          term, which have been stored or archived must be accessible and made
          available within 10 calendar days from the date of a request by TDHS
          or the requesting agency or at a time and place specified by the
          requesting entity.

3.5.3     Accounting Records. HMO must create and keep accurate and complete
          accounting records in compliance with to Generally Accepted Accounting
          Principles (GAAP). Records must be created and kept for all claims
          payments, refunds and adjustment payments to providers, premium or
          capitation payments, interest income and payments for administrative
          services or functions. Separate records must be maintained for medical
          and administrative fees, charges, and payments.

3.5.4     General Business Records. HMO must create and keep complete and
          accurate general business records to reflect the performance of duties
          and responsibilities, and compliance with the provisions of this
          contract.

3.5.5     Medical records. HMO must require, through contractual provisions or
          provider manual, providers to create and keep medical records in
          compliance with the medical records standards contained in the
          Standards for Quality Improvement Programs (pages 76-116 of the
          Medicaid Managed Care RFA for the Harris Service Area). All medical
          records must be kept for at least five (5) years, except for records
          of rural health clinics, which must be kept for a period of six (6)
          years from the date of service.

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3.5.6     Matters in Litigation. HMO must retain records related to matters in
          litigation for five (5) years following the termination or resolution
          of the litigation.

3.5.7     On-line Retention of Claims History. HMO must keep automated claims
          payment histories for a minimum of 18 months, from date of
          adjudication, in an on-line inquiry system. HMO must also keep
          sufficient history on-line to ensure all claim/encounter service
          information is submitted to and accepted by TDHS for processing.

3.6       HMO REVIEW OF TDHS MATERIALS

          TDHS will submit all studies or audits that relate or refer to HMO for
          review and comment to HMO 10 working days prior to releasing the
          report to the public or to Members.

3.7       REQUIREMENTS FOR EDUCATION, TRAINING, AND ADVISORY COMMITTEE
          ACTIVITIES

          HMO is required to participate in education and training activities
          provided for HMO's staff to educate and train regarding the special
          needs populations and services included in the STAR+PLUS Project. HMO
          is also required to attend regular meetings with THHSC and TDHS, and
          for HMO, CEO staff, the medical director staff, and the care
          coordinator staff.

ARTICLE IV     FISCAL, FINANCIAL AND SOLVENCY REQUIREMENTS

4.1       FISCAL SOLVENCY

4.1.1     HMO must be and remain in full compliance with all State and federal
          solvency requirements for HMOs, including but not limited to all
          reserve requirements, net worth standards, debt to equity ratios, or
          other debt limitations.

4.1.2     If HMO becomes aware of any impending changes to its financial or
          business structure which could adversely impact its compliance with
          these requirements or its ability to pay its debts as they come due,
          HMO must notify TDHS immediately in writing. In addition, if HMO
          becomes aware of a take-over or assignment which would require
          approval of TDI or TDHS, HMO must notify TDHS immediately in writing.

4.1.3     HMO must not have been placed under state conservatorship or
          receivership or filed for protection under federal bankruptcy laws.
          None of HMO s property, plant or equipment must have been subject to
          foreclosure or repossession within the preceding 10-year period. HMO
          must not have any debt declared in default and accelerated to maturity
          within the preceding 10-year period. HMO represents that these
          statements are true as of the contract execution date. HMO must inform
          TDHS within 24 hours of a change in any of the preceding
          representations.

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4.2       MINIMUM NET WORTH

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

4.2.2     The minimum equity must be maintained during the entire contract
          period.

4.3       PERFORMANCE BOND

          HMO has furnished TDHS with a performance bond in the form prescribed
          by TDHS and approved by TDI, naming TDHS as Obligee, securing HMO's
          faithful performance of the terms and conditions of this contract. The
          performance bond has been issued in the amount of $100,000 for a two
          year period (contract period). If the contract is renewed or extended
          under Article XVIII, a separate bond will be required for each
          additional term of the contract. The bond has been issued by a surety
          licensed by TDI, and specifies cash payment as the sole remedy.
          Performance Bond requirements under this Article must comply with
          Texas Insurance Code Section 11.1805, relating to Performance and
          Fidelity Bonds. The bond must be delivered to TDHS at the same time
          the signed HMO contract is delivered to TDHS.

4.4       INSURANCE

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

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

4.4.3     HMO must maintain an umbrella professional liability insurance policy
          for the greater of $3,000,000 or an amount (rounded to the next
          $100,000) which represents the number of STAR+PLUS Members enrolled in
          HMO in the first month of the contract year multiplied by $150, not to
          exceed $10,000,000.

4.4.4     Any exceptions to the requirements of this Article must be approved in
          writing by TDHS prior to the effective date of this contract. HMOs and
          providers who qualify as either state or federal units of government
          are exempt from the insurance requirements of this Article and are not
          required to obtain exemptions from these provisions prior to the
          effective date of this contract. State and federal units of government
          are required to

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          comply with and are subject to the provisions of the Texas or Federal
          Tort Claims Act.

4.5       FRANCHISE TAX

          HMO certifies that its payment of franchise taxes is current or that
          it is not subject to the State of Texas franchise tax.

4.6       AUDIT

4.6.1     TDHS, TDI or their designee have the right from time to time to
          examine and audit books and records of the HMO or of its
          Subcontractors relating to: (1) HMO's capacity to bear the risk of
          potential financial losses; (2) services performed or determination of
          amounts payable under this contract; (3) detection of fraud and abuse;
          and (4) other purposes TDHS deems to be necessary to perform its
          regulatory function and/or to enforce the provisions of this contract.

4.6.2     TDHS is required to conduct an audit of HMO at least once every three
          years. HMO is responsible for paying the costs of an audit conducted
          under this Article. The costs of the audit paid by HMO are allowable
          costs under this contract.

4.7       PENDING OR THREATENED LITIGATION

          HMO must require disclosure from Subcontractors and network providers
          of all pending or potential litigation or administrative actions
          against the Subcontractor or network provider and must disclose this
          information to TDHS, in writing, prior to the execution of this
          contract. HMO must make reasonable investigation and inquiry that
          there is not pending or potential litigation or administrative action
          against the providers or Subcontractors in HMO s provider network. HMO
          must notify TDHS of any litigation which is initiated or threatened
          during the contract period within seven days of receiving service or
          becoming aware of the threatened litigation.

4.8       MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA

4.8.1     HMO was awarded the original Contract based upon the responses and
          representations contained in its application. All responses and
          representations upon which scoring was based were considered material
          to the decision of whether to award the original Contract to HMO and
          are thus incorporated by reference into this Contract. If there is any
          difference between HMOs RFA responses and this Contract, the Contract
          shall control.

4.8.2     This Contract was awarded in part based upon HMOs representation of
          its current equity, deposits and financial ability to bear the risks
          under this Contract. TDHS will consider any misrepresentations of
          equity at any time, its ability to bear financial risks of this
          Contract or otherwise inflating the equity of HMO, solely for the
          purpose of being awarded this Contract, a material misrepresentation
          and fraud under this Contract.

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4.8.3     Discovery of any material misrepresentation, or fraud on the part of
          HMO in HMO s application or in HMO s day-to-day activities and
          operations may cause this contract to terminate and may result in
          legal action being taken against HMO under this contract, and state
          and federal civil and criminal laws.

4.9       THIRD PARTY RECOVERY

          FOR ACUTE CARE SERVICES

4.9.1     Third Party Recovery. All Members are required to assign their rights
          to any benefits to the State and agree to cooperate with the State in
          identifying third parties who may be liable for all or part of the
          costs for providing services to the Member, as a condition for
          participation in the Medicaid program. HMO is authorized to act as the
          State's agent in enforcing the State's rights to third party recovery
          under this contract.

4.9.2     Identification. HMO must develop and implement systems and procedures
          to identify potential third parties who may be liable for payment of
          all or part of the costs for providing medical services to Members
          under this contract. Potential third parties must include any of the
          sources identified in 42 C.F.R. 433.138, relating to identifying third
          parties, except workers' compensation, uninsured and underinsured
          motorist insurance, first and third party liability insurance and
          tortfeasors. HMO must coordinate with the state to obtain information
          from other state and federal agencies and HMO must cooperate with the
          State in obtaining information from commercial third party resources.
          HMO must require all providers to comply with the provisions of 25 TAC
          Section 28, relating to Third Party Recovery in the Medicaid program.

4.9.3     Exchange of identified resources. HMO must forward identified
          resources of uninsured and underinsured motorist insurance, first and
          third party liability insurance and tortfeasors ("excepted resources")
          to the State for the State to pursue collection and recovery from
          these resources. The State will forward information on all third party
          resources identified by the State to HMO. HMO must coordinate with the
          State to obtain information from other state and federal agencies,
          including HCFA for Medicare and the Child Support Enforcement Division
          of the Office of the Attorney General for medical support. HMO must
          cooperate with the State in obtaining and exchanging information from
          commercial third party resources.

4.9.4     Recovery. HMO must actively pursue and collect from third party
          resources which have been identified, except when the cost of pursuing
          recovery reasonably exceeds the amount which may be recovered by HMO.
          HMO is not required to, but may pursue recovery and collection from
          the excepted resources listed in 4.9.3. HMO must report the identity
          of these resources to the State, even if HMO will pursue collection
          and recovery from the excepted resources.

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4.9.4.1   HMO must provide third party resource information to network providers
          to whom individual Members have been assigned or who provide services
          to Members. HMO must require providers to seek recovery from potential
          third party resources prior to seeking payment from HMO. If network
          providers are paid capitation, HMO must either seek recovery from
          third party resources or account to the State for all amounts received
          by network providers from third party resources.

4.9.4.2   HMO must prohibit network providers from interfering with or placing
          liens upon the State's right or the HMO's right, acting as the State's
          agent, to recovery from third party resources. HMO must prohibit
          network providers from seeking recovery in excess of the Medicaid
          payable amount or otherwise violating state and federal laws.

4.9.5     Retention. HMO may retain as income all amounts recovered from third
          party sources as long as recoveries are obtained in compliance with
          the contract and state and federal laws.

4.9.6     Accountability. HMO must report all third party recovery efforts and
          amounts recovered as required in 12.1.10. If HMO fails to pursue and
          recover from third parties no later 180 days after the date of
          service, the State may pursue third party recoveries and retain all
          amounts recovered without accounting to HMO for the amounts recovered.
          Amounts recovered by the State will be added to expected third party
          recoveries to reduce future capitation rate, except recoveries from
          those excepted third party resources listed in 4.9.3.

          FOR LONG-TERM CARE SERVICES

4.9.7     HMO is expected to identify members who have insurance coverage that
          should pay for all or part of the expenses related to the long-term
          care needs of the client. The use of this process will result in a
          cost avoidance to hold down costs to the Medicaid program. The HMO may
          retain any amounts recovered, if the HMO must pursue collection of
          these benefits after the expenses are incurred.

4.9.8     TDHS retains the right and responsibility to pursue recovery of
          amounts from subrogation claims arising out of tort claims and
          recovery from OBRA 93 trusts and annuities. HMO must assist TDHS in
          these activities by providing information to TDHS related to costs
          paid on behalf of the member in these situations.

4.10      CLAIMS PROCESSING REQUIREMENTS

4.10.1    HMO and claims processing Subcontractors must comply with the Texas
          Managed Care Claims Manual (Claims Manual), which contains claims
          processing requirements. HMO must comply with any changes to Claims
          Manual with appropriate notice of changes from the State.

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4.10.2    HMO must not pay any claim submitted by a provider who has been
          excluded or suspended from the Medicare or Medicaid programs for fraud
          and abuse when the HMO has knowledge of the exclusion or suspension.

4.10.3    All provider clean claims must be adjudicated (finalized as paid or
          denied adjudicated) within 30 days from the date the claim is received
          by the HMO. HMO must pay providers interest on a clean claim which is
          not adjudicated within 30 days from the date the claim is received by
          the HMO or becomes clean at a rate of 1.5% per month (18% annual) for
          each month the clean claim remains unadjudicated. HMO will be held to
          a minimum performance level of 90% of all clean claims paid or denied
          within 30 days of receipt and 99% of all clean claims paid or denied
          within 90 days of receipt. Failure to meet these performance levels is
          a default under this contract and could lead to damages or sanctions
          as outlined in Article XVII. The performance levels are subject to
          changes if required to comply with federal and state laws or
          regulations.

4.10.3.1  All claims and appeals submitted to HMO and claims processing
          subcontractors must be paid-adjudicated (clean claims),
          denied-adjudicated (clean claims), or denied for additional
          information (unclean claims) to providers within 30 days from the date
          the claim is received by HMO. Providers must be sent a written notice
          for each claim that is denied for additional information (unclean
          claims) identifying the claim, all reasons why the claim is being
          denied, the date the claim was received by HMO, all information
          required from the provider in order for the HMO to adjudicate the
          claim, and the date by which the requested information must be
          received from the provider.

4.10.3.2  Claims that are suspended (pended internally) must be subsequently
          paid-adjudicated, denied-adjudicated, or denied for additional
          information (pended externally) within 30 days from date of receipt.
          No claim can be suspended for a period exceeding 30 days from date of
          receipt of the claim.

4.10.3.3  HMO must identify each data field of each claim form that is required
          from the provider in order for the HMO to adjudicate the claim. HMO
          must inform all network providers about the required fields no later
          than 30 days prior to the effective date of the contract or as a
          provision within the HMO/provider contract. Out of network providers
          must be informed of all required fields if the claim is denied for
          additional information. The required fields must include those
          required by the HMO and TDHS.

4.10.4    HMO is subject to the Remedies and Sanctions Article of this contract
          for claims that are not processed on a timely basis as required by
          this contract and the Claims Manual. Not withstanding the provisions
          of Articles 4.10.3, 4.10.3.1 and 4.10.3.2, sanctions will be applied
          if at least ninety percent (90%) of all claims are not adjudicated
          (paid, denied, or external pended) within thirty (30) days of receipt
          and ninety nine percent (99%) with in ninety (90) days of receipt for
          the contract year to date.

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4.10.5    HMO agrees that when it receives written notification from TDHS that a
          provider's funds be held because the provider has changed ownership,
          has an unpaid judgment, sanction, monetary penalty or audit exception,
          or has failed to meet some other legal requirement, the HMO will place
          the provider's funds on hold until it receives further notification
          from TDHS. Upon notification to the HMO, the HMO must either pay the
          claim or remit the held funds to TDHS.

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

4.11      INDEMNIFICATION

4.11.1    HMO/TDHS: HMO must agree to indemnify TDHS and its agents for any and
          all claims, cost, damages and expenses, including court costs and
          reasonable attorney fees which are related to or arise out of:

4.11.1.1  Any failure, inability or refusal of HMO or any of its network
          providers or other Subcontractors to provide covered services:

4.11.1.2  Claims arising from HMO, HMOs network providers or other
          Subcontractors negligent or intentional conduct in not providing
          covered services and;

4.11.1.3  Failure, inability or refusal of HMO to pay any of its network
          providers or Subcontractors for covered services.

4.11.2    HMO/Provider: HMO is prohibited from requiring any providers to
          indemnify HMO for HMOs own acts or omissions which result in damages
          or sanctions being assessed against HMO either under this contract or
          under State or Federal Law.

ARTICLE V STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

5.1       COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS

5.1.1     HMO must know, understand and comply with all state and federal laws
          and regulations relating to the Texas Medicaid Program which have not
          been waived by HCFA. HMO must comply with all rules relating to the
          Medicaid Managed Care program adopted by TDHS, TDI, TDH, THHSC, TDMHMR
          and any other state agency delegated authority to operate or
          administer Medicaid or Medicaid Managed Care Programs.

5.1.2     HMO must require through contract provisions, that all network
          providers or Subcontractors comply with all state and federal laws and
          regulations

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          relating to the Texas Medicaid program and all rules relating to the
          Medicaid Managed Care program adopted by TDHS, TDI, TDH, THHSC, TDMHMR
          and any other state agency delegated authority to operate Medicaid or
          Medicaid Managed Care programs.

5.1.3     HMO must comply with the provisions of the Clean Air Act and the
          Federal Water Pollution Control Act, as amended, found at 42 C.F.R.
          7401, et. seq. and 33 U.S.C.1251, et. seq., respectively.

5.2       PROGRAM INTEGRITY

5.2.1     HMO has not been excluded, debarred, or suspended from participation
          in any program under Title XVIII or Title XIX under any of the
          provisions of section 1128(a) or (b) of the Social Security Act (42
          USC Section 1320 a-7), or Executive Order 12549. HMO must notify TDHS
          within 3 days of the time it receives notice that any action being
          taken against HMO or any person defined under the provision of section
          1128 (a) or (b) or any Subcontractor, which could result in exclusion,
          debarment or suspension of HMO or a Subcontractor from the Medicaid
          program, or any program listed in Executive Order 12549.

5.2.2     HMO must Comply with the provisions of and file the certification of
          compliance required by the Byrd Anti-Lobbying Amendment, found at 31
          USC 1352, relating to use of federal funds for lobbying for or
          obtaining federal contracts.

5.3       FRAUD AND ABUSE COMPLIANCE PLAN

5.3.1     This contract is subject to all state and federal laws and regulations
          relating to fraud and abuse in health care and the Medicaid program.
          HMO must cooperate and assist TDHS and THHSC and any other state or
          federal agency charged with the duty of identifying, investigating,
          sanctioning or prosecuting suspected fraud and abuse. HMO must provide
          originals and/or copies of all records and information requested and
          allow access to premises and provide records to TDHS or its authorized
          agent(s), THHSC, HCFA, the U.S. Department of Health and Human
          Services, FBI, TDI, and the Texas Attorney General's Medicaid Fraud
          Control Unit. All copies of records must be provided free of charge.

5.3.2     Compliance Plan. HMO must submit to TDHS for approval a written fraud
          and abuse compliance plan which is based on the Model Compliance Plan
          issued by the U.S. Department of Health and Human Services, the Office
          of Inspector General (OIG), no later than 30 days after the effective
          date of the contract. HMO must designate an officer or director in its
          organization who has the responsibility and authority for carrying out
          the provisions of its compliance plan. HMO must submit any updates or
          modifications in its compliance plan to TDHS for approval at least 30
          days prior to the modifications going into effect. HMO's fraud and
          abuse compliance plan must:

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5.3.2.1   ensure that all officers, directors, managers and employees know and
          understand the provisions of HMO's fraud and abuse compliance plan.

5.3.2.2   contain procedures designed to prevent and detect potential or
          suspected abuse and fraud in the administration and delivery of
          services under this contract.

5.3.2.3   contain provisions for the confidential reporting of plan violations
          to the designated person in HMO.

5.3.2.4   contain provisions for the investigation and follow-up of any
          compliance plan reports.

5.3.2.5   ensure that the identity of individuals reporting violations of the
          plan is protected.

5.3.2.6   contain specific and detailed internal procedures for officers,
          directors, managers and employees for detecting, reporting, and
          investigating fraud and abuse compliance plan violations.

5.3.2.7   require any confirmed or suspected fraud and abuse under state or
          federal law be reported to TDHS, the Medicaid Program Integrity
          section of the Office of Investigations and Enforcement of the Texas
          Health and Human Services Commission, and/or the Medicaid Fraud
          Control Unit of the Texas Attorney General.

5.3.2.8   ensure that no individual who reports plan violations or suspected
          fraud and abuse is retaliated against.

5.3.3     Training. HMO must designate executive and essential personnel to
          attend mandatory training in fraud and abuse detection, prevention and
          reporting. The training will be conducted by the Office of
          Investigation and Enforcement, Health and Human Services Commission,
          and will be provided free of charge. HMO must schedule and complete
          training no later than 90 days after the effective date of any updates
          or modification of the written Model Compliance Plan.

5.3.3.1   If HMO's personnel have attended OIE training prior to the effective
          date of this contract, they are not required to attend additional OIE
          training unless new training is required due to changes in federal
          and/or state law or regulations. If additional OIE training is
          required, TDHS will notify HMO to schedule this additional training.

5.3.3.2   If HMO updates or modifies its written fraud and abuse compliance
          plan, HMO must train its executive and essential personnel on these
          updates or modifications no later than 90 days after the effective
          date of the updates or modifications.

5.3.3.3   If HMO's executive and essential personnel change or if HMO employs
          additional executive and essential personnel, the new or additional

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          personnel must attend OIE training within 90 days of employment by
          HMO.

5.3.4     HMO's failure to report potential or suspected fraud or abuse may
          result in sanctions, contract cancellation, or exclusion from
          participation in the Medicaid program.

5.3.5     HMO must allow the Texas Medicaid Fraud Control Unit and THHSC's
          Office of Investigations and Enforcement, to conduct private
          interviews of HMO's employees, subcontractors and their employees,
          witnesses, and patients. Requests for information must be complied
          with in the form and the language requested. HMO's employees and its
          subcontractors and their employees must cooperate fully and be
          available in person for interviews, consultation, grand jury
          proceedings, pre-trial conference, hearings, trial and in any other
          process.

5.3.6     Subcontractors. HMO must submit the documentation described in
          Articles 5.3.6.1 through 5.3.6.3, in compliance with Texas Government
          Code Section 533.012, regarding any subcontractor providing health
          care services under this contract except for those providers who have
          re-enrolled as a provider in the Medicaid program as required by
          Section 2.07, Chapter 1153, Acts of the 75th Legislature, Regular
          Session, 1997, or who modified a contract in compliance with that
          section. HMO must submit information in a format as specified by TDHS.
          Documentation must be submitted no later than 120 days after the
          effective date of this contract. Subcontracts entered into after the
          effective date of this contract must be submitted no later than 90
          days after the effective date of the subcontract. Documentation
          required under this provision is not subject to disclosure under
          Chapter 552, Government Code.

5.3.6.1   a description of any financial or other business relationship between
          HMO and its subcontractor;

5.3.6.2   a copy of each type of contract between HMO and its subcontractor;

5.3.6.3   a description of the fraud control program used by any subcontractor.

5.4       SAFEGUARDING INFORMATION

5.4.1     All Member information, records and data collected or provided to HMO
          by TDHS or another state agency is protected from disclosure by state
          and federal law and regulations. HMO may only receive and disclose
          information which is directly related to establishing eligibility,
          providing services and conducting or assisting in the investigation
          and prosecution of civil and criminal proceedings under state or
          federal law.

5.4.2     HMO is responsible for informing Members and providers regarding the
          provisions of 42 CFR 431, Subpart F, relating to Safeguarding
          Information on Applicants and Recipients, and HMO must ensure that
          confidential information is protected from disclosure except for
          authorized purposes.

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5.4.3     HMO must assist network PCPs in policies for protecting the
          confidentiality of AIDS and HIV-related medical information and an
          anti-discrimination policy for employees and Members with communicable
          diseases. Also see Health and Safety Code, Chapter 85, Subchapter E,
          relating to the Duties of State Agencies and State Contractors.

5.4.4     HMO must require that Subcontractors have mechanisms in place to
          ensure Member's (including minor's) confidentiality for family
          planning services.

5.5       NON-DISCRIMINATION

          HMO agrees to comply with and to include in all subcontracts a
          provision that the Subcontractor will comply with each of the
          following requirements:

5.5.1     Title VI of the Civil Rights Act of 1964, Section 504 of the
          Rehabilitation Act of 1973, the Americans with Disabilities Act of
          1990, and all requirements imposed by the regulations implementing
          these acts and all amendments to the laws and regulations. The
          regulations provide in part that no person in the United States shall,
          on the grounds of race, color, national origin, sex, age, disability,
          political beliefs or religion, be excluded from participation in, or
          denied, any aid, care, service or other benefits, or be subjected to
          any discrimination under any program or activity receiving federal
          funds.

5.5.2     Texas Health and Safety Code Section 85.113 (relating to workplace and
          confidentiality guidelines regarding AIDS and HIV).

5.5.3     The provisions of Executive Order 11246, as amended by 11375, relating
          to Equal Employment Opportunity.

5.6       HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs)

5.6.1     TDHS is committed to providing procurement and contracting
          opportunities to historically underutilized businesses (HUBs), under
          the provisions of Texas Government Code, Title 10, Subtitle D, Chapter
          2161 and 1 TAC Section 111.11(b) and 111.13(c)(7). TDHS requires its
          HMOs and Subcontractors to make a good faith effort to assist HUBs in
          receiving a portion of the total contract value of this Contract.

5.6.2     The HUB good faith effort goal for this Contract is 18.1%. HMO agrees
          to make a good faith effort to meet or exceed this goal. HMO
          acknowledges it made certain good faith effort representations and
          commitments to TDHS during the HUB good faith effort determination
          process. HMO agrees to use its best efforts to abide by these
          representations and commitments during the Contract period.

5.6.3     HMO is required to submit to TDHS quarterly reports of its HUB
          programs efforts and accomplishments during the Contract period as
          required in 12.11 of this Contract. The quarterly reports must include
          a narrative

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          report describing HMO's HUB efforts and accomplishments and a
          financial report reflecting expenditures made with HUBs. Included in
          Attachment B of this Contract is the format which must be used for the
          quarterly reports.

5.6.4     TDHS will assist HMO in meeting the contracting and reporting
          requirements of this section.

5.7       AFFIRMATIVE ACTION

5.7.1     HMO must have in place, to the extent required by federal or state
          law, an "Affirmative Action Plan," which is a written document that
          details an affirmative action program. Key parts of an affirmative
          action plan are:

          (a)       a policy statement pledging nondiscrimination and
                    affirmative action in employment;
          (b)       internal and external dissemination of the policy;
          (c)       assignment of a key employee as the equal opportunity
                    officer;
          (d)       a work force analysis that identifies job classifications
                    where representation of women, minorities and the disabled
                    is deficient;
          (e)       goals and timetables that are specific and measurable, and
                    that are set to correct deficiencies and to reach a balance
                    of work force;
          (f)       revision of all employment practices to ensure that they do
                    not have discriminatory effects; and
          (g)       establishment of internal monitoring and reporting systems
                    to regularly measure progress.

5.8       BUY TEXAS

          HMO agrees to Buy Texas products and materials when they are available
          at a comparable price and in a comparable period of time, as required
          by Section 48 of Article IX of the General Appropriations Act of 1995.

5.9       CHILD SUPPORT

5.9.1     The Texas Family Code Section 231.006 requires the State to withhold
          contract payments from any for profit entity or individual who is at
          least thirty (30) days delinquent in child support obligations. It is
          HMOs responsibility to determine and verify that no owner, partner, or
          shareholder who has at least a 25% ownership interest in HMO is
          delinquent in child support obligations. HMO must attach a list of the
          names and social security numbers of all shareholders, partners or
          owners who have at least a 25% ownership interest in HMO.

5.9.2     Under Section 231.006 of the Family Code, contractor certifies that
          the contractor is not ineligible to receive the specified grant, loan,
          or payment and acknowledges that this Contract may be terminated and
          payment may be withheld if this certification is inaccurate. A child
          support obligor who is more than thirty (30) days delinquent in paying
          child support or a

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          business entity in which the obligor is a sole proprietor, partner,
          shareholder, or owner with an ownership interest of at least 25
          percent is not eligible to receive the specified grant, loan or
          payment.

5.9.3     If TDHS is informed and verifies that a child support obligor who is
          more than thirty (30) days delinquent is a partner, shareholder, or
          owner with at least a 25% ownership interest in HMO, it will withhold
          any payments due under this Contract until it has received
          satisfactory evidence that the obligation has been satisfied or that
          the obligor has entered into a written repayment request.

5.10      REQUEST FOR PUBLIC INFORMATION

5.10.1    This contract and all network provider and Subcontractor contracts are
          subject to public disclosure under the Public Information Act (Texas
          Government Code, Chapter 552). TDHS may receive Public Information
          requests related to this contract, information submitted as part of
          the compliance of the contract and the HMO's application upon which
          this contract was awarded. TDHS agrees that it will promptly deliver a
          copy of any request for public information to the HMO.

5.10.2    TDHS may, in its sole discretion, request a decision from the Office
          of the Attorney General (AG opinion) regarding whether the information
          requested is excepted from required public disclosure. TDHS may rely
          on the HMO's written representations in preparing any AG opinion
          request, in accordance with Texas Government Code Section 552.305.
          TDHS is not liable for failing to request an AG opinion or for
          releasing information which is not deemed confidential by law, if the
          HMO fails to provide TDHS with specific reasons why the requested
          information is exempt from the required public disclosure. TDHS or the
          Office of the Attorney General will notify all interested parties if
          an AG opinion is requested.

5.10.3    If the HMO believes that the requested information qualifies as a
          trade secret or as commercial or financial information, HMO must
          notify TDHS-- within three (3) working days of HMO's receipt of the
          request of the specific text, or portion of text, which the HMO claims
          is excepted from required public disclosure. The HMO is required to
          identify the specific provisions of the Act which the HMO believes are
          applicable, and is required to include a detailed written explanation
          of how the exceptions apply to the specific information identified by
          the HMO as confidential and excepted from required public disclosure.

5.11      NOTICE AND APPEAL

          For Acute care services, HMO must comply with the notice requirements
          contained in 25 TAC Section 36.21, and the maintaining benefits and
          services contained in 25 TAC Section 36.22, whenever the HMO intends
          to take an action affecting the Member benefits and services under
          this contract. See also the Member appeal requirements contained in
          Article 8.7 of this contract.

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          For Long Term Care services, HMO must comply with the notice
          requirements contained in 40 TAC, Section 79.1204, and the appeal
          requirements of 40 TAC ch.79, whenever HMO intends to take an adverse
          action affecting Member benefits and services under this Contract. HMO
          agrees to provide information regarding fair hearings to TDHS within
          fifteen (15) days of the date of appeal and agrees to provide an HMO
          staff member to represent HMO at the hearing. See also the Member
          appeal requirements containing in paragraph 8.7 of this Contract.

ARTICLE VI     SCOPE OF SERVICES

6.1       SCOPE OF SERVICES

          HMO is paid capitation for all services included in the State of Texas
          Title XIX State Plan and the 1915(b) and 1915(c) waiver applications
          for the SDA currently filed and approved by HCFA, except those
          services which are specifically excluded and listed in Article 6.1.8
          (non-capitated services).

6.1.1     HMO must pay for or reimburse for all covered services provided to
          mandatory-enrolled Members for whom HMO is paid capitation.

6.1.2     HMO must provide Acute care covered services described in the 1999
          Texas Medicaid Provider Procedures Manual (Provider Procedures
          Manual), subsequent editions of the Provider Procedures Manual also in
          effect during the contract period, and all Texas Medicaid Bulletins
          which update the 1999 Provider Procedures Manual and subsequent
          editions of the Provider Procedures Manual published during the
          contract period.

6.1.3     Long Term care covered services include attendant care, day activity
          and health services, and required services under the 1915 (c) waiver.

          6.1.3.1.  HMO is responsible for the Medicare co-payment for days
                    21-100 in a skilled nursing facility.

6.1.4     Covered services are subject to change due to changes in federal law,
          changes in Texas Medicaid policy, and/or responses to changes in
          Medicine, Clinical protocols, or technology.

6.1.5     The State has obtained a waiver to the State Plan to include three
          enhanced benefits to all members. Two of these enhanced benefits
          removed restrictions which previously applied to Medicaid eligible
          individuals 21 years and older: the three-prescriptions per month
          limit for Medicaid only recipients; and, the 30-day spell of illness
          limit. One of these expanded the covered benefits to add an annual
          adult well check.

6.1.6     Value-added Services. Value-added services that are approved by TDHS
          during the contracting process are included in the Scope of Services
          under this contract.

6.1.6.1   The approval request must include:

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6.1.6.1.1 A detailed description of the service to be offered;

6.1.6.1.2 Identification of the category or group of Members eligible to receive
          the service if it is a type of service that is not appropriate for all
          Members.

6.1.6.1.3 Any limits or restrictions which apply to the service; and

6.1.6.1.4 A description of how a Member may obtain or access the service.

6.1.6.2   Value-added services can only be added or removed by written amendment
          of this contract. HMO cannot include a value-added service in any
          material distributed to Members or prospective Members until this
          contract has been amended to include that value-added service.

6.1.6.2.1 If a value-added service is deleted by amendment, HMO must notify each
          Member that the service is no longer available through HMO, and HMO
          must revise all materials distributed to prospective Members to
          reflect the change in covered services.

6.1.6.3   Value-added services must be offered to all eligible HMO Members, as
          indicated in Article 6.1.6.1.2, unless the contract is amended or the
          contract terminates.

6.1.7     HMO may offer additional benefits that are outside the scope of
          services of this contract to individual Members on a case-by-case
          basis, based on medical necessity, cost-effectiveness, and
          satisfaction and improved health/behavioral health status of the
          Member/Member family.

6.1.8     Non-Capitated Services. The following Texas Medicaid program services
          have been excluded from the services included in the calculation of
          HMO capitation rate:

          THSteps Dental (including Orthodontia)
          Early Childhood Intervention Case Management/Service Coordination
          MHMR Targeted Case Management
          Mental Health Rehabilitation
          Pregnant Women and Infants Case Management
          THSteps Medical Case Management
          Texas School Health and Related Services
          Texas Commission for the Blind Case Management
          Tuberculosis Services Provided by TDH-approved providers (Directly
          Observed Therapy and Contact Investigation)
          Vendor Drugs (out of office drugs)
          Medical Transportation
          TDHS Hospice Services

          Refer to relevant chapters in the Provider Procedures Manual and the
          Texas Medicaid Bulletins for more information.

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          Although HMO is not responsible for paying or reimbursing for these
          non-capitated services, HMO remains responsible for providing
          appropriate referrals for Members to obtain or access these services.

6.1.8.1   HMO is responsible for informing providers that all non-capitated
          services must be submitted to the State for payment or reimbursement.

6.2       PRE-EXISTING CONDITIONS

          HMO is responsible for providing all covered services to each eligible
          Member beginning on the effective date of the Contract or the Member's
          date of enrollment under the contract regardless of pre-existing
          conditions, prior diagnosis and/or receipt of any prior health care
          services.

6.3       SPAN OF ELIGIBILITY

          The following outlines the HMO's responsibilities for payment of
          hospital and free-standing psychiatric facility (facility) admissions:

6.3.1     Inpatient Admission Prior to Enrollment in HMO. HMO is responsible for
          payment of physician and non-hospital/facility charges for the period
          for which the HMO is paid a capitation payment for that Member. HMO is
          not responsible for hospital/facility charges for Members admitted
          prior to the date of enrollment in HMO.

6.3.2     Inpatient Admission after Enrollment in HMO. HMO is responsible for
          all charges until the Member is discharged from the hospital facility
          or until the Member loses Medicaid eligibility.

6.3.2.1   If a Member regains Medicaid eligibility and the Member was enrolled
          in the HMO at the time the Member was admitted to the hospital, the
          HMO is responsible for charges as follows:

6.3.2.1.1 Member Re-enrolls into HMO after Regaining Medicaid Eligibility. HMO
          is responsible for all charges for the period for which HMO receives a
          capitation payment for the Member or until the Member is discharged or
          loses Medicaid eligibility.

6.3.2.1.2 Member Re-enrolls in Another Health Plan after Regaining Medicaid
          Eligibility. HMO is responsible for hospital/facility charges until
          the Member is discharged or loses Medicaid eligibility.

6.3.3     Plan Change. A Member cannot change from one health plan to another
          health plan during an inpatient hospital stay.

6.3.4     Hospital/Facility Transfer. Discharge from one acute care
          hospital/facility and readmission to another acute care
          hospital/facility within 24 hours for continued treatment is not a
          discharge under this contract.

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6.3.5     HMO insolvency or receivership. HMO is responsible for payment of all
          services provided to a person who was a Member on the date of
          insolvency or receivership to the same extent they would otherwise be
          responsible under this Article 6.3.

6.4       CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS

6.4.1     HMO must ensure that the care of newly enrolled Members is not
          disrupted or interrupted. HMO must take special care to provide
          continuity in the care of newly enrolled Members whose health or
          behavioral health condition has been treated by specialty care
          providers or whose health could be placed in jeopardy if care is
          disrupted or interrupted.

6.4.2     Pregnant Members with 12 weeks or less remaining before the expected
          delivery date must be allowed to remain under the care of the Member's
          current OB/GYN through the Member's postpartum checkup even if the
          provider is out-of-network. If Member wants to change her OB/GYN to
          one who is in the plan, she must be allowed to do so if the provider
          to whom she wishes to transfer agrees to accept her in the last
          trimester.

6.4.3     HMO must pay a Member's existing out-of-network providers for covered
          services until the Member's records, clinical information and care can
          be transferred to a network provider. Payment must be made within the
          time period required for network providers. HMO may pay any
          out-of-network provider a reasonable and customary amount determined
          by the HMO. This Article does not extend the obligation of HMO to
          reimburse the Member's existing out-of-network providers of on-going
          care for more than 90 days after Member enrolls in HMO or for more
          than nine months in the case of a Member who at the time of enrollment
          in HMO has been diagnosed with and receiving treatment for a terminal
          illness. The obligation of HMO to reimburse the Member's existing
          out-of-network provider for services provided to a pregnant Member
          with 12 weeks or less remaining before the expected delivery date
          extends through delivery of the child, immediate postpartum care, and
          the follow-up checkup within the first six weeks of delivery.

6.4.4     HMO must pay out-of-network providers who provide covered services to
          Members who move out of the service area through the end of the period
          for which capitation has been paid for the Member.

6.5       EMERGENCY CARE

6.5.1     HMO must pay for the professional, facility, and ancillary services
          that are medically necessary to perform the medical screening
          examination and stabilization of HMO Member presenting as an emergency
          medical condition or an emergency behavioral health condition to the
          hospital emergency department, 24 hours a day, 7 days a week, rendered
          by either HMO's in-network or out-of-network providers. HMO may elect
          to pay any emergency services provider an amount negotiated between
          the
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          emergency provider and HMO, or a reasonable and customary amount
          determined by the HMO.

6.5.2     The HMO must ensure that its network primary care providers (PCPs)
          have after-hours telephone availability 24 hours a day, 7 days a week
          throughout the service area.

6.5.3     HMO cannot require prior authorization as a condition for payment for
          an emergency medical condition, an emergency behavioral health
          condition, or labor and delivery.

6.5.4     Medical Screening Examination. A medical screening examination may
          range from a relatively simple history, physical examination,
          diagnosis, and treatment, to a complex examination, diagnosis, and
          treatment that requires substantial use of hospital emergency
          department and physician services. HMO must pay for the emergency
          medical screening examination required to determine whether an
          emergency condition exists, as required by 42 U.S.C. 1395dd. HMOs must
          reimburse for both the physician's services and the hospital's
          emergency services, including the emergency room and its ancillary
          services.

6.5.5     Stabilization services. HMO must pay for emergency services performed
          to stabilize the Member as documented by the Emergency physician in
          the Member's medical record. HMOs must reimburse for physician's
          services and hospital's emergency services including the emergency
          room and its ancillary services. With respect to an emergency medical
          condition, to stabilize is to provide such medical care as to assure
          within reasonable medical probability that no deterioration of the
          condition is likely to result from, or occur during discharge,
          transfer, or admission of the Member from the emergency room.

6.5.6     Post-stabilization services. 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" and are subject to HMO's
          prior authorization process. HMO must be available to authorize or
          deny post-stabilization services within one hour after being contacted
          by the treating physician.

6.5.7     HMO must provide access to the TDH-designated Level I and Level II
          trauma centers within the State or hospitals meeting the equivalent
          level of trauma care. HMOs may make out-of-network reimbursement
          arrangements with the TDH-designated Level I and Level II trauma
          centers to satisfy this access requirement.

6.6       BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS

6.6.1     HMO must provide or arrange to have provided to Members all Behavioral
          Health Services included as covered services. These services are
          described in detail in the Texas Medicaid Provider Procedures Manual

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          (Provider Procedures Manual) and the Texas Medicaid Bulletins, which
          is the bi-monthly update to the Provider Procedures Manual. Clinical
          information regarding covered services are published by the Texas
          Medicaid program in the Texas Medicaid Service Delivery Guide.

6.6.2     HMO must maintain a behavioral health provider network that includes
          psychiatrists, psychologists and other behavioral health providers.
          HMO must provide or arrange to have provided behavioral health
          benefits described as covered services. These services are indicated
          in the Provider Procedures Manual and the Texas Medicaid Bulletins,
          which is the bi-monthly update to the Provider Procedures Manual.
          Clinical information regarding covered services are published by the
          Texas Medicaid Program in the Texas Medicaid Service Delivery Guide.
          The network must include providers with experience in serving children
          and adolescents to ensure accessibility and availability of qualified
          providers to all eligible children and adolescents in the service
          area. The list of providers including names, addresses and phone
          numbers must be available to State upon request.

6.6.3     HMO must maintain a Member education process to help Members know
          where and how to obtain behavioral health services.

6.6.4     HMO must implement policies and procedures to ensure that Members who
          require routine or regular laboratory and ancillary medical tests or
          procedures to monitor behavioral health conditions are provided the
          services by the provider ordering the procedure or at a lab located at
          or near the provider's office.

6.6.5     When assessing Members for behavioral health services, the HMO and
          network behavioral health providers must use the DSM-IV multi-axial
          classification and report axes I, II, III, IV, and V to the State. The
          State may require use of other assessment instrument/outcome measures
          in addition to the DSM-IV. Providers must document DSM-IV and
          assessment/outcome information in the Member's medical record.

6.6.6     HMO must permit Members to self refer to any in-network behavioral
          health care provider without a referral from the Member's PCP. The HMO
          must permit Members to participate in the selection or assignment of
          the appropriate behavioral health individual practitioner(s) who will
          serve them. HMO previously submitted a written copy of its policies
          and procedures for self-referral to the State. Changes or amendments
          to those policies and procedures must be submitted to the State for
          approval at least 60 days prior to their effective date.

6.6.7     HMO must require, through contract provisions, that PCPs have
          screening and evaluation procedures for detection and treatment of, or
          referral for, any known or suspected behavioral health problems and
          disorders. PCPs may provide any clinically appropriate behavioral
          health care services within the scope of their practice. This
          requirement must be included in all Provider Manuals.

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6.6.8     HMO must require that behavioral health providers refer Members with
          known or suspected physical health problems or disorders to their PCP
          for examination and treatment. Behavioral health providers may only
          provide physical health services if they are licensed to do so. This
          requirement must be included in all Provider Manuals.

6.6.9     HMO must require, that behavioral health providers send initial and
          quarterly (or more frequently if clinically indicated) summary reports
          of Members' behavioral health status to PCP. This requirement must be
          included in all Provider Manuals.

6.6.10    HMO must require, through contract provisions, that all Members
          receiving inpatient psychiatric services are scheduled for outpatient
          follow-up and/or continuing treatment prior to discharge. The
          outpatient treatment must occur within 7 days from the date of
          discharge. HMO must ensure that behavioral health providers contact
          Members who have missed appointments within 24 hours to reschedule
          appointments.

6.6.11    HMO must provide inpatient psychiatric services to Members under the
          age of 21 who have been ordered to receive the services by a court of
          competent jurisdiction under the provisions of Chapters 573 and 574 of
          the Texas Health and Safety Code, relating to court ordered
          commitments to psychiatric facilities.

6.6.11.1  HMO cannot deny, reduce or controvert the medical necessity of any
          court ordered inpatient psychiatric service for Members under age 21.
          Any modification or termination of services must be presented to the
          court with jurisdiction over the matter for determination.

6.6.11.2  A Member who has been ordered to receive treatment under the
          provisions of Chapter 573 or 574 of the Texas Health and Safety Code
          cannot appeal the commitment through the HMO's complaint or appeals
          process.

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

6.7       FAMILY PLANNING - SPECIFIC REQUIREMENTS

6.7.1     Counseling and Education. HMO must require, through contract
          provisions, that Members requesting contraceptive services or family
          planning services are also provided counseling and education about
          family planning and family planning services available to members. HMO
          must develop outreach programs to increase community support for
          family planning and encourage Members to use available family planning
          services. HMO is encouraged to include a representative cross-section
          of Members and family planning providers who practice in the community
          in developing, planning and implementing family planning outreach
          programs.

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6.7.2     Freedom of Choice. HMO must ensure that Members have the right to
          choose any Medicaid participating family planning provider, whether
          the provider chosen by the Member is in or outside the HMO provider
          network. HMO must provide Members access to information about the
          providers of family planning services available and the Member's right
          to choose any Medicaid family planning provider. HMO must provide
          access to confidential family planning services.

6.7.3     Provider Standards and Payment. HMO must require all Subcontractors
          who are family planning agencies to deliver family planning services
          according to the State Family Planning Service Delivery Standards. HMO
          must provide, at minimum, the full scope of services available under
          the Texas Medicaid program for family planning services. The HMO will
          reimburse family planning agencies and out-of-network family planning
          providers the Medicaid fee-for service amounts for family planning
          services, including medically necessary medications, contraceptives,
          and supplies.

6.7.4     HMO must provide medically-approved methods of contraception to
          Members. Contraceptive methods must be accompanied by verbal and
          written instructions on their correct use. HMO must establish
          mechanisms to ensure all medically approved methods of contraception
          are made available to the Member, either directly or by referral to a
          Subcontractor. The following initial Member education content may vary
          according to the educator's assessment of the Member's current
          knowledge:

6.7.4.1   general benefits of family planning services and contraception;

6.7.4.2   information on male and female basic reproductive anatomy and
          physiology;

6.7.4.3   information regarding particular benefits and potential side effects
          and complications of all available contraceptive methods;

6.7.4.4   information concerning all of the health care provider's available
          services, the purpose and sequence of health care provider procedures,
          and the routine schedule of return visits;

6.7.4.5   information regarding medical emergencies and where to obtain
          emergency care on a 24-hour basis;

6.7.4.6   breast self-examination rationales and instructions unless provided
          during physical exam (for females); and

6.7.4.7   information on HIV/STD infection and prevention and safer sex
          discussion.

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6.7.5     HMO must require, through contractual provisions, that subcontractors
          have mechanisms in place to ensure Member's (including minor's)
          confidentiality for family planning services.

6.7.6     HMO must develop, implement, monitor, and maintain standards, policies
          and procedures for providing information regarding family planning to
          providers and Members, specifically regarding State and federal laws
          governing Member confidentiality (including minors). Providers and
          family planning agencies cannot require parental consent for minors to
          receive family planning services.

6.7.7     HMO must report encounter data on family planning services in
          accordance with Article 12.2.

6.8       TEXAS HEALTH STEPS (EPSDT)

6.8.1     THSteps Services. HMO must develop methods to ensure that children
          under the age of 21 receive THSteps services when due and according to
          the recommendations established by the American Academy of Pediatrics
          and the THSteps periodicity schedule for children. HMO must arrange
          for THSteps services to be provided to all eligible Members except
          when a Member knowingly and voluntarily declines or refuses services
          after the Member has been provided information upon which to make an
          informed decision.

6.8.2     Member education and information. HMO must ensure that Members are
          provided information and educational materials about the services
          available through the THSteps program, and how and when they can
          obtain the services. The information should tell the Member how they
          can obtain dental benefits, transportation services through the TDHS
          Medicaid Transportation programs and advocacy assistance from HMO.

6.8.3     Provider education and training. HMO must provide appropriate training
          to all network providers and provider staff in the providers area of
          practice regarding the scope of benefits available and the Texas
          Health Steps program. Training must include THSteps benefits, the
          periodicity schedule for THSteps check-ups and immunizations, and
          Comprehensive Care Program (CCP) services that are available under the
          THSteps program to member under age 21 years. Providers must also be
          educated and trained regarding the requirements imposed upon the
          department and contracting HMOs under the Consent Decree entered in
          Frew v. McKinney, et. al., Civil Action No. 3:93CV65, in the United
          States District Court for the Eastern District of Texas, Paris
          Division. Providers should be educated and trained to treat each
          THSteps visit as an opportunity for a comprehensive assessment of the
          Member.

6.8.4     Member Outreach. HMO must provide an outreach unit that works with
          Members to ensure they receive prompt services and are effectively
          informed about available THSteps services. Each month the HMO must
          retrieve from the Enrollment Broker BBS a list of members who are due

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          and overdue THSteps services. Using these lists and their own
          internally generated lists, HMOs will contact members and encourage
          members who are periodically due or overdue a THSteps service to
          obtain the service as soon as possible. HMO outreach staff must
          coordinate with TDH THSteps outreach staff to ensure that Members have
          access to the Medical Transportation Program, and that any
          coordination with other agencies is maintained.

6.8.5     Initial Checkups upon enrollment. HMO must have mechanisms in place to
          ensure that all newly enrolled Members receive a THSteps checkup
          within 90 days from enrollment, if one is due according to the
          American Academy of Pediatrics periodicity schedule, or if there is
          uncertainty regarding whether one is due. HMO should make THSteps
          checkups a priority to all newly enrolled Members.

6.8.6     Accelerated Services to Migrant Populations. HMO must cooperate and
          coordinate with the department, outreach programs and THSteps regional
          program staff and agents to ensure prompt delivery of services to
          children of migrant farm workers and other migrant populations who may
          transition into and out of HMO s program more rapidly and/or
          unpredictably than the general population.

6.8.7     Coordination and Cooperation. HMO must make an effort to coordinate
          and cooperate with existing community and school-based health and
          education programs that offer services to school-aged children in a
          location that is both familiar and convenient to the Members. HMO must
          make a good faith effort to comply with Head Start requirement that
          members participating in Head Start receive their THSteps checkup no
          later than 45 days after enrolling into either program.

6.8.8     Immunizations. HMO must educate providers of the Immunization standard
          requirements set forth in Chapter 161, Health and Safety Code,
          standard in the ACIP Immunization Schedule and AAP Periodicity
          Schedule.

6.8.8.1   ImmTrac Compliance. HMO must educate providers about and require
          providers to comply with the requirements of Chapter 161, Health and
          Safety Code, relating to the Texas Immunization Registry (ImmTrac), to
          include parental consent on the Vaccine Information Statement.

6.8.9     Claim forms. HMO must require all THSteps providers to submit claims
          for services paid (either on a capitated or fee-for-service basis) on
          the HCFA 1500 claim form and use the unique procedure coding required
          by TDHS.

6.8.10    Compliance with THSteps performance benchmarks. The State will
          establish performance benchmarks against which HMO s full compliance
          with the THSteps periodicity schedule will be measured. The
          performance benchmarks will establish minimum compliance measures
          which will increase over time. HMO must meet all performance

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          benchmarks required for THSteps services. HMO must submit all THSteps
          reports and encounters as required under this contract. Failure to
          meet or exceed the performance benchmarks may result in: removal of
          THSteps component of the capitation amounts paid to HMO; or any of the
          Remedies contained in Article XVIII. Repeated non-compliance with the
          THSteps performance benchmarks is a major breach of the terms of this
          contract and could result in termination of the contract, or non-
          renewal of the contract, in addition to all money damages and
          sanctions assessed against HMO for non-compliance with reporting
          administrative requirements.

6.8.11    Validation of Encounter Data. Encounter data will be validated by
          chart review of a random sample of THSteps eligible enrollees against
          monthly encounter data reported by HMO. Chart reviews will be
          conducted by the State to validate that all screens are performed when
          due and as reported and that reported data is accurate and timely.
          Substantial deviation between reported and charted encounter data
          could result in HMO and/or network providers being investigated for
          potential fraud and abuse without notice to the HMO or the provider.

6.9       PERINATAL SERVICES

6.9.1     HMO's perinatal health care services must ensure appropriate care is
          provided to women who are Members of HMO. The HMO's perinatal health
          care system must comply with the requirements of Health & Safety Code,
          Chapter 32 Maternal and Infant Health Improvement Act and 25 TAC
          Section 37.233 et. seq.

6.9.2     HMO shall have a perinatal health care system in place that, at a
          minimum, provides the following services:

6.9.2.1   pregnancy planning and perinatal health promotion and education for
          reproductive age women;

6.9.2.2   perinatal risk assessment of nonpregnant women, pregnant and
          postpartum women;

6.9.2.3   access to appropriate levels of care based on risk assessment,
          including emergency care;

6.9.2.4   transfer and care of pregnant women to tertiary care facilities when
          necessary;

6.9.2.5   availability and accessibility of obstetrician/gynecologists;
          anesthesiologists, and neonatologists capable of dealing with
          complicated perinatal problems;

6.9.2.6   availability and accessibility of appropriate outpatient and inpatient
          facilities capable of dealing with complicated perinatal problems; and

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6.9.2.7   compiles, analyzes and reports process and outcome data of Members to
          the State.

6.9.3     HMO must provide inpatient care for its pregnant/delivering Members in
          a health care facility, if requested by the mother or is determined to
          be medically necessary by the Member's PCP, for a minimum of:

6.9.3.1   48 hours following an uncomplicated vaginal delivery and,

6.9.3.2   96 hours for an uncomplicated caesarian delivery.

6.9.4     HMO must establish mechanisms to ensure that medically necessary
          inpatient care is provided to the Member for complications following
          the birth of newborn using the HMO's prior authorization procedures
          for a medically necessary hospitalization.

6.10      EARLY CHILDHOOD INTERVENTION

6.10.1    ECI Services. HMO must provide all federally mandated services
          contained at 34 C.F.R. 303.1 et. seq., and 25 TAC Section 621.21 et.
          seq., relating to identification, referral and delivery of health care
          services contained in the Member's Individual Family Service Plan
          (IFSP). An IFSP is the written plan which identifies a Member's
          disability or chronic or complex conditions(s) or developmental delay,
          and describes the course of action developed to meet those needs, and
          identifies the person or persons responsible for each action in the
          plan. The plan is a mutual agreement of the Member's Primary Care
          Physician (PCP), Case Manager, and the Member/family, and is part of
          the Member's medical record.

6.10.2    ECI Providers. HMO must contract with qualified providers to provide
          ECI services to Members under age 3 with developmental delays. HMO may
          contract with local ECI programs or non-ECI providers who meet
          qualifications for participation by the Texas Interagency Council on
          Early Childhood Intervention to provide ECI services.

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

6.10.4    Coordination.  HMO must coordinate and cooperate with local ECI
          programs which perform assessment in the development of the Individual
          Family Service Plan (IFSP), including ongoing case management and
          other non-capitated services required by the Member's IFSP.

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          Cooperation includes conducting medical diagnostic procedures and
          providing medical records required to perform developmental
          assessments and develop the IFSP within the time lines established at
          34 C.F.R. 303.1 et. seq. ECI case management is not an HMO capitated
          service.

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

6.11      SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND
          CHILDREN (WIC) - SPECIFIC REQUIREMENTS

6.11.1    HMO must coordinate with WIC to provide certain medical information,
          which is necessary to determine WIC eligibility, such as height,
          weight, hematocrit or hemoglobin.

6.11.2    HMO must direct all eligible Members to the WIC program (Medicaid
          recipients are automatically income-eligible for WIC).

6.11.3    HMO must coordinate with existing WIC providers to ensure Members have
          access to the special supplemental nutrition program for women,
          infants and children (WIC), or HMO must provide these services.

6.11.4    The HMO may use the nutrition education provided by WIC to satisfy
          health education requirements described in this contract.

6.12      TUBERCULOSIS (TB)

6.12.1    Education, screening, diagnosis and treatment. HMO must provide
          Members and providers with education on the prevention, detection and
          effective treatment of tuberculosis (TB). HMO must establish
          mechanisms to ensure all procedures required to screen at-risk Members
          and to form the basis for a diagnosis and proper prophylaxis and
          management of TB are available to all Members, except services
          referenced in Article 6.1.8 as non-capitated services. HMO must
          develop policies and procedures to ensure that Members who may be or
          are at risk for exposure to TB are screened for TB. An at-risk Member
          refers to a person who is susceptible to TB because of the association
          with certain risk factors, behaviors, drug resistance, or
          environmental conditions. HMO must consult with the local TB control
          program to ensure that all services and treatments provided by HMO are
          in compliance with the

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          guidelines recommended by the American Thoracic Society (ATS), the
          Centers for Disease Control and Prevention (CDC), and TDH policies and
          standards.

6.12.2    Reporting and referral. HMO must implement policies and procedures
          requiring providers to report all confirmed or suspected cases of TB
          to the local TB control program within one working day of
          identification of a suspected case, using the forms and procedures for
          reporting TB adopted by TDHS (25 TAC Chapter 97). HMO must require
          that in-state or out-of-state labs report mycobacteriology culture
          results positive for M. Tuberculosis and M. Tuberculosis antibiotic
          susceptibility to TDH as required for in-state labs by 25 TAC Section
          97.5(a). Referral to state-operated hospitals specializing in the
          treatment of tuberculosis should only be made for TB-related
          treatment.

6.12.3    Medical records. HMO must provide access to Member medical records to
          TDHS and the local TB control program for all confirmed and suspected
          TB cases upon request.

6.12.4    Coordination and cooperation with the local TB control program. HMO
          must coordinate with the local TB control program to ensure that all
          Members with confirmed or suspected TB have a contact investigation
          and receive directly observed therapy (DOT). HMO must require, through
          contract provisions, that providers report any Member who is
          non-compliant, drug resistant, or who is or may be posing a public
          health threat to TDHS or the local TB control program. HMO must
          cooperate with the local TB control program in enforcing the control
          measures and quarantine procedures contained in Chapter 81 of the
          Texas Health and Safety Code.

6.12.4.1  HMO must have a mechanism for coordinating a post-discharge plan for
          follow-up DOT with the local TB program.

6.12.4.2  HMO must coordinate with the TDHS South Texas Hospital and Texas
          Center for Infectious Disease for voluntary and court-ordered
          admission, discharge plans, treatment objectives and projected length
          of stay for Members with multi-drug resistant TB.

6.12.4.3  HMO may contract with the local TB control programs to perform any of
          the capitated services required in this Article.

6.13      HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS

6.13.1    Health Education Plan. HMO must develop and implement a Health
          Education plan. The health education plan must tell Members how HMO
          system operates, how to obtain services, including emergency care and
          out-of-plan services. The plan must emphasize the value of screening
          and preventive care and must contain disease-specific information and
          educational materials.

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6.13.2    Wellness Promotion Programs. HMO must conduct wellness promotion
          programs to improve the health status of its Members. HMO may
          cooperatively conduct Health Education classes for all enrolled
          STAR+PLUS members with one or more HMOs also contracting with TDHS in
          the service area to provide services to Medicaid recipients in all
          counties of the service area. Providers and HMO staff must integrate
          health education, wellness and prevention training into the care of
          each Member. HMO must provide a range of health promotion and wellness
          information and activities for Members in formats that meet the needs
          of all Members. HMO must:

          (1)       develop, maintain and distribute health education services
                    standards, policies and procedures to providers;

          (2)       monitor provider performance to ensure the standards for
                    health education services are complied with;

          (3)       inform providers in writing about any non-compliance with
                    the plan standards, policies or procedures;

          (4)       establish systems and procedures that ensure that provider's
                    medical instruction and education on preventive services
                    provided to the Member are documented in the Member's
                    medical record; and

          (5)       establish mechanisms for promoting preventive care services
                    to Members who do not access care, e.g. newsletters,
                    reminder cards, and mail-outs.

6.13.3    Health Education Activities Report. HMO must submit, upon request, a
          Health Education Activities Schedule to the State or its designee
          listing the time and location of classes, health fairs or other events
          conducted during the time period of the request.

6.14      CARE COORDINATION AND TRANSITION PLANS FOR LONG TERM CARE SERVICES

6.14.1    For STAR+PLUS Members that are receiving all preventive, primary,
          acute, and long term care services from the same HMO (this includes
          Members that are eligible for Medicaid only and Members that are
          Medicare eligible who select the STAR+PLUS HMO to also provide
          Medicare covered services), HMO shall ensure that each Member has a
          qualified PCP who is responsible for overall clinical direction and
          serves as a central point of integration and coordination of covered
          primary, acute, and long term care services. HMO will furnish a Care
          Coordinator to all Members who request one, or when HMO has determined
          through an assessment of the Member's health and support needs, that a
          Care Coordinator is required. The Care Coordinator shall be
          responsible for working with the Member or his representative and
          service providers to develop a seamless package of care in which
          primary, acute, and long

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          term care service needs are met through a single, understandable,
          rational plan. Each Member's plan must also be well coordinated with
          the Member's family and community support systems. The Care
          Coordinator shall work as a team with the PCP, and coordinate all
          STAR+PLUS services with the PCP. HMO must identify and train certain
          Members or their families to coordinate their own care, to the extent
          of the Member's capability. HMO must empower its Care Coordinators to
          authorize and refer Members for all long term care services.

6.14.2    For dually eligible Members who obtain their Medicare services outside
          the STAR+PLUS HMO's Medicare network, HMO is responsible for meeting
          the Member's long term care service needs. HMO's Care Coordinator
          shall be responsible for providing a seamless package of long term
          care services for each Member, and for coordinating preventive,
          primary, and acute care services provided elsewhere into an
          integrated, single, understandable, rational plan. Each Member's plan
          must also be coordinated with the Member's family and community
          support systems. In integrating each Member's care, the Care
          Coordinator shall work with the Members physician as a team in
          furnishing and coordinating a comprehensive long term care package.
          HMO must empower its Care Coordinators to authorize and refer Members
          for all long term care services. In order to integrate the Members
          acute and primary care, and stay abreast of the Members needs and
          condition, the Care Coordinator shall also actively involve and
          coordinate with the Members primary and specialty care providers and
          work cooperatively together.

6.14.3    HMO shall provide information about and referral to community
          organizations that may not be providing STAR+PLUS covered services,
          but are otherwise important to the health and well-being of Members.
          These organizations include, but are not limited to:

          1)        State/Federal agencies (e.g., those agencies with
                    jurisdiction over children's services, aging, protective
                    services, public health, substance abuse, mental
                    health/retardation, rehabilitation, developmental
                    disabilities, income support, nutritional assistance, school
                    districts, family support agencies, etc.);

          2)        Social Service agencies (e.g., Area Agencies on Aging,
                    residential support agencies, independent living centers,
                    supported employment agencies, etc.) and ECI providers;

          3)        City and County agencies (e.g., welfare departments, Women,
                    Infants, and Children (WIC), housing programs, etc.);

          4)        Civic and religious organizations; and

          5)        Consumer groups, advocates, and councils (e.g., legal aid
                    offices, consumer/family support groups, permanency
                    planning, etc.).

6.14.4    HMO must have a protocol for quickly assessing the needs of Members
          who are discharged from a hospital or other care or treatment
          facility. HMO must ensure that social workers and discharge planners
          in hospitals and hospital care coordinators are knowledgeable about
          the mandatory requirement for Medicaid Members to receive their long
          term care

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          services under managed care. HMO Care Coordinator must work with the
          Members PCP (whether or not the PCP is in HMOs network), the hospital
          discharge planner(s), the Member, and the Members family to assess and
          plan for the Members discharge. When long term care is needed, HMO
          must ensure that the Members discharge plan includes arrangements for
          receiving community-based care whenever possible. HMO must ensure that
          the Member, the Members family, and the Members PCP are all
          well-informed of all service options that are available to meet the
          Members needs in the community.

6.14.5    Within thirty (30) days of receiving the Member's enrollment package,
          HMO must review the screening information and any existing care plan,
          and develop a transition plan for that Member Until such time as HMO
          contacts the Member and coordinates modifications to the Members
          current treatment/long term care services plan, HMO must ensure that
          the current services continue and that there are no breaks in
          services/treatment.

6.14.6    HMO must have assessment instruments. For infants and children, HMO
          must have an instrument appropriate for the assessment of children.
          The instrument(s) must be used to identify Members with significant
          health problems, requiring immediate attention, and which can be used
          to identify Members who need or are at risk of needing long term care
          services. The appropriate Minimum Data Set (MDS) instrument must be
          completed for every Member receiving long term care services, either
          in the community or in a facility, in addition to any assessment
          instrument HMO might use with the exception that for children under 21
          do not have to be assessed using the MDS-HC. The instrument may be
          completed by HMO Subcontractor, or service provider, but HMO remains
          responsible for the data recorded. As specialized MDS instruments are
          developed for other living arrangements (e.g., assisted living), TDHS
          will notify HMO of the availability of the instrument and the date by
          which data collection for using the instrument would be required.

6.14.7    For Members residing in nursing facilities, HMO must ensure that the
          NF provider uses the MDS version required by HCFA regulations for
          assessment and care planning and submits the MDS data electronically
          to TDHS

6.14.8    All Members who qualify for nursing facility level of care must be
          given the freedom to choose their setting of care, i.e., nursing
          facility, within HMO's network. HMO shall ensure that the Member or
          his representative is aware of all available options.

6.14.9    HMO must ensure that Members needing home and community based long
          term care services are identified and referred to services in a timely
          manner.

          No individual under 21 should be admitted to a nursing facility
          without completion of the following:

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          1)        Information about all available community-based long-term
                    care services appropriate to the individual's needs provided
                    to the individual and parent/guardian; and

          2)        A CRCG (Community Resource Coordination Group) meeting has
                    been held in which all other available options have been
                    considered and rejected.

6.14.10   When a need for nursing facility level of care is indicated, HMO must
          refer the Member to TDHS for determination of Members eligibility.
          HMO, at its discretion, may provide this level of care to Members not
          determined eligible by TDHS.

6.14.11   HMO must develop a system to have a centralized record for each Member
          reflecting current service plan and showing all services received by
          the Member from providers within HMO network and from providers
          external to the network. The centralized record will ensure that all
          Plan providers, including specialty and long term care service
          providers, make appropriate and timely entries regarding care
          provided, diagnosis, medications prescribed, and treatment plans
          developed. The PCP, or when applicable, the Care Coordinator, shall
          determine the appropriate physical location of the Member record. In
          most cases, the most appropriate location will be with the PCP or the
          Care Coordinator. However, the location may vary depending on
          residence (e.g., nursing homes or group homes) and particular care
          needs of the Member. The HMO shall ensure that the organization of and
          documentation included in the centralized Member record shall meet all
          applicable professional standards ensuring confidentiality of Member
          records, referrals, and documentation of information.

          HMO must have a systematic process for generating or receiving
          referrals and sharing confidential medical, treatment, and planning
          information across providers.

6.14.12   HMO must assure that the Member is involved in the assessment process
          and fully informed about options, is included in the development of
          the service plan and is in agreement with the plan of care that is
          developed.

6.14.13   HMO must provide a transition plan for Members currently receiving
          Medicaid services. TDHS and/or previous health plan will provide
          current HMO with detailed service plans, names of current providers,
          etc. for Members receiving long term care services at the time of
          enrollment. The transition planning process includes, but is not
          limited to, the following:

          (a)       Review of existing TDHS care plans;
          (b)       Preparation of a transition plan that ensures continuous
                    care under the Member's current care plan during the
                    transfer into HMOs network while HMO conducts an appropriate
                    assessment and development of a new plan if needed; and

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            (c)       If Durable Medical Equipment had been ordered prior to
                      enrollment but not received by the time of enrollment,
                      coordination and follow through to ensure that the Member
                      receives other necessary supportive equipment and supplies
                      without undue delay.

6.14.14     HMO will hire as Care Coordinators persons experienced in meeting
            the needs of vulnerable populations who have chronic or complex
            conditions. These include, but are not limited to, persons with an
            undergraduate and/or graduate degree in either social work or
            nursing with relevant work experience. HMO may subcontract the Care
            Coordination function to other entities or agencies, as long as the
            Subcontractor's Care Coordinators meet these requirements.

6.15        1915 (c) WAIVER SERVICE (COMMUNITY BASED ALTERNATIVES)

6.15.1      The HMO must provide to members the array of services allowable
            through the HCFA approved 1915 (c) waiver.

6.15.1.1    1915 (c) Waiver services must be available to all members who meet
            CBA eligibility requirements based on their assessment and medical
            necessity.

6.15.1.2    1915 (c) Waiver services may be made available to members who do not
            meet the CBA eligibility requirements based on assessment and
            medical necessity as a value added service.

6.15.2      Waiver Service eligibility for members of the HMO

6.15.2.1    The HMO must notify the TDHS when CBA eligibility testing is
            initiated on a member of the HMO.

6.15.2.2    The HMO must apply risk criteria, complete the 3652 for medical
            necessity determination, complete the assessment documentation and
            prepare a CBA Individual Service Plan (ISP) for each member
            requesting CBA services or for members identified as needing CBA
            services.

6.15.2.3    The HMO must provide TDHS the results of the assessment activities.

6.15.2.4    TDHS will notify the member and the HMO of the results of their
            eligibility determination based on the information provider by the
            HMO.

6.15.2.4.1  If the member is eligible, the member will be notified of the
            effective date of eligibility. A copy of the notice will be sent to
            the HMO.

6.15.2.4.2  If the member is not eligible, the notification will provide
            information on the member's right to appeal the adverse
            determination. A copy of the notice will be sent to the HMO.

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6.15.3       Waiver Service eligibility for Medical Assistance Only non-member
             applicants.

6.15.3.1     TDHS will inform the applicant that services are provided through
             an HMO and allow the applicant to select the HMO.

6.15.3.2     TDHS will notify the selected HMO to initiate pre-enrollment
             assessment services required under the waiver for the non-member.

6.15.3.3     The HMO must complete the 3652 for medical necessity determination,
             complete the assessment documentation and prepare a CBA Individual
             Service Plan (ISP) for each applicant referred by TDHS.

6.15.3.4     The HMO must provide information to TDHS reflecting the results of
             the assessment activities.

6.15.3.5     The HMO will be authorized payment for the assessment activities in
             accordance with the fee-for-services schedule in effect at the time
             of the assessment regardless of final determination of applicant
             eligibility.

6.15.3.6     TDHS will notify the client and the HMO of the results of their
             eligibility determination.

6.15.3.6.1   If the applicant is eligible,

6.15.3.6.1.1 The HMO will be notified of their eligibility and the effective
             date of eligibility will be the first day of the month following
             the determination of eligibility.

6.15.3.6.1.2 The HMO will be notified of client eligibility and the client will
             be enrolled in the HMO on the date that eligibility is effective.
             The HMO will initiate the ISP on the date of enrollment.

6.15.3.6.2   If the applicant is not eligible, the notification will provide
             information on the applicant's right to appeal the adverse
             determination. No notification will be sent to the HMO if the
             client is not eligible for CBA services.

6.15.4       Annual Reassessment

             Prior to the end date of the annual ISP, the HMO must initiate the
             annual reassessment to determine and validate continued eligibility
             for CBA services for each CBA client. The HMO will be expected to
             complete the same activities and submit the same documentation to
             TDHS for the annual reassessment as required for the initial
             determination of eligibility. The HMO is responsible for assessment
             activities for members and no additional compensation will be paid
             for the annual reassessment for members.

ARTICLE VII             PROVIDER NETWORK REQUIREMENTS

7.1          NETWORK PROVIDER DIRECTORY

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7.1.1     HMO must submit a provider directory to TDHS prior to the effective
          date of this contract unless already approved. HMO must provide the
          provider directory to the Enrollment Broker for prospective members.
          The directory must contain all critical elements specified in
          Attachment D, Required Critical Elements.

7.1.2     If HMO contracts with limited provider networks, the provider
          directory must comply with the requirements of 28 TAC 11.1600(b)(11),
          relating to the disclosure and notice of limited provider networks.

7.1.3     Updates to the provider directory must be provided to the Enrollment
          Broker at the beginning of each State fiscal year quarter. This
          includes the months of September, December, March and June. HMO is
          responsible for submitting draft updates to TDHS only if changes other
          than PCP information are incorporated. HMO is responsible for sending
          three final paper copies and one electronic copy of the updated
          provider directory to TDHS each quarter. If an electronic format is
          not available, five paper copies must be sent. TDHS will forward two
          updated provider directories, along with its approval notice, to the
          Enrollment Broker to facilitate the distribution of the directories.

7.2       PROVIDER ACCESSIBILITY

7.2.1     HMO must enter into written contracts with properly credentialed
          health care service providers. The names of all providers must be
          submitted to TDHS as part of HMO subcontracting process. HMO must have
          its own credentialing process to review, approve and periodically
          recertify the credentials of all participating providers in compliance
          with 28 TAC Section 11.1902, relating to credentialing of providers in
          HMOs.

7.2.2     HMO must require tax I.D. numbers from all providers. HMO is required
          to do backup withholding from all payments to providers who fail to
          give tax I.D. numbers, or who give incorrect numbers.

7.2.3     Timeframes for Access Requirements. HMO must have sufficient network
          providers and establish procedures to ensure Members have access to
          routine, urgent, and emergency services; telephone appointments;
          advice and Member service lines. These services must be accessible to
          Members within the following timeframes:

7.2.3.1   Urgent Care within 24 hours of request;

7.2.3.2   Routine care within 2 weeks of request;

7.2.3.3   Physical/Wellness Exams for adults must be provided within 10 weeks of
          the request;

7.2.3.4   HMO must establish policies and procedures to ensure that THSteps
          Checkups be provided within 90 days of new enrollment, except newborn

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          Members should be seen within 2 weeks of enrollment, and in all cases
          for all Members be consistent with the American Academy of Pediatrics
          and THSteps periodicity schedule which is based on the American
          Academy of Pediatrics schedule and delineated in the Texas Medicaid
          Provider Procedures Manual and the Medicaid bi-monthly bulletins (see
          also Article 6.1, Scope of Services). If the Member does not request a
          checkup, HMO must establish a procedure for contacting the Member to
          schedule the checkup.

7.2.4     HMO is prohibited from requiring a provider or provider group to enter
          into an exclusive contracting arrangement with HMO as a condition for
          participation in its provider network.

7.3       PROVIDER CONTRACTS

7.3.1     All providers must have a written contract, either with an
          intermediary entity or an HMO, to participate in the Medicaid program
          (provider contract). HMO must make all contracts available to TDHS
          upon request, at the time and location requested by TDHS. All standard
          formats of provider contracts must be submitted to TDHS for approval
          no later than 60 days after the execution date of this contract,
          unless previously filed with TDHS. HMO must submit 1 paper copy and 1
          electronic copy in a form specified by TDHS. Any change to the
          standard format must be submitted to TDHS for approval no later than
          30 days prior to the implementation of the new standard format. All
          provider contracts are subject to the terms and conditions of this
          contract and must contain the provisions of Article V, Statutory and
          Regulatory Compliance, and the provisions contained in Article 3.2.4.

7.3.1.1   TDHS has 15 working days to review the materials and recommend any
          suggestions or required changes. If TDHS has not responded to the HMO
          by the fifteenth day, HMO may execute the contract. TDHS reserves the
          right to request HMO to modify any contract that has been deemed
          approved.

7.3.2     Primary Care Provider (PCP) contracts and specialty care contracts
          must contain provisions relating to the requirements of the provider
          types found in this contract. For example, PCP contracts must contain
          the requirements of Article 7.9 relating to Primary Care Providers.

7.3.3     Provider contracts that are requested by any agency with authority to
          investigate and prosecute fraud and abuse must be produced at the time
          and place required by TDHS or the requesting agency. Provider
          contracts requested in response to a Public Information request must
          be produced within 48 hours of the request. Requested contracts and
          all related records must be provided free-of-charge to the requesting
          agency.

7.3.4     The form and substance of all provider contracts are subject to
          approval by TDHS. TDHS retains the authority to reject or require
          changes to any contract that do not comply with the requirements or
          duties and

                                                              TDHS/HMO CONTRACT
                                                                August 11, 1999

                                       54
<PAGE>   61

          responsibilities of this contract. HMO REMAINS RESPONSIBLE FOR
          PERFORMING AND FOR ANY FAILURE TO PERFORM ALL DUTIES, RESPONSIBILITIES
          AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
          RESPONSIBILITY OR SERVICE IS CONTRACTED TO ANOTHER FOR ACTUAL
          PERFORMANCE.

7.3.5     TDHS reserves the right and retains the authority to make reasonable
          inquiry and conduct investigations into patterns of provider and
          Member complaints against HMO or any intermediary entity with whom HMO
          contracts to deliver health services under this contract. TDHS may
          impose appropriate sanctions and contract remedies to ensure HMO
          compliance with the provisions of this contract.

7.3.6     HMO must not restrict a provider's ability to provide opinions or
          counsel to a Member with respect to benefits, treatment options, and
          provider's change in network status.

7.3.7     To the extent feasible within HMO's existing claims processing
          systems, HMO should have a single or central address to which
          providers must submit claims. If a central processing center is not
          possible within the HMO's existing claims processing system, HMO must
          provide each network provider a complete list of all entities to whom
          the providers must submit claims for processing and/or adjudication.
          The list must include the name of the entity, the address to which
          claims must be sent, explanation for determination of the correct
          claims payer based on services rendered, and a phone number the
          provider may call to make claims inquiries. HMO must notify providers
          in writing of any changes in the claims filing list at least 30 days
          prior to effective date of change. If HMO is unable to provide 30 days
          notice, providers must be given a 30-day extension on their claims
          filing deadline to ensure claims are routed to correct processing
          center.

7.3.8     HMO, all IPAs, and other intermediary entities must include contract
          language which substantially complies with the following standard
          contract provisions in each Medicaid provider contract. This language
          must be included in each contract with an actual provider of services,
          whether through a direct contract or through intermediary provider
          contracts:

7.3.8.1   [Provider] is being contracted to deliver Medicaid managed care under
          the TDHS STAR+PLUS program. HMO must provide copies of the TDHS/HMO
          Contract to the [Provider] upon request. [Provider] understands that
          services provided under this contract are funded by State and federal
          funds under the Medicaid program. [Provider] is subject to all state
          and federal laws, rules and regulations that apply to all persons or
          entities receiving state and federal funds. [Provider] understands
          that any violation by a provider of a State or federal law relating to
          the delivery of services by the provider under this HMO/Provider
          contract, or any violation of the TDHS/HMO contract could

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                                                                August 11, 1999

                                       55
<PAGE>   62

          result in liability for money damages, and/or civil or criminal
          penalties and sanctions under state and/or federal law.

7.3.8.2   [Provider] understands and agrees that HMO has the sole responsibility
          for payment of covered services rendered by the provider under
          HMO/Provider contract. In the event of HMO insolvency or cessation of
          operations, [Provider's] sole recourse is against HMO through the
          bankruptcy, conservatorship, or receivership estate of HMO.

7.3.8.3   [Provider] understands and agrees TDHS is not liable or responsible
          for payment for any Medicaid covered services provided to mandatory
          Members under HMO/Provider contract. Federal and State laws provide
          severe penalties for any provider who attempts to collect any payment
          from or bill a Medicaid recipient for a covered service.

7.3.8.4   [Provider] agrees that any modification, addition, or deletion of the
          provisions of this contract will become effective no earlier than 30
          days after HMO notifies TDHS of the change in writing. If TDHS does
          not provide written approval within 30 days from receipt of
          notification from HMO, changes can be considered provisionally
          approved, and will become effective. Modifications, additions or
          deletions which are required by TDHS or by changes in state or federal
          law are effective immediately.

7.3.8.5   This contract is subject to all state and federal laws and regulations
          relating to fraud and abuse in health care and the Medicaid program.
          [Provider] must cooperate and assist TDHS and any state or federal
          agency that is charged with the duty of identifying, investigating,
          sanctioning or prosecuting suspected fraud and abuse. [Provider] must
          provide originals and/or copies of any and all information, allow
          access to premises and provide records to TDHS or its authorized
          agent(s), THHSC, HCFA, the U.S. Department of Health and Human
          Services, FBI, TDI, and the Texas Attorney General's Medicaid Fraud
          Control Unit, upon request, and free-of-charge. [Provider] must report
          any suspected fraud or abuse including any suspected fraud and abuse
          committed by HMO or a Medicaid recipient to TDHS for referral to
          THHSC.

7.3.8.6   [Provider] is required to submit proxy claims forms to HMO for
          services provided to all STAR+PLUS Members that are capitated by HMO
          in accordance with the encounter data submissions requirements
          established by HMO and TDHS.

7.3.8.7   HMO is prohibited from imposing restrictions upon the [Provider's]
          free communication with Members about a Member's medical conditions,
          treatment options, HMO referral policies, and other HMO policies,
          including financial incentives or arrangements and all STAR+PLUS
          managed care plans with whom [Provider] contracts.

7.3.8.8   The Texas Medicaid Fraud Control Unit must be allowed to conduct
          private interviews of [Providers] and the [Providers'] employees,

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                                                                August 11, 1999

                                       56
<PAGE>   63

          contractors, and patients. Requests for information must be complied
          with, in the form and language requested. [Providers] and their
          employees and contractors must cooperate fully in making themselves
          available in person for interviews, consultation, grand jury
          proceedings, pre-trial conference, hearings, trial and in any other
          process, including investigations. Compliance with this Article is
          at HMO's and [Provider's] own expense.

7.3.8.9   HMO must include the method of payment and payment amounts in all
          provider contracts.

7.3.8.10  All provider clean claims must be adjudicated within 30 days. HMO must
          pay provider interest on all clean claims that are not paid within 30
          days at a rate of 1.5% per month (18% annual) for each month the claim
          remains unadjudicated.

7.3.8.11  HMO must prohibit network providers from interfering with or placing
          liens upon the state's right or HMO's right, acting as the state's
          agent, to recovery from third party resources. HMO must prohibit
          network providers from seeking recovery in excess of the Medicaid
          payable amount or otherwise violating state and federal laws.

7.3.9     HMO must follow the procedures outlined in Article 20A.18A of the
          Texas Insurance Code if terminating a contract with a provider,
          including an STP. At least 30 days before the effective date of the
          proposed termination of the provider's contract the HMO must provide a
          written explanation to the provider of the reasons for termination.
          HMO may immediately terminate a provider contract if the provider
          presents imminent harm to patient health, actions against a license or
          practice, or fraud.

7.3.9.1   Within 60 days of the termination notice date, a provider may request
          a review of the HMO's proposed termination by an advisory review
          panel, except in a case in which there is imminent harm to patient
          health, an action against a private license, or fraud. The advisory
          review panel must be composed of physicians and providers, as those
          terms are defined in Article 20A.02(r) and (t), including at least one
          representative in the provider's specialty or a similar specialty, if
          available, appointed to serve on the standing quality assurance
          committee or utilization review committee of the HMO. The decision of
          the advisory review panel must be considered by the HMO but is not
          binding on the HMO. The HMO must provide to the affected provider, on
          request, a copy of the recommendation of the advisory review panel and
          the HMO's determination.

7.3.9.2   A provider who is terminated is entitled to an expedited review
          process by the HMO on request by the provider. The HMO must provide
          notification of the provider's termination to the HMO's Members
          receiving care from the terminated provider at least 30 days before
          the effective date of the

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                                                                August 11, 1999

                                       57
<PAGE>   64

          termination. If a provider is terminated for reasons related to
          imminent harm to patient health, HMO may notify its Members
          immediately.

7.3.10    HMO must notify TDHS no later than 90 days prior to terminating any
          subcontract affecting a major performance function of this contract.
          If the HMO seeks to terminate a provider's contract for imminent harm
          to patient health, actions against a license or practice, or fraud,
          contract termination may be immediate. TDHS will require assurances
          that any contract termination will not result in an interruption of an
          essential service or major contract function.

7.3.11    HMO must include a complaint and appeals process which complies with
          the requirements of Article 20A.12 of the Texas Insurance Code
          relating to Complaint System in all subcontracts. HMO's complaint and
          appeals process must be the same for all Contractors.

7.4       PHYSICIAN INCENTIVE PLANS

7.4.1     HMO may operate a physician incentive plan only if 1) no specific
          payment may be made directly or indirectly under a physician incentive
          plan to a physician or physician group as an inducement to reduce or
          limit medically necessary services furnished to a Member, and 2) the
          stop-loss protection, enrollee surveys and disclosure requirements of
          this article are met.

7.4.2     HMO must disclose to TDHS information required by federal regulations
          found at 42 C.F.R. Section 417.479. The information must be disclosed
          in sufficient detail to determine whether the incentive plan complies
          with the requirements at 42 C.F.R. Section 417.479. The disclosure
          must contain the following information:

7.4.2.1   Whether services not furnished by a physician group (referral
          services) are covered by the incentive plan. If only services
          furnished by the physician or physician group are covered by the
          incentive plan, disclosure of other aspects of the incentive plan are
          not required to be disclosed.

7.4.2.2   The type of incentive arrangement (e.g. withhold, bonus, capitation).

7.4.2.3   The percent of the withhold or bonus, if the incentive plan involves a
          withhold bonus.

7.4.2.4   Whether the physician or physician group has evidence of a stop-loss
          protection, including the amount and type of stop-loss protection.

7.4.2.5   The panel size and the method used for pooling patients, if patients
          are pooled.

7.4.2.6   The results of Member and disenrollee surveys, if HMO is required
          under 42 C.F.R. Section 417.479 to conduct Member and disenrollee
          surveys.

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                                                                August 11, 1999

                                       58
<PAGE>   65

7.4.3     HMO must submit the information required in 7.4.2.1 - 7.4.2.5 to TDHS
          by the effective date of this contract and each anniversary date of
          the contract.

7.4.4     HMO must submit the information required in 7.4.2.6 one year after
          effective date of initial contract or effective date of renewal
          contract, and annually each subsequent year under the contract. HMO's
          who put physicians or physician groups at substantial financial risk
          must conduct a survey of all Members who have voluntarily disenrolled
          in the previous year. A list of voluntary disenrollees may be obtained
          from the Enrollment Broker.

7.4.5     HMO must provide Members with information regarding Physician
          Incentive Plans upon request. The information must include the
          following:

7.4.5.1   whether the HMO uses physician incentive plan that covers referral
          services;

7.4.5.2   the type of incentive arrangement (i.e., withhold, bonus, capitation);

7.4.5.3   whether stop-loss protection is provided; and,

7.4.5.4   results of enrollee and disenrollee surveys, if required under 42
          C.F.R. Section 417.479.

7.4.5.5   HMO must ensure that IPAs and ANHCs with whom HMO contracts comply
          with the above requirements. HMO is required to meet above
          requirements for all levels of subcontracting.

7.5       PROVIDER MANUAL AND PROVIDER TRAINING

7.5.1     HMO must prepare and issue a Provider Manual(s) including any
          necessary specialty manuals (e.g. behavioral health) to the providers
          in HMO network and to newly contracted providers in the HMO network
          within five (5) working days from inclusion of the provider into the
          network. The Provider Manual must contain sections relating to special
          requirements of the STAR+PLUS Program as required under this Contract.
          See Attachment D, Required Critical Elements, for specific details
          regarding content requirements. The HMO Provider Manual containing the
          new required critical elements must be distributed no later than March
          1, 2000. HMO must submit a Provider Manual to TDHS for approval prior
          to use. See Article 3.4.1 regarding the process for plan materials
          review.

7.5.2     HMO must provide training to all network providers and their staff
          regarding the requirements of the contract and special needs of
          STAR+PLUS Members.

7.5.2.1   HMO training for all providers must be completed within 30 days of
          placing a newly contracted provider on active status. HMO must provide

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                                                                August 11, 1999

                                       59
<PAGE>   66
          on-going training to new and existing providers as required by HMO or
          TDHS to comply with this contract.

7.5.2.2   HMO must provide training to PCPs on screening for and identifying
          behavioral health disorders, HMOs referral process for behavioral
          health services and clinical coordination requirements for behavioral
          health. HMO must provide training to behavioral health providers to
          identify physical health disorders, HMOs referral process to primary
          care and clinical coordination requirements between physical medicine
          and behavioral health providers. HMO must include topics on
          coordination and quality of care such as behavioral health screening
          techniques for PCPs and new models of behavioral health interventions.

7.5.3     HMO must provide primary care and behavioral health providers with
          screening instruments approved by TDHS.

7.5.4     HMO must maintain and make available upon request enrollment or
          attendance rosters dated and signed by each attendee or other written
          evidence of training of each network provider and their staff.

7.5.5     HMO must have its written policies and procedures for the screening,
          assessment and referral processes between behavioral health providers
          and physical medicine providers available for TDHS review upon
          request.

7.6       MEMBER PANEL REPORTS

          HMO must furnish each PCP with a current list of enrolled Members
          enrolled or assigned to that Provider no later than 5 days after HMO
          receives the Enrollment File from the Enrollment Broker each month. If
          the 5th day falls on a weekend or state holiday, the file must be
          provided by the following working day.

7.7       PROVIDER COMPLAINT AND APPEAL PROCEDURES

7.7.1     HMO must develop, implement and maintain a provider complaint system.
          The complaint and appeal procedure must be in compliance with all
          applicable State and federal law or regulations. Modifications and
          amendments to the complaint system must be submitted to TDHS no later
          than 30 days prior to the implementation of the modification or
          amendment.

7.7.2     HMO must include the provider complaint and appeal procedure in all
          network provider contracts or in the provider manual.

7.7.3     HMO s complaint and appeal process cannot contain provisions referring
          the complaint or appeal to TDHS for resolution. HMO providers and
          other subcontractors are not "contractors" for purposes of 40 TAC Sec.
          79.1601.

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<PAGE>   67

7.7.4     HMO must establish mechanisms to ensure that network providers have
          access to a person who can assist providers in resolving issues
          relating to claims payment, plan administration, education and
          training, and complaint procedures.

7.8       PROVIDER QUALIFICATIONS - GENERAL

          The providers in HMO network must meet the following qualifications:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
<S>                               <C>
FQHC                              A Federally Qualified Health Center meets the
                                  standards established by federal rules and
                                  procedures. The FQHC must also be an eligible
                                  provider enrolled in the Medicaid.
--------------------------------------------------------------------------------------------------------
Physician                         An individual who is licensed to practice medicine
                                  as an MD or a DO in the State of Texas either as a
                                  primary care provider or in the area of
                                  specialization under which they will provide
                                  medical services under contract with HMO; who is a
                                  provider enrolled in the Medicaid program; and who
                                  has a valid Drug Enforcement Agency registration
                                  number and a Texas Controlled Substance
                                  Certificate, if either is required in their
                                  practice.
--------------------------------------------------------------------------------------------------------
Hospital                          An institution licensed as a general or
                                  special hospital by the State of Texas
                                  under Chapter 241 of the Health and
                                  Safety Code and Private Psychiatric
                                  hospitals under Chapter 577 of the
                                  Health and Safety Code (or is a provider
                                  which is a component part of a State or
                                  local government entity which does not
                                  require a license under the laws of the
                                  State of Texas), which is enrolled as a
                                  provider in the Texas Medicaid Program.
                                  HMO will require that all facilities in
                                  the network used for acute inpatient
                                  specialty care for people under age 21
                                  with disabilities or chronic or complex
                                  conditions will have a designated
                                  pediatric unit; 24-hour laboratory and
                                  blood bank availability; pediatric
                                  radiological capability; meet JCAHO
                                  standards; and have discharge planning
                                  and social service units.
--------------------------------------------------------------------------------------------------------
Non-Physician                     An individual holding a license issued by the
Practitioner                      applicable licensing agency of the State of
Provider                          Texas who is enrolled in the Texas Medicaid
                                  Program or an individual properly trained to
                                  provide behavioral health support services who
                                  practices under the direct supervision of an
                                  appropriately licensed professional.
--------------------------------------------------------------------------------------------------------
Clinical                          An entity having a current certificate issued
Laboratory                        under the Federal Clinical Laboratory
                                  Improvement Act (CLIA), and is enrolled in the
                                  Texas Medicaid Program.
--------------------------------------------------------------------------------------------------------
Rural                             An institution which meets all of the criteria
Health                            for designation as a rural health clinic and
Clinic (RHC)                      is enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------------------------------
Local                             A local health department established pursuant
Health                            to Health and Safety Code, Title 2, Local
Department                        Public Health Reorganization Act Section
                                  121.031ff.
--------------------------------------------------------------------------------------------------------
Local                             Under Section 531.002(8) of the Health and
Mental                            Safety Code, the local component of the TXMHMR
Health                            system designated by TDMHMR to carry out the
Authority                         legislative mandate for planning, policy
(LMHA)                            development, coordination, and resource
                                  development/allocation and for supervising and
                                  ensuring the provision of mental health
                                  services to persons with mental illness in one
                                  or more local service areas.
--------------------------------------------------------------------------------------------------------
</TABLE>

                                                              TDHS/HMO CONTRACT
                                                                August 11, 1999

                                       61
<PAGE>   68

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
<S>                               <C>
Non-Hospital                      A provider of health care services which is
Facility                          licensed and credentialed to provide services
Provider                          and is enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------------------------------
School                            Clinics located at school campuses that
Based                             provide on site primary and preventive care to
Health                            children and adolescents.
Clinic
(SBHC)
--------------------------------------------------------------------------------------------------------
Home and                          A provider licensed by the Texas Department of
Community                         Health as a Home and Community Support
Support                           services Agency.  The level of licensure
Service                           required depends on the type of service
Agency                            delivered.  NOTE:  For Primary Home Care and
                                  Client Managed Attendant Care, the agency may
                                  have only the Personal Assistance Services
                                  level of licensure.
--------------------------------------------------------------------------------------------------------
Nursing                           A provider licensed and Medicaid
Home                              certified by the Texas Department of Human
                                  Services, Long Term Care Regulatory Division.
--------------------------------------------------------------------------------------------------------
Personal                          A provider licensed by the Texas Department of
Care Home                         Human Services, Long Term Care Regulatory
                                  Division.  The type of licensure determines
                                  what services may be provided.   NOTE:  Adult
                                  Foster Homes providing care for 4 individuals
                                  must be licensed as a Type C Personal Care
                                  Home.
--------------------------------------------------------------------------------------------------------
Adult Day                         A provider licensed by the Texas Department of
Care                              Human Services, Long Term Care Regulatory
Facility                          Division as an adult day care provider.  To
                                  provide Day Activity and Health Services, the
                                  provider must provide the range of services
                                  required for DAHS.
--------------------------------------------------------------------------------------------------------
Emergency                         A provider licensed by the Texas Board of
Response                          Private Investigators and Private Security
Service                           Agencies unless specifically exempt from such
Provider                          licensure.
--------------------------------------------------------------------------------------------------------
Respiratory                       A provider certified by the Texas Department
Care                              of Health as a certified Respiratory Care
Practitioner                      Practitioner.
--------------------------------------------------------------------------------------------------------
Adult                             A Provider serving 3 or less clients, must be
Foster Home                       certified by the Applicant/HMO using
                                  guidelines from the Texas Department of Human
                                  Services.
--------------------------------------------------------------------------------------------------------
</TABLE>

7.9       PRIMARY CARE PROVIDERS

7.9.1     HMO must have a system for monitoring Member enrollment into its plan
          to allow HMO to effectively plan for future needs and recruit network
          providers as necessary to ensure adequate access to primary care and
          specialty care. The Member enrollment monitoring system must include
          evaluating the length of time required for Members to access care
          within the network. The monitoring system must also include a means
          for routinely monitoring after-hours availability and accessibility of
          PCPs.

7.9.2     HMO must maintain a primary care provider network in sufficient
          numbers and geographic distribution to serve a minimum of forty-five
          percent (45%) of the mandatory STAR+PLUS eligibles in each county of
          the service area. HMO is required to increase the capacity of the
          network as

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                                       62
<PAGE>   69

          necessary to accommodate enrollment growth beyond the forty-fifth
          percentile (45%).

7.9.3     HMO must maintain a provider network that includes pediatricians and
          physicians with pediatric experience in sufficient numbers and
          geographic distribution to serve eligible children and adolescents in
          the service area and provide timely access to the full scope of
          benefits, especially THSteps checkups and immunizations.

7.9.4     HMO must comply with the access requirements as established by the
          Texas Department of Insurance for all HMOs doing business in Texas,
          except as otherwise required by this contract.

7.9.5     HMO must have physicians with board eligibility/board certification in
          pediatrics to be available for referral for Members under the age of
          21.

7.9.5.1   Individual PCPs may serve more than 2,000 Members. However, if TDHS
          determines that a PCP's Member enrollment exceeds the PCP's ability to
          provide accessible, quality care, TDHS may prohibit the PCP from
          receiving further enrollments. TDHS may direct HMOs to assign or
          reassign Members to another PCP's panel.

7.9.6     HMO must have PCPs available throughout the service area to ensure
          that no Member must travel more than 30 miles, or 45 minutes which
          ever is less, to access the PCP, unless an exception to this distance
          requirement is made by TDHS.

7.9.7     HMO's primary care provider network may include providers from any of
          the following practice areas: General Practitioners; Family
          Practitioners; Internists; Pediatricians; Obstetricians/Gynecologists
          (OB/GYN); Pediatric and Family Advanced Practice Nurses (APNs) and
          Certified Nurse Midwives Women Health (CNMs) practicing under the
          supervision of a physician; Physician Assistants (PAs) practicing
          under the supervision of a physician specializing in Family Practice,
          Internal Medicine, Pediatrics or Obstetrics/Gynecology who also
          qualifies as a PCP under this contract; or Federally Qualified Health
          Centers (FQHCs), Rural Health Clinics (RHCs) and similar community
          clinics; and specialists who are willing to provide medical homes to
          selected Members with special needs and conditions.

7.9.8     The PCP for a Member with disabilities or chronic or complex
          conditions may be a specialist who agrees to provide PCP services to
          the Member. The specialty provider must agree to perform all PCP
          duties required in the contract and PCP duties must be within the
          scope of the specialist s license. HMO, specialty providers, for the
          member or his representative may initiate the request for a specialist
          to serve as a PCP for a Member with disabilities or chronic or complex
          conditions.

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7.9.9     PCPs must either have admitting privileges at a hospital, which is
          part of HMO network of providers, or make referral arrangements with
          an HMO provider who has admitting privileges to a network hospital.

7.9.10    HMO must require that PCPs are accessible to Members 24 hours a day, 7
          days a week. The following are acceptable and unacceptable phone
          arrangements for contacting PCPs after normal business hours.

          Acceptable:

          (1)       Office phone is answered after hours by an answering service
                    which meets language requirements of the major population
                    groups and which can contact the PCP or another designated
                    medical practitioner. All calls answered by an answering
                    service must be returned within 30 minutes.

          (2)       Office phone is answered after normal business hours by a
                    recording in the language of each of the major population
                    groups served directing the patient to call another number
                    to reach the PCP or another provider designated by the PCP.
                    Someone must be available to answer the designated provider
                    s phone. Another recording is not acceptable.

          (3)       Office phone is transferred after office hours to another
                    location where someone will answer the phone and be able to
                    contact the PCP or another designated medical practitioner,
                    who can return the call within 30 minutes.

          Unacceptable:

          (1)       Office phone is only answered during office hours.

          (2)       Office phone is answered after hours by a recording which
                    tells patients to leave a message.

          (3)       Office phone is answered after hours by a recording which
                    directs patients to go to an Emergency Room for any services
                    needed.

          (4)       Returning after-hour calls outside of 30 minutes.

7.9.11    HMO must require PCPs, through contract provisions or provider manual,
          to provide primary care services and continuity of care to Members who
          are enrolled with or assigned to the PCP. Primary care services are
          all services required by a Member for the prevention, detection,
          treatment and cure of illness, trauma, disease or disorder, which are
          covered and/or required services under this contract. All services
          must be provided in compliance with generally accepted medical and
          behavioral health standards for the community in which services are
          rendered. HMO must require PCPs, through contract provisions or
          provider manual, to provide children under the age of 21 services in
          accordance with the American Academy of Pediatric recommendations and
          the THSteps periodicity schedule and provide adults services in
          accordance with the U.S. Preventive Services Task Force s publication
          Put Prevention Into Practice.

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<PAGE>   71

7.9.11.1  HMO must require PCPs, through contract provisions or provider manual,
          to assess the medical needs of Members for referral to specialty care
          providers and provide referrals as needed. PCP must coordinate care
          with specialty care providers after referral.

7.9.11.2  HMO must require PCPs, through contract provisions or provider manual,
          to make necessary arrangements with home and community support
          services to integrate the Member s needs. This integration may be
          delivered by coordinating the care of Members with other programs,
          public health agencies and community resources which provide medical,
          nutritional, behavioral, educational and outreach services available
          to Members.

7.9.11.3  HMO must require, through contract provisions or provider manual, that
          the Member s PCP or HMO provider through whom PCP has made
          arrangements, be the admitting or attending physician for inpatient
          hospital care, except for emergency medical or behavioral health
          conditions or when the admission is made by a specialist to whom the
          Member has been referred by the PCP. HMO must require, through
          contract provisions or provider manual, that PCP assess the
          advisability and availability of outpatient treatment alternatives to
          inpatient admissions. HMO must require, through contract provisions or
          provider manual, that PCP provide or arrange for pre-admission
          planning for non-emergency inpatient admissions, and discharge
          planning for Members. PCP must call the emergency room with relevant
          information about the Member. PCP must provide or arrange for
          follow-up care after emergency or inpatient care.

7.9.11.4  HMO must require PCPs for children under the age of 21 to provide or
          arrange to have provided all services required under Article 6.8
          relating to Texas Health Steps, Article 6.9 relating to Perinatal
          Services, Article 6.10 relating to Early Childhood Intervention,
          Article 6.11 relating to WIC, Article 6.13 relating to Health
          Education and Wellness and Prevention Plans. PCP must cooperate and
          coordinate with HMO to provide Member and the Member s family with
          knowledge of and access to available services.

7.9.12    PCP selection, OB/GYN selection, and PCP default

7.9.12.1  Medicaid only recipients

          Members who are not covered by Medicare have the right to select the
          PCP and HMO to whom they will be assigned. Female members also have
          the right to select an OB/GYN in addition to a PCP. An HMO may limit a
          Members request to change PCP or OB/GYN to no more than four changes
          in any 12-month period. If a PCP or OB/GYN who has been selected by or
          assigned to a Member is not longer in HMOs provider network, HMO must
          contact the member and provide them an opportunity to reselect. If the
          Member does not want to change the PCP or OB/GYN to another network
          provider the Member must be directed to the

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          enrollment broker to select an alternative plan. If a PCP or OB/GYN
          who has been selected by or assigned to a member is no longer in an
          IPA's provider network but continues to participate in HMO network,
          HMO or IPA may not change the members PCP or OB/GYN.

7.9.12.2  Dual eligible Members

          Members covered by Medicare have the right to select the HMO to whom
          they will be assigned. Failure to select an HMO will result in the
          clients be defaulted to an HMO. Because the STAR+PLUS HMO is not
          responsible for primary and acute care services for dual eligible
          members, requirements related to PCP and OB/GYN selection and default
          are not applicable.

7.10      OB/GYN PROVIDERS

          HMO must allow a female Member to select an OB/GYN within its provider
          network or within a limited provider network in addition to a PCP, to
          provide health care services within the scope of the professional
          specialty practice of a properly credentialed OB/GYN. See Article
          21.53D of the Texas Insurance Code and 28 TAC Sections 11.506, 11.1600
          and 11.1608. A Member who selects an OB/GYN must be allowed direct
          access to the health care services of the OB/GYN without a referral by
          the woman's PCP or a prior authorization or precertification from HMO.
          HMO must allow Members to change OB/GYNs up to four times per year.
          Health care services must include, but not be limited to:

7.10.1    One well-woman examination per year;

7.10.2    Care related to pregnancy;

7.10.3    Care for all active gynecological conditions; and

7.10.4    Diagnosis, treatment, and referral for any disease or condition within
          the scope of the professional practice of a properly credentialed
          obstetrician or gynecologist.

7.10.5    HMOs which allow its Members to directly access any OB/GYN provider
          within its network, must ensure that the provisions of Articles 7.9.1
          through 7.9.4 continue to be met.

7.10.6    OB/GYN providers must comply with HMO's procedures contained in HMO's
          provider manual or provider contract for OB/GYN providers, including
          but not limited to prior authorization procedures.

7.11      SPECIALTY CARE PROVIDERS

7.11.1    HMO must maintain specialty providers and facilities in sufficient
          numbers and areas of practice to meet the needs of all Members
          requiring specialty care or services.

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7.11.2    HMO must require, through contract provisions or provider manual, that
          specialty providers send a record of consultation and recommendations
          to a Member s PCP for inclusion in Member s medical record and report
          encounters to the PCP and/or HMO.

7.11.3    HMO must ensure availability and accessibility to appropriate
          specialists.

7.11.4    HMO must ensure that no Member is required to travel in excess of 75
          miles to secure initial contact with referral specialists; special
          hospitals, psychiatric hospitals; diagnostic and therapeutic services;
          and single service health care physicians, dentists or providers.
          Exceptions to this requirement may be allowed when an HMO has
          established, through utilization data provided to TDHS, that a normal
          pattern for securing health care services within an area exists or HMO
          is providing care of a higher skill level or specialty than the level
          which is available within the service area such as, but not limited
          to, treatment of cancer, burns, and cardiac diseases.

7.12      SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES

7.12.1    HMO must include all medically necessary specialty services through
          its network specialists, subspecialists and specialty care facilities
          (e.g., children's hospitals, and tertiary care hospitals).

7.12.2    HMO must include requirements for pre-admission and discharge planning
          in its contracts with network hospitals. Discharge plans for a Member
          must be provided by the HMO or the hospital to the Member/family, the
          PCP and specialty care physicians.

7.12.3    The HMO must have appropriate multidisciplinary teams for people with
          disabilities or chronic or complex medical conditions. These teams
          must include the PCP and any individuals or providers involved in the
          day-to-day or ongoing care of the Member.

7.12.4    The HMO must include in its provider network a TDHS-designated
          perinatal care facility, as established by Section 32.042, Texas
          Health and Safety Code, once the designated system is finalized and
          perinatal care facilities have been approved for the service area. See
          also Article 6.9.1 of this contract.

7.13      BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)

7.13.1    Assessment to determine eligibility for rehabilitative and targeted
          MHMR case management services is a function of the LMHA. HMO must
          provide all covered services described in detail in the Texas Medicaid
          Provider Procedures Manual (Provider Procedures Manual) and the Texas
          Medicaid Bulletins which is the bi-monthly update to the Provider
          Procedures Manual. Clinical information regarding covered services are

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          published by the Texas Medicaid program in the Texas Medicaid Service
          Delivery Guide. Covered services must be provided to Members with SPMI
          and SED, when medically necessary, whether or not they are also
          receiving targeted case management or rehabilitation services through
          the LMHA.

7.13.2    HMO will coordinate with the LMHA and state psychiatric facility
          regarding admission and discharge planning, treatment objectives and
          projected length of stay for Members committed by a court of law to
          the state psychiatric facility.

7.13.3    HMO must enter into written agreement with all LMHAs in the service
          area which describes the process(es) which the HMO and LMHA will use
          to coordinate services for STAR+PLUS Members with SPMI or SED. The
          agreement will contain the following provisions:

7.13.3.1  Describe the behavioral health covered services indicated in detail in
          the Provider Procedures Manual and the Texas Medicaid Bulletins which
          is the bi-monthly update to the Provider Procedures Manual. Clinical
          information regarding covered services are published by the Texas
          Medicaid program in the Texas Medicaid Service Delivery Guide. Also
          include the amount, duration, and scope of basic and value-added
          services, and HMO's responsibility to provide these services;

7.13.3.2  Describe criteria, protocols, procedures and instrumentation for
          referral of STAR+PLUS Members from and to the HMO and LMHA;

7.13.3.3  Describe processes and procedures for referring Members with SPMI or
          SED to LMHA for assessment and determination of eligibility for
          rehabilitation or targeted case management services;

7.13.3.4  Describe how the LMHA and HMO will coordinate providing behavioral
          health services to Members with SPMI or SED;

7.13.3.5  Establish clinical consultation procedures between the HMO and LMHA
          including consultation to effect referrals and on-going consultation
          regarding the Member's progress;

7.13.3.6  Establish procedures to authorize release and exchange of clinical
          treatment records;

7.13.3.7  Establish procedures for coordination of assessment, intake/triage,
          utilization review/utilization management and care for persons with
          SPMI or SED;

7.13.3.8  Establish procedures for coordination of inpatient psychiatric
          services (including court ordered commitment of Members under 21) in
          state psychiatric facilities within the LMHA's catchment area;

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7.13.3.9  Establish procedures for coordination of emergency and urgent services
          to Members;

7.13.3.10 Establish procedures for coordination of care and transition of care
          for new HMO Members who are receiving treatment through the LMHA.

7.13.4    The HMO must offer licensed practitioners of the healing arts, who are
          part of the Member's treatment team for rehabilitation services, the
          opportunity to participate in the HMO's network. The practitioner must
          agree to accept the standard provider reimbursement rate, meet the
          credentialing requirements, comply with all the terms and conditions
          of the standard provider contract of the HMO.

7.13.5    Members receiving rehabilitation services must be allowed to choose
          the licensed practitioners of the healing arts who are currently a
          part of the Member's treatment team for rehabilitation services. If
          the Member chooses to receive these services from licensed
          practitioners of the healing arts who are part of the Member's
          rehabilitation services treatment team, the HMO must reimburse the
          LMHA at current Medicaid fee-for-service amounts.

7.14      SIGNIFICANT TRADITIONAL PROVIDERS (STPS)

          HMO must seek participation in its provider network from:

7.14.1    Each health care provider in the service area who has traditionally
          provided care to Medicaid recipients;

7.14.2    Each hospital in the service area that has been designated as a
          disproportionate share hospital under Medicaid; and

7.14.3    Each specialized pediatric laboratory in the service area, including
          those laboratories located in children's hospitals.

7.14.4    HMO must include significant traditional providers as designated by
          TDHS in its provider network to provide primary care and specialty
          care services. HMO must include STPs in its provider network for at
          least three (3) years following the Implementation Date in the service
          area.

7.14.5    STPs must agree to the contract requirements contained in Article 7.2,
          unless exempted from a requirement by law or rule. STPs must also
          agree to the following contract requirements:

7.14.5.1  STP must agree to accept the standard reimbursement rate offered by
          HMO to other providers for the same or similar services.

7.14.5.2  STP must meet the credentialing requirements of the HMO. HMO must not
          require STPs to meet a different or higher credentialing standard than
          is required of other providers providing the same or similar services.
          HMO must not require STPs to contract with a subcontractor which

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          requires a different or higher credentialing standard than the HMO's
          if the application of the higher standard results in a
          disproportionate number of STPs being excluded from the Subcontractor.

7.15      FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH CLINICS
          (RHC)

7.15.1    HMO must make reasonable efforts to include FQHCs and RHCs
          (Freestanding and hospital-based) in its provider network.

7.15.2    FQHCs or RHCs will receive a cost settlement from TDHS and must agree
          to accept initial payments from the HMO in an amount that is equal to
          or greater than the HMO's payment terms for other providers providing
          the same or similar services.

7.15.2.1  HMO must submit monthly FQHC and RHC encounter and payment reports to
          all contracted FQHCs and RHCs and FQHCs and RHCs with whom there have
          been encounters, not later than 21 days from the end of the month for
          which the report is submitted. The format will be developed by TDHS.
          The FQHC and RHC must validate the encounter and payment information
          contained in the report(s). HMO and the FQHC/RHC must both sign the
          report(s) after each party agrees that it accurately reflects
          encounters and payments for the month reported. The HMO must submit
          the signed FQHC and RHC encounter and payment reports to TDHS not
          later than 45 days from the end of the month for which the report is
          submitted.

7.15.2.2  For FQHCs, TDHS will determine the amount of the interim settlement
          based on the difference between: an amount equal to the number of
          Medicaid allowable encounters multiplied by the rate per encounter
          from the latest settled FQHC fiscal year cost report, and the amount
          paid by HMO to FQHC for the quarter. For RHCs, TDHS will determine the
          amount of the interim settlement based on the difference between a
          reasonable cost amount methodology provided by TDHS and the amount
          paid by HMO to the RHC for the quarter. TDHS will pay the FQHC or the
          RHC the amount of the interim settlement, if any, as determined by
          TDHS or collect and retain the quarterly recoupment amount, if any.

7.15.2.3  TDHS will cost settle with each FQHC and RHC annually, based on the
          FQHC or RHC state fiscal year cost report and the methodology
          described in Article 7.15.2.2. TDHS will make additional payments or
          recoup payments from the FQHC or the RHC based on reasonable costs
          less prior interim payment settlements.

7.15.2.4  Cost settlements for RHCs, and HMO's obligation to provide RHC
          reporting described in Article 7.15, are retroactive to October 1,
          1997.

ARTICLE VIII   MEMBER SERVICES REQUIREMENTS

8.1       MEMBER EDUCATION

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          HMO must provide the Member education requirements as contained in
          Article VI at 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13, 6.14
          and this Article of the contract.

8.2       MEMBER HANDBOOK

8.2.1     HMO must mail each newly enrolled Member a Member Handbook no later
          than five (5) days after HMO receives the Enrollment File. If the 5th
          day falls on a weekend or state holiday, the Member Handbook must be
          mailed by the following working day. The Member Handbook must be
          written at a 4th - 6th grade reading comprehension level. The Member
          Handbook must contain all critical elements specified by TDHS. See
          Attachment D, Required Critical Elements, for specific details
          regarding content requirements. HMO must submit a Member Handbook to
          TDHS for approval prior to the effective date of the contract unless
          previously approved (see Article 3.4.1 regarding the process for plan
          materials review).

8.2.2     Member Handbook Updates. HMO must provide updates to the Handbook to
          all Members as changes are made to the Required Critical Elements in
          Attachment D. HMO must make the Member Handbook available in the
          languages of the major populations and the visually impaired served by
          HMO.

8.2.3     THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE APPROVED BY
          TDHS PRIOR TO PUBLICATION AND DISTRIBUTION TO MEMBERS (See Article
          3.4.1 regarding the process for plan materials review).

8.3       ADVANCE DIRECTIVES

8.3.1     Federal and state law require HMOs and providers to maintain written
          policies and procedures for informing and providing written
          information to all adult Members 18 years of age and older about their
          rights under state and federal law, in advance of their receiving care
          (Social Security Act Section 1902(a)(57) and Section 1903(m)(1)(A)).
          The written policies and procedures must contain procedures for
          providing written information regarding the Member's right to refuse,
          withhold or withdraw medical treatment advance directives. HMO's
          policies and procedures must comply with provisions contained in 42
          CFR Section 434.28 and 42 CFR Section 489, Sub Part I, relating to
          advance directives for all hospitals, critical access hospitals,
          skilled nursing facilities, home health agencies, providers of home
          health care, providers of personal care services and hospices, as well
          as the following state laws and rules:

8.3.1.1   the Member's right to self-determination in making health care
          decisions;

8.3.1.2   the Advance Directives includes:

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8.3.1.2.1 a Member's right to execute an advance written directive to physicians
          and family or surrogates, or to make a non-written directive to
          administer, withhold or withdraw life-sustaining treatment in the
          event of a terminal or irreversible condition;

8.3.1.2.2 a Member's right to make written and non-written Out-of-Hospital
          Do-Not-Resuscitate Orders; and

8.3.1.2.3 a Member's right to execute a Medical Power of to appoint an agent to
          make health care decisions on the Member's behalf if the Member
          becomes incompetent.

8.3.2     HMO must maintain written policies for implementing a Member's advance
          directive. Those policies must include a clear and precise statement
          of limitation if HMO or a participating provider cannot or will not
          implement a Member's advance directive.

8.3.2.1   A statement of limitation on implementing a Member's advance directive
          should include at least the following information:

8.3.2.1.1 a clarification of any differences between HMO's conscience objections
          and those which may be raised by the Member's PCP or other providers;

8.3.2.1.2 identification of the state legal authority permitting HMO's
          conscience objections to carrying out an advance directive; and

8.3.2.1.3 a description of the range of medical conditions or procedures
          affected by the conscience objection.

8.3.3     HMO cannot require a Member to execute or issue an advance directive
          as a condition for receiving health care services.

8.3.4     HMO cannot discriminate against a Member based on whether or not the
          Member has executed or issued an advance directive.

8.3.5     HMO's policies and procedures must require HMO and Subcontractor to
          comply with the requirements of state and federal law relating to
          advance directives. HMO must provide education and training to
          employees, Members, and the community on issues concerning advance
          directives.

8.3.6     All materials provided to Members regarding advance directives must be
          written at a 7th - 8th grade reading comprehension level, except where
          a provision is required by state or federal law, and the provision
          cannot be reduced or modified to a 7th- 8th grade reading level
          because it is a reference to the law or is required to be included "as
          written" in the state or federal law. HMO must submit to TDHS any
          revisions to existing approved advance directive materials.

8.3.7     HMO must notify Members of any changes in state or federal laws
          relating to advance directives within 90 days from the effective date
          of the

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          change, unless the law or regulation contains a specific time
          requirement for notification.

8.4       MEMBER ID CARDS

8.4.1     A Medicaid Identification Form (Form 3087) is issued monthly by the
          TDHS. The form includes the "STAR+PLUS" Program logo and the name and
          toll free number of the Member's health plan. A Member may have a
          temporary Medicaid Identification (Form 1027-A) which will include a
          STAR+PLUS indicator.

8.4.2     HMO must issue a Member Identification Card (ID) to the Member within
          five (5) days from receiving the Enrollment File from the Enrollment
          Broker. If the 5th day falls on a weekend or state holiday, the ID
          Card must be issued by the following working day. The ID Card must
          include, at a minimum, the following: Member's name; Member's Medicaid
          number; either the issue date of the card or effective date of the PCP
          assignment; PCP's name, address, and telephone number; name of HMO;
          name of IPA to which the Member's PCP belongs, if applicable; the
          24-hour, seven (7) day a week toll-free telephone number operated by
          HMO; the toll-free number for behavioral health care services; and
          directions for what to do in an emergency. The ID Card must be
          reissued if the Member reports a lost card, there is a Member name
          change, if Member requests a new PCP, or for any other reason which
          results in a change to the information disclosed on the ID Card.

8.5       MEMBER HOTLINE

8.5.1     HMO must maintain a toll-free Member telephone hotline 24 hours a day,
          seven days a week for Members to obtain assistance in accessing
          services under this contract.

8.6       MEMBER COMPLAINT PROCESS

8.6.1     HMO must develop, implement and maintain a Member complaint system
          that complies with the requirements of Article 20A.12 of the Texas
          Insurance Code, relating to the Complaint System, except where
          otherwise provided in this contract and in applicable federal law. The
          complaint and appeals procedure must be the same for all Members and
          must comply with Texas Insurance Code, Article 20A.12 or applicable
          federal law. Modifications and changes must be submitted to TDHS at
          least 30 days prior to the implementation of the modification or
          changes.

8.6.2     HMO must have written policies and procedures for taking, tracking,
          reviewing, and reporting and resolving of member complaints. Any
          changes to the procedures must be submitted to TDHS for approval
          thirty (30) days prior to the effective date of the change.

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8.6.3     HMO must designate an officer of HMO who has primary responsibility
          for ensuring that complaints are resolved in compliance with written
          policy and within the time required. An officer of HMO means the
          president, a vice president, the secretary, the treasurer, or the
          chairperson of the board for a corporation, the sole proprietor, the
          managing general partner of a partnership, or a person having similar
          executive authority in the organization.

8.6.4     HMO must have a routine process to detect patterns of complaints and
          plan changes and involve management and supervisory staff to develop
          policy and procedural improvements to address the complaints. HMO must
          cooperate with the state and its contractors in resolving Member
          complaints.

8.6.5     HMOs complaint procedures must be provided to Members in writing and
          in alternative communications formats. A written description of HMOs
          complaint procedures must be in appropriate languages and easy for
          Members to understand. HMO must include a written description of the
          complaint procedures in the Member Handbook. HMO must maintain at
          least one local or toll-free telephone number for making complaints.

8.6.6     HMOs process must require that every complaint received in person, by
          telephone or in writing, is recorded in a written record and is logged
          with the following details: date, identification of the individual
          filing the complaint, identification of the individual recording the
          complaint, nature of the complaint, disposition of the complaint,
          corrective action required, and date resolved.

8.6.7     HMOs process must include a requirement that the governing body of the
          HMO reviews the written record (logs) for complaints and appeals.

8.6.8     HMO is prohibited from discriminating against a Member because that
          Member is making or has made a complaint.

8.6.9     HMO cannot process requests for disenrollments through the HMO's
          complaint procedures. Requests for disenrollments must be referred to
          TDHS within five (5) business days after the Member makes a
          disenrollment request.

8.6.10    HMO must develop, implement and maintain an appeal of adverse
          determination procedure that complies with the requirements of Article
          21.58A of the Texas Insurance Code, relating to the utilization
          review, except where otherwise provided in this contract and in
          applicable federal law. The appeal of an adverse determination
          procedure must be the same for all Members and must comply with Texas
          Insurance Code, Article 21.58A or applicable federal law.
          Modifications and amendments must be submitted to TDHS no less than 30
          days prior to the implementation of the modification or amendment.
          When an enrollee, a person acting on behalf of an enrollee, or an
          enrollee's provider of record expresses orally or in writing any
          dissatisfaction or disagreement with an

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          adverse determination, HMO or UR agent must regard the expression of
          dissatisfaction as a request to appeal an adverse determination.

8.6.11    If a complaint or appeal of an adverse determination relates to the
          denial, delay, reduction, termination or suspension of covered
          services by either HMO or a utilization review agent contracted to
          perform utilization review by HMO, HMO must inform Members they have
          the right to access the States Fair Hearing process at any time in
          lieu of the internal complaint system provided by HMO. HMO is required
          to comply with the requirements contained in 1 TAC Chapter 357,
          relating to notice and Fair Hearings in the Medicaid program, whenever
          an action is taken to deny, delay, reduce, terminate or suspend a
          covered service.

8.6.12    If Members utilize HMO's internal complaint or appeal of adverse
          determination system and the complaint relates to the denial, delay,
          reduction, termination or suspension of covered services by either HMO
          or a utilization review agent contracted to perform utilization review
          by HMO, HMO must inform the Member that they continue to have a right
          to appeal the decision through the States Medicaid Fair Hearing
          process.

8.6.13    The provisions of Article 21.58A, Texas Insurance Code, relating to a
          Member s right to appeal an adverse determination made by HMO or a
          utilization review agent by an independent review organization, do not
          apply to a Medicaid recipient. Federal fair hearing regulations
          (Social Security Act Section 1902a(3), codified at 42 C.F.R. 431.200
          et seq.) require the agency to make a final decision after a Fair
          Hearing, which conflicts with the State requirement that the IRO make
          a final decision. Therefore, the State requirement is pre-empted by
          the federal requirement and the IRO requirement is not applicable to
          this contract.

8.6.14    HMO will cooperate with the Enrollment Broker and TDHS or its designee
          to resolve all Member complaints.

8.6.15    HMO must have policies and procedures in place outlining the role of
          HMO s Medical Director in the Member Complaint System and appeal of an
          adverse determination. The Medical Director must have a significant
          role in monitoring, investigating and hearing complaints.

8.6.16    HMO must assist Members in understanding and using HMO s complaint
          system.

8.6.17    HMO s must assist Members in writing or filing a complaint and
          monitoring the complaint through the Contractor s complaint process
          until the issue is resolved.

8.7       MEMBER NOTICES, APPEALS AND FAIR HEARINGS

8.7.1     HMO must send a Member notice whenever the HMO takes an adverse action
          to deny, delay, reduce or terminate covered services to a Member.

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          Upon request, HMO will make available to the State a copy of all
          adverse action notices.

          For acute care services the notice must be mailed to the Member no
          less than 10 days before HMO intends to take an action. If an
          emergency exists, or if the time within which the service must be
          provided makes giving 10 days notice impractical or impossible, notice
          must be provided by the most expedient means reasonably calculated to
          provide actual notice to the Member, including by phone or through the
          provider's office.

          For long term care services the notice must be mailed to the Member no
          less than 30 days before the HMO intends to take an action.

8.7.2     The notice must contain the following information:

8.7.2.1   the Members right to immediately access the State Medicaid Fair
          Hearing process including where written requests may be sent and the
          toll free number the member can call for a fair hearing;

8.7.2.2   a statement of the action HMO will take;
8.7.2.3   the date the action will be taken;
8.7.2.4   an explanation of the reasons HMO will take the action;
8.7.2.5   a reference to the state and/or federal regulation or HMO criteria or
          guidelines which support HMOs action;
8.7.2.6   an address where written requests may be sent and a toll-free number
          Member can call to: request the assistance of a Member representative,
          or file a complaint, or request a State Medicaid Fair Hearing;

8.7.2.7   a procedure by which Member may appeal HMO's action through either
          HMO's complaint process or the State Fair Hearing process;

8.7.2.8   an explanation that the Member may represent himself or herself, or be
          represented by a representative, a third party ombudsman, a friend, a
          relative, legal counsel or another spokesperson;

8.7.2.9   an explanation of whether and under what circumstances services may be
          continued if a State Medicaid Fair Hearing is requested;

8.7.2.10  a statement that if the Member wants a State Medicaid Fair Hearing on
          the action, Member must make the request for a Fair Hearing within 90
          days of the date on the notice or the right to request a hearing is
          waived;

8.7.2.11  an explanation that the Member may request that the State Medicaid
          Fair Hearing be conducted based on written information without the
          necessity of taking oral testimony; and

8.7.2.12  a statement explaining that HMO must make its decision within 30 days
          from the date the complaint is received by HMO; and

8.7.2.13  a statement explaining that a final decision must be made by the State
          within ninety (90) days from the date a State Medicaid Fair Hearing is
          requested.

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8.8       MEMBER CULTURAL AND LINGUISTIC SERVICES

8.8.1     HMO must have a written plan describing how HMO will meet the
          linguistic and cultural needs of Members. The Cultural Competency Plan
          must describe how the individuals and systems within HMO will
          effectively provide services to people of all cultures, races, ethnic
          backgrounds, and religions in a manner that recognizes, values,
          affirms, and respects the worth of the individuals and protects and
          preserves the dignity of each. The plan must also be made available to
          HMOs network of providers.

8.8.2     HMO must provide interpreter services to members as necessary to
          ensure availability of effective communication regarding treatment,
          medical history, or health education. HMO must provide 24 hour access
          to interpreter services for members to access emergency medical
          services within HMOs network, either through telephone language
          services or interpreters. HMO must include individuals who can
          translate Spanish and American Sign Language and additional languages
          of major population groups. HMO must include individuals skilled in
          communication and services for the cognitively impaired. In addition,
          HMO must have capabilities to provide TDD access.

8.8.3     Experienced professional interpreters must be used when technical,
          medical, or treatment information is to be discussed, or where use of
          a family member or friend as interpreter is inappropriate. Family
          members, especially children, should not be used as interpreters in
          assessments, therapy and other situations where impartiality is
          critical unless specifically requested by the Member. A family member
          or friend may be used as an interpreter if they can be relied upon to
          provide a complete and accurate translation of the information being
          provided to the Member; the Member is advised that a free interpreter
          is available; and, the Member expresses a preference to rely on the
          family member or friend.

8.8.3.1   HMO must adhere to and provide to Members the Member Bill of Rights
          and Responsibilities as adopted by the Texas Health and Human Services
          Commission and contained at 1 Texas Administrative Code (TAC) Sections
          353.202--353.203.

8.8.3.2   HMO must have policies and procedures in place that outline how
          Members can access face-to-face interpreter services in a provider's
          office if necessary to ensure the availability of effective
          communication regarding treatment, medical history or health education
          for a Member.

8.8.4     HMO must maintain a current list of interpreters who maintain
          "on-call" status to provide interpreter services to members.

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8.8.5       Orientation presentations or education classes must be presented in
            the languages of the major population groups, as specified by TDHS,
            in the proposed service area(s) as the identified need arises.

ARTICLE IX              MARKETING AND PROHIBITED PRACTICES

9.1         MARKETING MATERIALS

            HMOs may present their marketing materials to eligible Medicaid
            recipients through any method or media determined to be acceptable
            by TDHS. The media may include but are not limited to: written
            materials, such as brochures, posters, or fliers which can be mailed
            directly to the client or left at Texas Department of Human Services
            eligibility offices; TDHS sponsored community enrollment events; and
            paid or  public service announcements on radio. All marketing
            materials must be approved by TDHS prior to distribution (see
            Article 3.4).

9.2         ADHERANCE TO MARKETING GUIDELINES

9.2.1       HMO must abide by Texas Medicaid Marketing Guidelines as provided by
            the State.

ARTICLE X               MIS SYSTEM REQUIREMENTS

10.1        MODEL MIS REQUIREMENTS

10.1.1      HMO must maintain an MIS that will provide support for all functions
            of HMOs processes and procedures related to the flow and use of data
            within HMO. The MIS must enable HMO to meet the requirements of this
            Contract. The MIS must have the capacity and capability of capturing
            and utilizing various data elements to develop information for HMO
            administration.

10.1.2      HMO must maintain a claim retrieval service processing system that
            can identify date of receipt, action taken on all provider claims or
            encounters (i.e., paid, denied, etc.), and when any action was taken
            in real time.

10.1.3      HMO must have a system that can be adapted to changes in Business
            Practices/Policies within a short period of time.

10.1.4      HMO is required to submit and receive data as specified in this
            contract and HMO Encounter Data Submissions Manual. The MIS must
            provide complete acute and long term care encounter data of all
            capitated services within the scope of services of the contract
            between HMO and TDHS. Encounter data must follow the format, data
            elements and method of transmission specified in the contract and
            HMO Encounter Data Submissions Manual. HMO must submit encounter
            data, including adjustments to encounter data. The Encounter
            transmission will include all encounter data and encounter data
            adjustments processed by HMO

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          for the previous month. Data quality validation will incorporate
          assessment standards developed jointly by HMO and TDHS. Original
          records will be made available for inspection by TDHS for validation
          purposes. Data which do not meet quality standards must be corrected
          and returned within a time period specified by TDHS.

10.1.5    HMO must use the procedure codes, diagnosis codes, and other codes
          used for reporting encounters and fee-for-service claims in the most
          recent edition of the Medicaid Provider Procedures Manual or as
          otherwise provided by the State. Any exceptions will be considered on
          a code-by-code basis after TDHS receives written notice from HMO
          requesting an exception. HMO must also use the provider numbers as
          directed by the State for both encounter and fee-for-service claims
          submission.

10.1.6    HMO must have hardware, software, network and communications system
          with the capability and capacity to handle and operate all MIS
          subsystems as specified in 10.1.8.1.

10.1.7    HMO must provide upon request an organizational chart and description
          of responsibilities of HMO's MIS department dedicated to or supporting
          this Contract. Any updates to the organizational chart and the
          description of responsibilities must be provided to TDHS within 15
          days of the effective date of the change. Official points of contact
          must be provided to TDHS on an ongoing basis. An Internet e-mail
          address must be provided for each point of contact.

10.1.8    HMO must operate and maintain an MIS that meets or exceeds the
          requirements outlined in the Model MIS Guidelines that follow:

10.1.8.1  The contractor's system must be able to meet all eight MIS Model
          Guidelines as listed below. The eight subsystems are used in the Model
          MIS Requirements to identify specific functions or features required
          by HMOs MIS. The HMO systems must use file format, edit validation
          techniques as specified by TDHS or its designee. These subsystems
          focus on the individual systems functions or capabilities to support
          the following operational and administrative areas:

          (1)       Enrollment/Eligibility Subsystem
          (2)       Provider Subsystem
          (3)       Encounter/Claims Processing Subsystem
          (4)       Financial Subsystem
          (5)       Utilization/Quality Improvement Subsystem
          (6)       Reporting Subsystem
          (7)       Interface Subsystem
          (8)       TPR Subsystem

10.2      SYSTEM WIDE FUNCTIONS

          HMO MIS system must include functions and/or features which must

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          apply across all subsystems as follows:

          (1)       Able to update and edit data.
          (2)       Maintain a history of changes and adjustments and audit
                    trails for current and retroactive data. Audit trails will
                    capture date, time, and reasons for the change, as well as
                    who made the change.
          (3)       Allow input mechanisms through manual and electronic
                    transmissions.
          (4)       Have procedures and processes for accumulating, archiving,
                    and restoring data in the event of a system or subsystem
                    failure.
          (5)       Maintain automated or manual linkages between and among all
                    MIS subsystems and interfaces.
          (6)       Able to relate Member and provider data with utilization,
                    service, accounting data, and reporting functions.
          (7)       Able to relate and extract data elements into summary and
                    reporting formats as required by TDHS.
          (8)       Have written process and procedures manuals which document
                    and describe all manual and automated system procedures and
                    processes for all the above functions and features, and the
                    various subsystem components.
          (9)       Maintain and cross reference all Member-related information
                    with the most current Medicaid number.

10.3      ENROLLMENT/ELIGIBILITY SUBSYSTEM

          The Enrollment/Eligibility Subsystem is the central processing point
          for the entire MIS. It must be constructed and programmed to secure
          all functions which require membership data. It must have function
          and/or features which support requirements as follows:

          (1)       Identify other health coverage available or third party
                    liability (TPL), including type of coverage and effective
                    dates.
          (2)       Maintain historical data (files) as required by the State.
          (3)       Maintain data on enrollment/disenrollments and complaint
                    activities. This data must include reason or type of
                    disenrollment, complaint and resolution by incidence.
          (4)       Receive, translate, edit and update files in accordance with
                    TDHS requirements prior to inclusion in HMOs MIS. Updates
                    will be received from the TDHS agent and processed within
                    two business days of receipt.
          (5)       Provide error reports and a reconciliation process between
                    new data and data existing in MIS.
          (6)       Identify enrollee changes in PCP and the reason(s) for those
                    changes and effective dates.
          (7)       Monitor PCP capacity and limitations prior to connecting the
                    enrollee to PCP in the system, and provide an exception
                    report when capacity and limitations are exceeded.
          (8)       Verify enrollee eligibility for medical services rendered or
                    for other enrollee inquires.

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          (9)       Generate and track referrals, e.g.,
                    Hospitals/Specialists/Long Term Care Providers.

          (10)      Search records by a variety of fields (e.g., name, unique
                    identification numbers, date of birth, SSN, etc.) for
                    eligibility verification.

          (11)      Send PCP assignment updates to TDHS or its agent in the
                    format as specified by TDHS

10.4      PROVIDER SUBSYSTEM

          The provider subsystem must accept, process, store and retrieve
          current and historical data on providers, including services, payment
          methodology, license information, service capacity, and facility
          linkages.

          Functions and Features:

          (1)       Identify specialty(s), admission privileges, enrollee
                    linkage, capacity, facility linkages, emergency arrangements
                    or contact, and other limitations, affiliations, or
                    restrictions.

          (2)       Maintain provider history files to include audit trails and
                    effective dates of information.

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

          (4)       Support HMO credentialing, re-credentialing, and credential
                    tracking processes; incorporate or links information to
                    provider record.

          (5)       Support monitoring activity for physician to enrollee ratios
                    (actual to maximum) and total provider enrollment to
                    physician and HMO capacity.

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

          (7)       Support national provider number format (UPIN, NPIN, CLIA,
                    TPI, etc. as required by TDHS).

          (8)       Provide updated provider network files monthly. Format will
                    be provided by TDHS to contracted entities.

          (9)       Support the national CLIA certification numbers for clinical
                    laboratories.

          (10)      Exclude providers from participation that have been
                    identified by TDHS as ineligible or excluded. Files must be
                    updated to reflect period and reason for exclusion.

10.5      ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM

          The encounter/claims processing subsystem collects, processes, and
          stores data on all health services delivered for which HMO is
          responsible. The functions of these subsystems are claims/encounter
          processing and capturing health service utilization data. The
          subsystem captures all health related services, including medical
          supplies, using standard codes

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          (e.g. CPT-4, HCPCS, ICD9-CM, UB92 Revenue Codes, State Specific Code),
          rendered by health care providers to an eligible enrollee regardless
          of payment arrangement (e.g. capitation or fee-for-service). This
          subsystem captures long term care and value added services using codes
          provided by TDHS. It approves and prepares claims for payment, or
          denies claims submitted. This subsystem may integrate manual and
          automated systems to validate and adjudicate claims and encounters.
          HMO must use encounter data validation methodologies prescribed by the
          State.

          Functions and Features:

          (1)       Accommodate multiple input methods - electronic submission,
                    tape, claim document, and media.

          (2)       Support entry and capture of a minimum of all required data
                    elements specified in the Encounter Data Submission Manual.

          (3)       Edit and audit to ensure allowed services are provided by
                    eligible providers for eligible members.

          (4)       Interface with Member and provider subsystems.

          (5)       Capture and report TPL potential, reimbursement or denial.

          (6)       Edit for utilization and service criteria, medical policy,
                    fee schedules, multiple contracts, contract periods,
                    conditions, etc.

          (7)       Submit data to TDHS or its designee through electronic
                    transmission using specified formats.

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

          (9)       Provide timely, accurate, and complete data for monitoring
                    claims processing performance.

          (10)      Provide timely, accurate, and complete data for reporting
                    medical service utilization.

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

          (12)      Maintain and apply edits and audits to verify timely,
                    accurate, and complete encounter data reporting.

          (13)      Submit reimbursement to non-contracted providers for
                    emergency care rendered to enrollees in a timely and
                    accurate fashion.

          (14)      Validate approval and denials of precertification and prior
                    authorization requests during adjudication of
                    claims/encounters.

          (15)      Track and report the exact date a service was performed. Use
                    of date ranges must have TDHS approval.

          (16)      Receive and capture claim and encounter data from TDHS or
                    its designee.

          (17)      Receive and capture value-added services codes, (18)
                    Capability of identifying adjustments and linking them to
                    the original claims/encounters.

10.6      FINANCIAL SUBSYSTEM

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          The financial subsystem must provide the necessary data for all
          accounting functions including cost accounting, inventory, fixed
          assets, payroll, general ledger, accounts receivable and payable, and
          financial statement presentation. The financial subsystem must provide
          management with information that can demonstrate that HMO is meeting,
          exceeding, or falling short of fiscal goals. The information must also
          provide management with the necessary data to spot the early signs of
          fiscal distress, far enough in advance to allow management to take
          corrective action where appropriate.

          Functions and Features:

          (1)       Provide information on HMO's economic resources, assets, and
                    liabilities and present accurate historical data and
                    projections based on historical performance and current
                    assets and liabilities.

          (2)       Produce financial statements in conformity with Generally
                    Accepted Accounting Principles and in the format prescribed
                    by TDHS.

          (3)       Provide information on potential third party payers;
                    information specific to the client; claims made against
                    third party payers; collection amounts and dates; denials,
                    and reasons for denials.

          (4)       Track and report savings by category as a result of cost
                    avoidance activities.

          (5)       Track payments per Member made to network providers compared
                    to utilization of the provider's services.

          (6)       Generate Remittance and Status Reports.

          (7)       Make claim and capitation payments to providers or groups.

          (8)       Reduce/Increase accounts payable/receivable based on
                    adjustments to claims or recoveries of Third Party Recovery.

10.7      UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM

          The quality management/quality improvement/utilization review
          subsystem combines data from other subsystems, and/or external
          systems, to produce reports for analysis which focus on the review and
          assessment of quality of care given, detection of over and under
          utilization, and the development of user defined reporting criteria
          and standards. This system profiles utilization of providers and
          enrollees and compares them against experience and norms for
          comparable individuals. This subsystem also supports the quality
          assessment function.

          The subsystem tracks utilization control function(s) and monitoring
          inpatient admissions, emergency room use, ancillary, Long Term Care
          and out-of-area services. It provides provider profiles, occurrence
          reporting, monitoring and evaluation studies. The subsystem may
          integrate HMO's manual and automated processes or incorporate other
          software reporting and/or analysis programs.

          The subsystem incorporates and summarizes information from enrollee

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          surveys, provider and enrollee complaints, and appeal processes.

          Functions and Features:

          (1)       Support provider credentialing and recredentialing
                    activities.

          (2)       Support HMO processes to monitor and identify deviations in
                    patterns of treatment from established standards or norms.
                    Provides feedback information for monitoring progress toward
                    goals, identifying optimal practices, and promoting
                    continuous improvement.

          (3)       Support development of cost and utilization data by provider
                    and service.

          (4)       Provide aggregate performance and outcome measures using
                    standardized quality indicators similar to HEDIS or as
                    specified by TDHS.

          (5)       Supports focused quality of care studies.

          (6)       Support the management of referral/utilization control
                    processes and procedures, including prior authorization and
                    precertifications and denials of services.

          (7)       Monitor PCP referral patterns.

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

          (9)       Store and report patient satisfaction data through use of
                    enrollee surveys.

          (10)      provides fraud and abuse detection, monitoring and
                    reporting.

          (11)      Meet minimum reporting/data collection/analysis functions of
                    Section 7.5 of the RFA.

          (12)      Monitor and track provider and enrollee complaints and
                    appeals from receipt to disposition or resolution by
                    provider.

          (13)      TDHS will provide to HMO Social Security applied income
                    information for any Member residing in a Nursing Facility.
                    It is HMOs responsibility to manage applied income
                    appropriately with the nursing facility.

          (14)      HMO will ensure the accuracy of and electronically transmit
                    MDS-HC information on any Member living in the community and
                    receiving long term care services.

          (15)      HMO will ensure that the appropriate document, as specified
                    by TDHS, to determine medical necessity for nursing facility
                    level of care is transmitted to TDHS or its designee.

10.8      REPORT SUBSYSTEM

          The reporting subsystem supports reporting requirements of all HMO
          operations to HMO management and TDHS. It allows HMO to develop
          various reports to enable HMO management and TDHS to make decisions
          regarding HMO activity.

          Functions and Capabilities:

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          (1)       Produces standard, TDHS-required reports and ad hoc reports
                    from the data available in all MIS subsystems. All reports
                    will be submitted on hard copy or electronically in a format
                    approved by TDHS.

          (2)       Have system flexibility to permit the development of reports
                    at irregular periods as needed.

          (3)       Generate reports which provide unduplicated counts of
                    enrollees, providers, payments and units of service unless
                    otherwise specified.

          (4)       Generate an alphabetic Member listing.

          (5)       Generate a numeric Member listing.

          (6)       Generate a client eligibility listing by PCP (panel report).

          (7)       Report on PCP change by reason code.

          (8)       Report on TPL (COB) information to TDHS.

          (9)       Report on provider capacity and assignment from date of
                    service to date received.

          (10)      Generate an aged outstanding liability report.

          (11)      Produce a Member ID Card .

          (12)      Produce client/provider mailing labels.

10.9      DATA INTERFACE SUBSYSTEM

10.9.1    The interface subsystem supports incoming and outgoing data from and
          to other organizations. It allows HMO to maintain enrollee, benefit
          package, eligibility, disenrollment/enrollment status, and medical
          services received outside of capitated services and associated cost.
          All interfaces must follow the specifications frequencies and formats
          provided by the state and as amended.

10.9.2    HMO must obtain access to the TexMedNet BBS or other site. Some file
          transfers and E-mail will be handled through this mechanism.

10.9.3    Provider Network File - The provider file shall supply Network
          Provider data between HMO and TDHS and its designee. This process
          shall accomplish the following:

          (1)       Provide identifying information for all managed care
                    providers (e.g. name, address, etc...)

          (2)       Maintain history on provider enrollment/disenrollment

          (3)       Identify any restrictions (e.g, age, sex, etc.)

          (4)       Identify PCP capacity

          (5)       Identify number and types of specialty providers available
                    to Members.

10.9.4    Eligibility/Enrollment Interface - The enrollment interface must
          provide eligibility data between TDHS or its designee and HMO.

          (1)       Provides benefit package data to HMO in accordance with
                    capitated services.

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          (2)       Provides PCP assignments.
          (3)       Provides Member eligibility status data.
          (4)       Provides Member demographics data.
          (5)       Provides HMO with cross reference data to identify
                    duplicate Members.

10.9.5    Encounter/ClaimData Interface - The encounter/claim interface must
          transfer paid fee-for-service claims data to HMO and capitated
          services/encounters from HMO, including adjustments. This file will
          include all service types, such as, inpatient, outpatient, long term
          care services and medical services. The State or its designee will
          process claims for non-capitated services.

10.9.6    Capitation interface - The capitation interface must transfer premium
          and Member information to HMO. This interface's basic purpose is to
          balance HMO's Members and premium amount.

10.9.7    TPR Interface - TDHS will provide a data file that contains
          information on enrollees that have other insurance. Because Medicaid
          is the payor of last resort, all services and encounters should be
          billed to the other insurance companies for recovery. TDHS will also
          provide an insurance company data file which contains the name and
          address of each insurance company.

10.9.8    The State will provide a diagnosis file which will give the code and
          description of each diagnosis permitted by the State or its designee.

10.9.9    The State or its designee will provide a procedure file which contains
          the procedures which must be used on all claims and encounters. This
          file contains HCPCS, revenue, and ICD9-CM surgical procedure codes and
          codes specified by the state.

10.9.10   The State or its designee will provide a provider file which will
          contain the Medicaid provider numbers, name, and address of each
          Medicaid provider. The Medicaid number authorized by the State or its
          designee will be submitted on all claims, encounters, and network
          provider submissions.

10.10     TPR SUBSYSTEM

          HMO's third party recovery system must have the following capabilities
          and capacities:

          (1)       Identify, store, and use other health coverage available to
                    eligible Members or third party liability (TPL) including
                    type of coverage and effective dates.
          (2)       Provide changes in information to TDHS as specified by TDHS.
          (3)       Receive TPL data from TDHS to be used in claim and
                    encounter processing.

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10.11     YEAR 2000 COMPLIANCE

10.11.1   HMO must take all appropriate measures to make all software which will
          record, store, and process and present calendar dates falling on or
          after January 1, 2000, perform in the same manner and with the same
          functionality, data integrity and performance, as dates falling on or
          before December 31, 1999, at no added cost to TDHS. HMO must take all
          appropriate measures to ensure that the software will not lose, alter
          or destroy records containing dates falling on or after January 1,
          2000. HMO will ensure that all software will interface and operate
          with all TDHS, or its agent s, data systems which exchange data,
          including but not limited to historical and archived data. In
          addition, HMO guarantees that the year 2000 leap year calculations
          will be accommodated and will not result in software, firmware or
          hardware failures.

10.11.2   TDHS and all subcontracted entities are required by state and federal
          law to meet Y2K compliance standards. Failure of TDHS or TDHS
          contractor other than an HMO to meet Y2K compliance standards which
          results in an HMOs failure to meet the Y2K requirements of this
          contract is a defense against a declaration of default under this
          contract.

ARTICLE XI         QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.1      QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM

          HMO must develop, maintain, and operate a Quality Improvement Program
          (QIP) system which complies with federal regulations relating to
          Quality Assurance systems, found at 42 C.F.R. Section 434.34. The
          system must meet the Standards for Quality Improvement Programs
          contained in the Medicaid Managed Care (RFA) for Harris Service Area
          (pages 79-116 and 270-276).

11.2      WRITTEN QIP PLAN

          HMO must have ON FILE WITH TDHS an approved plan describing its
          Quality Improvement Plan (QIP), including how HMO will accomplish the
          activities pertaining to each Standard (I-XVI) in the Medicaid Managed
          Care (RFA) for Harris Service Area (pages 79-116 and 270-276).
          MODIFICATIONS AND AMENDMENTS MUST BE SUBMITTED TO TDHS NO LATER THAN
          60 DAYS PRIOR TO THE IMPLEMENTATION OF THE MODIFICATION OR AMENDMENT.

11.3      QIP SUBCONTRACTING

          If HMO subcontracts any of the essential functions or reporting
          requirements of QIP to another entity, HMO must MAINTAIN A FILE of the
          Subcontractors and a description of how the Subcontractor will meet
          the standards and reporting requirements of this contract. THE LIST
          MUST BE AVAILABLE FOR REVIEW BY TDHS OR ITS DESIGNEE UPON REQUEST. HMO
          must notify TDHS no later than

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          90 days prior to terminating any subcontract affecting a major
          performance function of this contract (see Article 3.2.1.2).

11.4      BEHAVIORAL HEALTH INTEGRATION INTO QIP

          HMO must integrate behavioral health into its QIP system and include a
          systematic and on-going process for monitoring, evaluating, and
          improving the quality and appropriateness of behavioral health
          services provided to Members. HMO's QIP must enable HMO to collect
          data, monitor and evaluate for improvements to physical health
          outcomes resulting from behavioral health integration into the overall
          care of the Member.

11.5      QIP REPORTING REQUIREMENTS

          The HMO must meet all of the QIP Reporting Requirements contained in
          Article XII.

ARTICLE XII            REPORTING REQUIREMENTS

12.1      FINANCIAL REPORTS

12.1.1    HMO must file the Managed Care Financial Statistical Report on a
          quarterly basis using the format prescribed by the State. The report
          must be submitted to the State 30 days after the end of each State
          Fiscal Quarter and must include complete financial and statistical
          information for each month.

12.1.2    HMO must file two annual Managed Care Financial Statistical Reports.
          The reports must be in the format prescribed by the State. The first
          annual report must reflect expenses incurred through the ninetieth
          (90th) day after the end of the contract year and must be filed on or
          before the one hundred and twentieth (120th) day after the end of the
          contract year. The second annual report must reflect data completed
          through the 334th day after the end of the contract year and must be
          filled on or before the 365th day following the end of the Contract
          year.

12.1.3    Administrative expenses must be reported in accordance with Attachment
          E, Cost Principles for Administrative Expenses. Indirect
          administrative expenses must be based on an allocation methodology for
          Medicaid managed care activities and services that is developed or
          approved by the State.

12.1.4    HMO must file a duplicate of HMO Annual Statement and Supplemental
          Exhibits required by the Texas Department of Insurance (TDI) within
          thirty (30) days after the TDI filing deadline.

12.1.5    On or before June 30 of each year, HMOs shall submit to the State a
          copy of the annual audited financial report filed with TDI.

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<PAGE>   95

12.1.6    HMO must file an updated Form HCFA-1513 regarding control, ownership,
          or affiliation of HMO thirty (30) days prior to the end of the
          contract year. An updated Form HCFA must also be filed within thirty
          (30) days of any change in control, ownership, or affiliation of HMO.

12.1.7    HMO must file an updated HCFA Public Health Service ("PHS") "Section
          1318 Financial Disclosure Report" within thirty (30) days of entering
          into, renewing, or terminating a relationship with an affiliated
          party.

12.1.8    TDI Examination Report. HMO must furnish a copy of any TDI Examination
          Report no later than 10 days after receipt of the final report from
          TDI.

12.1.9    IBNR Plan. HMO must furnish a written IBNR Plan to manage
          incurred-but-not-reported (IBNR) expenses, and a description of the
          method of insuring against insolvency, including information on all
          existing or proposed insurance policies. The plan must include the
          methodology for estimating IBNR. The plan and description must be
          submitted to the State no later than 60 days after the effective date
          of the contract unless previously submitted to the State. Changes to
          the IBNR plan and description must be submitted to the State no later
          than 30 days before changes to the plan are implemented by HMO.

12.1.10   HMO must file quarterly third party recovery (TPR) reports in
          accordance with a format developed by the State. TPR reports must
          include total dollars recovered from third party payers for services
          to HMOs Members for each month and the total dollars recovered through
          coordination of benefits, subrogation, and workers compensation.

12.1.11   Each report required under this section must be mailed to:

          Texas Department of Human Services (TDHS)
          Managed Care Section
          701 West 51st Street
          P.O. Box 149030, Mail Code W516
          Austin, Texas
          78714-9030

12.2      STATISTICAL REPORTS

12.2.1    HMO must electronically file the following monthly reports: (1)
          encounter; (2) encounter detail; (3) institutional; (4) institutional
          detail; and (5) claims detail for cost-reimbursed services filed, if
          any, with HMO. Encounter data must include the data elements, follow
          the format, and use the transmission method specified by the state in
          the Encounter Data Submission Manual. Encounters must be submitted by
          HMO to the State no later than 45 days after the date of adjudication
          (finalization) of the claims.

12.2.2    Monthly reports must include current months encounter data and
          encounter data adjustments to the previous months data.

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<PAGE>   96

12.2.3    Data quality standards will be developed jointly by HMO and the State.
          Encounter data must meet or exceed data quality standards. Data which
          does not meet quality standards must be corrected and returned within
          the period specified by the State. Original records must be made
          available to validate all encounter data.

12.2.4    HMO must require providers to submit claims and encounter data to HMO
          within ninety-five (95) days from the date services are provided.

12.2.5    HMO must use the procedure codes, diagnosis codes and other codes
          contained in the most recent edition of the Medicaid Provider
          Procedures Manual (and as otherwise provided by the State.) Exceptions
          or additional codes must be submitted for approval before HMO uses the
          codes.

12.2.6    HMO must use its State specified identification numbers on all
          encounter data submissions. Please refer to the Encounter Data
          Submission Manual for further specifications.

12.2.7    All Claims Summary Report. HMO must submit the "All Claims Summary
          Report identified in the Texas Managed Care Claims Manual as a
          contract year-to-date report. The report must be submitted quarterly
          by the last day of the month following the reporting period. The
          report must be submitted to TDHS in a format specified by TDHS.

12.2.8    HMO must validate all encounter data using the encounter data
          methodology prescribed by the State prior to submission of encounter
          data to the State.

12.2.9    HMO must file preliminary and final Medicaid Disproportionate Share
          Hospital (DSH) Reports, required by the State to identify and
          reimburse hospitals which qualify for Medicaid disproportionate share
          funds. The preliminary and final DSH reports must include the data
          elements and be submitted in the form and format specified by the
          State. The preliminary DSH reports are due on or before June 1 of the
          year following the State fiscal year for which data is being reported.
          The final DSH reports are due on or before August 15 of the year
          following the state fiscal year for which data is being reported.

12.3      ARBITRATION/LITIGATION CLAIMS REPORT

          HMO must submit an Arbitation/Litigation Claims Report in a format
          provided by the State identifying all provider or HMO request for
          arbitration or matters in Litigation. The report must be submitted:
          within 30 days from the date the matter is referred to arbitration; or
          suit is filed; or whenever there is a change of status in a matter
          referred to arbitration or litigation.

12.4      SUMMARY REPORT OF PROVIDER COMPLAINTS

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                                       90
<PAGE>   97

          HMO must submit a Summary Report of Provider Complaints. HMO must also
          report complaints submitted to its subcontracted risk groups (e.g.,
          IPAs). The complaint report must be submitted in two paper copies and
          one electronic copy on or before the 45 days following the end of the
          state fiscal quarter using a form specified by TDHS.

12.5      PROVIDER NETWORK REPORTS

12.5.1    Provider Network Report. HMO must submit to the Enrollment Broker an
          electronic file summarizing changes in HMO's provider network
          including PCPs, specialists, ancillary providers and hospitals. The
          file must indicate if the PCPs and specialists participate in a closed
          network and the name of the delegated network. The electronic file
          must be submitted in the format specified by the State and can be
          submitted as often as daily but must be submitted at least weekly.

12.5.2    Provider Termination Report. HMO must submit a monthly report which
          identifies any providers who cease to participate in HMO's provider
          network, either voluntarily or involuntarily. The report must be
          submitted to the State in the format specified by the State. HMO will
          submit the report no later than thirty (30) days after the end of the
          reporting month. The information must include the provider's name,
          Medicaid number, the reason for the provider's termination, and
          whether the termination was voluntary or involuntary.

12.6      MEMBER COMPLAINTS

          HMO must submit a quarterly summary report of Member complaints. HMO
          must also report complaints submitted to its subcontracted risk groups
          (e.g., IPAs). The complaint report format must be submitted to TDHS as
          two paper copies and one electronic copy on or before 45 days
          following the end of the state fiscal quarter using a form specified
          by TDHS.

12.7      FRAUDULENT PRACTICES

          HMO must report to TDHS all fraud and abuse enforcement actions or
          investigations taken against HMO and/or any of its Subcontractors or
          providers by any state or federal agency for fraud or abuse under
          Title XVIII or Title XIX of the Social Security Act or any state law
          or regulation and any basis upon which an action for fraud or abuse
          may be brought by a state or federal agency as soon as such
          information comes to the attention of HMO.

12.8      UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH

          HMO must submit Behavioral Health (BH) utilization management (UM)
          reports to TDHS or its designee semi-annually using a format and
          instructions provided by TDHS. HMO's UM data file (raw data) is due in
          a file format specified by TDHS quarterly (TDHS prefers and encourages

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                                       91
<PAGE>   98

          monthly submission of the data file to BBS). The semi-annual BH UM
          reports and quarterly data submission are due no later than 150 days
          following the reporting as specified by TDHS.

12.9      UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH

          Physical health (PH) utilization management reports are required on a
          semi-annual basis with submission of data files that are, at a
          minimum, due to TDHS or its designee on a quarterly basis no later
          than 150 days following the end of the period. The State will provide
          the standardized reporting format for each report and detailed
          instructions for obtaining specific data required in the report and
          for data file submission specifications. The PH Utilization Management
          Report and data file submission instructions may periodically be
          updated by TDHS to facilitate clear communication to the health plan.

12.10     UTILIZATION MANAGEMENT REPORTS - LONG TERM CARE

          Long Term Care (LTC) utilization management reports are required on a
          semi-annual basis with submission of data files that are, at a
          minimum, due to TDHS or its designee on a quarterly basis no later
          than 150 days following the end of the period. The State will provide
          the standardized reporting format for each report and detailed
          instructions for obtaining specific data required in the report and
          for data file submission specifications. The LTC Utilization
          Management Report and data file submission instructions may
          periodically be updated by TDHS to facilitate clear communication to
          the health plan.

12.11     QUALITY IMPROVEMENT REPORTS

12.11.1   The HMO must conduct at a minimum, three focused studies. One study
          will be specified by TDHS, the second will be selected by the HMO and
          approved by TDHS, and the third study will be a behavioral study
          specified by TDHS. These studies shall be conducted and data collected
          using criteria, methods and reporting format developed by the state.

12.11.2   Focused study reports must be submitted to the state according to due
          dates established by the State.

12.11.3   Annual QIP Summary Report. An annual QIP summary report must be
          conducted yearly. The annual QIP summary report must be submitted
          within 30 days after approved by HMO QIP committee. This report must
          provide summary information on HMOs QIP system and include the
          following:

          (1)       Executive summary of QIP-include results of all QI reports
                    and interventions.

          (2)       Activities pertaining to each standard in the Standards for
                    Quality Improvement Programs (pages 79-116 and pages
                    270-276) of the

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                                                                 August 11, 1999

                                       92
<PAGE>   99

                    Medicaid Managed Care Request for Application (RFA) for the
                    Harris Service Area.

          (3)       Methodologies for collecting, assessing data and measuring
                    outcomes.

          (4)       Tracking and monitoring quality of care.

          (5)       Role of health professionals in QIP review.

          (6)       Methodology for collection data and providing feedback to
                    providers and staff.

          (7)       Outcomes and/or action plan.

12.11.4   Provider Medical Record Audit and Report. HMO is required to conform
          to commonly accepted medical record standards such as those used by,
          NCQA, JCAHO, or those used for credentialing review such as the Texas
          Environment of Care Assessment Program (TECAP), and have documentation
          on file at HMO for review by the State or its designee during an
          on-site review.

12.12     HUB QUARTERLY REPORTS

          HMO must submit quarterly reports documenting HMOs HUB program efforts
          and accomplishments. The report must include a narrative description
          of HMOs program efforts and a financial report reflecting payments
          made to HUB. HMO must use the format included in Attachment B of this
          Contract for HUB quarterly reports.

12.13     THSTEPS REPORTS

          Minimum reporting requirements. HMO must submit, at a minimum, 80% of
          all THSteps checkups on HCFA 1500 claim forms as part of the encounter
          file submission to the State's Claims Administrator no later than
          thirty (30) days after the date of final adjudication (finalization)
          of the claims. Failure to comply with these minimum reporting
          requirements will result in Article XVIII sanctions and money damages.

ARTICLE XIII           PAYMENT PROVISIONS

13.1      CAPITATION AMOUNTS

13.1.1    TDHS will pay HMO monthly premiums calculated by multiplying the
          number of Member months by the Member risk group times the monthly
          capitation amount by Member risk group. HMO and network providers are
          prohibited from billing or collecting any amount from a Member except
          for costs for health care services or long term care services not
          covered by this Contract, in which case the Member must be informed of
          such costs prior to providing non-covered services.

13.1.2.   The capitation amount by Member risk group has been calculated to be
          less than the amount payable for providing the same services for an
          actuarially equivalent population in the regular Medicaid
          fee-for-service

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                                       93
<PAGE>   100

          program. The following capitation payments will be effective for the
          first year of this Contract. The monthly capitation amounts for the
          Harris County Service Area are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                 FY 2000
        Member Risk Groups                  Monthly Capitation
                                                  Amounts
                                            9/1/1999 - 8/31/2000
--------------------------------------------------------------------------------------
<S>                                            <C>
  CBA Waiver Clients-Dual Eligible               $1523.62
--------------------------------------------------------------------------------------
  CBA Waiver Clients-Medicaid Only               $3012.60
--------------------------------------------------------------------------------------
  Other Community Clients-Dual Eligible            $96.13
--------------------------------------------------------------------------------------
  Other Community Clients-Medicaid only           $597.34
--------------------------------------------------------------------------------------
  Nursing Facility Clients-Dual Eligible         $1819.89
--------------------------------------------------------------------------------------
  Nursing Facility Clients-Medicaid Only         $3327.78
--------------------------------------------------------------------------------------

</TABLE>

13.1.3    The monthly premium payments will be made to HMO not later than the
          tenth (10) state working day of the month for which premiums are made.
          HMO must accept payment for premiums by direct deposit into HMOs
          account.

13.1.4    Payment of monthly capitation amounts is subject to availability of
          appropriations. If appropriations are not available to pay the full
          monthly capitation amounts, TDHS will equitably adjust capitation
          amounts, for all participating HMOs, and reduce scope of service
          requirements as appropriate.

13.1.5    TDHS will re-examine the capitation rates paid to HMO under this
          contract during the first year of the contract period and will provide
          HMO with capitation rates for the second year of the contract period
          no later than 30 days before the date of the one-year anniversary of
          the contract's effective date. Capitation rates for state fiscal year
          2001 will be re-examined based on the most recent available
          traditional Medicaid cost data for the contracted risk groups in the
          service area, trended forward and discounted.

13.1.5.1  Once HMO has received their capitation rates established by TDHS for
          the second year of this contract, HMO may terminate this contract as
          provided in Article 18.1.6 of this contract.

13.1.6    For HMO members who upgrade to a higher risk group, the adjustment to
          the higher risk group will be delayed by 120 days as an incentive for
          the

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                                       94
<PAGE>   101

          HMO to maintain members at the least restrictive setting that meets
          the client's health and safety needs.

13.1.7    For SSI members that upgrade to CBA eligibility by for whom the
          annualized cost of the plan of care is less than $ 9,000, the risk
          group will remain at the Other Community Care level.

13.1.8    HMO renewal rates reflect program increases appropriated by the 76
          legislature for physician (to include THSteps providers) and
          outpatient facility services. HMO must report to TDHS any change in
          rates for participating physicians (to include THSteps providers) and
          outpatient facilities resulting from this increase. The report must be
          submitted to TDHS at the end of the first quarter of the FY2000 and
          FY2001 contract years according to the deliverables matrix scheduled
          set for HMO.

13.2      EXPERIENCE REBATE TO STATE

13.2.1    The HMO must pay to TDHS an experience rebate calculated in accordance
          with the tiered rebate method listed below based on the excess of
          allowable HMO STAR+PLUS revenues over allowable HMO STAR+PLUS expenses
          as measured by any positive amount on Line 8 of "Part 1: Financial
          Summary, All Coverage Groups Combined" of the final (Contract period)
          Managed Care Financial-Statistical Report as reviewed and confirmed by
          the State.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                     Graduated Rebate Method
------------------------------------------------------------------------------------------
Experience Rebate                        HMO Share                  State Share
as a Percentage of Revenues
------------------------------------------------------------------------------------------
<S>                                  <C>                      <C>
     0% - 3%                          100%                     0%
------------------------------------------------------------------------------------------
     Over 3% - 7%                     75%                      25%
------------------------------------------------------------------------------------------
     Over 7% - 10%                    50%                      50%
------------------------------------------------------------------------------------------
     Over 10% - 15%                   25%                      75%
------------------------------------------------------------------------------------------
     Over 15%                         0%                       100%
------------------------------------------------------------------------------------------
</TABLE>

13.2.2    Allowable start-up costs (pre-implementation costs) are costs incurred
          between the contract effective date and the implementation date as
          defined in the "Cost Principles for Administrative Expenses"
          (Attachment E).

13.2.3    Carry Forward of Prior Contract Period Losses: Losses incurred for one
          contract period can only be carried forward to the next contract
          period.

13.2.4    Experience rebate will be based on a pre-tax basis.

13.2.5    There will be two settlements for payment of the experience rebate.
          The first settlement shall equal 100 percent of the experience rebate
          as derived from Line 7 of Part 1 (Net Income Before Taxes) of the
          contract period Managed Care Financial Statistical (MCFS) Report and
          shall be paid on the same day the first contract period MCFS Report is
          submitted to TDHS. The second settlement shall be an adjustment to the
          first

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                                       95
<PAGE>   102

          settlement and shall be paid to TDHS on the same day that the second
          contract period MCFS Report is submitted to TDHS if the adjustment is
          a payment from HMO to TDHS. TDHS or its agent may audit or review the
          MCFS reports. If TDHS determines that corrections to the MCFS reports
          are required, based on a TDHS audit/review or other documentation
          acceptable to TDHS, to determine an adjustment to the amount of the
          second settlement, then final adjustment shall be made within two
          years from the date that the HMO submits the second contract period
          MCFS report. HMO must pay the first and second settlements on the due
          dates for the first and second MCFS reports respectively as identified
          in Article 12.1.3. TDHS may adjust the experience rebate if TDHS
          determines HMO has paid affiliates amounts for goods or services that
          are higher than the fair market value of the goods and services in the
          service area. Fair market value may be based on the amount HMO pays a
          non-affiliate(s) or the amount another HMO pays for the same or
          similar service in the service area. TDHS will have final authority in
          assessing the amount of the experience rebate.

13.3      ADJUSTMENTS TO PREMIUM

13.3.1    TDHS may recoup premiums paid to HMO in error. Error may be either
          human or machine error on the part of TDHS or an agent or contractor
          of TDHS. TDHS may recoup premiums paid to HMO if a Member is enrolled
          into HMO in error, and HMO provided no covered services to Member for
          the period of time for which premium was paid. If services were
          provided to Member as a result of the error, recoupment will not be
          made.

13.3.2    TDHS may recoup premium paid to HMO if a Member for whom premium is
          paid moves outside the United States, and the HMO has not provided
          covered services to the Member for the period of time for which
          premium has been paid. TDHS will not recoup premium if HMO has
          provided covered services to the Member during the period of time for
          which premium has been paid.

13.3.3    TDHS may recoup premium paid to HMO if a Member for whom premium is
          paid dies before the first day of the month for which premium is paid.

13.3.4    TDHS may recoup or adjust premium paid to HMO for a Member if the
          Members eligibility status or program type is changed, corrected as a
          result of error, or is retroactively adjusted.

13.3.5    Recoupment or adjustment of premium under 13.3.1 through 13.3.4 may be
          appealed using the TDHS dispute resolution process.

13.3.6    TDHS may adjust premiums for all Members within an eligibility status
          or program type if adjustment is required by reductions in
          appropriations or if a benefit or category of benefits is excluded or
          included as a covered service. Adjustment must be made by amendment as
          required by 15.2.2

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                                       96
<PAGE>   103

          Adjustment to premium under this subsection may not be appealed using
          the TDHS dispute process.

ARTICLE XIV            ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1      ELIGIBILITY DETERMINATION

14.1.1    DHS will identify Medicaid recipients who are eligible for
          participation in the STAR+PLUS program using the eligibility status
          described below.

14.1.2    MANDATORY - Individuals in the following must enroll in one of the
          STAR+PLUS HMOs providing services in the Service Area:

          SUPPLEMENTAL SECURITY INCOME (SSI) RECIPIENTS 21 AND OLDER SSI
          Eligible clients 21 and older living in the community, except for
          those individuals listed as "voluntary" or "non-participant."

          CLIENTS IN SOCIAL SECURITY (RSDI) EXCLUSIONS PROGRAMS Clients denied
          SSI because of specified increases (e.g., cost-of-living adjustments,
          etc.) in Social Security (RSDI or Title II) benefits.

          CLIENTS ENTERING TITLE-XIX NURSING FACILITIES (NFs)
          Clients entering Title-XIX NFs who qualify for nursing facility level
          of care, as determined by DHS after the date of implementation.

          COMMUNITY-BASED ALTERNATIVES (CBA) WAIVER CLIENTS Clients who qualify
          for nursing facility level of care, as determined by DHS, but who
          elect to receive services in the community.

          SPEND DOWN CLIENTS
          Adult Clients in nursing facilities who spend down to Medicaid
          eligibility (SSI/MAO) in less than twelve (12) months after date of
          implementation and qualify for nursing facility level of care as
          determined by DHS.

14.1.3    VOLUNTARY - The following individuals are not required to enroll in a
          STAR+PLUS HMO, but have the option to enroll in an HMO. HMO will be
          required to accept enrollment of any clients in these groups who elect
          to enroll:

          SSI ELIGIBLE CHILDREN
          SSI eligible children under age 21 may choose two types of managed
          care models (HMO or PCCM).

          SSI ELIGIBLE CLIENTS WITH SEVERE AND PERSISTENT MENTAL ILLNESS AND
          CHILDREN/ADOLESCENTS WITH SERIOUS EMOTIONAL DISTURBANCE (SED)
          SSI eligible clients with severe and persistent mental illness and
          children/adolescents with SEA who are receiving Medicaid- funded

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                                       97
<PAGE>   104

          rehabilitation services through the local mental health authority may
          choose two types of Managed Care models (HMO or PCCM).

          MEDICAID RECIPIENTS IN NURSING FACILITIES (NFs) ON DATE OF
          IMPLEMENTATION
          Individuals eligible for SSI/MAO and residing in NFs on
          date of implementation.

          SPEND DOWN NF RESIDENTS WHO SPEND DOWN RESOURCES AFTER TWELVE (12)
          MONTHS IN NF
               Individuals residing in NFs who spend down to MAO after twelve
               (12) months or more in the NF.

14.1.4    NON-PARTICIPANTS - The following individuals are not affected by
          STAR+PLUS and will not be included in the project:

          COMMUNITY LIVING ASSISTANCE AND SUPPORT SERVICES (CLASS) WAIVER
          CLIENTS
          Individuals receiving CLASS waiver services.

          MEDICALLY DEPENDENT CHILDREN'S WAIVER PROGRAM (MDCP) CLIENTS
          Individuals receiving MDCP waiver services.

          HOME AND COMMUNITY SERVICES (HAS and HAS-O) WAIVER CLIENTS
          Individuals receiving HAS services.

          DEAF-BLIND MULTIPLE DISABLED (DBMD) WAIVER CLIENTS
          Individuals receiving DBMD services.

          HOSPICE - Individuals who exercise their option to participate in a
          Hospice program.

14.2      ENROLLMENT

14.2.1    TDHS has the right and responsibility to enroll and disenroll eligible
          individuals into the STAR+PLUS program. HMO must accept all persons
          who chose to enroll as Members in HMO, without regard to the Members
          health status or any other factor.

14.2.2    All enrollments are subject to the accessibility and availability
          limitations and restrictions contained in the Section 1915(b) Waiver
          obtained by TDHS. TDHS has the authority to limit enrollment into HMO
          if the number and distance limitations are exceeded.

14.2.3    TDHS makes no guarantees or representations to HMO regarding the
          number of eligible Medicaid recipients who will ultimately be enrolled
          as STAR+PLUS Members of HMO.

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<PAGE>   105

14.2.4    HMO must cooperate and participate in all TDHS sponsored and announced
          enrollment activities. HMO must have a representative at all TDHS
          enrollment activities unless an exception is given by TDHS. HMOs
          representative must comply with HMOs cultural and linguistic
          competency plan (see Cultural and Linguistic in section 8.8 of this
          Contract). HMO must provide marketing materials, HMO pamphlets, Member
          handbooks, a list of network providers, HMOs linguistic and cultural
          capabilities and other information requested or required by TDHS or
          its Contract administrator to assist potential Members in making
          informed choices.

14.2.5    TDHS will provide HMO with at least ten (10) days written notice of
          all TDHS planned activities. Failure to participate in, or send a HMO
          representative to a TDHS sponsored enrollment activity is a default of
          the terms of the Contract. Default may be excused if HMO can show that
          TDHS failed to provided the required notice, or if HMOs absence is
          excused by TDHS.

14.3      PLAN CHANGES FROM HMO AND DISENROLLMENT FROM MANAGED CARE

14.3.1    Members have a right to change HMOs at any time.

14.3.2    TDHS is responsible for disenrolling the Member from HMO. If a
          disenrollment request is received before the 15th of the month,
          disenrollment is effective on the first day of the next month. If a
          disenrollment request is received after the fifteenth (15) of the
          month, disenrollment will be effective the 1st day of the month
          following the next month.

14.3.3    HMO has a limited right to request a Member be disenrolled from HMO
          without the Members consent. Disenrollment of a Member may be
          permitted under the following circumstances:

          (1)       disruptive behavior at HMOs facility or a network providers
                    office, unrelated to a physical or behavioral health
                    condition;

          (2)       loaning or allowing another person to use HMOs Membership
                    card; or

          (3)       other circumstances approved by TDHS justifying
                    disenrollment.

14.3.4    HMO must take reasonable measures to work with the Member to
          ameliorate the situation prior to requesting disenrollment. Reasonable
          measures may include providing education and counseling regarding the
          offensive acts or behaviors.

14.3.5    HMO must notify the Member of HMOs decision to disenroll the Member if
          all reasonable measures have failed to remedy the problem.

14.3.6    If the Member disagrees with HMOs decision, HMO must notify the Member
          of the availability of the complaint procedure and the TDHS Fair
          Hearing process.

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                                       99
<PAGE>   106

14.3.7    HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
          MEMBER[ ]S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE
          MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER[ ]S CONDITION.

14.3.8    Members may not be disenrolled solely because of a disability or
          chronic or complex condition.

14.4      AUTOMATIC RE-ENROLLMENT

14.4.1    Members who are disenrolled because they are temporarily ineligible
          for Medicaid will be automatically re-enrolled into the same health
          plan. Temporary loss of eligibility is defined as a period of 6 months
          or less.

14.4.2    HMO must inform its Members of the automatic re-enrollment procedure.
          Automatic re-enrollment must be included in the Member Handbook (See
          Article 8.2.1).

14.5.     ENROLLMENT REPORTS

14.5.1    TDHS will provide monthly HMO Enrollment Reports to HMO on or before
          the first of the month.

ARTICLE XV             GENERAL PROVISIONS

15.1      INDEPENDENT CONTRACTOR

          HMO, its agents, employees, network providers, and Subcontractors are
          independent contractors and do not perform services under this
          contract as employees or agents of TDHS. HMO is given express, limited
          authority to exercise the State's right of recovery as provided in
          Article 4.9.

15.2      AMENDMENT

15.2.1    This contract must be amended by TDHS if amendment is required to
          comply with changes in state or federal laws, rules, or regulations.

15.2.2    TDHS and HMO may amend this contract if reductions in funding or
          appropriations make full performance by either party impracticable or
          impossible, and amendment could provide a reasonable alternative to
          termination. If HMO does not agree to the amendment, contract may be
          terminated under Article XVIII.

15.2.3    This contract must be amended if either party discovers a material
          omission of a negotiated or required term, which is essential to the
          successful performance or maintaining compliance with the terms of the
          contract. The party discovering the omission must notify the other
          party of the omission in writing as soon as possible after discovery.
          If there is a

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          disagreement regarding whether the omission was intended to be a term
          of the contract, the parties must submit the dispute to dispute
          resolution under Article 15.8 of this contract.

15.2.4    This contract may be amended by mutual agreement at any time.

15.2.5    All amendments to this contract must be in writing and signed by both
          parties.

15.2.6    No agreement shall be used to amend this contract unless it is made a
          part of this contract by specific reference, and is numbered
          sequentially by order of its adoption.

15.3      LAW, JURISDICTION AND VENUE

          Venue and jurisdiction shall be in the state and federal district
          courts of Travis County, Texas. The laws of the State of Texas shall
          be applied in all matters of state law.

15.4      NON-WAIVER

          Failure to enforce any provision or breach shall not be taken by
          either party as a waiver of the right to enforce the provision or
          breach in the future.

15.5      SEVERABILITY

          Any part of this contract which is found to be unenforceable, invalid,
          void, or illegal shall be severed from the contract. The remainder of
          the contract shall be effective.

15.6      ASSIGNMENT

          This contract was awarded to HMO based on HMO s qualifications to
          perform personal and professional services. HMO cannot assign this
          contract without the written consent of TDI and TDHS. This provision
          does not prevent HMO from subcontracting duties and responsibilities
          to qualified Subcontractors. If TDI and TDHS consent to an assignment
          of this contract, a transition period of 90 days will run from the
          date the assignment is approved by TDI and TDHS so that Members'
          services are not interrupted and, if necessary, the notice provided
          for in Section 15.7 can be sent to Members. The assigning HMO must
          also submit a transition plan, as set out in Section 18.2.1, subject
          to TDHS approval.

15.7      MAJOR CHANGE IN CONTRACTING

          TDHS may send notice to Members when a major change affecting HMO
          occurs. A "major change" includes, but is not limited to, a
          substantial change of subcontractors and assignment of this contract.
          The notice

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          letter to Members may permit the Members to re-select their plan and
          PCP. TDHS will bear the cost of preparing and sending the notice
          letter.

15.8      NON-EXCLUSIVE

          This contract is a non-exclusive agreement. Either party may contract
          with other entities for similar services in the same service area.

15.9      DISPUTE RESOLUTION

          All disputes arising under this contract shall be resolved through
          TDHS' dispute resolution procedures, except where a remedy is provided
          for through TDHS' administrative rules or processes. All
          administrative remedies must be exhausted prior to other methods of
          dispute resolution.

15.10     DOCUMENTS CONSTITUTING CONTRACT

          This contract includes this document and all amendments and appendices
          to this document, the Request for Application, the Application
          submitted in response to the Request for Application, the Texas
          Medicaid Provider Procedures Manual and Texas Medicaid Bulletins
          addressed to HMOs, contract interpretation memoranda issued by TDHS
          for this contract, and the federal waiver granting TDHS authority to
          contract with HMO. If any conflict in provisions between these
          documents occurs, the terms of this contract and any amendments shall
          prevail. The documents listed above constitute the entire contract
          between the parties.

15.11     FORCE MAJEURE

          TDHS and HMO are excused from performing the duties and obligations
          under this contract for any period that they are prevented from
          performing their services as a result of a catastrophic occurrence, or
          natural disaster, clearly beyond the control of either party,
          including but not limited to an act of war, but excluding labor
          disputes.

15.12     NOTICES

          Notice may be given by any means which provides for verification of
          receipt. All notices to TDHS shall be addressed to Bureau Chief, Texas
          Department of Health, Bureau of Managed Care, 1100 W. 49th Street,
          Austin, TX 78756-3168, with a copy to the Contract Administrator.
          Notices to HMO shall be addressed to President/CEO,
                    James D. Donovan, Jr.
                    2730 N. Stemmons Freeway, Suite 608 West Tower
                    Dallas, TX 75207

15.13     SURVIVAL

          The provisions of this contract which relate to the obligations of HMO
          to maintain records and reports shall survive the expiration or
          earlier

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          termination of this contract for a period not to exceed six (6) years
          unless another period may be required by record retention policies of
          the State of Texas or HCFA.

ARTICLE XVI            DEFAULT AND REMEDIES

16.1      DEFAULT BY TDHS

16.1.1    FAILURE TO MAKE CAPITATION PAYMENTS

          Failure by TDHS to make capitation payments when due is a default
          under this contract.

16.1.2    FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES

          Failure by TDHS to perform a material duty or responsibility as set
          out in this contract is a default under this contract.

16.2      REMEDIES AVAILABLE TO HMO FOR TDHS DEFAULT

          HMO may terminate this contract as set out in Article 18.1.5 of this
          contract if TDHS commits either of the events of default set out in
          Article 16.1.

16.3      DEFAULT BY HMO

16.3.1    FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION

          Failure of HMO to perform an administrative function is a default
          under this contract. Administrative functions are any requirements
          under this contract that are not direct delivery of health care
          services, including claims payment; encounter data submission; filing
          any report when due; cooperating in good faith with TDHS, an entity
          acting on behalf of TDHS, or an agency authorized by statute or law to
          require the cooperation of HMO in carrying out an administrative,
          investigative, or prosecutorial function of the Medicaid program;
          providing or producing records upon request; or entering into
          contracts or implementing procedures necessary to carry out contract
          obligations.

16.3.1.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to perform an administrative function under this
          contract, TDHS may:

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          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3;

          -         Assess liquidated money damages as set out in Article 18.4;
                    and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.2    ADVERSE ACTION AGAINST HMO BY TDI

          Termination or suspension of HMO's TDI Certificate of Authority or any
          adverse action taken by TDI that TDHS determines will affect the
          ability of HMO to provide health care services to Members is a default
          under this contract.

16.3.2.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For an adverse action against HMO by TDI, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.3    INSOLVENCY

          Failure of HMO to comply with state and federal solvency standards or
          incapacity of HMO to meet its financial obligations as they come due
          is a default under this contract.

16.1.1.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's insolvency, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

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16.3.4    FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS

          Failure of HMO to comply with the federal requirements for Medicaid,
          including, but not limited to, federal law regarding
          misrepresentation, fraud, or abuse; and, by incorporation, Medicare
          standards, requirements, or prohibitions, is a default under this
          contract.

          The following events are defaults under this contract pursuant to 42
          U.S.C. "1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1  HMO's substantial failure to provide medically necessary items and
          services that are required under this contract to be provided to
          Members;

16.3.4.2  HMO's imposition of premiums or charges on Members in excess of the
          premiums or charge permitted by federal law;

16.3.4.3  HMO's acting to discriminate among Members on the basis of their
          health status or requirements for health care services, including
          expulsion or refusal to enroll an individual, except as permitted by
          federal law, or engaging in any practice that would reasonably be
          expected to have the effect of denying or discouraging enrollment with
          HMO by eligible individuals whose medical condition or history
          indicates a need for substantial future medical services;

16.3.4.4  HMO's misrepresentation or falsification of information that is
          furnished to HCFA, TDHS, a Member, a potential Member, or a health
          care provider;

16.3.4.5  HMO's failure to comply with the physician incentive requirements
          under 42 U.S.C. '1396b(m)(2)(A)(x); or

16.3.4.6  HMO's distribution, either directly or through any agent or
          independent contractor, of marketing materials that contain false or
          misleading information, excluding materials prior approved by TDHS.

16.3.5    REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. If HMO repeatedly fails to
          meet the requirements of Articles 16.3.4.1 through and including
          16.3.4.6, TDHS must, regardless of what other sanctions are provided,
          appoint temporary management and permit Members to disenroll without
          cause. Exercise of any remedy in whole or in part does not limit TDHS
          in exercising all or part of any remaining remedies.

          For HMO's failure to comply with federal laws and regulations, TDHS
          may:

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          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3;

          -         Appoint temporary management as set out in Article 18.5;

          -         Initiate disenrollment of a Member of Members without cause
                    as set out in Article 18.6;

          -         Suspend or default all enrollment of individuals;

          -         Suspend payment to HMO;

          -         Recommend to HCFA that sanctions be taken against HMO as set
                    out in Article 18.7;

          -         Assess civil monetary penalties as set out in Article 18.8;
                    and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.6    FAILURE TO COMPLY WITH APPLICABLE STATE LAW

          HMO's failure to comply with Texas law applicable to Medicaid,
          including, but not limited to, Article 32.039 of the Texas Human
          Resources Code and state law regarding misrepresentation, fraud, or
          abuse, is a default under this contract.

16.3.6.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to comply with applicable state law, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3;

          -         Assess administrative penalties as set out in Article
                    32.039, Government Code, with the opportunity for notice and
                    appeal as required by Article 32.039; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.7    MISREPRESENTATION OR FRAUD UNDER ARTICLE 4.8

          HMO's misrepresentation or fraud under Article 4.8 of this contract is
          a default under this contract.

16.3.7.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

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          For HMO's misrepresentation or fraud under Article 4.8, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         P Suspend new enrollment as set out in Article 18.3; and/or

          -         P Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.8    EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID

16.3.8.1  Exclusion of HMO or any of the managing employees or persons with an
          ownership interest whose disclosure is required by '1124(a) of the
          Social Security Act (the Act) from the Medicaid or Medicare program
          under the provisions of '1128(a) and/or (b) of the Act is a default
          under this contract.

16.3.8.2  Exclusion of any provider or subcontractor or any of the managing
          employees or persons with an ownership interest of the provider or
          subcontractor whose disclosure is required by '1124(a) of the Social
          Security Act (the Act) from the Medicaid or Medicare program under the
          provisions of '1128(a) and/or (b) of the Act is a default under this
          contract if the exclusion will materially affect HMO's performance
          under this contract.

16.3.8.3  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's exclusion from Medicare or Medicaid, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.9    FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS

          HMO's failure to make timely and appropriate payments to network
          providers and subcontractors is a default under this contract.
          Withholding or recouping capitation payments as allowed or required
          under other articles of this contract is not a default under this
          contract.

16.3.9.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

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          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to make timely and appropriate payments to network
          providers and subcontractors, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3;

          -         Assess liquidated money damages as set out in Article
                    18.4; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.10   FAILURE TO TIMELY ADJUDICATE CLAIMS

          Failure of HMO to adjudicate (paid, denied, or external pended) at
          least ninety (90%) of all claims within thirty (30) days of receipt
          and ninety-nine percent (99%) of all claims within ninety days of
          receipt for the contract year is a default under this contract.

16.3.10.1 REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consequently. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to timely adjudicate claims, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.11   FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS

          Failure to pass any of the mandatory system or delivery functions of
          the Readiness Review required in Article I of this contract is a
          default under the contract.

16.3.11.1 REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised

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          concurrently or consecutively. Exercise of any remedy in whole or in
          part does not limit TDHS in exercising all or part of any remaining
          remedies.

          For HMO's failure to demonstrate the ability to perform contract
          functions, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.12   FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
          NETWORK PROVIDERS

16.3.12.1 Failure of HMO to audit, monitor, supervise, or enforce functions
          delegated by contract to another entity that results in a default
          under this contract or constitutes a violation of state or federal
          laws, rules, or regulations is a default under this contract.

16.3.12.2 Failure of HMO to properly credential its providers, conduct
          reasonable utilization review, or conduct quality monitoring is a
          default under this contract.

16.3.12.3 Failure of HMO to require providers and contractors to provide timely
          and accurate encounter, financial, statistical, and utilization data
          is a default under this contract.

16.3.12.4 REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to monitor and/or supervise activities of
          contractors or network providers, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.13   PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY

          HMO's placing the health and safety of the Members in jeopardy is a
          default under this contract.

16.3.13.1 REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

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          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's placing the health and safety of Members in jeopardy, TDHS
          may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.14   FAILURE TO MEET ESTABLISHED BENCHMARK

          Failure of HMO to meet any benchmark established by TDHS under this
          contract is a default under this contract.

16.3.14.1 REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to meet any benchmark established by TDHS under this
          contract, TDHS may:

          -         Remove the THSteps component from the capitation paid to HMO
                    if the benchmark(s) missed is for THSteps;

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3;

          -         Assess liquidated money damages as set out in Article
                    18.4; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

ARTICLE XVII           NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1      TDHS will provide HMO with written notice of default (Notice of
          Default) under this contract. The Notice of Default may be given by
          any means that provides verification of receipt. The Notice of Default
          must contain the following information:

17.1.1    A clear and concise statement of the circumstances or conditions that
          constitute a default under this contract;

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17.1.2    The contract provision(s) under which default is being declared;

17.1.3    A clear and concise statement of how and/or whether the default may be
          cured;

17.1.4    A clear and concise statement of the time period during which the HMO
          may cure the default if HMO is allowed to cure;

17.1.5    The remedy or remedies TDHS is electing to pursue and when the remedy
          or remedies will take effect;

17.1.6    If TDHS is electing to impose money damages and/or civil monetary
          penalties, the amount that TDHS intends to withhold or impose and the
          factual basis on which TDHS is imposing the chosen remedy or remedies;

17.1.7    Whether any part of money damages or civil monetary penalties, if TDHS
          elects to pursue one or both of those remedies, may be passed through
          to an individual or entity who is or may be responsible for the act or
          omission for which default is declared;

17.1.8    Whether failure to cure the default within the given time period, if
          any, will result in TDHS pursuing an additional remedy or remedies,
          including, but not limited to, additional damages or sanctions,
          referral for investigation or action by another agency, and/or
          termination of the contract

ARTICLE XVIII          EXPLANATION OF REMEDIES

18.1      TERMINATION

18.1.1    TERMINATION BY TDHS

18.1.1    TDHS may terminate this contract if:

18.1.1.1  HMO substantially fails or refuses to provide medically necessary
          services and items that are required under this contract to be
          provided to Members after notice and opportunity to cure;

18.1.1.2  HMO substantially fails or refuses to perform administrative functions
          under this contract after notice and opportunity to cure;

18.1.1.3  HMO materially defaults under any of the provisions of Article XVI;

18.1.1.4  Federal or state funds for the Medicaid program are no longer
          available; or

18.1.1.5  TDHS has a reasonable belief that HMO has placed the health or welfare
          of Members in jeopardy.

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18.1.2    TDHS must give HMO 90 days written notice of intent to terminate this
          contract if termination is the result of HMO's substantial failure or
          refusal to perform administrative functions or a material default
          under any of the provisions of Article XVI. TDHS must give HMO
          reasonable notice under the circumstances if termination is the result
          of federal or state funds for the Medicaid program no longer being
          available. TDHS must give the notice required under TDHS formal
          hearing procedures set out in Section 1.21 in Title 25 of the Texas
          Administrative Code if termination is the result of HMO's substantial
          failure or refusal to provide medically necessary services and items
          that are required under the contract to be provided to Members or
          TDHS' reasonable belief that HMO has placed the health or welfare of
          Members in jeopardy.

18.1.2.1  Notice may be given by any means that gives verification of receipt.

18.1.2.2  Unless termination is the result of HMO's substantial failure or
          refusal to provide medically necessary services and items that are
          required under this contract to be provided to Members or is the
          result of TDHS' reasonable belief that HMO has placed the health or
          welfare of Members in jeopardy, the termination date is 90 days
          following the date that HMO receives the notice of intent to
          terminate. For HMO's substantial failure or refusal to provide
          services and items, HMO is entitled to request a pre-termination
          hearing under TDHS' formal hearing procedures set out in Section 1.21
          of Title 25, Texas Administrative Code.

18.1.3    TDHS may, for termination for HMO's substantial failure or refusal to
          provide medically necessary services and items, notify HMO's Members
          of any hearing requested by HMO and permit Members to disenroll
          immediately without cause. Additionally, if TDHS terminates for this
          reason, TDHS may enroll HMO's Members with another HMO or permit the
          HMO's Members to receive Medicaid-covered services other than from an
          HMO.

18.1.4    HMO must continue to perform services under the transition plan
          described in Article 18.2.1 until the last day of the month following
          90 days from the date of receipt of notice if the termination is for
          any reason other than TDHS' reasonable belief that HMO is placing the
          health and safety of the Members in jeopardy. If termination is due to
          this reason, TDHS may prohibit HMO's further performance of services
          under the contract.

18.1.5    If the state terminates this contract, HMO may appeal the termination
          under 32.034, Texas Human Resources Code.

18.1.6    TERMINATION BY HMO

          HMO may terminate this contract if TDHS fails to pay HMO as required
          under Article XIII of this contract or otherwise materially defaults
          in its duties and responsibilities under this contract, or by giving
          notice no later than 30 days after receiving the capitation rates for
          the second contract year. Retaining premium, recoupment, sanctions, or
          penalties that are allowed under this contract or that result from
          HMO's failure to perform or

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                                      112
<PAGE>   119

          HMO's default under the terms of this contract is not cause for
          termination.

18.7.1    HMO must give TDHS 90 days written notice of intent to terminate this
          contract. Notice may be given by any means that gives verification of
          receipt. The termination date will be calculated as the last day of
          the month following 90 days from the date the notice of intent to
          terminate is received by TDHS.

18.1.8    TDHS must be given 30 days from the date TDHS receives HMO's written
          notice of intent to terminate for failure to pay HMO to pay all
          amounts due. If TDHS pays all amounts then due within this 30-day
          period, HMO cannot terminate the contract under this article for that
          reason.

18.1.9    TERMINATION BY MUTUAL CONSENT

          This contract may be terminated at any time by mutual consent of both
          HMO and TDHS.

18.2      DUTIES OF CONTRACTING PARTIES UPON TERMINATION

          When termination of the contract occurs, TDHS and HMO must meet the
          following obligations:

18.2.1    TDHS and HMO must prepare a transition plan, which is acceptable to
          and approved by TDHS, to ensure that Members are reassigned to other
          health plans without interruption of services. That transition plan
          will be implemented during the 90-day period between receipt of notice
          and the termination date unless termination is the result of TDHS'
          reasonable belief that HMO is placing the health or welfare of Members
          in jeopardy.

18.2.2    If the contract is terminated by TDHS for any reason other than
          federal or state funds for the Medicaid program no longer being
          available or if HMO terminates the contract based on lower capitation
          rates for the second contract year as set out in Article 13.1.2:

18.2.2.1  TDHS is responsible for notifying all Members of the date of
          termination and how Members can continue to receive contract services;

18.2.2.2  HMO is responsible for all expenses related to giving notice to
          Members; and

18.2.2.3  HMO is responsible for all expenses incurred by TDHS in implementing
          the transition plan.

18.2.3    If the contract is terminated by HMO for any reason other than based
          on lower capitation rates for the second contract year as set out in
          Article 13.1.2:

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                                      113
<PAGE>   120

18.2.3.1  TDHS is responsible for notifying all Members of the date of
          termination and how Members can continue to receive contract services;

18.2.3.2  TDHS is responsible for all expenses related to giving notice to
          Members; and

18.2.3.3  TDHS is responsible for all expenses it incurs in implementing the
          transition plan.

18.2.4    If the contract is terminated by mutual consent:

18.2.4.1  TDHS is responsible for notifying all Members of the date of
          termination and how Members can continue to receive contract services;

18.2.4.2  HMO is responsible for all expenses related to giving notice to
          Members; and

18.2.4.3  TDHS is responsible for all expenses it incurs in implementing the
          transition plan.

18.3      SUSPENSION OF NEW ENROLLMENT

18.3.1    TDHS must give HMO 30 days notice of intent to suspend new enrollment
          in the Notice of Default other than for default for fraud and abuse or
          imminent danger to the health or safety of Members. The suspension
          date will be calculated as 30 days following the date that HMO
          receives the Notice of Default.

18.3.2    TDHS may immediately suspend new enrollment into HMO for a default
          declared as a result of fraud and abuse or imminent danger to the
          health and safety of Members.

18.3.3    The suspension of new enrollment may be for any duration, up to the
          termination date of the contract. TDHS will base the duration of the
          suspension upon the type and severity of the default and HMO's
          ability, if any, to cure the default.

18.4.     LIQUIDATED MONEY DAMAGES

18.4.1    The measure of damages in the event that HMO fails to perform its
          obligations under this contract may be difficult or impossible to
          calculate or quantify. Therefore, should HMO fail to perform in
          accordance with the terms and conditions of this contract, TDHS may
          require HMO to pay sums as specified below as liquidated damages. The
          liquidated damages set out in this Article are not intended to be in
          the nature of a penalty but are intended to be reasonable estimates of
          TDHS' financial loss and damage resulting from HMO's non-performance.

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                                      114
<PAGE>   121

18.4.2    TDHS imposes money damages, TDHS may collect those damages by reducing
          the amount of any monthly premium payments otherwise due to HMO by the
          amount of the damages. Money damages that are withheld from monthly
          premium payments are forfeited and will not be subsequently paid to
          HMO upon compliance or cure of default unless a determination is made
          after appeal that the damages should not have been imposed.

18.4.3    Failure to file or filing incomplete or inaccurate annual, semi-annual
          or quarterly reports may result in money damages of not more than
          $11,000.00 for every month from the month the report is due until
          submitted in the form and format required by TDHS. These money damages
          apply separately to each report.

18.4.4    Failure to produce or provide records and information requested by
          TDHS, an entity acting on behalf of TDHS, or an agency authorized by
          statute or law to require production of records at the time and place
          the records were required or requested may result in money damages of
          not more than $5,000.00 per day for each day the records are not
          produced as required by the requesting entity or agency if the
          requesting entity or agency is conducting an investigation or audit
          relating to fraud or abuse, and not more than $1,000.00 per day for
          each day records are not produced if the requesting entity or agency
          is conducting routine audits or monitoring activities.

18.4.5    Failure to file or filing incomplete or inaccurate encounter data may
          result in money damages of not more than $25,000 for each month HMO
          fails to submit encounter data in the form and format required by
          TDHS. TDHS will use the encounter data validation methodology
          established by TDHS to determine the number of encounter data and the
          number of months for which damages will be assessed.

18.4.6    Failing or refusing to cooperate with TDHS, an entity acting on behalf
          of TDHS, or an agency authorized by statute or law to require the
          cooperation of HMO in carrying out an administrative, investigative,
          or prosecutorial function of the Medicaid program may result in money
          damages of not more than $8,000.00 per day for each day HMO fails to
          cooperate.

18.4.7    Failure to enter into a required or mandatory contract or failure to
          contract for or arrange to have all services required under this
          contract provided may result in money damages of not more than
          $1,000.00 per day that HMO either fails to negotiate in good faith to
          enter into the required contract or fails to arrange to have required
          services delivered.

18.4.8    Failure to meet the benchmark for benchmarked services under this
          contract may result in money damages of not more than $25,000 for each
          month that HMO fails to meet the established benchmark.

                                                               TDHS/HMO CONTRACT
                                                                 August 11, 1999

                                      115
<PAGE>   122

18.4.9    TDHS may also impose money damages for a default under Article
          16.3.11, Failure to Make Payments to Network Providers and
          Subcontractors, of this contract. These money damages are in addition
          to the interest HMO is required to pay to providers under the
          provisions of Article 7.3.8.10 of this contract.

18.4.9.1  If TDHS determines that HMO has failed to pay a provider for a claim
          or claims for which the provider should have been paid, TDHS may
          impose money damages of $2 per day for each day the claim is not paid
          from the date the claim should have been paid (calculated as 30 days
          from the date a clean claim was received by HMO) until the claim is
          paid by HMO.

18.4.9.2  If TDHS determines that HMO has failed to pay a capitation amount to a
          provider who has contracted with HMO to provide services on a
          capitated basis, TDHS may impose money damages of $10 per day, per
          Member for whom the capitation is not paid, from the date on which the
          payment was due until the capitation amount is paid.

18.5      APPOINTMENT OF TEMPORARY MANAGEMENT

18.5.1    TDHS may appoint temporary management to oversee the operation of the
          HMO upon a finding that there is continued egregious behavior by the
          HMO or there is a substantial risk to the health of the Members.

18.5.2    TDHS may appoint temporary management to assure the health of the
          HMO's Members if there is a need for temporary management while

18.5.2.1  there is an orderly termination or reorganization of the HMO, or

18.5.2.2  are made to remedy violations found under Article 16.3.4.

18.5.3    Temporary management will not be terminated until TDHS has determined
          that HMO has the capability to ensure that the violations that
          triggered appointment of temporary management will not recur.

18.5.4    TDHS is not required to appoint temporary management before
          terminating this contract.

18.5.5    No pre-termination hearing is required before appointing temporary
          management.

18.6      TDHS-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE

          TDHS must give HMO 30 days notice of intent to initiate disenrollment
          of a Member or Members in the Notice of Default. The TDHS-initiated
          disenrollment date will be calculated as 30 days following the date
          that HMO receives the Notice of Default.

                                                               TDHS/HMO CONTRACT
                                                                 August 11, 1999

                                      116
<PAGE>   123

18.7      RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO

18.7.1    If HCFA determines that HMO has violated federal law or regulations
          and that federal payments will be withheld, TDHS will deny and
          withhold payments for new enrollees of HMO.

18.7.2    HMO must be given notice and opportunity to appeal a decision of TDHS
          and HCFA pursuant to 42 CFR '434.67.

18.8      CIVIL MONETARY PENALTIES

18.8.1    For a default under Article 16.3.4.1, TDHS may assess not more than
          $25,000 for each default;

18.8.2    For a default under Article 16.3.4.2, TDHS may assess double the
          excess amount charged in violation of the federal requirements for
          each default. The excess amount shall be deducted from the penalty and
          returned to the Member concerned.

18.8.3    For a default under Article 16.3.4.3, TDHS may assess not more than
          $100,000 for each default, including $15,000 for each individual not
          enrolled as a result of the practice described in Article 16.3.4.3.

18.8.4    For a default under Article 16.3.4.4, TDHS may assess not more than
          $100,000 for each default if the material was provided to HCFA or TDHS
          and not more than $25,000 for each default if the material was
          provided to a Member, a potential Member, or a health care provider.

18.8.5    For a default under Article 16.3.4.5, TDHS may assess not more than
          $25,000 for each default.

18.8.6    For a default under Article 16.3.4.6, TDHS may assess not more than
          $25,000 for each default.

18.8.7    HMO may be subject to civil money penalties under the provisions of 42
          CFR 1003 in addition to or in place of withholding payments for a
          default under Article 16.3.4.

18.9      FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
          TDHS may require forfeiture of all or a portion of the face amount of
          the TDI performance bond if TDHS determines that an event of default
          has occurred. Partial payment of the face amount shall reduce the
          total bond amount available pro rata.

18.10     REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED

                                                               TDHS/HMO CONTRACT
                                                                 August 11, 1999

                                      117
<PAGE>   124

18.10.1   HMO may dispute the imposition of any sanction under this contract.
          HMO notifies HMO of its dispute by filing a written response to the
          Notice of Default, clearly stating the reason HMO disputes the
          proposed sanction. With the written response, HMO must submit to TDHS
          any documentation that supports HMO's position. HMO must file the
          review within 15 days from HMO's receipt of the Notice of Default.
          Filing a dispute in a written response to the Notice of Default
          suspends imposition of the proposed sanction.

18.10.2   HMO and TDHS must attempt to informally resolve the dispute. If HMO
          and TDHS are unable to informally resolve the dispute, HMO must notify
          the Bureau Chief of Managed Care that HMO and TDHS cannot agree. The
          Bureau Chief will refer the dispute to the Associate Commissioner for
          Health Care Financing who will appoint a committee to review the
          dispute under TDHS' dispute resolution procedures. The decision of the
          dispute resolution committee will be TDHS' final administrative
          decision.

ARTICLE XIX            TERM

19.1      The effective date of this contract is September 1, 1999. This
          contract will terminate on August 31, 2001, unless terminated earlier
          as provided for elsewhere in this contract.

19.2      The contract will not automatically renew beyond the contract period.

19.3      If either party does not intend to renew the contract beyond its
          initial term, the party intending not to renew must submit a written
          notice of its intent not to renew to the other party no later than 90
          days before the termination date set out in Article 19.1.

19.4      If either party does not intend to renew the contract beyond its
          initial term and sends the notice required in Article 19.3, a
          transition period of 90 days will run from the date the notice of
          intent not to renew is received by the other party. By signing this
          contract, the parties agree that the terms of this contract shall
          automatically continue during any transition period.

19.5      The party that does not intend to renew the contract beyond its
          initial term and sends the notice required by Article 19.3 is
          responsible for sending notices to all Members on how the Member can
          continue to receive covered services. The expense of sending the
          notices will be paid by the non-renewing party. If TDHS does not
          intend to renew and sends the required notice, TDHS is responsible for
          any costs it incurs in ensuring that Members are reassigned to other
          plans without interruption of services. If HMO does not intend to
          renew and sends the required notice, HMO is responsible for any costs
          TDHS incurs in ensuring that Members are reassigned to other plans
          without interruption of services. If both parties do not intend to
          renew the contract beyond its initial term, TDHS will send the notices
          to Members and the parties will share equally in the cost of sending
          the notices and of implementing the transition plan.

                                                               TDHS/HMO CONTRACT
                                                                 August 11, 1999

                                      118
<PAGE>   125

19.6      Non-renewal of this contract is not a contract termination for
          purposes of appeal rights under the Human Resources Code Section
          32.034.

TEXAS DEPARTMENT OF                                        AMERICAID TEXAS, INC.
HUMAN SERVICES

BY:                                                BY:
   ----------------------                             -------------------------
        ERIC M. BOST                                       JAMES DONOVAN JR.
        COMMISSIONER                                       PRESIDENT AND CEO

DATE SIGNED:   9/1/99                             DATE SIGNED:    8/24/99
            ------------                                      ---------------
APPROVED AS TO FORM:

------------------------
Office of General Counsel

                                                               TDHS/HMO CONTRACT
                                                                 August 11, 1999

                                      119
<PAGE>   126

                                       ATTACHMENTS

Copies of attachments A - E will be available in the Regulatory Department upon
request.

                                                               TDHS/HMO CONTRACT
                                                                 August 11, 1999

                                      120<PAGE>   1

                                                                    Exhibit 10.4

                                          TDH Document No.  7526032317 * 2000-01

                                      1999
                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO

                                                           AMERICAID Texas, Inc.
                                                             Dallas Service Area
<PAGE>   2
                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                       <C>
APPENDICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

ARTICLE I       PARTIES AND AUTHORITY TO CONTRACT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

ARTICLE II      DEFINITIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

ARTICLE III     PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.1    ORGANIZATION AND ADMINISTRATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2    NON-PROVIDER SUBCONTRACTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3    MEDICAL DIRECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4    PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.5    RECORDS REQUIREMENTS AND RECORDS RETENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.6    HMO REVIEW OF TDH MATERIALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE IV      FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4.1    FISCAL SOLVENCY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2    MINIMUM EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3    PERFORMANCE BOND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.4    INSURANCE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   19
4.5    FRANCHISE TAX  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6    AUDIT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7    PENDING OR THREATENNG LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8    MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO OPERATIONS . . . . . . . . . . . . . . . . . . . . . .   20
4.9    THIRD PARTY RECOVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10   CLAIMS PROCESSING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.11   INDEMNIFICATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE V       STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

5.1    COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2    PROGRAM INTEGRITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3    FRAUD AND ABUSE COMPLIANCE PLAN  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4    SAFEGUARDING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.5    NON-DISCRIMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.6    HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.7    BUY TEXAS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8    CHILD SUPPORT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.9    REQUESTS FOR PUBLIC INFORMATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.10   NOTICE AND APPEAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ARTICLE VI      SCOPE OF SERVICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

6.1    SCOPE OF SERVICES - GENERAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2    PRE-EXISTING CONDITIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3    SPAN OF ELIGIBILITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4    CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5    EMERGENCY SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.6    BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.7    FAMILY PLANNING - SPECIFIC REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.8    TEXAS HEALTH STEPS (EPSDT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.9    PERINATAL SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.10   EARLY CHILDHOOD INTERVENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.11   SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND CHILDREN (WIC) - SPECIFIC REQUIREMENTS  . . . . . . 40
6.12   TUBERCULOSIS (TB)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.13   PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>

                                       ii

                                                    Dallas Service Area Contract
<PAGE>   3
<TABLE>
<S>                                                                                                                       <C>
6.14    HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.15    SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN IMMUNODEFICIENCY VIRUS (HIV) . . . . . . . . . . . . . . . . . . . 46
6.16    BLIND AND DISABLED MEMBERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

ARTICLE VII        PROVIDER NETWORK REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

7.1     PROVIDER ACCESSIBILITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2     PROVIDER CONTRACTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.3     PHYSICIAN INCENTIVE PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.4     PROVIDER MANUAL AND PROVIDER TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.5     MEMBER PANEL REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.6     PROVIDER COMPLAINT AND APPEAL PROCEDURES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.7     PROVIDER QUALIFICATIONS - GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.8     PRIMARY CARE PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.9     OB/GYN PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.10    SPECIALTY CARE PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.11    SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.12    SIGNIFICANT TRADITIONAL PROVIDERS (STPs)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.13    RURAL HEALTH PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.14    FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH CLINICS (RHC)  . . . . . . . . . . . . . . . . . . . . 63
7.15    COORDINATION WITH PUBLIC HEALTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.16    COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY SERVICES..... . . . . . . . . . . . . . . . . . . 67
7.17    PROVIDER NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs) . . . . . . . . . . . . . . . . . . . . . . . . . . 68

ARTICLE VIII       MEMBER SERVICES REQUIREMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

8.1     MEMBER EDUCATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.2     MEMBER HANDBOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.3     ADVANCE DIRECTIVES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.4     MEMBER ID CARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.5     MEMBER HOTLINE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.6     MEMBER COMPLAINT PROCESS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.7     MEMBER NOTICE, APPEALS AND FAIR HEARINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.8     MEMBER ADVOCATES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
8.9     MEMBER CULTURAL AND LINGUISTIC SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

ARTICLE IX         MARKETING AND PROHIBITED PRACTICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

9.1     MARKETING MATERIAL MEDIA AND DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.2     MARKETING ORIENTATION AND TRAINING  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.3     PROHIBITED MARKETING PRACTICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.4     NETWORK PROVIDER DIRECTORY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

ARTICLE X          MIS SYSTEM REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

10.1    MODEL MIS REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.2    SYSTEM-WIDE FUNCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.3    ENROLLMENT/ELIGIBILITY SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.4    PROVIDER SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.5    ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.6    FINANCIAL SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10.7    UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10.8    REPORT SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
10.9    DATA INTERFACE SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
10.10   TPR SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
10.11   YEAR 2000 COMPLIANCE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

ARTICLE XI         QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM  . . . . . . . . . . . . . . . . . . . . . . . . . . 92

11.1    QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.2    WRITTEN QIP PLAN  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.3    QIP SUBCONTRACTING  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.4    ACCREDITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
</TABLE>

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                                                    Dallas Service Area Contract
<PAGE>   4
<TABLE>
<S>                                                                                                                      <C>
11.5     BEHAVIORAL HEALTH INTEGRATION INTO QIP   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.6     QIP REPORTING REQUIREMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

ARTICLE XII        REPORTING REQUIREMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

12.1     FINANCIAL REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
12.2     STATISTICAL REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
12.3     ARBITRATION/LITIGATION CLAIMS REPORT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
12.4     SUMMARY REPORT OF PROVIDER COMPLAINTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
12.5     PROVIDER NETWORK REPORTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
12.6     MEMBER COMPLAINTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.7     FRAUDULENT PRACTICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.8     UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.9     UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.10    QUALITY IMPROVEMENT REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.11    HUB REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
12.12    THSTEPS REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
12.13    REPORTING REQUIREMENTS DUE DATES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100

ARTICLE XIII       PAYMENT PROVISIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100

13.1     CAPITATION AMOUNTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100
13.2     EXPERIENCE REBATE TO STATE   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  103
13.3     PERFORMANCE OBJECTIVES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  104
13.4     PAYMENT OF PERFORMANCE OBJECTIVE BONUSES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  105
13.5     ADJUSTMENTS TO PREMIUM   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  106

ARTICLE XIV        ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  107

14.1     ELIGIBILITY DETERMINATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  107
14.2     ENROLLMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  109
14.3     DISENROLLMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  109
14.4     AUTOMATIC RE-ENROLLMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  110
14.5     ENROLLMENT REPORTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111

ARTICLE XV         GENERAL PROVISIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111

15.1     INDEPENDENT CONTRACTOR   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111
15.2     AMENDMENT    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111
15.3     LAW, JURISDICTION AND VENUE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.4     NON-WAIVER   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.5     SEVERABILITY   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.6     ASSIGNMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.7     NON-EXCLUSIVE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.8     DISPUTE RESOLUTION   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.9     DOCUMENTS CONSTITUTING CONTRACT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.10    FORCE MAJEURE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113
15.11    NOTICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113
15.12    SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113

ARTICLE XVI        DEFAULT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113

16.1     FAILURE TO PROVIDE COVERED SERVICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113
16.2     FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.3     HMO CERTIFICATE OF AUTHORITY   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.4     INSOLVENCY   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.5     FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.6     EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.7     MISREPRESENTATION, FRAUD OR ABUSE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  115
16.8     FAILURE TO MAKE CAPITATION PAYMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  115
16.9     FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS   . . . . . . . . . . . . . . . . . . . . . .  115
16.10    FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS   . . . . . . . . . . . . . . . . . . . . . .  115
16.11    FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR NETWORK PROVIDERS   . . . . . . . . . . . . .  115
</TABLE>

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<TABLE>
<S>                                                                                                                      <C>
ARTICLE XVII       NOTICE OF DEFAULT AND CURE OF DEFAULT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  115

ARTICLE XVIII      REMEDIES AND SANCTIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  116

18.1     TERMINATION BY TDH   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  116
18.2     TERMINATION BY HMO   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  117
18.3     TERMINATION BY MUTUAL CONSENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  117
18.4     DUTIES UPON TERMINATION OF CONTRACTING PARTIES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  118
18.5     STATE AND FEDERAL DAMAGES, PENALTIES AND SANCTIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  118
18.6     SUSPENSION OF NEW ENROLLMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  119
18.7     TDH INITIATED DISENROLLMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  119
18.8     LIQUIDATED MONEY DAMAGES - WITHHOLDING PAYMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  119
18.9     FORFEITURE OF TDI PERFORMANCE BOND   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  122

ARTICLE XIX        TERM   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  122
</TABLE>

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                                                    Dallas Service Area Contract
<PAGE>   6

                                   APPENDICES

APPENDIX A
                 Standards For Quality Improvement Programs

APPENDIX B
                 HUB Progress Assessment Reports

APPENDIX C
                 Scope of Services

APPENDIX D
                 Family Planning Providers

APPENDIX E
                 Transplant Facilities

APPENDIX F
                 Trauma Facilities

APPENDIX G
                 Hemophilia Treatment Centers And Programs

APPENDIX H
                 Utilization Management Report - Behavioral Health

APPENDIX I
                 Managed Care Financial-Statistical Report

APPENDIX J
                 Utilization Management Report - Physical Health

APPENDIX K
                 Preventive Health Performance Objectives

APPENDIX L
                 Cost Principles For Administrative Expenses

APPENDIX M
                 Required Critical Elements

                                       vi

                                                    Dallas Service Area Contract
<PAGE>   7
                                                       TDH Document No. ________

                                      1999
                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO

This contract is entered into between the Texas Department of Health (TDH) and
AMERICAID Texas, Inc.  (HMO).  The purpose of this contract is to set forth the
terms and conditions for HMO's participation as a managed care organization in
the TDH STAR Program (STAR or STAR Program).  Under the terms of this contract
HMO will provide comprehensive health care services to qualified and eligible
Medicaid recipients through a managed care delivery system.  This is a
risk-based contract.  HMO was selected to provide services under this contract
under the Professional Services Procurement Act, Government Code, Title 10,
Section 2254.001 et. seq.  HMO's selection for this contract was based upon
HMO's Application submitted in response to TDH's 1998 Request for Application
(RFA). Representations and responses contained in HMO's Application are
incorporated into and are enforceable provisions of this contract.

Terms used throughout this Contract have the following meaning, unless the
context clearly indicates otherwise.

ARTICLE I                 PARTIES AND AUTHORITY TO CONTRACT

1.1              The Texas Legislature has designated the Texas Health and
                 Human Services Commission (THHSC) as the single State agency
                 to administer the Medicaid program in the State of Texas.
                 THHSC has delegated the authority to operate the Medicaid
                 managed care delivery system for acute care services to TDH.
                 TDH has authority to contract with HMO to carry out the duties
                 and functions of the Medicaid managed care program under
                 Health and Safety Code, Title 2, Section 12.011 and Section
                 12.021 and Texas Government Code Section 533.001 et. seq.

1.2              HMO is a corporation with authority to conduct business in the
                 State of Texas and has a certificate of authority from the
                 Texas Department of Insurance (TDI) to operate as a Health
                 Maintenance Organization (HMO) under Chapter 20A of the

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                                                    Dallas Service Area Contract
<PAGE>   8
                 Insurance Code.  HMO is in compliance with all TDI rules and
                 laws that apply to HMOs.  HMO has been authorized to enter
                 into this contract by its Board of Directors or other
                 governing body.  HMO is an enrolled provider in the Texas
                 Medical Assistance Program (Medicaid).

1.3              This contract is subject to the approval and ongoing
                 monitoring of the federal Health Care Financing Administration
                 (HCFA).

1.4              Readiness Review.  This contract is subject to TDH's Readiness
                 Review of HMO. Under the provisions of Human Resources Code
                 Section 32.043(a), TDH is required to review all HMOs with
                 whom it contracts to determine whether HMO has complied with
                 the TDH/HMO contract and/or can continue to meet all contract
                 obligations.

1.4.1            Readiness review will be conducted through:  on-site
                 inspection of service authorization, claims payment systems,
                 complaint-processing systems, and other processes or systems
                 required by the contract, as determined by TDH; and, by review
                 of HMO's compliance with contract requirements in the
                 preceding and existing contract, including claims payment,
                 complaints received/resolved, encounter data submission and
                 other required reports.

1.4.2            TDH will provide HMO with written notice of the elements and
                 scheduling of the reviews, any deficiencies which must be
                 corrected, and the timeline by which deficiencies must be
                 corrected.

1.4.3            TDH may discontinue enrollment of Members into HMO if the
                 Readiness Review reveals that HMO is not currently prepared to
                 meet its contractual obligations or has failed to correct or
                 cure defaults under the provisions of Article XVII.

1.5              Implementation Plan.  Texas Government Code Section 533.007(b)
                 requires that each HMO that contracts with TDH to provide
                 health care services to recipients in a service area must
                 submit an implementation plan not later than the 90th day
                 before the Implementation Date in the service area.

1.5.1            The implementation plan must include, but not be limited to:
                 1) staffing patterns by function for all operations, including
                 enrollment, information systems, member services, quality
                 improvement, claims management, case management, and provider
                 and recipient training, and, 2) specific time frames for
                 demonstrating preparedness for implementation before the
                 Implementation Date in the service area.

1.5.2            TDH will respond to an implementation plan not later than the
                 10th day after the date HMO submits the plan if the plan does
                 not adequately meet preparedness guidelines.

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                                                    Dallas Service Area Contract
<PAGE>   9
1.5.3            HMO must submit status reports on the implementation plan not
                 later than the 60th day and the 30th day before the
                 Implementation Date in the service area every 30th day after
                 the Implementation Date, until the 180th day after the
                 Implementation Date.

1.6              AUTHORITY OF HMO TO ACT ON BEHALF OF TDH.  HMO is given
                 express, limited authority to exercise the State's right of
                 recovery as provided in Article 4.9, and to enforce provisions
                 of this contract which require providers or subcontractors to
                 produce records, reports, encounter data, public health data,
                 and other documents to comply with this contract and which TDH
                 has authority to require under State or federal laws.

ARTICLE II                DEFINITIONS

Abuse means provider practices that are inconsistent with sound fiscal,
business, or medical practices and result in an unnecessary cost to the
Medicaid program, or in reimbursement for services that are not medically
necessary or that fail to meet professionally recognized standards for health
care.  It also includes recipient practices that result in unnecessary cost to
the Medicaid program.

Action means a denial, termination, suspension, or reduction of covered
services or the failure of HMO to act upon request for covered services within
a reasonable time or a denial of a request for prior authorization for covered
services affecting a Member.  This term does not include reaching the end of
prior authorized services.

Adjudicate means to deny or pay a clean claim.

AFDC and AFDC-related means the federally funded program that provides
financial assistance to single-parent families with children who meet the
categorical requirements for aid.  This program is now called Temporary
Assistance to Needy Families (TANF).

Affiliate means any individual or entity owning or holding more than a five
percent (5%) interest in HMO; in which HMO owns or holds more than a five
percent (5%) interest; any parent entity; or subsidiary entity of HMO,
regardless of the organizational structure of the entity.

Allowable expenses means all expenses related to the Contract for Services
between TDH and HMO that are incurred during the term of the contract that are
not reimbursable or recovered from another source.

Allowable revenue means all Medicaid managed care revenue received by HMO for
the contract period, including retroactive adjustments made by TDH.

Behavioral health services means covered services for the treatment of mental
or emotional disorders and treatment of chemical dependency disorders.

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                                                    Dallas Service Area Contract
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Capitation means a method of payment in which HMO or a health care provider
receives a fixed amount of money each month for each enrolled Member,
regardless of the services used by the enrolled Member.

CHIP means Children's Health Insurance Program established by Title XXI of the
Social Security Act to assist state efforts to initiate and expand child health
assistance to uninsured, low-income children.

Chronic or complex condition means a physical, behavioral, or developmental
condition which may have no known cure and/or is progressive and/or can be
debilitating or fatal if left untreated or under-treated.

Clean claim means a TDH approved or identified claim format that contains all
data fields required by HMO and TDH for final adjudication of the claim.  The
required data fields must be complete and accurate.  Clean claim also includes
HMO-published requirements for adjudication, such as medical records, as
appropriate. (See definition of Unclean Claim.)  The TDH required data fields
are identified in TDH's "HMO Encounter Data Claims Submission Manual."

CLIA means the federal legislation commonly known as the Clinical Laboratories
Improvement Act of 1988 as found at Section 353 of the federal Public Health
Services Act, and regulations adopted to implement the Act.

Complainant means a Member or a treating provider or other individual
designated to act on behalf of the Member who files the complaint.

Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to HMO, with any aspect of HMO's operation, including but not limited
to dissatisfaction with plan administration; an appeal of an adverse
determination to HMO; the way a service is provided; or disenrollment decisions
expressed by a complainant.  A complaint is not a misunderstanding or
misinformation that is resolved promptly by supplying the appropriate
information or clearing up the misunderstanding to the satisfaction of the
Member, or a request for a fair hearing to TDH.

Continuity of care means care provided to a Member by the same primary care
provider or specialty provider to the greatest degree possible, so that the
delivery of care to the Member remains stable, and services are consistent and
unduplicated.

Contract means this contract between TDH and HMO and documents included by
reference and any of its written amendments, corrections or modifications.

Contract administrator means an entity contracting with TDH to carry out
specific administrative functions under the State's Medicaid managed care
program.

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                                                    Dallas Service Area Contract
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Contract anniversary date means September 1 of each year after the first year
of this contract, regardless of the date of execution or effective date of the
contract.

Contract period means the period of time starting with effective date of the
contract and ending on the termination date of the contract.

Covered services means health care services and health related services HMO
must provide to Members, including all services required by this contract and
state and federal law, and all value-added services described by HMO in its
response to the Request For Application (RFA) for this contract.

Day means calendar day unless specified otherwise.

Denied claim means a clean claim or a portion of a clean claim for which a
determination is made that the claim cannot be paid.

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

DSM-IV means the Diagnostic and Statistical Manual of Mental Disorders, Fourth
Edition, which is the American Psychiatric Association's official
classification of behavioral health disorders.

ECI means Early Childhood Intervention which is a federally mandated program
for infants and children under the age of three with or at risk for development
delays and/or disabilities.  The federal ECI regulations are found at 34 C.F.R.
303.1 et. seq.  The State ECI rules are found at 25 TAC Section 621.21 et. seq.

Effective date of the contract means the day on which this contract is signed
and the parties are bound by the terms and conditions of this contract.

Emergency behavioral health condition means any condition, without regard to
the nature or cause of the condition, which in the opinion of a prudent
layperson possessing an average knowledge of health and medicine requires
immediate intervention and/or medical attention without which Members would
present an immediate danger to themselves or others or which renders Members
incapable of controlling, knowing or understanding the consequences of their
actions.

Emergency services means covered inpatient and outpatient services that are
furnished by a provider that is qualified to furnish such services under this
contract and are needed to evaluate or stabilize an emergency medical
condition.

Emergency Medical Condition means 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 care could result in:

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                                                    Dallas Service Area Contract
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         (a) placing the patient's health in serious jeopardy;
         (b) serious impairment to bodily functions;
         (c) serious dysfunction of any bodily organ or part; or
         (d) serious disfigurement; or
         (e) in the case of a pregnant woman, serious jeopardy to the health of
             the fetus.

Encounter means a covered service or group of services delivered by a provider
to a Member during a visit between the Member and provider.  This also includes
value-added services.

Encounter data means data elements from fee-for-service claims or capitated
services proxy claims that are submitted to TDH by HMO in accordance with TDH's
"HMO Encounter Data Claims Submission Manual".

Enrollment Broker means an entity contracting with TDH to carry out specific
functions related to Member services (i.e.  enrollment/disenrollment,
complaints, etc.) under TDH's Medicaid managed care program.

Enrollment report means the list of Medicaid recipients who are enrolled with
an HMO as Members for the month the report was issued.

EPSDT means the federally mandated Early and Periodic Screening, Diagnosis and
Treatment program contained at 42 USC 1396d(r).  (See definition for Texas
Health Steps.)  The name has been changed to Texas Health Steps (THSteps) in
the State of Texas.

Execution date means the date this contract is signed by persons with the
authority to contract for TDH and HMO.

Fair hearing means a due process hearing conducted by the Texas Department of
Health that complies with 25 TAC Section 1.51 et. seq.  and federal rules found
at 42 CFR Subpart E, relating to Fair Hearings for Applicants and Recipients.

FQHC means a Federally Qualified Health Center that has been certified by HCFA
to meet the requirements of Section 1861(aa)(3) of the Social Security Act as a
federally qualified health center and is enrolled as a provider in the Texas
Medicaid Program.

Fraud means an intentional deception or misrepresentation made by a person with
the knowledge that the deception could result in some unauthorized benefit to
himself or some other person.  It includes any act that constitutes fraud under
applicable federal or state law.

HCFA means the federal Health Care Financing Administration.

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Health care services or health services means physical medicine and
health-related services which an enrolled population might reasonably require
in order to be maintained in good health, including, as a minimum, emergency
services and inpatient and outpatient services.

Implementation Date means the first date that Medicaid managed care services
are delivered to Members in each of the counties in a service area.

Inpatient stay means at least a 24-hour stay in a facility licensed to provide
hospital care.

JCAHO means Joint Commission on Accreditation of Health Care Organizations.

Local Health Department means a local health department established pursuant to
Health and Safety Code, Title 2, Local Public Health Reorganization Act Section
121.031.

Local tuberculosis control program means a tuberculosis program that is managed
by a local or regional health department.

Major life activities means functions such as caring for oneself, performing
manual tasks, walking, seeing, hearing, speaking, breathing, learning, and
working.

Major population group is defined by federal guidelines as a group comprising
10% or more of HMO's Medicaid service population.

Medical education refers to the State-supported allopathic medical schools and
schools of osteopathic medicine, their teaching institutions and faculties,
those entities that have Primary Care Residency Programs approved by the
Accreditation Council for Graduate Medical Education.

Medical home means a primary or specialty care provider who has accepted the
responsibility for providing accessible, continuous, comprehensive and
coordinated care to Members participating in TDH's Medicaid managed care
program.

Medically necessary behavioral health services means those behavioral health
services which:

(a)      are reasonable and necessary for the diagnosis or treatment of a
         mental health or chemical dependency disorder or to improve or to
         maintain or to prevent deterioration of functioning resulting from
         such a disorder;

(b)      are in accordance with professionally accepted clinical guidelines and
         standards of practice in behavioral health care;

(c)      are furnished in the most appropriate and least restrictive setting in
         which services can be safely provided;

(d)      are the most appropriate level or supply of service which can safely
         be provided; and

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                                                    Dallas Service Area Contract
<PAGE>   14
(e)      could not be omitted without adversely affecting the Member's mental
         and/or physical health or the quality of care rendered.

Medically necessary health care services means health care services, other than
behavioral health services which are:

(a)      reasonable and necessary to prevent illnesses or medical conditions,
         or provide early screening, interventions, and/or treatments for
         conditions that cause suffering or pain, cause physical deformity or
         limitations in function, threaten to cause or worsen a handicap, cause
         illness or infirmity of a Member, or endanger life;

(b)      provided at appropriate facilities and at the appropriate levels of
         care for the treatment of a Member's medical conditions;

(c)      consistent with health care practice guidelines and standards that are
         issued by professionally recognized health care organizations or
         governmental agencies;

(d)      consistent with the diagnoses of the conditions; and

(e)      no more intrusive or restrictive than necessary to provide a proper
         balance of safety, effectiveness, and efficiency.

Member means a person who:  is entitled to benefits under Title XIX of the
Social Security Act and the Texas Medical Assistance Program (Medicaid), is in
a Medicaid eligibility category included in the STAR Program, and is enrolled
in the STAR Program.

Member month means one Member enrolled with an HMO during any given month.  The
total Member months for each month of a year comprise the annual Member months.

MIS means management information system.

NorthSTAR means a behavioral health carve-out program operating only in the
Dallas Service Area and administered by the Texas Commission on Alcohol and
Drug Abuse and the Texas Department of Mental Health and Mental Retardation.

Pended claim means a claim for payment which requires additional information
before the claim can be adjudicated as a clean claim.

Performance premium means an amount which may be paid to a managed care
organization as a bonus for accomplishing a portion or all of the performance
objectives contained in this contract.

Premium means the amount paid by TDH to a managed care organization on a
monthly basis and is determined by multiplying the Member months times the
capitation amount for each enrolled Member.

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                                                    Dallas Service Area Contract
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Primary care physician or primary care provider (PCP) means a physician or
provider who has agreed with HMO to provide a medical home to Members and who
is responsible for providing initial and primary care to patients, maintaining
the continuity of patient care, and initiating referral for care (also see
Medical home).

Provider means an individual or entity and its employees and subcontractors
that directly provide health care services to HMO's Members under TDH's
Medicaid managed care program.

Provider contract means an agreement entered into by a direct provider of
health services and HMO or an intermediary entity.

Public information means information that is collected, assembled, or
maintained under a law or ordinance or in connection with the transaction of
official business by a governmental body or for a governmental body and the
governmental body owns the information or has a right of access.

Readiness review means a review process conducted by TDH or its agent(s) to
assess HMO's capacity and capability to perform the duties and responsibilities
required under the Contract.  This process is required by Texas Government Code
Section 533.007.

RFA means Request For Application issued by TDH on June 17, 1998, and all RFA
addenda, corrections or modifications.

Risk means the potential for loss as a result of expenses and costs of HMO
exceeding payments made by TDH under this contract.

Rural Health Clinic (RHC) means an entity that meets all of the requirements
for designation as a rural health clinic under Section 1861(aa)(1) of the
Social Security Act and approved for participation in the Texas Medicaid
Program.

Service area means the counties included in a site selected for the STAR
Program, within which a participating HMO must provide services.

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY '95 and all other providers
in a county that, when listed by provider type in descending order by the
number of recipient encounters, provided the top 80 percent of recipient
encounters for each provider type in FY '95.

Special hospital means an establishment that:

(a)      offers services, facilities, and beds for use for more than 24 hours
         for two or more unrelated individuals who are regularly admitted,
         treated, and discharged and who require services more intensive than
         room, board, personal services, and general nursing care;

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                                                    Dallas Service Area Contract
<PAGE>   16
(b)      has clinical laboratory facilities, diagnostic x-ray facilities,
         treatment facilities, or other definitive medical treatment;

(c)      has a medical staff in regular attendance; and

(d)      maintains records of the clinical work performed for each patient.

STAR Program is the name of the State of Texas Medicaid managed care program.
"STAR" stands for the State of Texas Access Reform.

State fiscal year means the 12-month period beginning on September 1 and ending
on August 31 of the next year.

Subcontract means any written agreement between HMO and other party to fulfill
the requirements of this contract.  All subcontracts are required to be in
writing.

Subcontractor means any individual or entity which has entered into a
subcontract with HMO.

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

TCADA means Texas Commission on Alcohol and Drug Abuse.  State agency
responsible for licensing chemical dependency treatment facilities.  TCADA also
contracts with providers to deliver chemical dependency treatment services.

TDD means telecommunication device for the deaf.  It is interchangeable with
the term Teletype machine or TTY.

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

TDMHMR means the Texas Department of Mental Health and Mental Retardation,
which is the State agency responsible for developing mental health policy for
public and private sector providers.

Temporary Assistance to Needy Families (TANF) means the federally funded
program that provides assistance to single-parent families with children who
meet the categorical requirements for aid.  This program was formerly known as
Aid to Families with Dependent Children (AFDC) program.

Texas Health Steps (THSteps) is the name adopted by the State of Texas for the
federally mandated Early and Periodic Screening, Diagnosis and Treatment
(EPSDT) program.  It includes the State's Comprehensive Care Program extension
to EPSDT, which adds benefits to the federal EPSDT

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                                                    Dallas Service Area Contract
<PAGE>   17
requirements contained in 42 United States Code Section 1396d(r), and defined
and codified at 42 C.F.R. Section 440.40 and Sections 441.56-62. TDH's rules
are contained in 25 TAC, Chapter 33 (relating to Early and Periodic Screening,
Diagnosis and Treatment).

Texas Medicaid Provider Procedures Manual means the policy and procedures
manual published by or on behalf of TDH which contains policies and procedures
required of all health care providers who participate in the Texas Medicaid
program.  The manual is updated by the Medicaid Bulletin which is published
bi-monthly.

Texas Medicaid Service Delivery Guide means an attachment to the Texas Medicaid
Provider Procedures Manual.

THHSC means the Texas Health and Human Services Commission.

THSteps means Texas Health Steps.

Third Party Liability (TPL) means the legal responsibility of another
individual or entity to pay for all or part of the services provided to Members
under this contract.  (See 25 TAC, Subchapter 28, relating to Third Party
Resources.)

Third Party Recovery (TPR) means the recovery of payments made on behalf of a
Member by TDH or HMO from an individual or entity with the legal responsibility
to pay for the services.

TXMHMR means Texas Mental Health and Mental Retardation system which includes
the state agency, TDMHMR, and the Local Mental Health and Mental Retardation
Authorities.

Unclean claim means a claim that does not contain accurate and complete data in
all claim fields that are required by HMO and TDH and other HMO-published
requirements for adjudication, such as medical records, as appropriate.  (See
definition of Clean Claim.)

Urgent behavioral health situations means conditions which require attention
and assessment within 24 hours but which do not place the Member in immediate
danger to themselves or others and the Member is able to cooperate with
treatment.

Urgent condition means a health condition which is not an emergency but is
severe or painful enough to cause a prudent layperson possessing the average
knowledge of medicine to believe that his or her condition requires medical
treatment evaluation or treatment within 24 hours by the Member's PCP or PCP
designee to prevent serious deterioration of the Member's condition or health.

Value-added services means services which were not included in the RFA as
mandatory covered services, but which were submitted by HMO with its response
to the RFA and which have been approved by TDH to be included in this contract
as value-added services in Appendix C - Scope of Services.  These services must
be provided to all mandatory Members as part of the covered services

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                                                    Dallas Service Area Contract
<PAGE>   18
under this contract.  No additional capitation will be paid for these services,
under the current capitation rate.

ARTICLE III               PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

3.1              ORGANIZATION AND ADMINISTRATION

3.1.1            HMO must maintain the organizational and administrative
                 capacity and capabilities to carry out all duties and
                 responsibilities under this contract.

3.1.2            HMO must maintain assigned staff with the capacity and
                 capability to provide all services to all Members under this
                 contract.

3.1.3            HMO must maintain an administrative office in the service area
                 (local office).  The local office must comply with the
                 American with Disabilities Act requirements for public
                 buildings.  Member Advocates for the service area must be
                 located in this office.  (See Article 8.8.)

3.1.4            HMO must provide training and development programs to all
                 assigned staff to ensure they know and understand the service
                 requirements under this contract including the reporting
                 requirements, the policies and procedures, cultural and
                 linguistic requirements and the scope of services to be
                 provided.

3.1.5            By Phase I of Readiness Review, HMO submit a current
                 organizational chart showing basic functions, the number of
                 employees for those functions, and a list of key managers in
                 HMO who are responsible for the basic functions of the
                 organization. HMO must notify TDH within fifteen (15) working
                 days of any change in key managers or Subcontractors.  This
                 information must be updated annually or when there is a
                 significant change in organizational structure or personnel.

                 HMO shall submit a description and organizational chart which
                 illustrates how physical health services administration will
                 be coordinated with behavioral health administration in
                 NorthStar plans, including individuals assigned to be liaisons
                 to NorthSTAR plans.

3.1.6            Participation in Regional Advisory Committee.  HMO must
                 participate on a Regional Advisory Committee established in
                 the service area in compliance with the Texas Government Code,
                 Sections 533.021-533.029.  The Regional Advisory Committee in
                 each managed care service area must include representatives
                 from at least the following entities: hospitals; managed care
                 organizations; primary care providers; state agencies;
                 consumer advocates; Medicaid recipients; rural providers;
                 long-term care

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                                                    Dallas Service Area Contract
<PAGE>   19
                 providers; specialty care providers, including pediatric
                 providers; and political subdivisions with a constitutional or
                 statutory obligation to provide health care to indigent
                 patients.  HHSC and TDH will determine the composition of each
                 Regional Advisory Committee.

3.1.6.1          The Regional Advisory Committee is required to meet at least
                 quarterly for the first year after appointment of the
                 committee and at least annually in subsequent years. The
                 actual frequency may vary depending on the needs and
                 requirements of the committee.

3.2              NON-PROVIDER SUBCONTRACTS

3.2.1            HMO must enter into written contracts with all Subcontractors
                 and maintain copies of the subcontracts in HMO's
                 administrative office.  HMO must make non-provider
                 subcontracts available to TDH upon request, at the time and
                 location requested by TDH.  Additionally, all HMO non-provider
                 subcontracts, including all intermediary subcontracts down to
                 the actual provider of services, relating to the delivery or
                 payment of covered health services must be submitted to TDH no
                 later than 120 days prior to the Implementation Date.

3.2.1.1          HMO must notify TDH not less than 90 days prior to terminating
                 any subcontract affecting a major performance function of this
                 contract.  All major Subcontractor terminations or
                 substitutions require TDH approval. TDH may require HMO to
                 provide a transition plan describing how care will continue to
                 be provided to Members.   All subcontracts are subject to the
                 terms and conditions of this contract and must contain the
                 provisions of Article V, Statutory and Regulatory Compliance,
                 and the provisions contained in 3.2.4

3.2.2            Subcontracts, which are requested by any agency with authority
                 to investigate and prosecute fraud and abuse, must be produced
                 at the time and in the manner requested by the requesting
                 Agency.  Subcontracts requested in response to a public
                 information request must be produced with 48 hours of the
                 request.  All requested records must be provided free of
                 charge.

3.2.3            The form and substance of all Subcontracts including
                 subsequent amendments are subject to approval by TDH.  TDH
                 retains the authority to reject or require changes to any
                 provisions of the subcontract that do not comply with the
                 requirements or duties and responsibilities of this contract
                 or create significant barriers for TDH in carrying out its
                 duty to monitor compliance with the contract.  HMO REMAINS
                 RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES AND
                 SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
                 RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER.

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                                                    Dallas Service Area Contract
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3.2.4            HMO and all intermediary entities must include the following
                 standard language in each subcontract and ensure that this
                 language is included in all subcontracts down to the actual
                 provider of the services.  The following standard language is
                 not the only language that will be considered acceptable by
                 TDH.

3.2.4.1          Contractor understands that services provided under this
                 contract are funded by state and federal funds under the Texas
                 Medical Assistance Program (Medicaid).  Contractor is subject
                 to all state and federal laws, rules and regulations that
                 apply to persons or entities receiving state and federal
                 funds.   Contractor understands that any violation by
                 Contractor of a state or federal law relating to the delivery
                 of services under this contract, or any violation of the
                 TDH/HMO contract could result in liability for contract money
                 damages, and/or civil and criminal penalties and sanctions
                 under state and federal law.

3.2.4.2          Contractor understands and agrees that HMO has the sole
                 responsibility for payment of services rendered by the
                 Contractor under this contract.  In the event of HMO
                 insolvency or cessation of operations, Contractor's sole
                 recourse is against HMO through the bankruptcy or receivership
                 estate of HMO.

3.2.4.3          Contractor understands and agrees that TDH is not liable or
                 responsible for payment for any services provided under this
                 contract.

3.2.4.4          Contractor agrees that any modification, addition, or deletion
                 of the provisions of this agreement will become effective no
                 earlier than 30 days after HMO notifies TDH of the change.  If
                 TDH does not provide written approval within 30 days from
                 receipt of notification from HMO, changes may be considered
                 provisionally approved.

3.2.4.5          This contract is subject to state and federal fraud and abuse
                 statutes.  The Contractor will be required to cooperate in the
                 investigation and prosecution of any suspected fraud or abuse,
                 and must provide any and all requested originals and copies of
                 records and information, free of charge on request, to any
                 state or federal agency with authority to investigate fraud
                 and abuse in the Medicaid program.

3.2.5            The Texas Medicaid Fraud Control Unit must be allowed to
                 conduct private interviews of HMO personnel, Subcontractors
                 and their personnel, witnesses, and patients.  Requests for
                 information are to be complied within the form and the
                 language requested.  HMO employees and contractors and
                 Subcontractors and their employees and contractors must
                 cooperate fully in making themselves available in person for
                 interviews, consultation, grand jury proceedings, pretrial
                 conference, hearings, trial and in any other process,
                 including investigations.  Compliance with this Article is at
                 HMO's and subcontractors' own expense.

3.2.6            HMO must include a complaint and appeals process which
                 complies with the requirements of Article 20A.12 of the Texas
                 Insurance Code relating to Complaint

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                                                    Dallas Service Area Contract
<PAGE>   21
                 System in all non-provider subcontracts.  HMO's complaint and
                 appeals process must be the same for all Contractors.

3.3              MEDICAL DIRECTOR

3.3.1            HMO must have a full-time physician (M.D. or D.O.) licensed in
                 Texas, to serve as Medical Director.  HMO must enter into a
                 written contract or written employment agreement with the
                 Medical Director describing the following authority, duties
                 and responsibilities:

3.3.1.1          Ensure that medical decisions, including prior authorization
                 protocols, are rendered by qualified medical personnel and are
                 based on TDH's definition of medical necessity.

3.3.1.2          Oversight responsibility of network providers to ensure that
                 all care provided complies with the generally accepted health
                 standards of the community.

3.3.1.3          Oversight of HMO's quality improvement process, including
                 establishing and actively participating in HMO's quality
                 improvement committee, monitoring Member health status, HMO
                 utilization review policies and standards and patient outcome
                 measures.

3.3.1.4          Identify problems and develop and implement corrective actions
                 to quality improvement process.

3.3.1.5          Develop, implement and maintain responsibility for HMO's
                 medical policy.

3.3.1.6          Oversight responsibility for medically related complaints.

3.3.1.7          Participate and provide witnesses and testimony on behalf of
                 HMO in the TDH fair hearing process.

3.3.2            The Medical Director must exercise independent medical
                 judgement in all medical decisions. HMO must ensure that
                 medical decisions are not adversely influenced by fiscal
                 management decisions.  TDH may conduct reviews of medical
                 decisions by HMO Medical Director at any time.

3.4              PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS

3.4.1            HMO and its subcontractors must receive written approval from
                 TDH for all written materials containing information about the
                 STAR Program prior to distribution to Members, prospective
                 Members, providers within HMO's network, or potential
                 providers who HMO intends to recruit as network providers.

3.4.2            Member materials must meet cultural and linguistic
                 requirements as stated in Article VIII. Unless otherwise
                 required, Member materials must:

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                                                    Dallas Service Area Contract
<PAGE>   22

3.4.2.1          be written at a 4th - 6th grade reading comprehension level;
                 and

3.4.2.2          be translated into the language of any major population group.

3.4.3            All materials regarding the STAR Program must be submitted to
                 TDH for approval prior to distribution.  TDH has 15 working
                 days to review the materials and recommend any suggestions or
                 required changes.  If TDH has not responded to HMO by the
                 fifteenth day, HMO may submit a written request for deemed
                 approval.  Requests for deemed approval must clearly identify
                 the materials for which deemed approval is requested by title
                 of document, date of submission, and the timelines for
                 publication and distribution.  TDH must respond in writing
                 within two working days from the date a deemed approval
                 request is received.  TDH reserves the right to request HMO to
                 modify plan materials.

3.4.4            HMO must reproduce all written instructional, educational, and
                 procedural documents required under this contract and
                 distribute them to its providers and Members.  HMO must
                 reproduce and distribute instructions and forms to all network
                 providers who have reporting and audit requirements under this
                 contract.

3.4.5            HMO must provide TDH with at least five copies of all written
                 materials that HMO is required to submit under this contract,
                 unless otherwise specified by TDH.

3.5              RECORDS REQUIREMENTS AND RECORDS RETENTION

3.5.1            HMO must keep all records required to be created and retained
                 under this contract. Records related to Members served in this
                 service area must be made available in HMO's local office when
                 requested by TDH.  All records must be retained for a period
                 of five (5) years unless otherwise specified in this contract.
                 Original records must be kept in the form they were created in
                 the regular course of business for a minimum of two (2) years
                 following the end of the contract period.  Microfilm, digital
                 or electronic records may be substituted for the original
                 records after the first two (2) years, if the retention system
                 is reliable and is supported by a retrieval system which
                 allows reasonable access to the records.  All copies of
                 original records must be made using guidelines and procedures
                 approved by TDH, if the original documents will no longer be
                 available or accessible.

3.5.2            Availability and Accessibility.  All records, documents and
                 data required to be created under this contract are subject to
                 audit, inspection and production.  If an audit, inspection or
                 production is requested by TDH, TDH's designee or TDH acting
                 on behalf of any agency with regulatory or statutory authority
                 over Medicaid Managed Care, the requested records must be made
                 available at the time and at the place the records are
                 requested. Copies of requested records must be produced or
                 provided free of charge to the requesting agency.  Records
                 requested after the second year following the end of contract
                 term, which have been stored or archived must be

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                                                    Dallas Service Area Contract
<PAGE>   23
                 accessible and made available within 10 calendar days from the
                 date of a request by TDH or the requesting agency or at a time
                 and place specified by the requesting entity.

3.5.3            Accounting Records.  HMO must create and keep accurate and
                 complete accounting records in compliance with to Generally
                 Accepted Accounting Principles (GAAP). Records must be created
                 and kept for all claims payments, refunds and adjustment
                 payments to providers, premium or capitation payments,
                 interest income and payments for administrative services or
                 functions. Separate records must be maintained for medical and
                 administrative fees, charges and payments.

3.5.4            General Business Records.  HMO must create and keep complete
                 and accurate general business records to reflect the
                 performance of duties and responsibilities, and compliance
                 with the provisions of this contract.

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

3.5.6            Matters in Litigation.  HMO must keep records related to
                 matters in litigation for five (5) years following the
                 termination or resolution of the litigation.

3.5.7            On-line Retention of Claims History.  HMO must keep automated
                 claims payment histories for a minimum of 18 months, from date
                 of adjudication, in an on-line inquiry system.  HMO must also
                 keep sufficient history on-line to ensure all claim/encounter
                 service information is submitted to and accepted by TDH for
                 processing.

3.6              HMO REVIEW OF TDH MATERIALS

                 TDH will submit all studies or audits that relate or refer to
                 HMO for review and comment to HMO 15 days prior to releasing
                 the report to the public or to Members.

ARTICLE IV                FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

4.1              FISCAL SOLVENCY

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4.1.1            HMO must be and remain in full compliance with all state and
                 federal solvency requirements for HMOs, including but not
                 limited to all reserve requirements, net worth standards,
                 debt- to-equity ratios, or other debt limitations.

4.1.2            If HMO becomes aware of any impending changes to its financial
                 or business structure which could adversely impact its
                 compliance with these requirements or its ability to pay its
                 debts as they come due, provide services under this contract,
                 or if HMO becomes aware of a take-over or assignment which
                 would require approval of TDI or TDH, HMO must notify TDH
                 immediately in writing.

4.1.3            HMO must not have been placed under state conservatorship or
                 receivership or filed for protection under federal bankruptcy
                 laws.  None of HMO's property, plant or equipment must have
                 been subject to foreclosure or repossession within the
                 preceding 10-year period.  HMO must not have any debt declared
                 in default and accelerated to maturity within the preceding
                 10-year period.  HMO represents that these statements are true
                 as of the contract execution date.  HMO must inform TDH within
                 24 hours of a change in any of the preceding representations.

4.2              MINIMUM EQUITY

4.2.1            HMO has minimum equity equal to the greater of (a) $1,500,000;
                 (b) an amount equal to the sum of twenty five dollars ($25)
                 times the number of all enrollees including Medicaid Members;
                 or (c) an amount that complies with standards adopted by TDI.
                 Equity is calculated by subcontracting accrued liabilities
                 from admitted assets, as those terms are defined in 28 TAC
                 Section 11.806 and Section 11.2(b) respectively.

4.2.2            The minimum equity must be maintained during the entire
                 contract period.

4.3              PERFORMANCE BOND

                 HMO has furnished TDH a performance bond in the form
                 prescribed by TDH and approved by TDI, naming TDH as Obligee,
                 securing HMO's faithful performance of the terms and
                 conditions of this contract.  The performance bond has been
                 issued in the amount of $100,000.  If the contract is renewed
                 or extended under Article XVIII, a separate bond will be
                 required for each additional term of the contract.  The bond
                 has been issued by a surety licensed by TDI, and specifies
                 cash payment as the sole remedy.  Performance Bond
                 requirements under this Article must comply with Texas
                 Insurance Code Section 11.1805, relating to Performance and
                 Fidelity Bonds.  The bond must be delivered to TDH at the same
                 time the signed HMO contract is delivered to TDH.

4.4              INSURANCE

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

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

4.4.3            HMO must maintain an umbrella professional liability insurance
                 policy for the greater of $3,000,000 or an amount (rounded to
                 the next $100,000) which represents the number of STAR Members
                 enrolled in HMO in the first month of the contract year
                 multiplied by $150, not to exceed $10,000,000.

4.4.4            Any exceptions to the requirements of this Article must be
                 approved in writing by TDH prior to the contract
                 Implementation Date.  HMOs and providers who qualify as either
                 state or federal units of government are exempt from the
                 insurance requirements of this Article and are not required to
                 obtain exemptions from these provisions prior to the contract
                 Implementation Date.  State and federal units of government
                 are required to comply with and are subject to the provisions
                 of the Texas or Federal Tort Claims Act.

4.5              FRANCHISE TAX

                 HMO certifies that its payment of franchise taxes is current
                 or that it is not subject to the State of Texas franchise tax.

4.6              AUDIT

4.6.1            TDH, TDI or their designee have the right from time to time to
                 examine and audit books and records of HMO or of its
                 Subcontractors relating to:  (1) HMO's capacity to bear the
                 risk of potential financial losses; (2) services performed or
                 determination of amounts payable under this contract; (3)
                 detection of fraud and abuse; and (4) other purposes TDH deems
                 to be necessary to perform its regulatory function and/or to
                 enforce the provisions of this contract.

4.6.2            TDH is required to conduct an audit of HMO at least once every
                 three years.  HMO is responsible for paying the costs of an
                 audit conducted under this Article.  The costs of the audit
                 may be allowed as a credit against premium taxes paid by HMO
                 under the provisions of the Texas Insurance Code.

4.7              PENDING OR THREATENING LITIGATION

                 HMO must require disclosure from Subcontractors and network
                 providers of all pending or potential litigation or
                 administrative actions against the Subcontractor or network
                 provider and must disclose this information to TDH, in
                 writing, prior to the

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                 execution of prior contracts and this renewal.  HMO must make
                 reasonable investigation and inquiry that there is not pending
                 or potential litigation or administrative action against the
                 providers or Subcontractors in HMO's provider network.  HMO
                 must notify TDH of any litigation which is initiated or
                 threatened after the Implementation Date within seven days of
                 receiving service or becoming aware of the threatened
                 litigation.

4.8              MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO
                 OPERATIONS

4.8.1            HMO was awarded this contract based upon the responses and
                 representations contained in HMO's application submitted in
                 response to TDH's RFA.  All responses and representations upon
                 which scoring was based were considered material to the
                 decision of whether to award the contract to HMO.  RFA
                 responses are incorporated into this contract by reference.
                 The provisions of this contract control over any RFA response
                 if there is a conflict between the RFA and this contract, or
                 if changes in law or policy have changed the requirements of
                 HMO contracting with TDH to provide Medicaid Managed Care.

4.8.2            This contract was awarded in part based upon HMO's
                 representation of its current equity and financial ability to
                 bear the risks under this contract.  TDH will consider any
                 misrepresentations of HMO's equity, HMO's ability to bear
                 financial risks of this contract or inflating the equity of
                 HMO, solely for the purpose of being awarded this contract, a
                 material misrepresentation and fraud under this contract.

4.8.3            Discovery of any material misrepresentation or fraud on the
                 part of HMO in HMO's application or in HMO's day-to-day
                 activities and operations may cause this contract to terminate
                 and may result in legal action being taken against HMO under
                 this contract, and state and federal civil and criminal laws.

4.9              THIRD PARTY RECOVERY

4.9.1            Third Party Recovery.  All Members are required to assign
                 their rights to any benefits to the State and agree to
                 cooperate with the State in identifying third parties who may
                 be liable for all or part of the costs for providing services
                 to the Member, as a condition for participation in the
                 Medicaid program.  HMO is authorized to act as the State's
                 agent in enforcing the State's rights to third party recovery
                 under this contract.

4.9.2            Identification.  HMO must develop and implement systems and
                 procedures to identify potential third parties who may be
                 liable for payment of all or part of the costs for providing
                 medical services to Members under this contract.  Potential
                 third parties must include any of the sources identified in 42
                 C.F.R. 433.138, relating to identifying third parties, except
                 workers' compensation, uninsured and underinsured motorist

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                 insurance, first and third party liability insurance and
                 tortfeasors.  HMO must coordinate with TDH to obtain
                 information from other state and federal agencies and HMO must
                 cooperate with TDH in obtaining information from commercial
                 third party resources.  HMO must require all providers to
                 comply with the provisions of 25 TAC Section 28, relating to
                 Third Party Recovery in the Medicaid program.

4.9.3            Exchange of identified resources.  HMO must forward identified
                 resources of uninsured and underinsured motorist insurance,
                 first and third party liability insurance and tortfeasors
                 ("excepted resources") to TDH for TDH to pursue collection and
                 recovery from these resources.  TDH will forward information
                 on all third party resources identified by TDH to HMO.  HMO
                 must coordinate with TDH to obtain information from other
                 state and federal agencies, including HCFA for Medicare and
                 the Child Support Enforcement Division of the Office of the
                 Attorney General for medical support.  HMO must cooperate with
                 TDH in obtaining and exchanging information from commercial
                 third party resources.

4.9.4            Recovery.  HMO must actively pursue and collect from third
                 party resources which have been identified, except when the
                 cost of pursuing recovery reasonably exceeds the amount which
                 may be recovered by HMO.  HMO is not required to, but may
                 pursue recovery and collection from the excepted resources
                 listed in 4.9.3.  HMO must report the identity of these
                 resources to TDH, even if HMO will pursue collection and
                 recovery from the excepted resources.

4.9.4.1          HMO must provide third party resource information to network
                 providers to whom individual Members have been assigned or who
                 provide services to Members.  HMO must require providers to
                 seek recovery from potential third party resources prior to
                 seeking payment from HMO.  If network providers are paid
                 capitation, HMO must either seek recovery from third party
                 resources or account to TDH for all amounts received by
                 network providers from third party resources.

4.9.4.2          HMO must prohibit network providers from interfering with or
                 placing liens upon the State's right or HMO's right, acting as
                 the State's agent, to recovery from third party resources. HMO
                 must prohibit network providers from seeking recovery in
                 excess of the Medicaid payable amount or otherwise violating
                 state and federal laws.

 4.9.5           Retention.  HMO may retain as income all amounts recovered
                 from third party sources as long as recoveries are obtained in
                 compliance with the contract and state and federal laws.

4.9.6            Accountability.  HMO must report all third party recovery
                 efforts and amounts recovered as required in 12.1.10.  If HMO
                 fails to pursue and recover from third parties no later 180
                 days after the date of service, TDH may pursue third party
                 recoveries and retain all amounts recovered without accounting
                 to HMO for the amounts recovered.  Amounts recovered by TDH
                 will be added to expected third

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                 party recoveries to reduce future capitation rates, except
                 recoveries from those excepted third party resources listed in
                 4.9.3.

4.10             CLAIMS PROCESSING REQUIREMENTS

4.10.1           HMO and claims processing subcontractors must comply with
                 TDH's Texas Managed Care Claims Manual (Claims Manual), which
                 contains TDH's claims processing requirements.

4.10.2           HMO must forward claims submitted to HMO in error to either
                 the correct HMO if the correct HMO can be determined from the
                 claim or is otherwise known to HMO or the State's claims
                 administrator; or to the provider who submitted the claim in
                 error, along with an explanation of why the claim is being
                 returned.

4.10.3           HMO must not pay any claim submitted by a provider who is
                 under investigation for or has been excluded or suspended from
                 the Medicare or Medicaid programs for fraud and abuse when HMO
                 is on actual or constructive notice of the investigation,
                 exclusion or suspension.

4.10.4           All provider clean claims must be adjudicated (finalized as
                 paid or denied adjudicated) within 30 days from the date the
                 claim is received by HMO. HMO must pay providers interest on
                 a clean claim which is not adjudicated within 30 days from the
                 date the claim is received by HMO or becomes clean at a rate
                 of 1.5% per month (18% annual) for each month the clean claim
                 remains unadjudicated.

4.10.4.1         All claims and appeals submitted to HMO and claims processing
                 subcontractors must be paid- adjudicated (clean claims),
                 denied-adjudicated (clean claims), or denied for additional
                 information (unclean claims) to providers within 30 days from
                 the date the claim is received by HMO.  Providers must be sent
                 a written notice for each claim that is denied for additional
                 information (unclean claims) identifying the claim, all
                 reasons why the claim is being denied, the date the claim was
                 received by HMO, all information required from the provider in
                 order for HMO to adjudicate the claim, and the date by which
                 the requested information must be received from the provider.

4.10.4.2         Claims that are suspended (pended internally) must be
                 subsequently paid-adjudicated, denied- adjudicated, or denied
                 for additional information (pended externally) within 30 days
                 from date of receipt.  No claim can be suspended for a period
                 exceeding 30 days from date of receipt of the claim.

4.10.4.3         HMO must identify each data field of each claim form that is
                 required from the provider in order for HMO to adjudicate the
                 claim.  HMO must inform all network providers about the
                 required fields at least 30 days prior to the service area
                 Implementation Date or as a provision within HMO/provider
                 contract.  Out of network providers must be informed of all
                 required fields if the claim is denied for

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                 additional information.  The required fields must include
                 those required by HMO and TDH.

4.10.5           HMO is subject to the Remedies and Sanctions Article of this
                 Contract for claims that are not processed on a timely basis
                 as required by this Contract and the Claims Manual.

4.10.6           HMO must offer to its Subcontractors the option of submitting
                 and receiving claims information through electronic data
                 interchange (EDI) that allows for automated processing and
                 adjudication of claims.  EDI processing must be offered as an
                 alternative to the filing of paper claims.

4.11             INDEMNIFICATION

4.11.1           HMO/TDH:  HMO must agree to indemnify TDH and its agents for
                 any and all claims, costs, damages and expenses, including
                 court costs and reasonable attorney's fees, which are related
                 to or arise out of:

4.11.1.1         Any failure, inability, or refusal of HMO or any of its
                 network providers or other Subcontractors to provide contract
                 services;

4.11.1.2         Claims arising from HMO's, HMO's network provider's or other
                 Subcontractor's negligent or intentional conduct in providing
                 services under this contract.

4.11.1.3         Failure, inability or refusal of HMO to pay any of its network
                 providers or Subcontractors for services.

4.11.2           HMO/Provider:  HMO is prohibited from requiring any providers
                 to indemnify HMO for HMO's own acts or omissions which result
                 in damages or sanctions being assessed against HMO either
                 under this contract or under state or federal law.

ARTICLE V                 STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

5.1              COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS

5.1.1            HMO must know, understand and comply with all state and
                 federal laws and regulations relating to the Texas Medicaid
                 Program which have not been waived by HCFA.  HMO must comply
                 with all rules relating to the Medicaid managed care program
                 adopted by TDH,TDI,THHSC, TDMHMR and any other state agency
                 delegated authority to operate or administer Medicaid or
                 Medicaid managed care programs.

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5.1.2            HMO must require, through contract provisions, that all
                 network providers or Subcontractors comply with all state and
                 federal laws and regulations relating to the Texas Medicaid
                 Program and all rules relating to the Medicaid managed care
                 program adopted by TDH, TDI, THHSC, TDMHMR and any other state
                 agency delegated authority to operate Medicaid or Medicaid
                 Managed Care programs.

5.1.3            HMO must comply with the provisions of the Clean Air Act and
                 the Federal Water Pollution Control Act, as amended, found at
                 42 C.F.R. 7401, et. seq. and 33 U.S.C. 1251, et. seq.,
                 respectively.

5.2              PROGRAM INTEGRITY

5.2.1            HMO has not been excluded, debarred, or suspended from
                 participation in any program under Title XVIII or Title XIX
                 under any of the provisions of Section 1128(a) or (b) of the
                 Social Security Act (42 USC Section 1320 a-7), or Executive
                 Order 12549.  HMO must notify TDH within 3 days of the time it
                 receives notice that any action is being taken against HMO or
                 any person defined under the provisions of section 1128(a) or
                 (b) or any Subcontractor, which could result in exclusion,
                 debarment, or suspension of HMO or a Subcontractor from the
                 Medicaid program, or any program listed in Executive Order
                 12549.

5.2.2            HMO must comply with the provisions of, and file the
                 certification of compliance required by the Byrd Anti-Lobbying
                 Amendment, found at 31 U.S.C. 1352, relating to use of federal
                 funds for lobbying for or obtaining federal contracts.

5.3              FRAUD AND ABUSE COMPLIANCE PLAN

5.3.1            This contract is subject to all state and federal laws and
                 regulations relating to fraud and abuse in health care and the
                 Medicaid program.  HMO must cooperate and assist TDH and any
                 state or federal agency charged with the duty of identifying,
                 investigating, sanctioning or prosecuting suspected fraud and
                 abuse.  HMO must provide originals and/or copies of all
                 records and information requested and allow access to premises
                 and provide records to TDH or its authorized agent(s), THHSC,
                 HCFA, the U.S. Department of Health and Human Services, FBI,
                 TDI, and the Texas Attorney General's Medicaid Fraud Control
                 Unit.  All copies of records must be provided free of charge.

5.3.2            HMO must submit a written compliance plan to TDH for approval
                 at least 150 days prior to the Implementation Date.  HMO must
                 submit any updates or modifications to TDH for approval at
                 least 30 days prior to modifications going into effect.

5.3.2.1          The plan must ensure that all officers, directors, managers
                 and employees know and understand the provisions of HMO's
                 fraud and abuse compliance plan.  The written

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<PAGE>   31
                 plan must contain procedures designed to prevent and detect
                 potential or suspected abuse and fraud in the administration
                 and delivery of services under this contract. The plan must
                 contain provisions for the confidential reporting of plan
                 violations to the designated person.  The plan must contain
                 provisions for the investigation and follow-up of any
                 compliance plan reports.  The fraud and abuse compliance plan
                 must ensure that the identity of individuals reporting
                 violations of the plan is protected.  The plan must contain
                 specific and detailed internal procedures for officers,
                 directors, managers and employees for detecting, reporting,
                 and investigating fraud and abuse compliance plan violations.
                 The compliance plan must require that confirmed violations be
                 reported to TDH.

5.3.2.2          The plan must require any confirmed or suspected fraud and
                 abuse under state or federal law be reported to TDH, the
                 Medicaid Program Integrity section of the Office of
                 Investigations and Enforcement of the Texas Health and Human
                 Services Commission, and/or the Medicaid Fraud Control Unit of
                 the Texas Attorney General.   The written plan must ensure
                 that no individual who reports plan violations or suspected
                 fraud and abuse is retaliated against.

5.3.3            HMOs must comply with the requirements of the Model Compliance
                 Plan for HMOs when this model plan is issued by the U.S.
                 Department of Health and Human Services, the Office of
                 Inspector General (OIG).  HMO must designate executive and
                 essential personnel to attend mandatory training in fraud and
                 abuse detection, prevention and reporting.  The training will
                 be conducted by the Office of Investigation and Enforcement,
                 Health and Human Services Commission and will be provided free
                 of charge.  Training must be scheduled not later than 150 days
                 before the Implementation Date, and completed by all
                 designated personnel not later than 60 days before the
                 Implementation Date.

5.3.4            HMO must designate an officer or director in its organization
                 who has the responsibility and authority for carrying out the
                 provisions of the fraud and abuse compliance plan.

5.3.5            HMO's failure to report potential or suspected fraud or abuse
                 may result in sanctions, cancellation of contract, or
                 exclusion from participation in the Medicaid program.

5.3.6            HMO must allow the Texas Medicaid Fraud Control Unit to
                 conduct private interviews of HMO's employees, Subcontractors
                 and their employees, witnesses, and patients.  Requests for
                 information must be complied with in the form and the language
                 requested.  HMO's employees and its Subcontractors and their
                 employees must cooperate fully and be available in person for
                 interviews, consultation, grand jury proceedings, pre-trial
                 conference, hearings, trial and in any other process.

5.4              SAFEGUARDING INFORMATION

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5.4.1            All Member information, records and data collected or provided
                 to HMO by TDH or another State agency is protected from
                 disclosure by state and federal law and regulations.  HMO may
                 only receive and disclose information which is directly
                 related to establishing eligibility, providing services and
                 conducting or assisting in the investigation and prosecution
                 of civil and criminal proceedings under state or federal law.
                 HMO must include a confidentiality provision in all
                 subcontracts with individuals.

5.4.2            HMO is responsible for informing Members and providers
                 regarding the provisions of 42 C.F.R. 431, Subpart F, relating
                 to Safeguarding Information on Applicants and Recipients, and
                 HMO must ensure that confidential information is protected
                 from disclosure except for authorized purposes.

5.4.3            HMO is responsible for educating Members and providers
                 concerning the Human Immunodeficiency Virus (HIV) and its
                 related conditions including Acquired Immunodeficiency
                 Syndrome (AIDS). PCP must develop and implement a policy for
                 protecting the confidentiality of AIDS and HIV- related
                 medical information and an anti-discrimination policy for
                 employees and Members with communicable diseases.  See also
                 Health and Safety Code, Chapter 85, Subchapter E relating to
                 Duties of State Agencies and State Contractors.

5.4.4            HMO must require, through contractual provisions, that
                 subcontractors have mechanisms in place to ensure Member's
                 (including minor's) confidentiality for family planning
                 services.

5.5              NON-DISCRIMINATION

                 HMO agrees to comply with and to include in all Subcontracts a
                 provision that the Subcontractor will comply with each of the
                 following requirements:

5.5.1            Title VI of the Civil Rights Act of 1964, Section 504 of the
                 Rehabilitation Act of 1973, the Americans with Disabilities
                 Act of 1990, and all requirements imposed by the regulations
                 implementing these acts and all amendments to the laws and
                 regulations.  The regulations provide in part that no person
                 in the United States shall on the grounds of race, color,
                 national origin, sex, age, disability, political beliefs or
                 religion be excluded from participation in, or denied, any
                 aid, care, service or other benefits, or be subjected to any
                 discrimination under any program or activity receiving federal
                 funds.

5.5.2            Texas Health and Safety Code Section 85.113 (relating to
                 workplace and confidentiality guidelines regarding AIDS and
                 HIV).

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5.5.3            The provisions of Executive Order 11246, as amended by 11375,
                 relating to Equal Employment Opportunity.

5.5.4            HMO SHALL NOT DISCRIMINATE WITH RESPECT TO PARTICIPATION,
                 REIMBURSEMENT, OR INDEMNIFICATION AS TO ANY PROVIDER WHO IS
                 ACTING WITHIN THE SCOPE OF THE PROVIDER'S LICENSE OR
                 CERTIFICATION UNDER APPLICABLE STATE LAW, SOLELY ON THE BASIS
                 OF SUCH LICENSE OR CERTIFICATION.  THIS REQUIREMENT SHALL NOT
                 BE CONSTRUED TO PROHIBIT HMO FROM INCLUDING PROVIDERS ONLY TO
                 THE EXTENT NECESSARY TO MEET THE NEEDS OF THE HMO'S MEMBERS OR
                 FROM ESTABLISHING ANY MEASURE DESIGNED TO MAINTAIN QUALITY AND
                 CONTROL COSTS CONSISTENT WITH HMO'S RESPONSIBILITIES.

5.6              HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)

5.6.1            TDH is committed to providing procurement and contracting
                 opportunities to historically underutilized businesses (HUBs),
                 under the provisions of Texas Government Code, Title 10,
                 Subtitle D, Chapter 2161 and 1 TAC Section 111.11(b) and
                 111.13(c)(7).  TDH requires its Contractors and Subcontractors
                 to make a good faith effort to assist HUBs in receiving a
                 portion of the total contract value of this contract.

5.6.2            The HUB good faith effort goal for this contract is 18.1% of
                 total premiums paid.  HMO agrees to make a good faith effort
                 to meet or exceed this goal. HMO acknowledges it made certain
                 good faith effort representations and commitments to TDH
                 during the HUB good faith effort determination process.  HMO
                 agrees to use its best efforts to abide by these
                 representations and commitments during the contract period.

5.6.3            HMO is required to submit HUB quarterly reports to TDH as
                 required in Article 12.11.

5.6.4            TDH will assist HMO in meeting the contracting and reporting
                 requirements of this Article.

5.7              BUY TEXAS

                 HMO agrees to "Buy Texas" products and materials when they are
                 available at a comparable price and in a comparable period of
                 time, as required by Section 48 of Article IX of the General
                 Appropriations Act of 1995.

5.8              CHILD SUPPORT

5.8.1            The Texas Family Code Section 231.006 requires TDH to withhold
                 contract payments from any for-profit entity or individual who
                 is at least 30 days delinquent in child support obligations.
                 It is HMO's responsibility to determine and verify that no
                 owner, partner, or shareholder who has at least at 25%
                 ownership interest is delinquent in

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<PAGE>   34
                 child support obligations.  HMO must attach a list of the
                 names and Social Security numbers of all shareholders,
                 partners or owners who have at least a 25% ownership interest
                 in HMO.

5.8.2            Under Section 231.006 of the Family Code, the vendor or
                 applicant certifies that the individual or business entity
                 named in this contract, bid, or application is not ineligible
                 to receive the specified grant, loan, or payment and
                 acknowledges that this contract may be terminated and payment
                 may be withheld if this certification is inaccurate.  A child
                 support obligor who is more than 30 days delinquent in paying
                 child support or a business entity in which the obligor is a
                 sole proprietor, partner, shareholder, or owner with an
                 ownership interest of at least 25% is not eligible to receive
                 the specified grant, loan or payment.

5.8.3            If TDH is informed and verifies that a child support obligor
                 who is more than 30 days delinquent is a partner, shareholder,
                 or owner with at least a 25% ownership interest, it will
                 withhold any payments due under this contract until it has
                 received satisfactory evidence that the obligation has been
                 satisfied or that the obligor has entered into a written
                 repayment request.

5.9              REQUESTS FOR PUBLIC INFORMATION

5.9.1            This contract and all network provider and Subcontractor
                 contracts are subject to public disclosure under the Public
                 Information Act (Texas Government Code, Chapter 552).  TDH may
                 receive Public Information requests related to this contract,
                 information submitted as part of the compliance of the
                 contract and HMO's application upon which this contract was
                 awarded.  TDH agrees that it will promptly deliver a copy of
                 any request for public information to HMO.

5.9.2            If HMO believes that the requested information qualifies as a
                 trade secret, commercial or financial information, HMO must,
                 within two (2) working days of HMO's receipt of the request,
                 notify TDH of the specific text, or portion of text, which HMO
                 claims is excepted from required public disclosure.  HMO is
                 required to identify the specific provisions of the Act which
                 HMO believes are applicable, and is required to include a
                 detailed written explanation of how the exceptions apply to
                 the specific information identified by HMO as confidential and
                 excepted from required public disclosure.

5.9.3            TDH may, in its sole discretion, request a decision from the
                 Office of the Attorney General (AG opinion) regarding whether
                 the information requested is excepted from required public
                 disclosure.  TDH may rely on HMO's written representations in
                 preparing any AG opinion request, in accordance with Texas
                 Government Code Section 552.305.  TDH is not liable for
                 failing to request an AG opinion or for releasing information
                 which is not deemed confidential by law, if HMO fails to
                 provide TDH

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                 with specific reasons why the requested information is exempt
                 from the required public disclosure.  TDH or the Office of the
                 Attorney General will notify all interested parties if an AG
                 opinion is requested.

5.10             NOTICE AND APPEAL

                 HMO must comply with the notice requirements contained in 25
                 TAC Section 36.21, and the maintaining benefits and services
                 contained in 25 TAC Section 36.22, whenever HMO intends to
                 take an action affecting the Member benefits and services
                 under this contract.  See also the Member appeal requirements
                 contained in Article 8.7 of this contract.

ARTICLE VI                SCOPE OF SERVICES

6.1              SCOPE OF SERVICES - GENERAL

                 HMO must provide or arrange to have provided to Members all
                 health care services listed in Appendix C - Scope of Services,
                 which is attached and incorporated into this contract.  HMO
                 must also provide or arrange to have provided to mandatory
                 Members all value-added services listed in HMO's response to
                 the RFA for this contract.  The RFA and responses are
                 incorporated into this contract by reference.

6.2              PRE-EXISTING CONDITIONS

                 HMO is responsible for providing all covered services to each
                 eligible Member beginning on the Implementation Date or the
                 Member's date of enrollment under the contract regardless of
                 pre-existing conditions, prior diagnosis and/or receipt of any
                 prior health care services.

6.3              SPAN OF ELIGIBILITY

                 HMO must provide all services to Members assigned to HMO under
                 this contract for all periods for which HMO has received
                 payment, except as follows:

6.3.1            Inpatient admission prior to enrollment in HMO.  HMO is
                 responsible for payment of physician and non-hospital services
                 from the date of enrollment in HMO. HMO is not responsible for
                 hospital charges for Members admitted prior to enrollment.

6.3.2            Inpatient admission after enrollment in HMO.  HMO is
                 responsible for all services until the Member is discharged
                 from the hospital, unless the Member loses Medicaid or STAR
                 eligibility.  In such cases, HMO is liable for all services
                 during the period HMO is paid capitation for the Member.

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6.3.3            Discharge after voluntary disenrollment from HMO and
                 re-enrollment into a new HMO.  HMO remains responsible for
                 payment of hospital charges until the Member is discharged.
                 HMO to whom Member transfers is responsible for payment of all
                 physician and non-hospital charges beginning on the effective
                 date of enrollment into the new HMO.

6.3.4            Newborns.  HMO is responsible for all costs, including
                 hospital, physician and non-hospital costs attributed to the
                 care to a newborn child if the mother was enrolled in HMO on
                 the date of birth.

6.3.5            Hospital Transfer.  Discharge from one hospital and
                 readmission or admission to another hospital within 24 hours
                 for continued treatment shall not be considered discharge
                 under this Article.

6.3.6            HMO insolvency or receivership.  HMO is responsible for
                 payment of all services provided to a person who was a Member
                 on the date of insolvency or receivership to the same extent
                 they would otherwise be responsible under this Article 6.3.

6.4              CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS

6.4.1            HMO must ensure that the care of newly enrolled Members is not
                 disrupted or interrupted. HMO must take special care to
                 provide continuity in the care of newly enrolled Members whose
                 health or behavioral health condition has been treated by
                 specialty care providers or whose health could be placed in
                 jeopardy if care is disrupted or interrupted.

6.4.2            Pregnant Members with 12 weeks or less remaining before the
                 expected delivery date must be allowed to remain under the
                 care of the Member's current OB/GYN through the Member's
                 postpartum checkup even if the provider is out-of-network.  If
                 the Member wants to change her OB/GYN to one who is in the
                 plan, she must be allowed to do so if the provider to whom she
                 wishes to transfer agrees to accept her in the last trimester.

6.4.3            HMO must pay a Member's existing out-of-network providers for
                 covered services until the Member's records, clinical
                 information and care can be transferred to a network provider.
                 Payment must be made within the time period required for
                 network providers.  Payment amounts must be the amount HMO
                 pays a comparable network provider, an amount negotiated
                 between the out-of-network provider and HMO, or the Medicaid
                 fee-for-service amount.  This Article does not extend the
                 obligation of HMO to reimburse existing out-of-network
                 providers of ongoing care for more than 90 days after Member
                 enrolls in HMO or for more than nine months in the case of
                 Member who at the time of enrollment in HMO, have been
                 diagnosed with a terminal illness.  However, the obligation of
                 HMO to reimburse the existing out-of-network provider for
                 services provided to a pregnant Member with 12 weeks or less

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                 remaining before the expected delivery date extends through
                 delivery of the child, immediate postpartum care, and the
                 follow-up checkup within the first six weeks of delivery.

6.4.4            HMO must provide or pay out-of-network providers who provide
                 covered services to Members who move out of the service area
                 through the end of the period for which capitation has been
                 paid.

6.5              EMERGENCY SERVICES

6.5.1            HMO must provide or arrange to have provided, and pay for
                 emergency services.  Emergency services includes all emergency
                 facility charges related to behavioral health diagnoses except
                 those charges by specialized behavioral health emergency
                 facilities.  HMO cannot require prior authorization as a
                 condition for payment for emergency services.  HMO must have a
                 system for providers to verify Member enrollment in HMO 24
                 hours a day, 7 days a week.

6.5.2            HMO must provide emergency services 24 hours a day, 7 days a
                 week, at a hospital, by access to physician consultation or
                 emergency medical care through HMO's own facilities or through
                 arrangements approved by TDH with other providers.  HMO must
                 provide conveniently located emergency services sites for
                 providing after-hour emergency services.

6.5.3            HMO must have emergency and crisis hotline services available
                 24 hours a day, 7 days a week toll-free throughout the service
                 area.  Staff must be qualified to assess the immediate health
                 care needs and determine whether an emergency condition exists
                 and provide triage, advice, and referral and, if necessary,
                 arrange for treatment of the Member.  Crisis hotline staff
                 must include or have access to qualified behavioral health
                 professionals to assess behavioral health emergencies.  It is
                 not acceptable for an emergency intake line to be answered by
                 an answering machine.

6.5.4            HMO must develop and maintain an educational program to ensure
                 that Members understand what is an emergency medical condition
                 and know where and how to obtain medically necessary services
                 in emergency situations, 24 hours a day, seven days a week.

6.5.5            HMO must include in its provider network TDH designated trauma
                 centers which are within the service area.

6.5.6            HMO must coordinate with emergency response systems in the
                 community, including the police, fire and EMS departments,
                 child protective services, and chemical dependency emergency
                 services.

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6.5.7            HMO must pay for emergency services provided to Members inside
                 or outside of HMO's provider network and service area.  HMO
                 must pay reasonable and customary reimbursement amounts for
                 providers and emergency services required to assess whether an
                 emergency exists, and deliver emergency services required.

6.5.8            HMO may establish reasonable deadlines for providers to submit
                 claims for out-of-network and out of service area emergency
                 services.  HMO must pay out-of-network and service-area
                 provider clean claims within 30 days from HMO's receipt of a
                 clean claim.

6.5.9            HMO must provide a written copy of its policies and procedures
                 for emergency admissions to TDH for approval not later than 90
                 days prior to the Implementation Date.  Modifications or
                 amendments to policies and procedures must be submitted to TDH
                 for approval at least 60 days prior to the implementation of
                 the modification or amendment.

6.6              BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS

6.6.1            HMO must provide or arrange to provide to Members all
                 Behavioral Health Services listed in Appendix C - Scope of
                 Services, which is attached and incorporated into this
                 contract.

6.6.2            HMO must maintain a Member education process to help Members
                 know where and how to obtain behavioral health services.

6.6.3            HMO must require its PCPs to have medical history, screening
                 and evaluation procedures for behavioral health problems and
                 disorders and either treat or refer the Member for evaluation
                 and treatment of known or suspected behavioral health problems
                 and disorders.  PCPs may provide any clinically appropriate
                 behavioral health services within the scope of their practice.

6.6.4            HMO must establish policies and procedures that require PCP
                 and behavioral health providers to coordinate HMO and
                 behavioral health organization (BHO) covered services.

6.6.5            HMO must have policies and procedures which allow confidential
                 information to be shared by the PCP and the primary behavioral
                 health care provider.

6.6.6            HMO must execute a Memorandum of Agreement (MOA) with
                 NorthStar-contracted BHOs in the service area.  The MOA must
                 contain provisions for coordination of care and must address
                 the following:

6.6.6.1          How HMO and BHO will provide education to Members regarding
                 the services that each will provide and how the Member can
                 access the services;

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6.6.6.2          How HMO and BHO will provide education and information to
                 providers regarding which entity is responsible for claims
                 processing and payment;

6.6.6.3          How emergency services will be paid and coordinated;

6.6.6.4          Guidelines and procedures to monitor accessibility,
                 availability, referral and coordination to medically necessary
                 and appropriate physical and behavioral health care for
                 Members with both physical and behavioral health problems; and
                 how claims will be processed and paid;

6.6.6.5          Members utilization of prescribed medicines from both HMO and
                 BHO to monitor psychopharmacological medications and prevent
                 adverse drug reactions;

6.6.6.6          Identify persons in HMO and BHO to coordinate services and
                 provide assistance to their respective providers;

6.6.6.7          How each entity will provide guidelines and education to
                 providers regarding the exchange of confidential medical
                 record information, with Member permission, between the PCPs
                 and the primary behavioral health providers, including
                 mechanisms to protect confidentiality of medical records;

6.6.6.8          Collaboration on any joint Quality Improvement studies,
                 reviews or other State required projects.

6.6.7            HMO must establish and implement policies and procedures to
                 allow its network PCPs to refer Members for BHO services by
                 contacting HMO's contact person with the BHO.

6.6.8            When assessing Members for behavioral health services, HMO
                 must use the DSM-IV multi-axial classification and report axes
                 I, II, III, IV, and V to TDH.  TDH may require use of other
                 assessment instrument/outcome measures in addition to the
                 DSM-IV.  Providers must document DSM-IV and assessment/outcome
                 information in the Member's medical record.

6.7              FAMILY PLANNING - SPECIFIC REQUIREMENTS

6.7.1            Counseling and Education.  HMO must require, through contract
                 provisions, that Members requesting contraceptive services or
                 family planning services are provided counseling and
                 education.  HMO must provide education about family planning
                 and family planning services available to Members.  HMO must
                 develop outreach programs to increase community support for
                 family planning and encourage Members to use available family
                 planning services.  HMO is encouraged to include a
                 representative cross-section of Members and family planning
                 providers of the

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<PAGE>   40
                 community in developing, planning and implementing family
                 planning outreach programs.

6.7.2            Freedom of Choice.  HMO must ensure that the Member has the
                 right to choose any Medicaid participating family planning
                 provider in or out of its network (family planning providers
                 are listed in Appendix D).  HMO must provide Member access to
                 information about the providers of family planning services
                 available in the network and the Member's right to choose any
                 Medicaid family planning provider. HMO must provide access to
                 confidential family planning services.

6.7.3            Provider Standards and Payment.  HMO must require all
                 Subcontractors who are family planning agencies to deliver
                 family planning services according to the TDH Family Planning
                 Service Delivery Standards.  HMO must provide, at minimum, the
                 full scope of services available under the Texas Medicaid
                 program for family planning services.  HMO will reimburse
                 out-of- network family planning providers the Medicaid fee-for
                 service amounts for family planning services only.

6.7.4            HMO must provide medically approved methods of contraception
                 to Members.   Contraceptive methods must be accompanied by
                 verbal and written instructions on their correct use.  HMO
                 must establish mechanisms to ensure all medically approved
                 methods of contraception are made available to the Member,
                 either directly or by referral to a Subcontractor.  The
                 following initial Member education content may vary according
                 to the educator's assessment of the Member's current
                 knowledge:

6.7.4.1          general benefits of family planning services and
                 contraception;

6.7.4.2          information on male and female basic reproductive anatomy and
                 physiology;

6.7.4.3          information regarding particular benefits and potential side
                 effects and complications of all available contraceptive
                 methods;

6.7.4.4          information concerning all of the health care provider's
                 available services, the purpose and sequence of health care
                 provider procedures, and the routine schedule of return
                 visits;

6.7.4.5          information regarding medical emergencies and where to obtain
                 emergency care on a 24-hour basis;

6.7.4.6          breast self-examination rationales and instructions unless
                 provided during physical exam (for females); and

6.7.4.7          information on HIV/STD infection and prevention and safer sex
                 discussion.

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6.7.5            HMO must require, through contractual provisions, that
                 subcontractors have mechanisms in place to ensure Member's
                 (including minor's) confidentiality for family planning
                 services.

6.7.6            HMO must develop, implement, monitor, and maintain standards,
                 policies and procedures for providing information regarding
                 family planning to providers and Members, specifically
                 regarding State and federal laws governing Member
                 confidentiality (including minors).

6.7.7            HMO must report encounter data on family planning services in
                 accordance with Article 12.2.

6.8              TEXAS HEALTH STEPS (THSteps - formerly EPSDT)

6.8.1            THSteps Services.  HMO must develop effective methods to
                 ensure that children under the age of 21 receive THSteps
                 services when due and according to the recommendations
                 established by the American Academy of Pediatrics and the
                 THSteps periodicity schedule for children.  HMO must provide
                 THSteps services to all eligible Members except when a Member
                 knowingly and voluntarily declines or refuses services after
                 the Member has been provided information upon which to make an
                 informed decision.

6.8.2            Member Education and Information.  HMO must ensure that
                 Members are provided information and educational materials
                 about the services available through the THSteps program, and
                 how and when they can obtain the services.  The information
                 should tell the Member how they can obtain dental benefits,
                 transportation services through the TDH Medical Transportation
                 program, and advocacy assistance from HMO.

6.8.3            Provider education and training.  HMO must provide appropriate
                 training to all network providers and provider staff in the
                 providers' area of practice regarding the scope of benefits
                 available and the THSteps program.  Training must include
                 THSteps benefits, the periodicity schedule for THSteps
                 checkups and immunizations, and services available under the
                 THSteps program which are not available to all Medicaid
                 recipients and are available to ensure that Members can comply
                 with the periodicity schedule, including but not limited to
                 transportation, dental checkups, and CCP.  Providers must also
                 be educated and trained regarding the requirements imposed
                 upon the department and contracting HMOs under the Consent
                 Decree entered in Frew v. McKinney, et. al., Civil Action No.
                 3:93CV65, in the United States District Court for the Eastern
                 District of Texas, Paris Division.  Providers should be
                 educated and trained to treat each THSteps visit as an
                 opportunity for a comprehensive assessment of the Member.

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6.8.4            Member Outreach.  HMO must provide an outreach unit that works
                 with Members to ensure they receive prompt services and are
                 knowledgeable about available Texas Health Step services.
                 Outreach staff must coordinate with TDH Texas Health Step
                 outreach staff to ensure that Members have access to the
                 Medical Transportation Program, and that any coordination with
                 other agencies is maintained.  MTP will not transport Members
                 to value-added services offered by HMO.

6.8.5            Initial Checkups upon enrollment.  HMO must have mechanisms in
                 place to ensure that all newly enrolled Members receive a
                 THSteps checkup within 90 days from enrollment, if one is due
                 according to the American Academy of Pediatrics periodicity
                 schedule, or if there is uncertainty regarding whether one is
                 due.  HMO should make THSteps checkups a priority to all newly
                 enrolled Members.

6.8.6            Accelerated Services to Migrant Populations.  HMO must
                 cooperate and coordinate with the department, outreach
                 programs and THSteps regional program staff and agents to
                 ensure prompt delivery of services to children of migrant farm
                 workers and other migrant populations who may transition into
                 and out of HMOs program more rapidly and/or unpredictably than
                 the general population.

6.8.7            Newborn checkups.  HMO must have mechanisms in place to ensure
                 that all newborn children of Members have an initial newborn
                 checkup before discharge from the hospital and again within
                 two weeks from the time of birth.  HMO must require providers
                 to send all THSteps newborn screens to the TDH Bureau of
                 Laboratories or a TDH certified laboratory.  Providers must
                 include detailed identifying information for all screened
                 newborns and the Member's mother to allow TDH to link the
                 screens performed at the hospital with screens performed at
                 the two week follow-up.

6.8.8            Coordination and Cooperation.  HMO must make an effort to
                 coordinate and cooperate with existing community and
                 school-based health and education programs that offer services
                 to school-aged children in a location that is both familiar
                 and convenient to the Members.  HMO must make a good faith
                 effort to comply with Head Start's requirement that members
                 participating in Head Start receive their THSteps checkup no
                 later than 45 days after enrolling into either program.

6.8.9            Immunizations and Laboratory Tests.  HMO must require
                 providers to comply with the THSteps program requirements for
                 submitting laboratory tests to the TDH Bureau of Laboratories
                 or the Texas Center for Infectious Disease Cytopathology
                 Laboratory Department.

6.8.9.1          ImmTrac Compliance.  HMO must educate providers about and
                 require providers to comply with the requirements of Chapter
                 161, Health and Safety Code, relating to the Texas
                 Immunization Registry (ImmTrac).

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6.8.9.2          Vaccines for Children Program.  Registered providers can also
                 receive the vaccines free from TDH through the Vaccines for
                 Children Program (VFC).   These vaccines are supplied to
                 provider offices through local and state public health
                 departments. (Please refer to Texas Medicaid Service Delivery
                 Guide, pages 4-9.)

6.8.10           Claim forms.  HMO must require all THSteps providers to submit
                 claims for services paid (either on a capitated or fee-for
                 service basis) on the HCFA 1500 claim form and use the unique
                 procedure coding required by TDH.

6.8.11           Compliance with THSteps performance milestones.  TDH will
                 establish performance milestones against which HMO's full
                 compliance with the THSteps periodicity schedule will be
                 measured. The performance milestones will establish minimum
                 compliance measures which will increase over time.  HMO must
                 meet all performance milestones required for THSteps services.
                 HMO must submit all THSteps reports and encounters as required
                 under this contract.  Failure to meet or exceed the
                 performance milestones may result in:  removal of THSteps
                 component of the capitation amounts paid to HMO; or any of the
                 Remedies contained in Article XVIII. Repeated non-compliance
                 with the THSteps performance milestones is a major breach of
                 the terms of this contract and could result in termination of
                 the contract, or non-renewal of the contract, in addition to
                 all money damages and sanctions assessed against HMO for non-
                 compliance with reporting administrative requirements.

6.8.12           Validation of Encounter Data.  Encounter data will be
                 validated by chart review of a random sample of THSteps
                 eligible enrollees against monthly encounter data reported by
                 HMO.  Chart reviews will be conducted by TDH to validate that
                 all screens are performed when due and as reported, and that
                 reported data is accurate and timely.  Substantial deviation
                 between reported and charted encounter data could result in
                 HMO and/or network providers being investigated for potential
                 fraud and abuse without notice to HMO or the provider.

6.9              PERINATAL SERVICES

6.9.1            HMO's perinatal health care services must ensure appropriate
                 care is provided to women and infants, from the preconception
                 period through the infant's first year of life.  HMO's
                 perinatal health care system must comply with the requirements
                 of Health & Safety Code, Chapter 32 Maternal and Infant Health
                 Improvement Act and 25 TAC Section 37.233 et. seq.

6.9.2            HMO shall have a perinatal health care system in place that,
                 at a minimum, provides the following services:

6.9.2.1          pregnancy planning and perinatal health promotion and
                 education for reproductive age women;

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6.9.2.2          perinatal risk assessment of nonpregnant women, pregnant and
                 postpartum women, and infants up to one year of age;

6.9.2.3          access to appropriate levels of care based on risk assessment,
                 including emergency care;

6.9.2.4          transfer and care of pregnant women, newborns, and infants to
                 tertiary care facilities when necessary;

6.9.2.5          availability and accessibility of obstetricians/gynecologists;
                 anesthesiologists, and neonatologists capable of dealing with
                 complicated perinatal problems;

6.9.2.6          availability and accessibility of appropriate outpatient and
                 inpatient facilities capable of dealing with complicated
                 perinatal problems; and

6.9.2.7          compiles, analyzes and reports process and outcome data of
                 Members to TDH.

6.9.3            HMO must have procedures in place to assign a pediatrician to
                 an unborn child prior to birth of the child.

6.9.4            HMO must provide inpatient care for a Member and a newborn
                 child in a health care facility, if requested by the mother or
                 is determined to be medically necessary by the Member's PCP,
                 for a minimum of:

6.9.4.1          48 hours following an uncomplicated vaginal delivery and,

6.9.4.2          96 hours for an uncomplicated caesarian delivery.

6.9.5            HMO must establish mechanisms to ensure that medically
                 necessary inpatient care is provided to either the Member or
                 the newborn child for complications following the birth of
                 newborn using HMO's prior authorization procedures for a
                 medically necessary hospitalization.

6.9.6            HMO is responsible for all services provided to the newborn
                 unless and until the newborn is enrolled into another plan.

6.10             EARLY CHILDHOOD INTERVENTION

6.10.1           ECI Services.  HMO must provide all federally mandated
                 services contained at 34 C.F.R. 303.1 et. seq., and 25 TAC
                 Section 621.21 et. seq., relating to identification, referral
                 and delivery of health care services contained in the Member's
                 Individual Family Service Plan (IFSP).  An IFSP is the written
                 plan which identifies a Member's disability or chronic or
                 complex conditions(s) or developmental delay, and describes

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<PAGE>   45
                 the course of action developed to meet those needs, and
                 identifies the person or persons responsible for each action
                 in the plan.  The plan is a mutual agreement of the Member's
                 Primary Care Physician (PCP), Case Manager, and the
                 Member/family, and is part of the Member's medical record.

6.10.2           ECI Providers.  HMO must contract with qualified providers to
                 provide ECI services to Members under age 3 with developmental
                 delays.  HMO may contract with local ECI programs or non-ECI
                 providers who meet qualifications for participation by the
                 Texas Interagency Council on Early Childhood Intervention to
                 provide ECI services.

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

6.10.4           Coordination.  HMO must coordinate and cooperate with local
                 ECI programs which perform assessment in the development of
                 the Individual Family Service Plan (IFSP), including ongoing
                 case management and other non-capitated services required by
                 the Member's IFSP. Cooperation includes conducting medical
                 diagnostic procedures and providing medical records required
                 to perform developmental assessments and develop the IFSP
                 within the time lines established at 34 C.F.R. 303.1 et. seq.
                 ECI case management is not an HMO capitated service.

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

6.11             SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND
                 CHILDREN (WIC) - SPECIFIC REQUIREMENTS

6.11.1           HMO must coordinate with WIC to provide certain medical
                 information, which is necessary to determine WIC eligibility,
                 such as height, weight, hematocrit or hemoglobin (See Article
                 7.15.4.2).

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6.11.2           HMO must direct all eligible Members to the WIC program
                 (Medicaid recipients are automatically income-eligible for
                 WIC).

6.11.3           HMO must coordinate with existing WIC providers to ensure
                 Members have access to the special supplemental nutrition
                 program for women, infants and children (WIC), or HMO must
                 provide these services.

6.11.4           HMO may use the nutrition education provided by WIC to satisfy
                 health education and promotion requirements described in this
                 contract.

6.12             TUBERCULOSIS (TB)

6.12.1           Education, screening, diagnosis and treatment.  HMO must
                 provide Members and providers with education on the
                 prevention, detection and effective treatment of tuberculosis
                 (TB).  HMO must establish mechanisms to ensure all procedures
                 required to screen at-risk Members and to form the basis for a
                 diagnosis and proper prophylaxis and management of TB are
                 available to all Members, except services listed in Appendix C
                 as non-capitated services.  HMO must develop policies and
                 procedures to ensure that Members who may be or are at risk
                 for exposure to TB are screened for TB.  An at-risk Member
                 refers to a person who is susceptible to TB because of the
                 association with certain risk factors, behaviors or
                 environmental conditions.  HMO must consult with the local TB
                 control program to ensure that all services and treatments
                 provided by HMO are in compliance with the guidelines
                 recommended by the American Thoracic Society (ATS) and the
                 Centers for Disease Control and Prevention (CDC) and TDH
                 policies and standards.

6.12.2           Reporting and referral.  HMO must implement policies and
                 procedures requiring providers to report all confirmed or
                 suspected cases of TB to the local TB control program within
                 one working day of identification of a suspected case, using
                 the forms and procedures for reporting TB adopted by TDH (25
                 TAC Section 97).  HMO must require, through contract
                 provisions, that in-state or out-of-state labs report positive
                 mycobacteriology results to the health department as required
                 for in-state labs by 25 TAC Section 97.5(a).  Referral to
                 state-operated hospitals specializing in the treatment of
                 tuberculosis should only be made for TB-related treatment.

6.12.3           Medical records.  HMO must provide access to Member medical
                 records to TDH and the local TB control program for all
                 confirmed and suspected TB cases upon request.

6.12.4           Coordination and cooperation with the local TB control
                 program.  HMO must coordinate with the local TB control
                 program to ensure that Members with confirmed or suspected TB
                 have a contact investigation and receive directly observed
                 therapy. HMO must require, through contract provisions, that
                 providers report any Member who is non-compliant, drug
                 resistant, or who is or may be posing a public health threat
                 to TDH or the local TB control program. HMO must cooperate
                 with local TB

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                 control program in enforcing the control measures and
                 quarantine procedures contained in Chapter 81 of the Texas
                 Health and Safety Code.

6.12.4.1         HMO must have a mechanism for coordinating a post-discharge
                 plan for follow-up DOT with the local TB program.

6.12.4.2         HMO must coordinate with the TDH South Texas Hospital and
                 Texas Center for Infectious Disease for voluntary and
                 court-ordered admission, discharge plans, treatment objectives
                 and projected length of stay for Members with multi-drug
                 resistant TB.

6.12.4.3         HMO may contract with the local TB control programs to perform
                 any of the capitated services required in this Article.

6.13             PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS

6.13.1           HMO shall provide the following services to persons with
                 disabilities or chronic or complex conditions.  These services
                 are in addition to the services listed in Appendix C - Scope
                 of Services.

6.13.2           HMO must develop and maintain a system and procedures for
                 identifying Members who have disabilities or chronic or
                 complex medical and behavioral health conditions.  Once
                 identified, HMO must have effective health delivery systems to
                 provide the covered services to meet the special preventive,
                 primary acute, and speciality health care needs appropriate
                 for treatment of the individual's condition. The guidelines
                 and standards established by the American Academy of
                 Pediatrics, the American College of Obstetrics/Gynecologists,
                 the U.S. Public Health Service, and other medical and
                 professional health organizations and associations' practice
                 guidelines whose standards are recognized by TDH must be used
                 in determining the medically necessary services and plan of
                 care for each individual.

6.13.3           HMO must require, through contract provisions, that the PCP
                 for all persons with disabilities or chronic or complex
                 conditions develops a plan of care to meet the needs of the
                 Member.  The plan of care must be based on health needs,
                 specialist(s) recommendations, and periodic reassessment of
                 the Member's functional status and service delivery needs.
                 HMO must require providers to maintain record keeping systems
                 to ensure that each Member who has been identified with a
                 disability or chronic or complex condition has an initial plan
                 of care in the primary care provider's medical records; and
                 that the plan is updated as often as the Member's needs
                 change, but at least annually.

6.13.4           HMO must provide primary care and specialty care provider
                 network for persons with disabilities or chronic or complex
                 conditions.  Specialty and subspecialty providers serving all
                 Members must be Board Certified/Board Eligible in their
                 specialty.  HMO

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                 may request exceptions from TDH for approval of traditional
                 providers who are not board-certified or board-eligible but
                 who otherwise meet HMO's credentialing requirements.

6.13.5           When treating Members with disabilities or chronic or complex
                 conditions, HMO must ensure that PCPs and specialty care
                 providers have documented experience in treating people with
                 similar disabilities or chronic or complex conditions.  For
                 services to children with disabilities or chronic or complex
                 conditions, HMO must ensure that PCPs and specialty care
                 providers have demonstrated experience with children with
                 disabilities or chronic or complex conditions in pediatric
                 specialty centers such as children's hospitals, medical
                 schools, teaching hospitals and tertiary center levels.

6.13.6           HMO must provide information, education and training programs
                 to Members, families, PCPs , specialty physicians, and
                 community agencies about the care and treatment available in
                 HMO's plan for Members with disabilities or chronic or complex
                 conditions.

6.13.7           HMO must coordinate care and establish linkages, as
                 appropriate for a particular Member, with existing
                 community-based entities and services, including but not
                 limited to Maternal and Child Health, Chronically Ill and
                 Disabled Children's Services (CIDC), the Medically Dependent
                 Children Program (MDCP), Community Resource Coordination
                 Groups (CRCGs), Interagency Council on Early Childhood
                 Intervention (ECI), Home and Community-based Services (HCS and
                 HCS-O), Community Living Assistance and Support Services
                 (CLASS), Community Based Alternatives (CBA), In Home Family
                 Support, Primary Home Care, Day Activity and Health Services
                 (DAHS), Deaf/Blind Multiple Disabled waiver program and
                 Medical Transportation Program.

6.13.8           HMO must include TDH approved pediatric transplant centers,
                 TDH designated trauma centers, and TDH designated hemophilia
                 centers in its provider network.  (See Appendices E, F, G for
                 a listing of these facilities.)

6.13.9           HMO must ensure Members with disabilities or chronic or
                 complex conditions have access to treatment by a
                 multidisciplinary team when determined to be medically
                 necessary for effective treatment, or to avoid separate and
                 fragmented evaluations and service plans.  The teams must
                 include both physician and non-physician providers determined
                 to be necessary by the Member's PCP for the comprehensive
                 treatment of the Member.  The team must:

6.13.9.1         Participate in hospital discharge planning;

6.13.9.2         Participate in pre-admission hospital planning for
                 non-emergency hospitalizations;

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6.13.9.3         Develop specialty care and support service recommendations to
                 be incorporated into the primary care provider's plan of care;

6.13.9.4         Provide information to the Member and the Member's family
                 concerning the specialty care recommendations; and

6.13.9.5         Develop and implement training programs for primary care
                 providers, community agencies, ancillary care providers, and
                 families concerning the care and treatment of a Member with a
                 disability or chronic or complex conditions.

6.13.10          HMO must identify coordinators of medical care to assist
                 providers who serve Members with disabilities and chronic or
                 complex conditions and the Members and their families in
                 locating and accessing appropriate providers inside and
                 outside HMO's network.

6.13.11          HMO must assist eligible Members in accessing providers of
                 non-capitated Medicaid services listed in Appendix C, as
                 applicable.

6.13.12          HMO must require, through contract provisions, that Members
                 who require routine or regular laboratory and ancillary
                 medical tests or procedures to monitor disabilities or chronic
                 or complex conditions are provided the services by the
                 provider ordering the procedure or at a lab located at or near
                 the provider's office.

6.14             HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS

6.14.1           Group Needs Assessment.  HMO must conduct a group needs
                 assessment of enrolled STAR Members to determine Member health
                 education needs and literacy levels. HMO may cooperatively
                 conduct a group needs assessment of all enrolled STAR Members
                 with one or more HMOs also contracting with TDH in the service
                 area to provide services to Medicaid recipients.

6.14.2           Group Needs Assessment Report.  The Group Needs Assessment
                 Report is due six months after the Implementation Date.  The
                 Needs Assessment Report would include, but not be limited to,
                 demographic information, prevalence of health conditions, and
                 stated preferences for health education.

6.14.2.1         Group Needs Assessment Methodology Report and Preliminary
                 Health Education Plan.  The Group Needs Assessment Methodology
                 Report and the Preliminary Health Education Plan are due no
                 later than 30 days following the Implementation Date.  They
                 should be combined into one document.

6.14.2.1.1       Group Needs Assessment Methodology Report.  HMO must submit a
                 report to TDH summarizing the methodology, key activities,
                 timeline for implementation and HMO personnel responsible for
                 analyzing and interpreting results of the assessment and
                 establishing health education priorities.  The Group Needs
                 Assessment Methodology

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                 must evidence use or planned use of local and/or state public
                 health department information resources and how HMO will
                 coordinate with the TDH regional office.

6.14.2.1.2       Preliminary Health Education Plan.  The Group Needs Assessment
                 Methodology Report must also include a preliminary health
                 education plan that uses local and/or state public health
                 department information resources.

6.14.3           Health Education Plan.  The health education plan must tell
                 Members how HMO system operates, how to obtain services,
                 including emergency care and out-of-plan services.  The plan
                 must emphasize the value of screening and preventive care and
                 must contain disease-specific information and educational
                 materials.  HMO must submit health education plan updates
                 annually.  The final Health Education Plan is due 30 days
                 after the Group Needs Assessment Report has been completed and
                 filed with TDH.

6.14.3.1         Member Education Materials.  Member education materials must
                 be approved in advance by TDH and must meet language and
                 reading level requirements.  Materials must be submitted to
                 TDH for approval not later than 90 days prior to the
                 Implementation Date.  Modifications or amendments to these
                 materials must be submitted for approval within 60 days prior
                 to their implementation.

6.14.3.2         Wellness Promotion Programs.  HMO must conduct wellness
                 promotion programs to improve the health status of its
                 Members.  HMO may cooperatively conduct Health Education
                 classes of all enrolled STAR members with one or more HMOs
                 also contracting with TDH in the service area to provide
                 services to Medicaid recipients in contiguous counties of the
                 service area. Providers and HMO staff must integrate health
                 education wellness and prevention training into the care of
                 each Member.  HMO must provide a range of health promotion and
                 wellness information and activities for Members in formats
                 that meet the needs of all Members.

                 HMO must:  (1) develop, maintain and distribute health
                 education services standards, policies and procedures to
                 providers; (2) monitor provider performance to ensure the
                 standards for health education services are complied with; (3)
                 inform providers in writing about any non-compliance with the
                 plan standards, policies or procedures; (4) establish systems
                 and procedures that ensure that provider's medical instruction
                 and education on preventive services provided to the Member
                 are documented in the Member's medical record; and (5)
                 establish mechanisms for promoting preventive care services to
                 Members who do not access care, e.g. newsletters, reminder
                 cards, and mail-outs.

6.14.4           Implementation of Health Education and Wellness Plan.  HMO
                 must implement its health education and wellness plan.  The
                 plan could include health education classes targeted to the
                 needs of the Members, distribution of health education and
                 wellness promotion pamphlets, audiovisual programs, health
                 fairs, case management and one-

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                 on-one education.  HMO staff has the option to provide the
                 education directly or through contracted vendors and/or
                 referrals to community agencies.  HMO may use the nutrition
                 education provided to WIC participants to satisfy nutrition
                 counseling requirements.

6.14.5           Health Education Activities Schedule.  HMO must submit a
                 proposed Health Education Activities Schedule to TDH or its
                 designee on the last day of the month prior to the beginning
                 of each State fiscal year quarter.  The schedule should
                 include the time and location of classes, health fairs or
                 other events covering all areas of the service area. HMO must
                 submit quarterly summary reports of health education
                 activities.  HMO must coordinate and integrate the health
                 education system with the quality improvement program.

                 HMO may cooperatively conduct Health Education classes of all
                 enrolled STAR members with one or more HMOs also contracting
                 with TDH in the service area to provide services to Medicaid
                 recipients in contiguous counties of the service area.

6.15             SEXUALLY TRANSMITTED DISEASES (STDS) AND HUMAN
                 IMMUNODEFICIENCY VIRUS (HIV)

                 HMO must provide STD services that include STD/HIV prevention,
                 screening, counseling, diagnosis, and treatment.  HMO is
                 responsible for implementing procedures to ensure that Members
                 have prompt access to appropriate services for STDs, including
                 HIV.

6.15.1           HMO must allow Members access to STD services and HIV
                 diagnosis services without prior authorization or referral by
                 PCP.  HMO must comply with Texas Family Code Section 32.003,
                 relating to consent to treatment by a child.

6.15.2           HMO must provide all covered services required to form the
                 basis for a diagnosis and treatment plan for STD/HIV by the
                 provider.

6.15.3           HMO must consult with TDH regional public health authority to
                 ensure that Members receiving clinical care of STDs, including
                 HIV, are managed according to a protocol which has been
                 approved by TDH.  (Also see Article 7.16.1, relating to
                 cooperative agreements with public health authorities.)

6.15.4           HMO must make education available to providers and Members on
                 the prevention, detection and effective treatment of STDs,
                 including HIV.

6.15.5           HMO must require providers to report all confirmed cases of
                 STDs, including HIV, to the local or regional health authority
                 according to 25 Texas Administrative Code, Sections
                 97.131-97.134, using the required forms and procedures for
                 reporting STDs.

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6.15.6           HMO must coordinate with the TDH regional health authority to
                 ensure that Members with confirmed cases of syphilis,
                 chancroid, gonorrhea, chlamydia and HIV receive risk reduction
                 and partner elicitation/notification counseling.  Coordination
                 must be included in the subcontract required by Article
                 7.16.1.  HMO may contract with local or regional health
                 authorities to perform any of the covered services required in
                 this subsection.

6.15.7           HMO's PCPs may enter into contracts or agreements with
                 traditional HIV service providers in the service area to
                 provide services such as case management, psychosocial support
                 and other services.  If the service provided is a covered
                 service under this contract, the contract or agreement must
                 include payment provisions.

6.15.8           The subcontract with the respective TDH regional offices and
                 city and county health departments, as described in Article
                 7.16.1, must include, but not be limited to, the following
                 topics:

6.15.8.1         Access for Case Investigation.  Procedures must be established
                 to make Member records available to public health agencies
                 with authority to conduct disease investigation, receive
                 confidential Member information, and follow up.

6.15.8.2         Medical Records and Confidentiality.  HMO must require,
                 through contract provisions, that providers have procedures in
                 place to protect the confidentiality of Members provided
                 STD/HIV services.  These procedures must include, but are not
                 limited to, the manner in which medical records are to be
                 safeguarded; how employees are to protect medical information;
                 and under what conditions information can be shared.  HMO must
                 inform and require its providers, who provide STD/HIV
                 services, to comply with all state laws relating to
                 communicable disease reporting requirements.  HMO must
                 implement policies and procedures to monitor provider
                 compliance with confidentiality requirements.

6.15.8.3         Partner referral and treatment.  Members who are named as
                 contacts to an STD, including HIV, should be evaluated and
                 treated according to HMO's protocol.  All protocols must be
                 approved by TDH.  HMO's providers must coordinate referral of
                 non-Member partners to local and regional health department
                 STD staff.

6.15.8.4         Informed consent and counseling.  HMO must have policies and
                 procedures in place regarding obtaining informed consent and
                 counseling Members.  The Subcontracts with providers who treat
                 HIV patients must include provisions requiring the provider to
                 refer Members with HIV infection to public health agencies for
                 in-depth prevention counseling, ongoing partner elicitation
                 and notification services and other prevention support
                 services.  The Subcontracts must also include provisions that
                 require the provider to direct counsel or refer an HIV
                 infected member about the need to inform and refer all sex
                 and/or needle- sharing partners that might have been exposed
                 to the infection for prevention counseling and antibody
                 testing.

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6.16             BLIND AND DISABLED MEMBERS

6.16.1           HMO must arrange for all covered health and health related
                 services required under this contract for all voluntarily
                 enrolled Blind and Disable Members.  HMO is not required to
                 provide value-added services to Blind and Disabled Members.

6.16.2           HMO must perform the same administrative services and
                 functions as are performed for mandatory Members under this
                 contract.  These administrative services and functions include
                 but are not limited to:

6.16.2.1         Prior authorization of services;

6.16.2.2         All customer services functions offered Members in Mandatory
                 participation categories, including complaint process,
                 enrollment services, and hotline services;

6.16.2.3         Linguistic services, including providing Member materials in
                 alternative formats for the blind and disabled;

6.16.2.4         Health education;

6.16.2.5         Utilization management using TDH Claims Administrator
                 encounter data to provide appropriate interventions for
                 Members through administrative case management;

6.16.2.6         Quality assurance activities as needed and focused studies as
                 required by TDH;

6.16.2.7         Coordination to link Blind and Disabled Members with
                 applicable community resources and targeted case management
                 programs (see Non-Capitated Services in Scope of Services,
                 Appendix C).

6.16.3           HMO must require network providers to submit claims for health
                 and health-related services to TDH's Claims Administrator for
                 claims adjudication and payment.

6.16.4           HMO must provide services to Blind and Disabled Members within
                 HMO's network unless necessary services are unavailable within
                 network.  HMO must also allow referrals to out-of network
                 providers if necessary services are not available within HMO's
                 network.  Records must be forwarded to Member's PCP following
                 a referral visit.

ARTICLE VII            PROVIDER NETWORK REQUIREMENTS

7.1              PROVIDER ACCESSIBILITY

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7.1.1            HMO must enter into written contracts with properly
                 credentialed health care service providers.  The names of all
                 providers must be submitted to TDH as part of HMO
                 subcontracting process.  HMO must have its own credentialing
                 process to review, approve and periodically recertify the
                 credentials of all participating providers in compliance with
                 28 TAC 11.1902, relating to credentialing of providers in
                 HMOs.

7.1.2            HMO must require tax I.D. numbers from all providers.  HMO is
                 required to do backup withholding from all payments to
                 providers who fail to give tax I.D. numbers, or who give
                 incorrect numbers.

7.1.3            Timeframes for Access Requirements.  HMO must have sufficient
                 network providers and establish procedures to ensure Members
                 have access to routine, urgent, and emergency services;
                 telephone appointments; advice and Member service lines.
                 These services must be accessible to Members within the
                 following timeframes:

7.1.3.1          Urgent Care within 24 hours of request;

7.1.3.2          Routine care within 2 weeks of request;

7.1.3.3          Physical/Wellness Exams for adults must be provided within 8
                 to 10 weeks of the request;

7.1.3.4          HMO must establish policies and procedures to ensure that
                 THSteps Checkups be provided within 90 days of new enrollment,
                 except newborns should be seen within 2 weeks of enrollment,
                 and in all cases be consistent with the American Academy of
                 Pediatrics and/or THSteps periodicity schedule.  If the Member
                 does not request a checkup, HMO must establish a procedure for
                 contacting the Member to schedule the checkup.

7.1.4            HMO is prohibited from requiring a provider or provider group
                 to enter into an exclusive contracting arrangement with HMO as
                 a condition for participation in its provider network.

7.2              PROVIDER CONTRACTS

7.2.1            HMO must enter into written contracts with all providers
                 (provider contracts) and maintain copies of the contracts at
                 HMO's administrative office.  Provider contracts include all
                 contracts between intermediary entities and the direct
                 provider of health services. HMO must make all contracts
                 available to TDH, at the time and location requested by TDH.
                 All standard formats of provider contracts must be submitted
                 to TDH for approval no later than 120 days prior to the
                 Implementation Date.  Standard formats of provider contracts
                 that are executed

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                 later than the 120 days prior to the Implementation Date must
                 be submitted to TDH within 5 working days after the date of
                 execution of the provider contract.  All  contracts are
                 subject to the terms and conditions of this contract and must
                 contain the provisions of Article V, Statutory and Regulatory
                 Compliance, and the provisions contained in 3.2.4.  HMO must
                 notify TDH not less than 90 days prior to terminating any
                 subcontract affecting a major performance function of this
                 contract. All major Subcontractor terminations and/or
                 substitutions require TDH approval.

7.2.2            Primary Care Provider (PCP) contracts and specialty care
                 contracts must contain provisions relating to the requirements
                 of the provider types found in this contract. For example, PCP
                 contracts must contain the requirements of Article 7.8 of this
                 contract relating to Primary Care Providers.

7.2.3            Provider contracts that are requested by any agency with
                 authority to investigate and prosecute fraud and abuse must be
                 produced at the time and the place required by TDH or the
                 requesting agency. Provider contracts requested in response to
                 public information request must be produced within 48 hours of
                 the request.  Requested contracts and all related records must
                 be provided free of charge to the requesting agency.

7.2.4            The form and substance of all provider contracts are subject
                 to approval by TDH.  TDH retains the authority to reject or
                 require changes to any contract that do not comply with the
                 requirements or duties and responsibilities of this contract.
                 HMO REMAINS RESPONSIBLE FOR PERFORMING AND FOR ANY FAILURE TO
                 PERFORM ALL DUTIES, RESPONSIBILITIES AND SERVICES UNDER THIS
                 CONTRACT REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR
                 SERVICE IS CONTRACTED TO ANOTHER FOR ACTUAL PERFORMANCE.

7.2.5            TDH reserves the right and retains the authority to make
                 reasonable inquiry and conduct investigations into patterns of
                 provider and Member complaints against HMO or any intermediary
                 entity with whom HMO contracts to deliver health services
                 under this contract. TDH may impose appropriate sanctions and
                 contract remedies to ensure HMO compliance with the provisions
                 of this contract.

7.2.6            HMO must not restrict a provider's ability to provide opinions
                 or counsel to a Member with respect to benefits, treatment
                 options, and provider's change in network status.

7.2.7            HMO, all IPAs, and other intermediary entities must include
                 contract language which substantially complies with the
                 following standard contract provisions in each Medicaid
                 provider contract.  This language must be included in each
                 contract with an actual provider of services, whether through
                 a direct contract or through intermediary provider contracts:

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7.2.7.1          [Provider] is being contracted to deliver Medicaid managed
                 care under the TDH STAR program.  HMO must provide copies of
                 the TDH/HMO Contract to the provider upon request. [Provider]
                 understands that services provided under this contract are
                 funded by State and federal funds under the Medicaid program.
                 Provider is subject to all state and federal laws, rules and
                 regulations that apply to all persons or entities receiving
                 state and federal funds.  [Provider] understands that any
                 violation by a provider of a State or federal law relating to
                 the delivery of services by the provider under this
                 HMO/Provider contract, or any violation of the TDH/HMO
                 contract could result in liability for money damages, and or
                 civil or criminal penalties and sanctions under state and/or
                 federal law.

7.2.7.2          [Provider] understands and agrees that HMO has the sole
                 responsibility for payment of covered services rendered by the
                 provider under HMO/Provider contract.  In the event of HMO
                 insolvency or cessation of operations,[Provider's] sole
                 recourse is against HMO through the bankruptcy,
                 conservatorship, or receivership estate of HMO.

7.2.7.3          [Provider] understands and agrees TDH is not liable or
                 responsible for payment for any Medicaid covered services
                 provided to mandatory Members under HMO/Provider contract.
                 Federal and State laws provide severe penalties for any
                 provider who attempts to collect any payment from or bill a
                 recipient for a covered service.

7.2.7.4          [Provider] agrees that any modification, addition, or deletion
                 of the provisions of this contract will become effective no
                 earlier than 30 days after HMO notifies TDH of the change in
                 writing.  If TDH does not provide written approval within 45
                 days from receipt of notification from HMO, changes can be
                 considered provisionally approved, and will become effective.
                 Modifications, additions or deletions which are required by
                 TDH or by changes in state or federal law are effective
                 immediately.

7.2.7.5          This contract is subject to all state and federal laws and
                 regulations relating to fraud and abuse in health care and the
                 Medicaid program. [Provider] must cooperate and assist TDH and
                 any state or federal agency that is charged with the duty of
                 identifying, investigating, sanctioning or prosecuting
                 suspected fraud and abuse. [Provider] must provide originals
                 and/or copies of any and all information, allow access to
                 premises and provide records to TDH or its authorized
                 agent(s), THHSC, HCFA, the U.S. Department of Health and Human
                 Services, FBI, TDI, and the Texas Attorney General's Medicaid
                 Fraud Control Unit, upon request, and free of charge.
                 [Provider] must report any suspected fraud or abuse including
                 any suspected fraud and abuse committed by HMO or a recipient
                 to TDH for referral to THHSC.

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7.2.7.6          [Provider] is required to submit proxy claims forms to HMO for
                 services provided to all STAR Members that are capitated by
                 HMO in accordance with the encounter data submissions
                 requirements established by HMO and TDH.

7.2.7.7          HMO is prohibited from imposing restrictions upon the
                 provider's free communication with Members about a Member's
                 medical conditions, treatment options, HMO referral policies,
                 and other HMO policies, including financial incentives or
                 arrangements and all STAR managed care plans with whom
                 Provider contracts.

7.2.7.8          The Texas Medicaid Fraud Control Unit must be allowed to
                 conduct private interviews of [Provider] and its employees,
                 contractors, and patients.  Requests for information must be
                 complied within the form and the language requested.
                 [Provider] and its employees and contractors must cooperate
                 fully in making themselves available in person for interviews,
                 consultation, grand jury proceedings, pre-trial conference,
                 hearings, trial and in any other process, including
                 investigations. Compliance with this Article is at HMO's and
                 provider's own expense.

7.2.7.9          HMO must include the method of payment and payment amounts in
                 all provider contracts.

7.2.7.10         All provider clean claims must be adjudicated within 30 days.
                 HMO must pay provider interest on all clean claims that are
                 not paid within 30 days at a rate of 1.5% per month (18%
                 annual) for each month the claim remains unadjudicated.

7.2.7.11         HMO must prohibit network providers from interfering with or
                 placing liens upon the state's right or HMOs right, acting as
                 the state's agent, to recovery from third party resources.
                 HMO must prohibit network providers from seeking recovery in
                 excess of the Medicaid payable amount or otherwise violating
                 state and federal laws.

7.2.8            HMO must comply with the provisions of Chapter 20A Section 18A
                 of HMO Act relating to Physician and Provider contracts,
                 except Subpart (e), which relates to capitation payments.

7.2.9            HMO must include a complaint and appeals process which
                 complies with the requirements of Article 20A.12 of the Texas
                 Insurance Code relating to Complaint System in all
                 subcontracts. HMO's complaint and appeals process must be the
                 same for all Contractors.

7.3              PHYSICIAN INCENTIVE PLANS

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7.3.1            HMO may operate a physician incentive plan only if 1) no
                 specific payment may be made directly or indirectly under a
                 physician incentive plan to a physician or physician group as
                 an inducement to reduce or limit medically necessary services
                 furnished to a Member, and 2) the stop-loss protection,
                 enrollee surveys and disclosure requirements of this Article
                 are met.

7.3.2            HMO must disclose to TDH information required by federal
                 regulations found at 42 C.F.R. Section 417.479.  The
                 information must be disclosed in sufficient detail to
                 determine whether the incentive plan complies with the
                 requirements at 42 C.F.R. Section 417.479. The disclosure must
                 contain the following information:

7.3.2.1          Whether services not furnished by a physician or physician
                 group (referral services) are covered by the incentive plan.
                 If only services furnished by the physician or physician group
                 are covered by the incentive plan, disclosure of other aspects
                 of the incentive plan are not required to be disclosed.

7.3.2.2          The type of incentive arrangement (e.g. withhold, bonus,
                 capitation).

7.3.2.3          The percent of the withhold or bonus, if the incentive plan
                 involves a withhold bonus.

7.3.2.4          Whether the physician or physician group has evidence of a
                 stop-loss protection, including the amount and type of
                 stop-loss protection.

7.3.2.5          The panel size and the method used for pooling patients, if
                 patients are pooled.

7.3.2.6          The results of Member and disenrollee surveys, if HMO is
                 required under 42 C.F.R. Section 417.479 to conduct Member and
                 disenrollee surveys.

7.3.3            HMO must submit the information required in 7.3.2.1 - 7.3.2.5
                 to TDH 90 days prior to the Implementation Date of the program
                 in the service area and each anniversary date of the contract.

7.3.4            HMO must submit the information required in 7.3.2.6 one year
                 after the effective date of initial contract or effective date
                 of renewal contract, and annually each subsequent year under
                 the contract.

7.3.5            HMO must provide Members with information regarding Physician
                 Incentive Plans upon request. The information must include the
                 following:

7.3.5.1          whether HMO uses physician incentive plan that covers referral
                 services;

7.3.5.2          the type of incentive arrangement (i.e., withhold, bonus,
                 capitation);

7.3.5.3          whether stop-loss protection is provided; and,

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7.3.5.4          results of enrollee and disenrollee surveys, if required under
                 42 C.F.R. Section 417.479.

7.3.5.5          HMO must ensure that IPAs and ANHCs with whom HMO contracts
                 comply with the above requirements.  HMO is required to meet
                 above requirements for all levels of subcontracting.

7.4              PROVIDER MANUAL AND PROVIDER TRAINING

7.4.1            HMO must prepare and issue a Provider Manual(s), including any
                 necessary specialty manuals, to the providers in HMO network
                 and to newly contracted providers in HMO network within five
                 (5) working days from inclusion of the provider into the
                 network.  The Provider Manual must contain sections relating
                 to special requirements of the STAR Program as required under
                 this contract.  See Appendix M, Required Critical Elements,
                 for specific details regarding content requirements

                 HMO must submit a Provider Manual to TDH for approval 120 days
                 prior to the Implementation Date.  (See Article 3.4.1
                 regarding process for plan materials review.)

7.4.2            HMO must provide training to all network providers and their
                 staff regarding the requirements of the TDH/HMO contract and
                 special needs of STAR Members.

7.4.2.1          HMO training for all providers must be completed within 30
                 days of placing  a newly contracted provider on active status.
                 HMO must provide on-going training to new and existing
                 providers as required by HMO or TDH to comply with this
                 contract.

7.4.2.2          HMO must include in all PCP training how to screen for and
                 identify behavioral health disorders, HMO's referral process
                 to behavioral health services and clinical coordination
                 requirements for behavioral health.  HMO must include training
                 on coordination and quality of care such as behavioral health
                 screening techniques for PCPs and new models of behavioral
                 health interventions.

7.4.3            HMO must provide primary care providers with screening tools
                 and instruments approved by TDH.

7.4.4            HMO must maintain and make available upon request enrollment
                 or attendance rosters dated and signed by each attendee or
                 other written evidence of training of each network provider
                 and their staff.

7.4.5            HMO must have its written policies and procedures for the
                 screening, assessment and referral processes between
                 behavioral health providers and physical medicine providers
                 available for TDH review not later than 120 days before the
                 Implementation Date.

7.5              MEMBER PANEL REPORTS

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                 HMO must furnish each Provider with a current list of enrolled
                 Members enrolled or assigned to that Provider within 5 days
                 from HMO receiving the Member list from the Enrollment Broker
                 each month.

7.6              PROVIDER COMPLAINT AND APPEAL PROCEDURES

7.6.1            HMO must establish a written provider complaint and appeal
                 procedure for network providers. HMO must submit the written
                 complaint and appeal procedure to TDH by Phase II of Readiness
                 Review.  The complaint and appeals procedure must be the same
                 for all providers and must comply with Texas Insurance Code,
                 Art. 20A.12.

7.6.2            HMO must include the provider complaint and appeal procedure
                 in all network provider contracts.

7.6.3            HMO's complaint and appeal process cannot contain provisions
                 referring the complaint or appeal to TDH for resolution.

7.6.4            HMO must establish mechanisms to ensure that network providers
                 have access to a person who can assist providers in resolving
                 issues relating to claims payment, plan administration,
                 education and training, and complaint procedures.

7.7              PROVIDER QUALIFICATIONS - GENERAL

                 The providers in HMO network must meet the following
                 qualifications:

<TABLE>
<S>                       <C>
FQHC                      A Federally Qualified Health Center meets the standards established by federal rules and procedures.  The
                          FQHC must also be an eligible provider enrolled in the Medicaid.

Physician                 An individual who is licensed to practice medicine as an MD or a DO in the State of Texas either as a
                          primary care provider or in the area of specialization under which they will provide medical services
                          under contract with HMO; who is a provider enrolled in the Medicaid; who has a valid Drug Enforcement
                          Agency registration number, and a Texas Controlled Substance Certificate, if either is required in their
                          practice.
</TABLE>

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<TABLE>
<S>                       <C>
Hospital                  An institution licensed as a general or special hospital by the State of Texas under Chapter 241 of the
                          Health and Safety Code which is enrolled as a provider in the Texas Medicaid Program.  HMO will require
                          that all facilities in the network used for acute inpatient specialty care for people under age 21 with
                          disabilities or chronic or complex conditions will have a designated pediatric unit; 24 hour laboratory
                          and blood bank availability; pediatric radiological capability; meet JCAHO standards; and have discharge
                          planning and social service units.

Non-Physician             An individual holding a license issued by the applicable licensing agency of the State of Texas who is
Practitioner              enrolled in the Texas Medicaid Program.
Provider

Clinical                  An entity having a current certificate issued under the Federal Clinical Laboratory Improvement Act
Laboratory                (CLIA), and is enrolled in the Texas Medicaid Program.

Rural Health              An institution which meets all of the criteria for designation as a rural health clinic and is enrolled in
Clinic (RHC)              the Texas Medicaid Program.

Local Health              A local health department established pursuant to Health and Safety Code, Title 2, Local Public Health
Department                Reorganization Act Section 121.031ff.

Non-Hospital              A provider of health care services which is licensed and credentialed to provide services and is enrolled
Facility Provider         in the Texas Medicaid Program.

School Based              Clinics located at school campuses that provide on site primary and preventive care to children and
Health Clinic             adolescents.
(SBHC)
</TABLE>

7.8              PRIMARY CARE PROVIDERS

7.8.1            HMO must have a system for monitoring Member enrollment into
                 its plan to allow HMO to effectively plan for future needs and
                 recruit network providers as necessary to ensure adequate
                 access to primary care and specialty care.  The Member
                 enrollment monitoring system must include the length of time
                 required for Members to access care within the network.  The
                 monitoring system must also include monitoring after-hours
                 availability and accessibility of PCPs.

7.8.2            HMO must maintain a primary care provider network in
                 sufficient numbers and geographic distribution to serve a
                 minimum of forty-five percent (45%) of the mandatory STAR
                 eligibles in each county of the service area.  HMO is required
                 to increase the capacity of the network as necessary to
                 accommodate enrollment growth beyond the forty-fifth
                 percentile (45%).

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7.8.3            HMO must maintain a provider network that includes
                 pediatricians and physicians with pediatric experience in
                 sufficient numbers and geographic distribution to serve
                 eligible children and adolescents in the service area and
                 provide timely access to the full scope of benefits,
                 especially THSteps checkups and immunizations.

7.8.4            HMO must comply with the access requirements as established by
                 the Texas Department of Insurance for all HMOs doing business
                 in Texas, except as otherwise required by this contract.

7.8.5            HMO must have the equivalent of one full-time equivalent (FTE)
                 primary care provider (PCP) for every 2,000 Members.  HMO must
                 have one FTE PCP with pediatric training or experience for
                 every 2,500 Members under the age of 21.  Each PCP may be
                 assigned no more than 1,500 Members across all participating
                 managed care plans in the service area.

7.8.5.1          Exceptions to this requirement may be made by TDH when a
                 provider can demonstrate a capacity and capability to provide
                 access to quality managed care to more than 1,500 managed care
                 Members.  TDH will notify a PCP directly when the PCP is
                 approaching the 1,500 STAR Member limitation.  The PCP must
                 then request an exception to the 1,500 Member limitation by
                 submitting certain information to TDH:

                 (1)      Names, Medicaid provider numbers (if required), Texas
                          professional licensure and general responsibilities
                          of any providers supplementing the PCP's practice
                          such as other physicians; Pediatric, Women's Health
                          Care and Family Advanced Nurse Practitioners;
                          Certified Nurse mid-wives; Physician Assistants
                          specializing in Family Medicine, Internal Medicine,
                          Pediatrics or Obstetrics/Gynecology;

                 (2)      Patient office hours and office locations, and

                 (3)      A description for after-hours coverage arrangements
                          and a telephone number available for their STAR
                          patients.  If the PCP does not provide the
                          information or if TDH cannot verify the information
                          provided by the PCP, then TDH will deny the increased
                          capacity.  If TDH determines that the PCP does not
                          have or fails to maintain the capacity of providing
                          quality accessible care, the number of Members will
                          be reduced through a freeze on new enrollments for
                          that PCP.  TDH may disenroll Members if required
                          accessibility and quality of care to all Members is
                          jeopardized.

7.8.6            HMO must have PCPs available throughout the service area to
                 ensure that no Member must travel more than 30 miles, or 45
                 minutes, whichever is less, to access the PCP, unless an
                 exception to this distance or time requirement is made by the
                 TDH.

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7.8.7            HMO's primary care provider network may include providers from
                 any of the following practice areas:  General Practitioners;
                 Family Practitioners; Internists; Pediatricians;
                 Obstetricians/Gynecologists (OB/GYN); Pediatric and Family
                 Advanced Practice Nurses (APNs); Certified Nurse Midwives
                 Women Health (CNMs); Physician Assistants (PAs) practicing
                 under the supervision of a specialist in Internal Medicine,
                 Pediatric or Obstetric/Gynecology provider; or Federally
                 Qualified Health Centers (FQHCs); Rural Health Clinics (RHCs)
                 and similar community clinics; and specialists who are willing
                 to provide medical homes to selected Members with special
                 needs and conditions (see 7.8.8).

7.8.8            The PCP for a Member with disabilities or chronic or complex
                 conditions may be a specialist who agrees to provide PCP
                 services to the Member.  The specialty provider must agree to
                 perform all PCP duties required in the contract and PCP duties
                 must be within the scope of the specialist's license.  Any
                 interested person may initiate the request for a specialist to
                 serve as a PCP for a Member with disabilities or chronic or
                 complex conditions.

7.8.9            PCPs must either have admitting privileges at a hospital,
                 which is part of HMO network of providers, or make referral
                 arrangements with an HMO provider who has admitting privileges
                 to a network hospital.

7.8.10           HMO must require, through contract provisions, that PCPs are
                 accessible to Members 24 hours a day, 7 days a week.  The
                 following are acceptable and unacceptable phone arrangements
                 for contacting PCPs after normal business hours.

                 Acceptable:

                 (1)      Office phone is answered after hours by an answering
                          service which meets language requirements of the
                          major population groups and which can contact the PCP
                          or another designated medical practitioner.  All
                          calls answered by an answering service must be
                          returned within 30 minutes.

                 (2)      Office phone is answered after normal business hours
                          by a recording in the language of each of the major
                          population groups served directing the patient to
                          call another number to reach the PCP or another
                          provider designated by the PCP.  Someone must be
                          available to answer the designated provider's phone.
                          Another recording is not acceptable.

                 (3)      Office phone is transferred after office hours to
                          another location where someone will answer the phone
                          and be able to contact the PCP or another designated
                          medical practitioner, who can return the call within
                          30 minutes.

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                 Unacceptable:

                 (1)      Office phone is only answered during office hours.

                 (2)      Office phone is answered after hours by a recording
                          which tells patients to leave a message.

                 (3)      Office phone is answered after hours by a recording
                          which directs patients to go to an Emergency Room for
                          any services needed.

                 (4)      Returning after-hour calls outside of 30 minutes.

7.8.11           HMO must require PCPs, through contract provisions, to provide
                 primary care services and continuity of care to Members who
                 are enrolled with or assigned to the PCP.  Primary care
                 services are all services required by a Member for the
                 prevention, detection, treatment and cure of illness, trauma,
                 disease or disorder, which are covered and/or required
                 services under this contract.  All services must be provided
                 in compliance with generally accepted medical and behavioral
                 health standards for the community in which services are
                 rendered. HMO must require PCPs, through contract provisions,
                 to provide children under the age of 21 services in accordance
                 with the American Academy of Pediatric recommendations and the
                 THSteps periodicity schedule and provide adults services in
                 accordance with the U.S. Preventive Services Task Force's
                 publication Put Prevention Into Practice.

7.8.11.1         HMO must require PCPs, through contract provisions, to assess
                 the medical needs of Members for referral to specialty care
                 providers and provide referrals as needed. PCP must coordinate
                 care with specialty care providers after referral.

7.8.11.2         HMO must require PCPs, through contract provisions, to make
                 necessary arrangements with home and community support
                 services to integrate the Member's needs.  This integration
                 may be delivered by coordinating the care of Members with
                 other programs, public health agencies and community resources
                 which provide medical, nutritional, behavioral, educational
                 and outreach services available to Members.

7.8.11.3         HMO must require, through contract provisions, that the
                 Member's PCP or HMO provider through whom PCP has made
                 arrangements, be the admitting or attending physician for
                 inpatient hospital care, except for emergency medical or
                 behavioral health conditions or when the admission is made by
                 a specialist to whom the Member has been referred by the PCP.
                 HMO must require, through contract provisions, that PCP assess
                 the advisability and availability of outpatient treatment
                 alternatives to inpatient admissions.  HMO must require,
                 through contract provisions, that PCP provide or arrange for
                 pre-admission planning for non- emergency inpatient
                 admissions, and discharge planning for Members.  PCP must call
                 the emergency room

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                 with relevant information about the Member.  PCP must provide
                 or arrange for follow-up care after emergency or inpatient
                 care.

7.8.11.4         HMO must require PCPs for children under the age of 21 to
                 provide or arrange to have provided all services required
                 under Article 6.8 relating to Texas Health Steps, Article 6.9
                 relating to Perinatal Services, Article 6.10 relating to Early
                 Childhood Intervention, Article 6.11 relating to WIC, Article
                 6.13 relating to persons with disabilities or chronic or
                 complex conditions, and Article 6.14 relating to Health
                 Education and Wellness are provided to Members who qualify for
                 the services.  PCP must cooperate and coordinate with HMO to
                 provide Member and the Member's family with knowledge of and
                 access to available services.

7.8.12           All Medicaid recipients who are eligible for participation in
                 the STAR program have the right to select the PCP and HMO to
                 whom they will be assigned.  Female recipients also have the
                 right to select an OB/GYN in addition to a PCP.  Recipients
                 who are mandatory STAR participants who do not select a PCP or
                 HMO during the time period allowed will be defaulted to a PCP
                 and/or HMO using the TDH default process.  Members may change
                 PCPs at any time, but these changes are limited to four (4)
                 times per year.  If a PCP or OB/GYN who has been selected by
                 or assigned to a Member is no longer in HMO's provider
                 network, HMO must contact the Member and provide them an
                 opportunity to reselect.  If the Member does not want to
                 change the PCP or OB/GYN to another provider in HMO network,
                 the Member must be directed to Enrollment Broker for
                 resolution or reselection.  If a PCP or OB/GYN who has been
                 selected by or assigned to a Member is no longer in an IPA's
                 provider network but continues to participate in HMO network,
                 HMO or IPA may not change the Member's PCP or OB/GYN.

7.9              OB/GYN PROVIDERS

                 HMO must allow a female Member to select an OB/GYN within its
                 network or a limited provider network in addition to a PCP, to
                 provide health care services within the scope of the
                 professional specialty practice of a properly credentialed
                 OB/GYN, in accordance with Article 21.53D of the Texas
                 Insurance Code and rules promulgated under the law.  A Member
                 who selects an OB/GYN must have direct access to the health
                 care services of the OB/GYN without a referral by the woman's
                 PCP or prior authorization or precertification from HMO.
                 Health care services must include, but not be limited to:

7.9.1            One well-woman examination per year;

7.9.2            Care related to pregnancy;

7.9.3            Care for all active gynecological conditions; and

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7.9.4            Diagnosis, treatment, and referral for any disease or
                 condition within the scope of the professional practice of a
                 properly credentialed obstetrician or gynecologist.

7.9.5            HMO must allow Members to change OB/GYNs up to four times per
                 year.

7.10             SPECIALTY CARE PROVIDERS

7.10.1           HMO must maintain specialty providers, including pediatric
                 specialty providers, within the network in sufficient numbers
                 and areas of practice to meet the needs of all Members
                 requiring specialty care or services.

7.10.2           HMO must require, through contract provisions, that specialty
                 providers send a record of consultation and recommendations to
                 a Member's PCP for inclusion in Member's medical record and
                 report encounters to the PCP and/or HMO.

7.10.3           HMO must ensure availability and accessibility to appropriate
                 specialists.

7.10.4           HMO must ensure that no Member is required to travel in excess
                 of 75 miles to secure initial contact with referral
                 specialists; special hospitals; diagnostic and therapeutic
                 services; and single service health care physicians, dentists
                 or providers.  Exceptions to this requirement may be allowed
                 when an HMO has established, through utilization data provided
                 to TDH, that a normal pattern for securing health care
                 services within an area exists or HMO is providing care of a
                 higher skill level or specialty than the level which is
                 available within the service area such as, but not limited to,
                 treatment of cancer, burns, and cardiac diseases.

7.11             SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES

7.11.1           HMO must include all medically necessary specialty services
                 through its network specialists, subspecialists and specialty
                 care facilities (e.g., children's hospitals, and tertiary care
                 hospitals).

7.11.2           HMO must include requirements for pre-admission and discharge
                 planning in its contracts with network hospitals.  Discharge
                 plans for a Member must be provided by HMO or the hospital to
                 the Member/family, the PCP and specialty care physicians.

7.11.3           HMO must have appropriate multidisciplinary teams for people
                 with disabilities or chronic or complex medical conditions.
                 These teams must include the PCP and any individuals or
                 providers involved in the day-to-day or ongoing care of the
                 Member.

7.11.4           HMO must include in its provider network a TDH-designated
                 perinatal care facility, as established by Section 32.042,
                 Texas Health and Safety Code, once the designated system is
                 finalized and perinatal care facilities have been approved for
                 the service area.  Also see Article 6.9.1 of this contract.

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7.12             SIGNIFICANT TRADITIONAL PROVIDERS (STPS)

7.12.1           HMO must include significant traditional providers as
                 designated by TDH in its provider network to provide primary
                 care and specialty care services.  HMO must include STPs in
                 its provider network for at least three (3) years following
                 the Implementation Date in the service area.

7.12.2           STPs must agree to the contract requirements contained in
                 Article 7.2, unless exempted from a requirement by law or
                 rule.  STPs must also agree to the following contract
                 requirements:

7.12.2.1         STP must agree to accept the standard reimbursement rate
                 offered by HMO to other providers for the same or similar
                 services.

7.12.2.2         STP must meet the credentialing requirements of HMO.  HMO must
                 not require STPs to meet a different or higher credentialing
                 standard than is required of other providers providing the
                 same or similar services.  HMO may not require STPs to
                 contract with a subcontractor which requires a different or
                 higher credentialing standard than HMO, if the application of
                 the higher standard results in a disproportionate number of
                 STPs being excluded from the subcontractor, if the STP would
                 not be excluded using the credentialing standards of HMO.

7.12.2.3         HMO must demonstrate a good faith effort to include STPs in
                 its provider network. HMO's compliance with the TDH's good
                 faith effort requirement for STPs must be reported using
                 report requirements defined by TDH.  HMO must submit quarterly
                 reports, in a format provided by TDH, documenting HMOs
                 compliance with TDH's good faith effort requirement for STPs.

7.12.3           Failure to demonstrate a good faith effort to meet TDH's
                 compliance objectives to include STPs in HMO's provider
                 network, or failure to report efforts and compliance as
                 required in 7.12.2.3, are defaults under this contract and may
                 result in any or all of the sanctions and remedies included in
                 Article XVIII of this contract.

7.13             RURAL HEALTH PROVIDERS

7.13.1           In rural areas of the service area, HMO must seek the
                 participation in its provider network of rural hospitals,
                 physicians, home and community support service agencies, and
                 other rural health care providers who:

7.13.1.1         are the only providers located in the service area; and

7.13.1.2         are Significant Traditional Providers.

7.13.2           In order to contract with HMO, rural health providers must
                 also:

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7.13.2.1         agree to accept the prevailing provider contract rate of HMO
                 based on provider type; and

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

7.13.3           HMO must reimburse rural hospitals with 100 or fewer licensed
                 beds in counties with fewer than 50,000 persons for acute care
                 services at a rate calculated using the higher of the
                 prospective payment system rate or the cost reimbursed
                 methodology authorized under the Tax Equity and Fiscal
                 Responsibility Act of 1982 (TEFRA). Hospitals reimbursed under
                 TEFRA cost principles shall be paid without the imposition of
                 the TEFRA cap.

7.13.4           HMO must reimburse physicians who practice in rural counties
                 with fewer than 50,000 at a rate using the current Medicaid
                 fee schedule, including negotiated fee for service.

7.14             FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH
                 CLINICS (RHC)

7.14.1           HMO must make reasonable efforts to include FQHCs and RHCs
                 (Freestanding and hospital-based) in its provider network.

7.14.2           FQHCs or RHCs will receive a cost settlement from TDH and must
                 agree to accept initial payments from HMO in an amount that is
                 equal to or greater than HMO's payment terms for other
                 providers providing the same or similar services.

7.14.2.1         HMO must submit monthly FQHC and RHC encounter and payment
                 reports to all contracted FQHCs and RHCs, and FQHCs and RHCs
                 with whom there have been encounters, not later than 21 days
                 from the end of the month for which the report is submitted.
                 The format will be developed by TDH.  The FQHC and RHC must
                 validate the encounter and payment information contained in
                 the report(s).  Both HMO and the FQHC/RHC must sign the
                 report(s) after each party agrees that it accurately reflects
                 encounters and payments for the month reported.  HMO must
                 submit the signed FQHC and RHC encounter and payment reports
                 to TDH not later than 45 days from the end of the month for
                 which the report is submitted.

7.14.2.2         For FQHCs, TDH will determine the amount of the interim
                 settlement based on the difference between:  an amount equal
                 to the number of Medicaid allowable encounters multiplied by
                 the rate per encounter from the latest settled FQHC fiscal
                 year cost report; and, the amount paid by HMO to the FQHC for
                 the quarter.  For RHCs, TDH will determine the amount of the
                 interim settlement based on the difference between a
                 reasonable cost amount methodology provided by TDH and the
                 amount paid by

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                 HMO to the RHC for the quarter.  TDH will pay the FQHC or the
                 RHC the amount of the interim settlement, if any, as
                 determined by TDH or collect and retain the quarterly
                 recoupment amount, if any.

7.14.2.3         TDH will cost settle with each FQHC and RHC annually, based on
                 the FQHC or the RHC fiscal year cost report and the
                 methodology described in paragraph 7.14.2.2. TDH will make
                 additional payments or recoup payments from the FQHC or the
                 RHC based on reasonable costs less prior interim payment
                 settlements.

7.15             COORDINATION WITH PUBLIC HEALTH

7.15.1           Reimbursed Arrangements.  HMO must make a good faith effort to
                 enter into a subcontract for the covered health care services
                 as specified below with TDH Public Health Regions, city and/or
                 county health departments or districts in each county of the
                 service area that will be providing these services to the
                 Members (Public Health Entities), who will be paid for
                 services by HMO, including any or all of the following
                 services:

7.15.1.1         Sexually Transmitted Diseases (STDs) Services (See Article
                 6.15);

7.15.1.2         Confidential HIV Testing (See Article 6.15);

7.15.1.3         Immunizations (See relevant paragraphs in Article 6.8.9); and,

7.15.1.4         Tuberculosis (TB) Care (See Article 6.12).

7.15.2           The subcontract must include any covered services, which the
                 public health department has agreed to provide:

7.15.2.1         Family Planning Services (See Article 6.7);

7.15.2.2         THSteps checkups (See Article 6.8);

7.15.2.3         Prenatal services.

7.15.3           HMO must enter into subcontracts with public health entities
                 at least 90 days prior to the Implementation Date for the
                 service area.  The subcontracts must be available for review
                 by TDH or its designated agent(s) on the same basis as all
                 other subcontracts.  If an HMO is unable to enter into a
                 contract with any of the public health entities, HMO must
                 submit documentation substantiating its reasonable efforts to
                 enter into such an agreement, to TDH. The subcontracts must
                 include the following areas:

7.15.3.1         The general relationship between HMO and the Public Health
                 entity.  The subcontracts must specify the scope and
                 responsibilities of both parties, the methodology and

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                 agreements regarding billing and reimbursements, reporting
                 responsibilities, Member and provider educational
                 responsibilities, and the methodology and agreements regarding
                 sharing of confidential medical record information between the
                 public health entity and the PCP.

7.15.3.2         Public Health Entity responsibilities:

                 (1)      Public health providers must inform Members that
                          confidential health care information will be provided
                          to the PCP.

                 (2)      Public health providers must refer Members back to
                          PCP for any follow-up diagnostic, treatment, or
                          referral services.

                 (3)      Public health providers must educate Members about
                          the importance of having a PCP and assessing PCP
                          services during office hours rather than seeking care
                          from Emergency Departments, Public Health Clinics, or
                          other Primary Care Providers or Specialists.

                 (4)      Public health entities must identify a staff person
                          to act as liaison to HMO to coordinate Member needs,
                          Member referral, Member and provider education, and
                          the transfer of confidential medical record
                          information.

7.15.3.3         HMO Responsibilities:

                 (1)      HMO must identify care coordinators who will be
                          available to assist public health providers and PCPs
                          in getting efficient referrals of Members to the
                          public health providers, specialists, and
                          health-related service providers either within or
                          outside HMO's network.

                 (2)      HMO must inform Members that confidential healthcare
                          information will be provided to the PCP.

                 (3)      HMO must educate Members on how to better utilize
                          their PCPs, public health providers, emergency
                          departments, specialists, and health-related service
                          providers.

7.15.4           Non-Reimbursed Arrangements with Public Health Entities.

7.15.4.1         Coordination with Public Health Entities.  HMOs must enter
                 into a Memorandum of Understanding (MOU) with Public Health
                 Entities regarding the provision of services for essential
                 public health services.  These MOUs must be entered into at
                 least 90 days before the Implementation Date in the service
                 area and are subject to TDH approval.  These MOUs must contain
                 the roles and responsibilities of HMO and the public health
                 department for the following services:

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                 (1)      Public health reporting requirements regarding
                          communicable diseases and/or diseases which are
                          preventable by immunization as defined by state law;

                 (2)      Notification of and referral to the local Public
                          Health Entity, as defined by state law, of
                          communicable disease outbreaks involving Members;

                 (3)      Referral to the local Public Health Entity for TB
                          contact investigation and evaluation and preventive
                          treatment of persons whom the Member has come into
                          contact;

                 (4)      Referral to the local Public Health Entity for
                          STD/HIV contact investigation and evaluation and
                          preventive treatment of persons whom the Member has
                          come into contact; and,

                 (5)      Referral for WIC services and information sharing;

                 (6)      Coordination and follow-up of suspected or confirmed
                          cases of childhood lead exposure.

7.15.4.2         Coordination with Other TDH Programs.  HMOs must enter into a
                 Memorandum of Understanding (MOU) with other TDH programs
                 regarding the provision of services for essential public
                 health services.  These MOUs must be entered into at least 90
                 days before the Implementation Date in the service area and
                 are subject to TDH approval.  These MOUs must delineate the
                 roles and responsibilities of HMO and the public health
                 department for the following services:

                 (1)      Use of the TDH laboratory for THSteps newborn
                          screens; lead testing; and hemoglobin/hematocrit
                          tests;

                 (2)      Availability of immunizations through the Vaccines
                          for Children Program;

                 (3)      Reporting of immunizations provided to the statewide
                          ImmTrac Registry including parental consent to share
                          data;

                 (4)      Referral for WIC services and information sharing;

                 (5)      Pregnant, Women and Infant (PWI) Targeted Case
                          Management;

                 (6)      THSteps outreach, informing and Medical Case
                          Management;

                 (7)      Participation in the community-based coalitions with
                          the Medicaid-funded case management programs in MHMR,
                          ECI, TCB, and TDH (PWI, CIDC and THSteps Medical Case
                          Management);

                 (8)      Referral to the TDH Medical Transportation Program;
                          and,

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                 (9)      Cooperation with activities required of public health
                          authorities to conduct the annual population and
                          community based needs assessment.

                 (10)     Coordination and follow-up of suspected or confirmed
                          cases of childhood lead exposure.

7.15.5           All public health contracts must contain provider network
                 requirements in Article VII, as applicable.

7.16             COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND
                 REGULATORY SERVICES

7.16.1           HMO must cooperate and coordinate with the Texas Department of
                 Protective and Regulatory Services (TDPRS) for the care of a
                 child who is receiving services from or has been placed in the
                 conservatorship of TDPRS.

7.16.2           HMO must comply with all provisions of a court order or TDPRS
                 service plan with respect to a child in the conservatorship of
                 TDPRS (Order) entered by a Court of continuing jurisdiction
                 placing a child under the protective custody of the TDPRS or a
                 service plan voluntarily entered into by the parents or person
                 having legal custody of a minor and TDPRS, which relates to
                 the health and behavioral health services required to be
                 provided to the Member.

7.16.3           HMO cannot deny, reduce, or controvert the medical necessity
                 of any health services included in an Order.  Any modification
                 or termination of ordered services must be presented and
                 approved by the court with jurisdiction over the matter for
                 decision.

7.16.4           A Member or the parent or guardian whose rights are subject to
                 an Order or Service Plan cannot appeal the necessity of the
                 services ordered through HMO's complaint or appeal processes,
                 or to TDH for a fair hearing.

7.16.5           HMO must include information in its provider training and
                 manuals regarding:

7.16.5.1         providing medical records,

7.16.5.2         scheduling medical and behavioral health appointments within
                 14 days unless requested earlier by TDPRS,

7.16.5.3         recognition of abuse and neglect and appropriate referral to
                 TDPRS.

7.16.6           HMO must continue to provide all covered services to a Member
                 receiving services from or in the protective custody of TDPRS
                 until the Member has been disenrolled

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                 from HMO as a result of loss of eligibility in Medicaid
                 managed care or placement into foster care.

7.17             PROVIDER NETWORKS (IPAS, LIMITED PROVIDER NETWORKS AND ANHCS)

7.17.1           All HMO contracts with independent physician, provider
                 associations or similar provider groups, organizations, or
                 networks (IPA contracts) and standard IPA contracts with
                 contracted providers (IPA/Provider contracts) must be
                 submitted to TDH no later than 120 days prior to the
                 Implementation Date.  The form and substance of all HMO/IPA
                 and IPA/Provider contracts are subject to approval by TDH.
                 TDH retains the authority to reject and require changes to any
                 HMO/IPA or IPA/Provider contract which:

7.17.1.1         does not contain the mandatory contract provisions for all
                 subcontractors in this contract,

7.17.1.2         does not comply with the requirements, duties and
                 responsibilities of this contract,

7.17.1.3         creates a barrier for full participation to significant
                 traditional providers,

7.17.1.4         interferes with TDH's oversight and audit responsibilities
                 including collection and validation of encounter data, or

7.17.1.5         is inconsistent with the federal requirement for simplicity in
                 the administration of the Medicaid program.

7.17.1.6         HMO must include this contract as an attachment to any IPA
                 contract for Medicaid managed care services.

7.17.2           HMO cannot delegate claims payment to an IPA, even under a
                 capitated partial or full risk arrangement.  This provision
                 does not apply to single limited or basic service HMOs.

7.17.3           In addition to the mandatory provisions for all subcontracts
                 under Articles 3.2 and 7.2, all HMO/IPA contracts must include
                 the following mandatory standard provisions:

7.17.3.1         HMO is required to include subcontract provisions in its IPA
                 contracts which require the UM protocol used by an IPA to
                 produce substantially similar outcomes, as approved by TDH, as
                 the UM protocol employed by the contracting HMO.  The
                 responsibilities of an HMO in delegating UM functions to an
                 IPA will be governed by Article 16.11 of this contract.

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7.17.3.2         The IPA must comply with the same encounter, utilization,
                 quality, and financial reporting requirements as HMO under
                 this contract.  The IPA must comply with the same report
                 filing timelines and include the same information and use the
                 same format as HMO under this contract.

7.17.3.3         The IPA must comply with the same records retention and
                 production requirements as HMO under this contract, including
                 public information requests.

7.17.3.4         The IPA is subject to the same marketing restrictions and
                 requirements as HMO under this contract.

7.17.3.5         HMO is responsible for ensuring that IPAs comply with the
                 requirements and provisions of the TDH/HMO contract.  TDH will
                 impose appropriate sanctions and remedies upon HMO for any
                 default under the TDH/HMO contract which is caused directly or
                 indirectly by the acts or omissions of the IPA.  Sanctions
                 imposed by TDH upon HMO cannot be passed through or recouped
                 from the IPA or network providers unless specifically allowed
                 by TDH in the Notice of Default and the pass through or
                 recoupment is disclosed as a HMO/IPA contract provision.

7.17.4           HMO cannot enter into contracts with IPAs to provide services
                 under this contract which require the participating providers
                 to enter into exclusive contracts with the IPA as a condition
                 for participation in the IPA.

7.17.4.1         Provision 7.17.4 does not apply to providers who are employees
                 or participants in limited or closed panel provider networks.

7.17.5           All limited provider or closed panel IPA networks with whom
                 HMO contracts must either independently meet the access
                 provisions of 28 Texas Administrative Code Section 11.1607,
                 relating to access requirements, or HMO must provide for
                 access through other network providers outside the closed
                 panel IPA.

7.17.6           HMO cannot delegate to an IPA the enrollment, reenrollment,
                 assignment or reassignment of a Member.

7.17.7           In addition to the above provision HMO and approved Non-Profit
                 Health Corporations must comply with all of the requirements
                 contained in 28 TAC Section 11.1604, relating to Requirements
                 of Certain Contracts between Primary HMOs and ANHCs and
                 Primary HMOs and Provider HMOs.

7.17.8           HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
                 RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS
                 OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED
                 OR DELEGATED TO ANOTHER.  HMO MUST PROVIDE A COMPLETE COPY OF
                 THIS CONTRACT TO ANY PROVIDER NETWORK

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                 OR GROUP WITH WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE
                 SERVICES ON A RISK SHARING OR CAPITATED BASIS OR TO PROVIDE
                 HEALTH CARE SERVICES OTHER THAN MEDICAL CARE SERVICE OR
                 ANCILLARY SERVICES.

ARTICLE VIII           MEMBER SERVICES REQUIREMENTS

8.1              MEMBER EDUCATION

                 HMO must provide the Member education requirements as
                 contained in Article VI at 6.5, 6.6, 6.7, 6.8, 6.9, 6.10,
                 6.11, 6.12, 6.13, 6.14 and this Article of the contract.

8.2              MEMBER HANDBOOK

8.2.1            HMO must mail each Member a Member Handbook within five (5)
                 days from the date that the Member's name appears on the
                 Enrollment Report.  The Member Handbook must be written at a
                 4th - 6th grade reading comprehension level.  The Member
                 Handbook must contain all critical elements specified by TDH.
                 See Appendix M, Required Critical Elements, for specific
                 details regarding content requirements.  HMO must submit a
                 Member Handbook to TDH for approval not later than 90 days
                 before the Implementation Date.  (See Article 3.4.1 regarding
                 the process for plan materials review.)

8.2.2            Member Handbook Updates.  HMO must provide updates to the
                 Handbook to all Members as changes are made to the above
                 policies.  HMO must make the Member Handbook available in the
                 languages of the major populations and in a format accessible
                 to blind or visually impaired Members.

8.2.3            THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE
                 APPROVED BY TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO
                 MEMBERS.

8.3              ADVANCE DIRECTIVES

8.3.1            Federal law requires HMOs and providers to maintain written
                 policies and procedures for informing and providing written
                 information to all adult Members about their rights under
                 state and federal law, in advance of their receiving care
                 (Social Security Act Section 1902(a)(57) and Section
                 1903(m)(1)(A).  These must contain procedures for providing
                 written information regarding the Member's right to refuse,
                 withhold or withdraw medical treatment advance directives.
                 HMO's policies and procedures must comply with provisions
                 contained in 42 CFR Section 434.28 and 42 CFR Section 489,
                 SubPart I, relating to advance directives for all hospitals,
                 critical access hospitals, skilled nursing

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                 facilities, home health agencies, providers of home health
                 care, providers of personal care services and hospices, as
                 well as following state laws and rules:

8.3.1.1          the Member's right to self-determination in making health care
                 decisions;

8.3.1.2          the Member's rights under the Natural Death Act (Texas Health
                 and Safety Code, Chapter 672) to execute an advance written
                 Directive to Physicians, or to make a non-written directive
                 regarding their right to withhold or withdraw life sustaining
                 procedures in the event of a terminal condition;

8.3.1.3          the Member's rights under Texas Health and Safety Code,
                 Chapter 674, relating to written and non-written
                 Out-of-Hospital Do-Not-Resuscitate Orders;

8.3.1.4          the Member's right to execute a Durable Power of Attorney for
                 Health Care regarding their right to appoint an agent to make
                 medical treatment decisions on their behalf if the Member
                 becomes incapacitated (Civil Practice and Remedies Code,
                 Chapter 135); and

8.3.1.5          HMO's policies for implementing a Member's advance directives,
                 including a clear and concise statement of limitations if HMO
                 or a participating provider cannot or will not be able to
                 carry out a Member's advance directive.

8.3.2            A statement of limitation on implementing a Member's advance
                 directive should include at least the following information:

8.3.2.1          clarify any differences between HMO's conscience objections
                 and those which may be raised by the Member's PCP or other
                 providers;

8.3.2.2          identify the state legal authority permitting HMO's conscience
                 objections to carrying out an advance directive;

8.3.2.3          describe the range of medical conditions or procedures
                 affected by the conscience objection.

8.3.3            The policies and procedures must require HMO and Subcontractor
                 to comply with the requirements of state and federal laws
                 relating to advance directives.  HMO must provide education
                 and training to employees, Members and the community on issues
                 concerning advance directives.

8.3.4            All materials provided to Members regarding advance directives
                 must be written at a 7th - 8th grade reading comprehension
                 level, except where a provision is required by state or
                 federal law, and the provision cannot be reduced or modified
                 to a 7th- 8th grade reading level, because it is a reference
                 to the law or is required to be included

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                 "as written" in the state or federal law.  HMO must submit any
                 revisions to existing approved advanced directive materials.

8.3.5            HMO must notify Members of any changes in state or federal
                 laws relating to advance directives within 90 days from the
                 effective date of the change, unless the law or regulation
                 contains a specific time requirement for notification.

8.4              MEMBER ID CARDS

8.4.1            A Medicaid Identification Form (Form 3087) is issued monthly
                 by the TDHS and includes the "STAR" Program the name of the
                 Member's PCP and health plan.  A Member may have a temporary
                 Medicaid Identification (Form 1027-A) which will include a
                 STAR indicator.

8.4.2            HMO must issue a Member Identification Card to the Member
                 within five (5) days from receiving notice of enrollment of
                 the Member into HMO.  The Member Identification Card must
                 include, at a minimum, the following: Member's name; Member's
                 Medicaid number; the effective date of the card; PCP's name,
                 address, and telephone number; name of HMO; name of IPA to
                 which the Member's PCP belongs, if applicable; the 24-hour,
                 seven (7) day a week toll-free telephone number operated by
                 HMO; and directions for what to do in an emergency.
                 Identification Card must be reissued if the Member reports a
                 lost card, there is a Member name change, if Member requests a
                 new PCP, or for any other reason which results in a change to
                 the information disclosed on the Identification Card.

8.5              MEMBER HOTLINE

                 HMO must maintain a toll-free Member telephone hotline 24
                 hours a day, seven days a week for Members to obtain
                 assistance in accessing services under this contract.
                 Telephone availability must be demonstrated through an
                 abandonment rate of less than 10%.

8.6              MEMBER COMPLAINT PROCESS

8.6.1            HMO must develop, implement and maintain a Member complaint
                 system that complies with the requirements of Article 20A.12
                 of the Texas Insurance Code, relating to the Complaint System,
                 except where otherwise provided in this contract or in federal
                 law.

8.6.2            HMO must have written policies and procedures for taking,
                 tracking, reviewing, and reporting and resolving of member
                 complaints.  The procedures must be reviewed and approved in
                 writing by TDH before Phase I of Readiness Review.  Any
                 amendments to the procedures must be submitted to TDH for
                 approval thirty (30) days prior to the effective date of the
                 amendment.

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8.6.3            HMO must designate an officer of HMO who has primary
                 responsibility for ensuring that complaints are resolved in
                 compliance with written policy and within the time required.
                 An "officer" of HMO means a president, vice president,
                 secretary, treasurer, or chairperson of the board for a
                 corporation, the sole proprietor, the managing general partner
                 of a partnership, or a person having similar executive
                 authority in the organization.

8.6.4            HMO must have a routine process to detect patterns of
                 complaints and disenrollments and involve management and
                 supervisory staff to develop policy and procedural
                 improvements to address the complaints.  HMO must cooperate
                 with TDH and TDH's enrollment broker in addressing Member
                 complaints relating to enrollment and disenrollment.

8.6.5            HMO's complaint procedures must be provided to Members in
                 writing and in alternative communications formats.  A written
                 description of HMO's complaint procedures must be in
                 appropriate languages and easy for Members to understand. HMO
                 must include a written description of the complaint procedures
                 in the Member Handbook.  HMO must maintain at least one local
                 and one toll-free telephone number for making complaints.

8.6.6            HMO's process must require that every complaint received in
                 person, by telephone or in writing, is recorded in a written
                 record and is logged with the following details:  date,
                 identification of the individual filing the complaint,
                 identification of the individual recording the complaint,
                 disposition of the complaint, corrective action required, and
                 date resolved.

8.6.7            HMO's process must include a requirement that the Governing
                 Body of HMO reviews the written records (logs) for complaints
                 and appeals.  An officer of the HMO must be designated to have
                 direct responsibility for the complaint system.

8.6.8            HMO is prohibited from discriminating against a Member because
                 that Member is making or has made a complaint.

8.6.9            HMO cannot process requests for disenrollments through HMO's
                 complaint procedures.  Requests for disenrollments must be
                 referred to TDH within five (5) business days after the Member
                 makes a disenrollment request.

8.6.10           If a complaint relates to the denial, delay, reduction,
                 termination or suspension of covered services by either HMO or
                 a utilization review agent contracted to perform utilization
                 review by HMO, HMO must inform Members they have the right to
                 access the TDH fair hearing process at any time in lieu of the
                 internal complaint system provided by HMO.  HMO is required to
                 comply with the notice requirements

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                 contained in 25 TAC Chapter 36, relating to notice and fair
                 hearings in the Medicaid program, whenever an action is taken
                 to deny, delay, reduce, terminate or suspend a covered
                 service.

8.6.11           If Members utilize HMO's internal complaint system and the
                 complaint relates to the denial, delay, reduction, termination
                 or suspension of covered services by either HMO or a
                 utilization review agent contracted to perform utilization
                 review by HMO, HMO must inform the Member that they continue
                 to have a right to appeal the decision through the TDH fair
                 hearing process.

8.6.12           The provisions of Article 21.58A, Texas Insurance Code,
                 relating to a Member's right to appeal an adverse
                 determination made by HMO or a utilization review agent by an
                 independent review organization, do not apply to a Medicaid
                 recipient.  Federal fair hearing requirements (Social Security
                 Act Section 1902a(3), codified at 42 C.F.R. 431.200 et. seq.)
                 require the agency to make a final decision, after a fair
                 hearing which conflicts with the State requirement that the
                 IRO make a final decision, therefore the State requirement is
                 pre-empted by the federal requirement.

8.6.13           HMO will cooperate with the Enrollment Broker and TDH to
                 resolve all Member complaints. Such cooperation may include,
                 but is not limited to, participation by HMO or Enrollment
                 Broker and/or TDH internal complaint committees.

8.6.14           HMO must have policies and procedures in place outlining the
                 role of HMO's Medical Director in the Member Complaint System.
                 The Medical Director must have a significant role in
                 monitoring, investigating and hearing complaints.

8.6.15           HMO must provide Member Advocates to assist Members in
                 understanding and using HMO's complaint system.

8.6.16           HMO's Member Advocates must assist Members in writing or
                 filing a complaint and monitoring the complaint through the
                 Contractor's complaint process until the issue is resolved.

8.6.17           Member Advocates must file a Member Advocate Report of their
                 review and participation in the complaint procedure for each
                 complaint brought by a Member and a summary of each complaint
                 resolution.  A copy of the Member Advocate Report must be
                 included in HMO's quarterly report.  (See Article 12.6.)

8.7              MEMBER NOTICE, APPEALS AND FAIR HEARINGS

8.7.1            HMO must send Members the notice required by 25 TAC, Chapter
                 36, whenever HMO takes an action to deny, delay, reduce or
                 terminate covered services to a Member.  The notice must be
                 mailed to the Member no less than 10 days before HMO intends
                 to take an action.  If an emergency exists, or if the time
                 within which the service must be provided makes giving 10 days
                 notice impractical or impossible,

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                 notice must be provided by the most expedient means reasonably
                 calculated to provide actual notice to the Member, including
                 by phone, or through the provider's office.

8.7.2            The notice must contain the following information:

8.7.2.1          the Member's right to immediately access TDH's Fair Hearing
                 process;

8.7.2.2          a statement of the action HMO will take;

8.7.2.3          an explanation of the reasons HMO will take the action;

8.7.2.4          a reference to the state and/or federal regulations which
                 support HMO's action;

8.7.2.5          a procedure by which the Member may appeal HMO's action
                 through either HMO's complaint process or TDH's fair hearings
                 process and include an address where a written request may be
                 sent and toll-free number the Member can call to request the
                 assistance of a Member representative or to file a complaint
                 or request a fair hearing;

8.7.2.6          an explanation that the Member may represent themselves, or be
                 represented by HMO's representative, a friend, a relative,
                 legal counsel or another spokesperson;

8.7.2.7          an explanation of whether and under what circumstances
                 services may be continued if a complaint is filed or a fair
                 hearing requested;

8.7.2.8          a statement that if the Member wants a TDH Fair Hearing on the
                 action, the Member must make the request for a Fair Hearing
                 within 90 days of the date the notice was mailed;

8.7.2.9          an explanation that the Member may request that resolution
                 through HMO complaint process or TDH Fair Hearing be conducted
                 based on written information without the necessity of taking
                 oral testimony; and

8.7.2.10         a statement explaining that HMO must make a decision or a
                 final decision must be made by TDH within 90 days from the
                 date the complaint is filed or a Fair Hearing requested.

8.8              MEMBER ADVOCATES

8.8.1            HMO must provide Member Advocates to assist Members.  The
                 Member Advocates must be physically located within the Service
                 Area.  Member Advocates must inform Members of their rights
                 and responsibilities, the complaint process, the health
                 education and the services available to them, including
                 preventive services.

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8.8.2            The Member Advocates must assist Members in writing complaints
                 and are responsible for monitoring the complaint through HMO's
                 complaint process until the Member's issues are resolved or a
                 TDH Fair Hearing requested.  (See Articles 8.6.15, 8.6.16 and
                 8.6.17.)

8.8.3            Member Advocates are responsible for making recommendations to
                 management on any changes needed to improve either the care
                 provided or the way care is delivered. Advocates are also
                 responsible for helping or referring Members to community
                 resources available to meet Member needs that are not
                 available from HMO as Medicaid covered services.

8.8.4            Member Advocates must provide outreach to Members and
                 participate in TDH-sponsored enrollment activities and
                 participate in the Group Needs Assessment process.

8.9              MEMBER CULTURAL AND LINGUISTIC SERVICES

8.9.1            Linguistic Services and Cultural Competency Plan.  HMO must
                 have a comprehensive written Linguistic Services and Cultural
                 Competency Plan describing how HMO will meet the linguistic
                 and cultural needs of Members.  The Plan must describe how the
                 individuals and systems within HMO will effectively provide
                 services to people of all cultures, races, ethnic backgrounds,
                 and religions in a manner that recognizes, values, affirms,
                 and respects the worth of the individuals and protects and
                 preserves the dignity of each.  HMO must submit a written plan
                 to TDH not later than 90 days prior to the Implementation
                 Date.  The Plan must also be made available to HMO's network
                 of providers.

8.9.2            HMO must develop and implement written policies and procedures
                 for the provision of linguistic services following Title VI of
                 the Civil Rights Act guidelines and must monitor the
                 performance of the individuals who provide linguistic
                 services.  HMO must disseminate these policies and procedures
                 to ensure that both Staff and subcontractors are aware of
                 their responsibilities under Title VI.

8.9.3            The Linguistic Services and Cultural Competency Plan must
                 include but not be limited to the following:

8.9.3.1          A description of how HMO will educate its staff on linguistic
                 and cultural needs and the characteristics of its Members;

8.9.3.2          A description of how HMO will implement the plan in its
                 organization, including the designation of staff responsible
                 for carrying out all portions of the Linguistic Services and
                 Cultural Competency Plan;

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8.9.3.3          A description of how HMO will develop standards and
                 performance requirements for the delivery of linguistic
                 services and culturally competent care, and monitor adherence
                 with those standards and requirements;

8.9.3.4          A description of how HMO will assist Members in writing/filing
                 a complaint and monitoring the complaint through the
                 Contractor's complaint process until the issue is resolved;

8.9.3.5          Recommendations to HMO management on any changes needed to
                 improve either the care provided or the way care is delivered;

8.9.3.6          A description of how HMO will provide outreach to Members and
                 participate in TDH-sponsored enrollment activities;

8.9.3.7          A description of how HMO will help Members access community
                 health or social services resources that are not covered under
                 the contract with TDH;

8.9.3.8          A description of how HMO will participate in the Group Needs
                 Assessment process.

8.9.4            HMO must provide the following types of linguistic services:
                 interpreters, translated signage, and referrals to culturally
                 and linguistically appropriate community services programs.

8.9.5            HMO must forward all approved English versions of materials to
                 DHS for DHS to translate into Spanish.  DHS must provide the
                 written and approved translation into Spanish to HMO within 15
                 days from receipt of the English version.  HMO must
                 incorporate the approved translations into all materials
                 distributed to Members.  TDH reserves the right to require
                 revisions to materials if inaccuracies are discovered, or if
                 changes are required by changes in policy or law.

8.9.6            Interpreter Services.  HMO must provide trained, professional
                 interpreters when technical, medical, or treatment information
                 is to be discussed.

8.9.6.1          HMO must adhere to and provide to Members the Member Bill of
                 Rights and Responsibilities as adopted by the Texas Health and
                 Human Services Commission and contained at 1 Texas
                 Administrative Code (TAC) Sections 353.202-353.203.  The
                 Member Bill of Rights and Responsibilities assures Members the
                 right "to have interpreters, if needed, during appointments
                 with [their] providers and when talking to [their] health
                 plan.  Interpreters include people who can speak in [their]
                 native language, assist with a disability, or help [them]
                 understand the information."

8.9.6.2          HMO must have in place policies and procedures that outline
                 how Members can access face-to-face interpreter services in a
                 provider's office if necessary to ensure the

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                 availability of effective communication regarding treatment,
                 medical history or health education for a Member.

8.9.6.3          A current copy of the list of interpreters must be provided to
                 each provider in HMO's provider network and updated as
                 necessary.  This list must be available to Members and TDH or
                 its agent(s) upon request.  A competent interpreter is defined
                 as someone who is:

8.9.6.3.1        proficient in both English and the other language, and

8.9.6.3.2        has had orientation or training in the ethics of interpreting,
                 and

8.9.6.3.3        has fundamental knowledge in both languages of any specialized
                 medical terms and concepts.

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

8.9.6.5          Family Members, especially minor children, should not be used
                 as interpreters in assessments, therapy or other medical
                 situations in which impartiality and confidentiality are
                 critical, unless specifically requested by the Member.
                 However, a family member or friend may be used as an
                 interpreter if they can be relied upon to provide a complete
                 and accurate translation of the information being provided to
                 the Member; the Member is advised that a free interpreter is
                 available; and the Member expresses a preference to rely on
                 the family member or friend.

8.9.7            All Member orientation presentations and education classes
                 must be conducted in the languages of the major population
                 groups, as specified by TDH, in the service area(s) as the
                 identified need arises.

8.9.8            HMO must provide TDD access to Members who are deaf or hearing
                 impaired.

ARTICLE IX             MARKETING AND PROHIBITED PRACTICES

9.1              MARKETING MATERIAL MEDIA AND DISTRIBUTION

                 HMOs may present their marketing materials to eligible
                 Medicaid recipients through any method or media determined to
                 be acceptable by TDH.  The media may include but are not
                 limited to:  written materials, such as brochures, posters, or
                 fliers which can be mailed directly to the client or left at
                 Texas Department of Human Services eligibility offices; TDH
                 sponsored community enrollment events; and paid or public
                 service announcements on radio.  All marketing materials must
                 be approved by TDH prior to distribution (see Article 3.4).

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9.2              MARKETING ORIENTATION AND TRAINING

                 HMO must require that all HMO staff having direct contact with
                 Members as part of their job duties and their supervisors have
                 satisfactorily completed TDH's marketing orientation and
                 training program prior to engaging in marketing activities on
                 behalf of HMO.  TDH will notify HMO of scheduled orientations.

9.3              PROHIBITED MARKETING PRACTICES

9.3.1            HMO and its agents, subcontractors and providers are
                 prohibited from engaging in the following marketing practices:

9.3.1.1          conducting any direct contact marketing to prospective Members
                 except through TDH-sponsored enrollment events;

9.3.1.2          making any written or oral statement containing material
                 misrepresentations of fact or law relating to HMO's plan or
                 the STAR program;

9.3.1.3          making false, misleading or inaccurate statements relating to
                 services or benefits of HMO or the STAR program;

9.3.1.4          offering prospective Members anything of material or financial
                 value as an incentive to enroll with a particular PCP or HMO;
                 and

9.3.1.5          discriminating against an eligible Member because of race,
                 creed, age, color, sex, religion, national origin, ancestry,
                 marital status, sexual orientation, physical or mental
                 handicap, health status, or requirements for health care
                 services.

9.3.2            HMO may offer nominal gifts with a retail value of no more
                 than $10 and/or free health screens to potential Members, as
                 long as these gifts and free health screenings are offered
                 whether or not the client enrolls in HMO.  Free health
                 screenings cannot be used to discourage less healthy potential
                 Members from joining HMO.  All gifts must be approved by TDH
                 prior to distribution to Members.  The results of free
                 screenings must be shared with the Member's PCP if the Member
                 enrolls with HMO providing the screen.

9.3.3            Marketing representatives may not conduct or participate in
                 marketing activities for more than one HMO.

9.4              NETWORK PROVIDER DIRECTORY

9.4.1            HMO must submit a provider directory to TDH no later than 180
                 days prior to the Implementation Date.  HMO must provide the
                 provider directory to the Enrollment

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                 Broker for prospective members.  The directory must contain
                 all critical elements specified by TDH. See Appendix M,
                 Required Critical Elements, for specific details regarding
                 content requirements.

9.4.2            If HMO contracts with limited provider networks, the provider
                 directory must comply with the requirements of 28 TAC
                 11.1600(b)(11), relating to the disclosure and notice of
                 limited provider networks.

9.4.3            Updates to the provider directory must be provided to the
                 Enrollment Broker at the beginning of each state fiscal year
                 quarter.  This includes the months of September, December,
                 March and June.  HMO is responsible for submitting draft
                 updates to TDH only if changes other than PCP information are
                 incorporated.  HMO is responsible for sending five final
                 copies of the updated provider directory to TDH each quarter.
                 TDH will forward two updated provider directories, along with
                 its approval notice, to the Enrollment Broker to facilitate
                 their distribution.

ARTICLE X                 MIS SYSTEM REQUIREMENTS

10.1             MODEL MIS REQUIREMENTS

10.1.1           HMO must maintain a MIS that will provide support for all
                 functions of HMO's processes and procedures related to the
                 flow and use of data within HMO.  The MIS must enable HMO to
                 meet the requirements of this contract.  The MIS must have the
                 capacity and capability of capturing and utilizing various
                 data elements to develop information for HMO administration.

10.1.2           HMO must maintain a claim retrieval service processing system
                 that can identify date of receipt, action taken on all
                 provider claims or encounters (i.e., paid, denied, other), and
                 when any action was taken in real time.

10.1.3           HMO must have a system that can be adapted to the change in
                 Business Practices/Policies within a short period of time.

10.1.4           HMO is required to submit and receive data as specified in
                 this contract and HMO Encounter Data Submissions Manual.  The
                 MIS must provide encounter data for all capitated services
                 within the scope of services of the contract between HMO and
                 TDH.  Encounter data must follow the format, data elements and
                 method of transmission specified in the contract and HMO
                 Encounter Data Submissions Manual.  HMO must submit encounter
                 data, including adjustments to encounter data, by the 10th day
                 of each month.  The Encounter transmission will include all
                 encounter data and encounter data adjustments processed by HMO
                 for the previous month.  Data quality validation will
                 incorporate assessment standards developed jointly by HMO and
                 TDH.  Original records will be made available for inspection
                 by TDH for

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                 validation purposes.  Data which does not meet quality
                 standards must be corrected and returned within a time period
                 specified by TDH.

10.1.5           HMO must use the procedure codes, diagnosis codes, and other
                 codes used for reporting encounters and fee-for-service claims
                 in the most recent edition of the Medicaid Provider Procedures
                 Manual or as otherwise directed by TDH.  Any exceptions will
                 be considered on a code-by-code basis after TDH receives
                 written notice from HMO requesting an exception.  HMO must
                 also use the provider numbers as directed by TDH for both
                 encounter and fee-for-service claims submission.

10.1.6           HMO must maintain accounting records for all claim payments,
                 refunds and adjustments of payments to providers, and all
                 premium payments, interest income and any administrative fees
                 paid to Subcontractors for services under this contract.
                 Provider payments for health or health related services must
                 be reported separately from administrative payments.  HMO must
                 submit periodic reports and data to TDH as required by TDH.

10.1.7           HMO must have hardware, software, network and communications
                 system with the capability and capacity to handle and operate
                 all MIS subsystems.

10.1.8           HMO must provide an organizational chart and description of
                 responsibilities of HMO's MIS department dedicated to or
                 supporting this Contract by Phase I of Readiness Review.  Any
                 updates to the organizational chart and the description of
                 responsibilities must be provided to TDH at least 30 days
                 prior to the effective date of the change.  Official points of
                 contact must be provided to TDH on an ongoing basis.  An
                 Internet E-mail address must be provided for each point of
                 contact.

10.1.9           HMO must operate and maintain a MIS that meets or exceeds the
                 requirements outlined in the Model MIS Guidelines that follow:

10.1.9.1         Eight subsystems are used in the Model MIS Requirements to
                 identify specific functions or features required by HMO's MIS.
                 These subsystems focus on the individual systems functions or
                 capabilities to support the following operational and
                 administrative areas:

                 (1)      Enrollment/Eligibility Subsystem

                 (2)      Provider Subsystem

                 (3)      Encounter/Claims Processing Subsystem

                 (4)      Financial Subsystem

                 (5)      Utilization/Quality Improvement Subsystem

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                 (6)      Reporting Subsystem

                 (7)      Interface Subsystem

                 (8)      TPR Subsystem

10.2             SYSTEM-WIDE FUNCTIONS

                 HMO MIS system must include functions and/or features which
                 must apply across all subsystems as follows:

                 (1)      Ability to update and edit data.

                 (2)      Maintain a history of changes and adjustments and
                          audit trails for current and retroactive data.  Audit
                          trails will capture date, time, and reasons for the
                          change, as well as who made the change.

                 (3)      Allow input mechanisms through manual and electronic
                          transmissions.

                 (4)      Have procedures and processes for accumulating,
                          archiving, and restoring data in the event of a
                          system or subsystem failure.

                 (5)      Maintain automated or manual linkages between and
                          among all MIS subsystems and interfaces.

                 (6)      Ability to relate Member and provider data with
                          utilization, service, accounting data, and reporting
                          functions.

                 (7)      Ability to relate and extract data elements into
                          summary and reporting formats attached as Appendices
                          to contract.

                 (8)      Must have written process and procedures manuals
                          which document and describe all manual and automated
                          system procedures and processes for all the above
                          functions and features, and the various subsystem
                          components.

                 (9)      Maintain and cross-reference all Member-related
                          information with the most current Medicaid number.

10.3             ENROLLMENT/ELIGIBILITY SUBSYSTEM

                 The Enrollment/Eligibility Subsystem is the central processing
                 point for the entire MIS.  It must be constructed and
                 programmed to secure all functions which require

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                 Membership data. It must have function and/or features which
                 support requirements as follows:

                 (1)      Identify other health coverage available or third
                          party liability (TPL), including type of coverage and
                          effective dates.

                 (2)      Maintain historical data (files) as required by TDH.

                 (3)      Maintain data on enrollments/disenrollments and
                          complaint activities.  This data must include reason
                          or type of disenrollment, complaint and resolution by
                          incidence.

                 (4)      Receive, translate, edit and update files in
                          accordance with TDH requirements prior to inclusion
                          in HMO's MIS.  Updates will be received from TDH's
                          agent and processed within two working days after
                          receipt.

                 (5)      Provide error reports and a reconciliation process
                          between new data and data existing in MIS.

                 (6)      Identify enrollee changes in primary care provider
                          and the reason(s) for those changes and effective
                          dates.

                 (7)      Monitor PCP capacity and limitations prior to
                          connecting the enrollee to PCP in the system, and
                          provide a kick-out report when capacity and
                          limitations are exceeded.

                 (8)      Verify enrollee eligibility for medical services
                          rendered or for other enrollee inquiries.

                 (9)      Generate and track referrals, e.g.,
                          Hospitals/Specialists.

                 (10)     Search records by a variety of fields (e.g., name,
                          unique identification numbers, date of birth, SSN,
                          etc.) for eligibility verification.

                 (11)     Send PCP assignment updates to TDH in the format as
                          specified by TDH.

10.4             PROVIDER SUBSYSTEM

                 The provider subsystem must accept, process, store and
                 retrieve current and historical data on providers, including
                 services, payment methodology, license information, service
                 capacity, and facility linkages.

                 Functions and Features:

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                 (1)      Identify specialty(s), admission privileges, enrollee
                          linkage, capacity, facility linkages, emergency
                          arrangements or contact, and other limitations,
                          affiliations, or restrictions.

                 (2)      Maintain provider history files to include audit
                          trails and effective dates of information.

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

                 (4)      Support HMO credentialing, recredentialing, and
                          credential tracking processes; incorporates or links
                          information to provider record.

                 (5)      Support monitoring activity for physician to enrollee
                          ratios (actual to maximum) and total provider
                          enrollment to physician and HMO capacity.

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

                 (7)      Support national provider number format (UPIN, NPIN,
                          CLIA, etc. as required by TDH).

                 (8)      Provide provider network files 90 days prior to
                          implementation and updates monthly. Format will be
                          provided by TDH to contracted entities.

                 (9)      Support the national CLIA certification numbers for
                          clinical laboratories.

                 (10)     Exclude providers from participation that have been
                          identified by TDH as ineligible or excluded.  Files
                          must be updated to reflect period and reason for
                          exclusion.

10.5             ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM

                 The encounter/claims processing subsystem must collect,
                 process, and store data on all health services delivered for
                 which HMO is responsible.  The functions of these subsystems
                 are claims/encounter processing and capturing health service
                 utilization data.  The subsystem must capture all health
                 related services, including medical supplies, using standard
                 codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92 Revenue Codes)
                 rendered by health-care providers to an eligible enrollee
                 regardless of payment arrangement (e.g. capitation or fee-
                 for-service).  It approves, prepares for payment, or may
                 return or deny claims submitted. This subsystem may integrate
                 manual and

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                 automated systems to validate and adjudicate claims and
                 encounters.  HMO must use encounter data validation
                 methodologies prescribed by TDH.

                 Functions and Features:

                 (1)      Accommodate multiple input methods - electronic
                          submission, tape, claim document, and media.

                 (2)      Support entry and capture of a minimum of two
                          diagnosis codes for each individual service as
                          defined by TDH.

                 (3)      Edit and audit to ensure allowed services are
                          provided by eligible providers for eligible
                          recipients.

                 (4)      Interface with Member and provider subsystems.

                 (5)      Capture and report TPL potential, reimbursement or
                          denial.

                 (6)      Edit for utilization and service criteria, medical
                          policy, fee schedules, multiple contracts, contract
                          periods and conditions.

                 (7)      Submit data to TDH through electronic transmission
                          using specified formats.

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

                 (9)      Provide timely, accurate, and complete data for
                          monitoring claims processing performance.

                 (10)     Provide timely, accurate, and complete data for
                          reporting medical service utilization.

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

                 (12)     Maintain and apply edits and audits to verify timely,
                          accurate, and complete encounter data reporting.

                 (13)     Submit reimbursement to non-contracted providers for
                          emergency care rendered to enrollees in a timely and
                          accurate fashion.

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                 (14)     Validate approval and denials of precertification and
                          prior authorization requests during adjudication of
                          claims/encounters.

                 (15)     Track and report the exact date a service was
                          performed.  Use of date ranges must have State
                          approval.

                 (16)     Receive and capture claim and encounter data from
                          TDH.

                 (17)     Receive and capture value-added services codes.

10.6             FINANCIAL SUBSYSTEM

                 The financial subsystem must provide the necessary data for all
                 accounting functions including cost accounting, inventory,
                 fixed assets, payroll, general ledger, accounts receivable and
                 payable, financial statement presentation, and any additional
                 data required by TDH. The financial subsystem must provide
                 management with information that can demonstrate that the
                 proposed or existing HMO is meeting, exceeding, or falling
                 short of fiscal goals. The information must also provide
                 management with the necessary data to spot the early signs of
                 fiscal distress, far enough in advance to allow management to
                 take corrective action where appropriate.

                 Functions and Features:

                 (1)      Provide information on HMO's economic resources,
                          assets, and liabilities and present accurate
                          historical data and projections based on historical
                          performance and current assets and liabilities.

                 (2)      Produce financial statements in conformity with
                          Generally Accepted Accounting Principles and in the
                          format prescribed by TDH.

                 (3)      Provide information on potential third party payers;
                          information specific to the client; claims made
                          against third party payers; collection amounts and
                          dates; denials, and reasons for denials.

                 (4)      Track and report savings by category as a result of
                          cost avoidance activities.

                 (5)      Track payments per Member made to network providers
                          compared to utilization of the provider's services.

                 (6)      Generate Remittance and Status Reports.

                 (7)      Make claim and capitation payments to providers or
                          groups.

                 (8)      Reduce/increase accounts payable/receivable based on
                          adjustments to claims or recoveries from third party
                          resources.

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10.7             UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM

                 The quality management/quality improvement/utilization review
                 subsystem combines data from other subsystems, and/or external
                 systems, to produce reports for analysis which focus on the
                 review and assessment of quality of care given, detection of
                 over and under utilization, and the development of user
                 defined reporting criteria and standards.  This system
                 profiles utilization of providers and enrollees and compares
                 them against experience and norms for comparable individuals.
                 This system also supports the quality assessment function.

                 The subsystem tracks utilization control function(s) and
                 monitoring inpatient admissions, emergency room use,
                 ancillary, and out-of-area services.  It provides provider
                 profiles, occurrence reporting, monitoring and evaluation
                 studies, and enrollee satisfaction survey compilations.  The
                 subsystem may integrate HMO's manual and automated processes
                 or incorporate other software reporting and/or analysis
                 programs.

                 The subsystem incorporates and summarizes information from
                 enrollee surveys, provider and enrollee complaints, and appeal
                 processes.

                 Functions and Features:

                 (1)      Supports provider credentialing and recredentialing
                          activities.

                 (2)      Supports HMO processes to monitor and identify
                          deviations in patterns of treatment from established
                          standards or norms.  Provides feedback information
                          for monitoring progress toward goals, identifying
                          optimal practices, and promoting continuous
                          improvement.

                 (3)      Supports development of cost and utilization data by
                          provider and service.

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

                 (5)      Supports focused quality of care studies.

                 (6)      Supports the management of referral/utilization
                          control processes and procedures, including prior
                          authorization and precertifications and denials of
                          services.

                 (7)      Monitors primary care provider referral patterns.

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

                 (9)      Stores and reports patient satisfaction data through
                          use of enrollee surveys.

                 (10)     Provides fraud and abuse detection, monitoring and
                          reporting.

                 (11)     Meets minimum report/data collection/analysis
                          functions of Article XI and Appendix A of this
                          Contract.

                 (12)     Monitors and tracks provider and enrollee complaints
                          and appeals from receipt to disposition or resolution
                          by provider.

10.8             REPORT SUBSYSTEM

                 The reporting subsystem supports reporting requirements of all
                 HMO operations to HMO management and TDH.  It allows HMO to
                 develop various reports to enable HMO management and TDH to
                 make decisions regarding HMO activity.

                 Functions and Capabilities:

                 (1)      Produces standard, TDH-required reports and ad hoc
                          reports from the data available in all MIS
                          subsystems.  All reports will be submitted on hard
                          copy or electronically in a format approved by TDH.

                 (2)      Have system flexibility to permit the development of
                          reports at irregular periods as needed.

                 (3)      Generate reports that provide unduplicated counts of
                          enrollees, providers, payments and units of service
                          unless otherwise specified.

                 (4)      Generate an alphabetic Member listing.

                 (5)      Generate a numeric Member listing.

                 (6)      Generate a client eligibility listing by PCP (panel
                          report).

                 (7)      Report on PCP change by reason code.

                 (8)      Report on TPL (COB) information to TDH.

                 (9)      Report on provider capacity and assignment from date
                          of service to date received.

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                 (10)     Generate or produce an aged outstanding liability
                          report.

                 (11)     Produce a Member ID Card.

                 (12)     Produce client/provider mailing labels.

10.9             DATA INTERFACE SUBSYSTEM

10.9.1           The interface subsystem supports incoming and outgoing data
                 from and to other organizations. It allows HMO to maintain
                 enrollee, benefit package, eligibility,
                 disenrollment/enrollment status, and medical services received
                 outside of capitated services and associated cost. All
                 interfaces must follow the specifications frequencies and
                 formats listed in the Interface Manual.

10.9.2           HMO must obtain access to the TexMedNet BBS.  Some file
                 transfers and E-mail will be handled through this mechanism.

10.9.3           Provider Network File.  The provider file shall supply Network
                 Provider data between an HMO and TDH.  This process shall
                 accomplish the following:

                 (1)      Provide identifying information for all managed care
                          providers (e.g. name, address, etc.).

                 (2)      Maintain history on provider enrollment/disenrollment.

                 (3)      Identify PCP capacity.

                 (4)      Identify any restrictions (e.g., age, sex, etc.).

                 (5)      Identify number and types of specialty providers
                          available to Members.

10.9.4           Eligibility/Enrollment Interface.  The enrollment interface
                 must provide eligibility data between TDH and HMOs.

                 (1)      Provides benefit package data to HMOs in accordance
                          with capitated services.

                 (2)      Provides PCP assignments.

                 (3)      Provides Member eligibility status data.

                 (4)      Provides Member demographics data.

                 (5)      Provides HMOs with cross-reference data to identify
                          duplicate Members.

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10.9.5           Encounter/Claim Data Interface.  The encounter/claim interface
                 must transfer paid fee-for-service claims data to HMOs and
                 capitated services/encounters from HMO, including adjustments.
                 This file will include all service types, such as inpatient,
                 outpatient, and medical services.  TDH's agent will process
                 claims for non-capitated services.

10.9.6           Capitation Interface.  The capitation interface must transfer
                 premium and Member information to HMO.  This interface's basic
                 purpose is to balance HMO's Members and premium amount.

10.9.7           TPR Interface.  TDH will provide a data file that contains
                 information on enrollees that have other insurance.  Because
                 Medicaid is the payer of last resort, all services and
                 encounters should be billed to the other insurance companies
                 for recovery.  TDH will also provide an insurance company data
                 file which contains the name and address of each insurance
                 company.

10.9.8           TDH will provide a diagnosis file which will give the code and
                 description of each diagnosis permitted by TDH.

10.9.9           TDH will provide a procedure file which contains the
                 procedures which must be used on all claims and encounters.
                 This file contains HCPCS, revenue, and ICD9-CM surgical
                 procedure codes.

10.9.10          TDH will provide a provider file that will contain the
                 Medicaid provider numbers, name, and address of each Medicaid
                 provider.  The Medicaid number authorized by TDH will be
                 submitted on all claims, encounters, and network provider
                 submissions.

10.10            TPR SUBSYSTEM

                 HMO's third party recovery system must have the following
                 capabilities and capacities:

                 (1)      Identify, store, and use other health coverage
                          available to eligible Members or third party
                          liability (TPL) including type of coverage and
                          effective dates.

                 (2)      Provide changes in information to TDH as specified by
                          TDH.

                 (3)      Receive TPL data from TDH to be used in claim and
                          encounter processing.

10.11            YEAR 2000 COMPLIANCE

                 HMO must take all appropriate measures to make all software
                 which will record, store, and process and present calendar
                 dates falling on or after January 1, 2000,

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                 perform in the same manner and with the same functionality,
                 data integrity and performance, as dates falling on or before
                 December 31, 1999, at no added cost to TDH.  HMO must take all
                 appropriate measures to ensure that the software will not
                 lose, alter or destroy records containing dates falling on or
                 after January 1, 2000.  HMO will ensure that all software will
                 interface and operate with all TDH, or its agent's, data
                 systems which exchange data, including but not limited to
                 historical and archived data.  In addition, HMO guarantees
                 that the year 2000 leap year calculations will be accommodated
                 and will not result in software, firmware or hardware
                 failures.

ARTICLE XI                QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.1             QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM

                 HMO must develop, maintain, and operate a Quality Improvement
                 Program (QIP) system which complies with federal regulations
                 relating to Quality Assurance systems, found at 42 C.F.R.
                 Section 434.34.  The system must meet the Standards for
                 Quality Improvement Programs contained in Appendix A.

11.2             WRITTEN QIP PLAN

                 HMO must have an approved plan describing its Quality
                 Improvement Plan (QIP), including how HMO will accomplish the
                 activities pertaining to each Standard (I-XVI) in Appendix A
                 on file with TDH.

11.3             QIP SUBCONTRACTING

                 If HMO subcontracts any of the essential functions or
                 reporting requirements of QIP to another entity, HMO must
                 submit a list of the subcontractors and a description of how
                 the Subcontractor will meet the standards and reporting
                 requirements of this contract 60 days prior to the
                 Implementation Date.  HMO must notify TDH no later than 90
                 days prior to terminating any subcontract affecting a major
                 performance function of this contract (see Article 3.2).

11.4             ACCREDITATION

                 If HMO is accredited by an external accrediting agency,
                 documentation of accreditation must be provided to TDH.  HMO
                 must provide TDH with their accreditation status upon request.

11.5             BEHAVIORAL HEALTH INTEGRATION INTO QIP

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                 HMO must integrate behavioral health into its QIP system and
                 include a systematic and on-going process for monitoring,
                 evaluating, and improving the quality and appropriateness of
                 behavioral health services provided to Members.  HMO's QIP
                 must enable HMO to collect data, monitor and evaluate for
                 improvements to physical health outcomes resulting from
                 behavioral health integration into the overall care of the
                 Member.

11.6             QIP REPORTING REQUIREMENTS

                 HMO must meet all of the QIP Reporting Requirements contained
                 in Article XII.

ARTICLE XII            REPORTING REQUIREMENTS

12.1             FINANCIAL REPORTS

12.1.1           Monthly MCFS Report.  HMO must submit the Managed Care
                 Financial Statistical Report (MCFS) included in Appendix I as
                 may be modified or amended by TDH. The report must be
                 submitted to TDH 30 days after the end of each state fiscal
                 year quarter and must include complete financial and
                 statistical information for each month.  The MCFS Report must
                 be submitted for each claims processing subcontractor in
                 accordance with this Article.  HMO must incorporate financial
                 and statistical data received by its provider networks (IPAs,
                 ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.2           For any given month in which an HMO has a net loss of $200,000
                 or more for the contract period to date, HMO must submit an
                 MCFS Report for that month by the 30th day after the end of
                 the reporting month.  The MCFS Report must be completed in
                 accordance with the Instructions for Completion of the Managed
                 Care Financial-Statistical Report developed by TDH.

12.1.3           An HMO must submit monthly reports for each of the first 6
                 months following the Implementation Date of the contract
                 between TDH and HMO.  If the cumulative net loss for the
                 contract period to date after the 6th month is less than
                 $200,000, HMO may submit quarterly reports in accordance with
                 the above provisions unless conditions 12.1.2 or 12.1.3 exist,
                 in which case monthly reports must be submitted.

12.1.4           Annual MCFS Report.  HMO must file two annual Managed Care
                 Financial Statistical Reports. The first annual report must
                 reflect expenses incurred through the 90th day after the end
                 of the contract year.  The first annual report must be filed
                 on or before the 120th day after the end of the contract year.
                 The second annual report must reflect data completed through
                 the 334th day after the end of the contract year and must be
                 filed on or before the 365th day following the end of the
                 contract year.

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12.1.5           Administrative expenses reported in the monthly and annual
                 MCFS Reports must be reported in accordance with Appendix L,
                 Cost Principles for Administrative Expenses.  Indirect
                 administrative expenses must be based on an allocation
                 methodology for Medicaid managed care activities and services
                 that is developed or approved by TDH.

12.1.6           Affiliated Related Parties Report.  HMO must submit an
                 Affiliated Related Parties Report to TDH not later than 90
                 days prior to the Implementation Date.  The report must
                 contain the following information:

12.1.6.1         A listing of all Affiliates/Related parties;

12.1.6.2         A schedule of all transactions with Affiliates which, under
                 the provisions of this Contract, will be allowable as expenses
                 in either Line 4 or Line 5 of Part 1 of the MCFS Report for
                 services provided to HMO by the Affiliate, including financial
                 terms, a detailed description of the services to be provided
                 and an estimated amount which will be incurred by HMO for such
                 services during the Contract period for the prior approval of
                 TDH.

12.1.7           Annual Audited Financial Report.  On or before June 30th of
                 each year, HMO must submit to TDH a copy of the annual audited
                 financial report filed with TDI.

12.1.8           Form HCFA-1513.  HMO must file an updated Form HCFA-1513
                 regarding control, ownership, or affiliation of HMO 30 days
                 prior to the end of the contract year.  An updated Form
                 HCFA-1513 must also be filed within 30 days of any change in
                 control, ownership, or affiliation of HMO.  Forms may be
                 obtained from TDH.

12.1.9           Section 1318 Financial Disclosure Report.  HMO must file an
                 updated HCFA Public Health Service (PHS) "Section 1318
                 Financial Disclosure Report" within 30 days from the end of
                 the contract year and within 30 days of entering into,
                 renewing, or terminating a relationship with an affiliated
                 party.  These forms may be obtained from TDH.

12.1.10          TDI Examination Report.  HMO must furnish a copy of any TDI
                 Examination Report within 10 days after receipt from TDI.

12.1.11          IBNR Plan.  HMO must furnish a written IBNR Plan to manage
                 incurred-but-not-reported (IBNR) expenses, and a description
                 of the method of insuring against insolvency, including
                 information on all existing or proposed insurance policies.
                 The Plan must include the methodology for estimating IBNR.
                 The plan and description must be submitted to TDH not later
                 than 60 days prior to the Implementation Date of this
                 contract.

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12.1.12          Third Party Recovery (TPR) Reports.  HMO must file quarterly
                 Third Party Recovery (TPR) Reports in accordance with the
                 format developed by TDH. TPR reports must include total
                 dollars recovered from third party payers for services to
                 HMO's Members for each month and the total dollars recovered
                 through coordination of benefits, subrogation, and worker's
                 compensation.

12.1.13          Pre-implementation Expenses.  Pre-implementation expenses
                 (i.e., expenses incurred between the effective date of the
                 contract and the Implementation Date) will be allowable
                 expenses as determined by TDH.  Such expenses must be reported
                 for each month in which the expenses were incurred.  Such
                 expenses shall be counted toward the calculation of total
                 expenses for the first contract year for purposes of
                 calculating the net income before taxes.  Such expenses shall
                 not be allocated or amortized beyond the first contract year.

12.1.14          Each report required under this Article must be mailed to:
                 Bureau of Managed Care; Texas Dept. of Health; 1100 West 49th
                 Street; Austin, TX 78756-3168.  HMO must also mail a copy of
                 the reports, except for items in Article 12.1.7 and Article
                 12.1.10, to Texas Department of Insurance, Mail Code 106-3A,
                 HMO Division, Attention: HMO Division Director, P.O. Box
                 149104, Austin, TX 78714-9104.

12.2             STATISTICAL REPORTS

12.2.1           HMO must electronically file the following monthly reports:
                 (1) encounter; (2) encounter detail; (3) institutional; (4)
                 institutional detail; and (5) claims detail for cost-
                 reimbursed services filed, if any, with HMO.  Monthly reports
                 must be submitted by the 10th day following the end of the
                 reporting month.  Encounter data must include the data
                 elements, follow the format, and use the transmission method
                 specified by TDH.

12.2.2           Monthly reports must include current month encounter data and
                 encounter data adjustments to the previous month's data.

12.2.3           Data quality standards will be developed jointly by HMO and
                 TDH.  Encounter data must meet or exceed data quality
                 standards.  Data that does not meet quality standards must be
                 corrected and returned within the period specified by TDH.
                 Original records must be made available to validate all
                 encounter data.

12.2.4           HMO must require providers to submit claims and encounter data
                 to HMO within 95 days from the date services are provided.

12.2.5           HMO must use the procedure codes, diagnosis codes and other
                 codes contained in the most recent edition of the Texas
                 Medicaid Provider Procedures Manual and as otherwise provided
                 by TDH.  Exceptions or additional codes must be submitted for
                 approval before HMO uses the codes.

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12.2.6           HMO must use Medicaid provider numbers on all encounter and
                 fee-for-service claim submissions.  Any exceptions must be
                 approved by TDH.

12.2.7           Claims Aging and Summary Report.  HMO must submit the monthly
                 Claims Aging and Summary Reports identified in the Texas
                 Managed Care Claims Manual by the third Monday of the month
                 following the reporting period.  The reports must be submitted
                 to TDH in a format using the instructions specified by TDH.

12.2.8           HMO must validate all encounter data using the encounter data
                 validation methodology prescribed by TDH prior to submission
                 of encounter data to TDH.

12.2.9           Medicaid Disproportionate Share Hospital (DSH) Reports.  HMO
                 must file preliminary and final Medicaid Disproportionate
                 Share Hospital (DSH) reports, required by TDH to identify and
                 reimburse hospitals that qualify for Medicaid DSH funds.  The
                 preliminary and final DSH reports must include the data
                 elements and be submitted in the form and format specified by
                 TDH.  The preliminary DSH reports are due on or before June 1
                 of the year following the state fiscal year for which data is
                 being reported.  The final DSH reports are due on or before
                 August 15 of the year following the state fiscal year for
                 which data is being reported.

12.3             ARBITRATION/LITIGATION CLAIMS REPORT

                 HMO must submit a monthly Arbitration/Litigation Claims Report
                 in a form developed by TDH identifying all provider complaints
                 that are in arbitration or litigation.  The report is to be
                 submitted by the last working day of the month following the
                 reporting month.

12.4             SUMMARY REPORT OF PROVIDER COMPLAINTS

                 HMO must submit a Summary Report of Provider Complaints.  The
                 report must include a copy of any complaints submitted to
                 either HMO or an arbitrator, or both. The report must also
                 include a copy of the provider complaint log.  HMO must also
                 report complaints submitted to its subcontracted risk groups
                 (e.g., IPAs).  The report must be submitted on or before the
                 fifteenth of the month following the end of the state fiscal
                 quarter using a form specified by TDH.

12.5             PROVIDER NETWORK REPORTS

12.5.1           Provider Network Change Reports.  HMO must submit a monthly
                 report summarizing changes in HMO's provider network.  The
                 report must be submitted to TDH in the format specified by
                 TDH. HMO will submit the report thirty (30) days following the
                 end of the reporting month.  The report must identify provider
                 additions and deletions and the impact to the following:

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                 (1)      geographic access for the Members;

                 (2)      cultural and linguistic services;

                 (3)      the ethnic composition of providers;

                 (4)      the number of Member assigned to PCPs;

                 (5)      the change in the ratio of providers with pediatric
                          experience to the number of Members under age 21; and

                 (6)      number of specialists serving as PCPs.

12.5.1.1         Provider Termination Report.  HMO must also include in the
                 Provider Network Change Report information identifying any
                 providers who cease to participate in HMO's provider network,
                 either voluntarily or involuntarily.  The information must
                 include the provider's name, Medicaid number, the reason for
                 the provider's termination, and whether the termination was
                 voluntary or involuntary.

12.5.2           PCP Network and Capacity Report.  HMO must submit
                 electronically to Enrollment Broker a weekly report that shows
                 changes to the PCP network and PCP capacity.

12.6             MEMBER COMPLAINTS

                 HMO must submit a quarterly summary report of Member
                 complaints.  The report must show the date upon which each
                 complaint was filed, a summary of the facts surrounding the
                 complaint, the date of the resolution of the complaint, an
                 explanation of the procedure followed, and the outcome of the
                 complaint process.  It should also include the Member Advocate
                 Report (refer to Article 8.6.17).  The complaint report format
                 must be approved by TDH and submitted in hard copy and
                 diskette.  HMO must also report complaints submitted to its
                 subcontracted risk groups (e.g., IPAs).

12.7             FRAUDULENT PRACTICES

                 HMO must report all fraud and abuse enforcement actions or
                 investigations taken against HMO and/or any of its
                 Subcontractors or providers by any state or federal agency for
                 fraud or abuse under Title XVIII or Title XIX of the Social
                 Security Act or any State law or regulation and any basis upon
                 which an action for fraud or abuse may be brought by a State
                 or federal agency as soon as such information comes to the
                 attention of HMO.

12.8             UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH

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                 HMO will be required to report behavioral health (BH)
                 utilization information in a format specified by TDH on a
                 quarterly basis.  This report is due 120 days following the
                 end of the State Fiscal Quarter.  The utilization report
                 instructions may periodically be updated by TDH to include new
                 codes and to facilitate clear communication to the health
                 plan.

12.9             UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH

                 Physical health (PH) utilization management reports are
                 required on a quarterly basis and are due 120 days following
                 the end of the State Fiscal Quarter and are to be provided in
                 hard copy and in a format specified by TDH.  Refer to Appendix
                 J for the standardized reporting format for each report and
                 detailed instructions for obtaining specific data required in
                 the report.  The PH Utilization Management Report instructions
                 may periodically be updated by TDH to include new codes and to
                 facilitate clear communication to the health plan.

12.10            QUALITY IMPROVEMENT REPORTS

12.10.1          HMO must conduct focused health studies in pregnancy and
                 prenatal care, THSteps, asthma (or another chronic disease as
                 required by TDH).  HMO will be required to conduct no more
                 than two focused studies, as instructed by TDH.  These studies
                 shall be conducted and data collected using criteria and
                 methods developed by TDH.  The following format shall be
                 utilized:

                 (1)      Executive Summary.

                 (2)      Definition of the population and health areas of
                          concern.

                 (3)      Clinical guidelines/standards, quality indicators,
                          and audit tools.

                 (4)      Sources of information and data collection
                          methodology.

                 (5)      Data analysis and information/results.

                 (6)      Corrective actions if any, implementation, and follow
                          up plans including monitoring, assessment of
                          effectiveness, and methods for provider feedback.

12.10.2          Annual Focus Studies.  Focus studies on well child, asthma and
                 ADHD must be submitted to TDH no later than March 1, 2000.
                 Focus studies on pregnancy and substance abuse in pregnancy
                 must be submitted no later than June 1, 2000.

12.10.3          Annual QIP Summary Report.  An annual QIP summary report must
                 be conducted yearly based on the state fiscal year.  The
                 annual QIP summary report must be

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                 submitted by December 31 of each year. This report must
                 provide summary information on HMO's QIP system and include
                 the following:

                 (1)      Executive summary of QIP - include results of all QI
                          reports and interventions.

                 (2)      Activities pertaining to each standard (I through
                          XVI) in Appendix A. Report must list each standard.

                 (3)      Methodologies for collecting, assessing data and
                          measuring outcomes.

                 (4)      Tracking and monitoring quality of care.

                 (5)      Role of health professionals in QIP review.

                 (6)      Methodology for collection data and providing
                          feedback to provider and staff.

                 (7)      Outcomes and/or action plan.

12.10.4          HMO must submit an annual provider medical record audit of its
                 PCPs that conform to the medical record requirements found in
                 Standard XII in Appendix A.

12.10.4.1        HMO must submit a written plan for correcting the
                 noncompliance (<80% compliance rate) and a time line for
                 achieving compliance if audits reveal noncompliance with TDH
                 medical records standards.

12.10.5          HMO must submit to TDH semi-annual reports on its subspecialty
                 network.

12.11            HUB REPORTS

                 HMO must submit quarterly reports documenting HMO's HUB
                 program efforts and accomplishments. The report must include a
                 narrative description of HMO's program efforts and a financial
                 report reflecting payments made to HUB.  HMO must use the
                 format included in Appendix B for HUB quarterly reports.

12.12            THSTEPS REPORTS

                 Minimum reporting requirements.  HMO must submit, at a
                 minimum, 80% of all THSteps checkups on HCFA 1500 claim forms
                 as part of the encounter file submission to the TDH Claims
                 Administrator within 120 days from the date of service.
                 Failure to comply with these minimum reporting requirements
                 will result in Article XVIII sanctions and money damages.

12.13            REPORTING REQUIREMENTS DUE DATES

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                                                    Dallas Service Area Contract
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                 TDH will provide HMO with a matrix of all contract
                 deliverables with due dates.  The due dates for deliverables
                 may be changed by TDH.  TDH will provide HMO with 30 days
                 notice of any deliverable due date change.

ARTICLE XIII           PAYMENT PROVISIONS

13.1             CAPITATION AMOUNTS

13.1.1           TDH will pay HMO monthly premiums calculated by multiplying
                 the number of Member months by Member risk group times the
                 monthly capitation amount by Member risk group.  HMO and
                 network providers are prohibited from billing or collecting
                 any amount from a Member for health care services covered by
                 this contract, in which case the Member must be informed of
                 such costs prior to providing non-covered services.

13.1.2           Delivery Supplemental Payment (DSP).  TDH has submitted the
                 delivery supplemental payment methodology to HCFA for
                 approval.   THE MONTHLY CAPITATION AMOUNTS FOR SEPTEMBER 1,
                 1999, THROUGH AUGUST 31, 2000 AND THE DSP AMOUNT ARE LISTED
                 BELOW. THESE AMOUNTS ARE EFFECTIVE SEPTEMBER 1, 1999.  THE
                 MONTHLY CAPITATION AMOUNTS ESTABLISHED FOR EACH RISK GROUP IN
                 THE DALLAS SERVICE AREA USING THE STANDARD METHODOLOGY (LISTED
                 IN ARTICLE 13.1.3) WILL APPLY IF THE DSP METHODOLOGY IS NOT
                 APPROVED BY HCFA.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
 RISK GROUP                         MONTHLY CAPITATION AMOUNTS
                                    SEPTEMBER 1, 1999 - AUGUST 31, 2000
------------------------------------------------------------------------------
 <S>                                               <C>
 TANF ADULTS                                       $131.03
------------------------------------------------------------------------------
 TANF CHILDREN > 12                                 $57.99
 MONTHS OF AGE -
------------------------------------------------------------------------------
 EXPANSION CHILDREN > 12                           $136.81
 MONTHS OF AGE
------------------------------------------------------------------------------
 NEWBORNS (< 12 MONTHS OF                          $276.74
 AGE)      -
------------------------------------------------------------------------------
</TABLE>

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                                                    Dallas Service Area Contract
<PAGE>   105
<TABLE>
------------------------------------------------------------------------------
 <S>                                              <C>
 TANF CHILDREN < 12                               $276.74
 MONTHS OF AGE -
------------------------------------------------------------------------------
 EXPANSION CHILDREN < 12                          $276.74
 MONTHS OF AGE      -
------------------------------------------------------------------------------
 FEDERAL MANDATE CHILDREN                          $55.40
------------------------------------------------------------------------------
 CHIP PHASE 1                                      $94.27
------------------------------------------------------------------------------
 PREGNANT WOMEN                                    $232.66
------------------------------------------------------------------------------
 DISABLED/BLIND                                    $14.00
 ADMINISTRATION
------------------------------------------------------------------------------
</TABLE>

                 DELIVERY SUPPLEMENTAL PAYMENT: A ONE-TIME PER PREGNANCY
                 SUPPLEMENTAL PAYMENT FOR EACH DELIVERY SHALL BE PAID TO HMO AS
                 PROVIDED BELOW IN THE FOLLOWING AMOUNT: $3,076.23.

13.1.2.1         HMO will receive a DSP for each live or still birth.  The
                 one-time payment is made regardless of whether there is a
                 single or multiple births at time of delivery.  A delivery is
                 the birth of a liveborn infant, regardless of the duration of
                 the pregnancy or, a stillborn (fetal death) infant of 20 weeks
                 or more gestation.  A delivery does not include a spontaneous
                 or induced abortion, regardless of the duration of the
                 pregnancy.

13.1.2.2         For an HMO Member who is classified in the Pregnant Women,
                 TANF Adults, or TANF CHILDREN  > 12 MONTHS, EXPANSION CHILDREN
                 >12 MONTHS, FEDERAL MANDATE CHILDREN, OR CHIP risk group, HMO
                 will be paid the monthly capitation amount identified in
                 section 13.1.2 for each month of classification, plus the DSP
                 amount identified in Article 13.1.2.

13.1.2.3         HMO must submit a  MONTHLY DSP Report (report) that includes
                 the data elements specified by TDH   TDH will consult with
                 contracted HMOs prior to revising the report data elements and
                 requirements.  The reports must be submitted to TDH in the
                 format and time specified by TDH.  The report must include
                 only unduplicated deliveries.  The report must include only
                 deliveries for which HMO has made a payment for the delivery,
                 to either a hospital or other provider.  No DSP will be made
                 for deliveries which are not reported BY HMO TO TDH within 210
                 days AFTER the date of delivery, or WITHIN

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                 30 DAYS FROM THE DATE OF discharge from the hospital FOR THE
                 STAY RELATED TO THE DELIVERY, whichever is later.

13.1.2.4         HMO must maintain complete claims and adjudication disposition
                 documentation, including paid and denied amounts for each
                 delivery.  HMO must submit the documentation to TDH within
                 five (5) days from the date of a TDH request for documents.

13.1.2.5         The DSP will be made by TDH to HMO within  TWENTY (20) STATE
                 WORKING days after receiving an accurate report from HMO.

13.1.2.6         All infants of age equal to or less than twelve months
                 (Newborns) IN THE TANF CHILDREN, EXPANSION CHILDREN, AND
                 NEWBORNS RISK GROUPS will be capitated at the Newborns
                 classification capitation amount in paragraph 13.1.2

13.1.3           Standard Methodology.  If the DSP methodology is not approved
                 by HCFA, the monthly capitation amounts established for each
                 risk group in the Dallas Service Area using the methodology
                 set forth in 13.1.1, without the DSP, are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
 RISK GROUP                         MONTHLY CAPITATION AMOUNTS
                                    SEPTEMBER 1, 1999 - AUGUST 31, 2000
--------------------------------------------------------------------------
 <S>                                               <C>
 TANF ADULTS                                       $155.91
--------------------------------------------------------------------------
 TANF CHILDREN                                      $68.09
--------------------------------------------------------------------------
 EXPANSION CHILDREN                                $136.73
--------------------------------------------------------------------------
 NEWBORNS                                          $322.45
--------------------------------------------------------------------------
 FEDERAL MANDATE CHILDREN                           $55.72
--------------------------------------------------------------------------
 CHIP PHASE 1                                      $99.35
--------------------------------------------------------------------------
 PREGNANT WOMEN                                    $646.38
--------------------------------------------------------------------------
</TABLE>

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                                                    Dallas Service Area Contract
<PAGE>   107

<TABLE>
--------------------------------------------------------------------------
 <S>                                                <C>
 DISABLED/BLIND ADMINISTRATION                      $14.00
--------------------------------------------------------------------------
</TABLE>

13.1.4           The monthly premium payment to HMO is based on monthly
                 enrollments adjusted to reflect money damages set out in
                 Article 18.8 and adjustments to premiums in Article 13.5.

13.1.5           The monthly premium payments will be made to HMO no later than
                 the 10th working day of the month for which premiums are paid.
                 HMO must accept payment for premiums by direct deposit into an
                 HMO account.

13.1.6           Payment of monthly capitation amounts is subject to
                 availability of appropriations.  If appropriations are not
                 available to pay the full monthly capitation amounts, TDH will
                 equitably adjust capitation amounts for all participating
                 HMOs, and reduce scope of service requirements as appropriate.

13.2             EXPERIENCE REBATE TO STATE

13.2.1           HMO must pay to TDH an experience rebate equal to fifty
                 percent (50%) of the excess of allowable HMO STAR revenues
                 over allowable HMO STAR expenses as measured by any positive
                 amount on Line 7 of "Part 1:  Financial Summary, All Coverage
                 Groups Combined" of the annual Managed Care Financial
                 Statistical Report set forth in Appendix I, as audited and
                 confirmed by TDH.

13.2.2           There will be two settlements for payment of the experience
                 rebate.  The first settlement shall equal 100 percent of the
                 experience rebate as derived from Line 7 of Part 1 (Net Income
                 Before Taxes) of the annual Managed Care Financial Statistical
                 (MCFS) Report. The second settlement shall be an adjustment to
                 the first settlement and shall be paid to TDH on the same day
                 that the second annual MCFS Report is submitted to TDH if the
                 adjustment is a payment from HMO to TDH. TDH or its agent may
                 audit or review the MCFS reports.  If TDH determines that
                 corrections to the MCFS reports are required, based on a TDH
                 audit/review or other documentation acceptable to TDH, to
                 determine an adjustment to the amount of the second
                 settlement, then final adjustment shall be made within two
                 years from the date that HMO submits the second annual MCFS
                 report. HMO must pay the first and second settlements on the
                 due dates for the first and second MCFS reports respectively
                 as identified in Article 12.1.5.  TDH may adjust the
                 experience rebate if TDH determines HMO has paid affiliates
                 amounts for goods or services that are higher than the fair
                 market value of the goods and services in the service area.
                 Fair market value may be based on the amount HMO pays a
                 non-affiliate(s) or the amount another HMO pays for the same
                 or similar service in the service area.  TDH will have final
                 authority in assessing the amount of the experience rebate.

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13.3             PERFORMANCE OBJECTIVES

13.3.1           Preventive Health Performance Objectives are contained in this
                 contract at Appendix K. HMO must accomplish the performance
                 objectives or a designated percentage in order to be eligible
                 for payment of financial incentives.  Performance objectives
                 are subject to change.  TDH will consult with HMO prior to
                 revising performance objectives.

13.3.2           HMO will receive credit for accomplishing a performance
                 objective upon receipt of accurate encounter data required
                 under paragraphs 10.5 and 12.2 of this contract and/or a
                 Detailed Data Element Report from HMO with report format as
                 determined by TDH and aggregate data reported by HMO in
                 accordance with a report format as determined by TDH
                 (Performance Objectives Report). Accuracy and completeness of
                 the detailed data element report and the aggregate data
                 Performance Objectives Report will be determined by TDH
                 through a TDH audit of HMO claims processing system.  If TDH
                 determines that the Detailed Data Element Report and
                 Performance Objectives Report are sufficiently supported by
                 the results of the TDH audit, the payment of financial
                 incentives will be made to HMO.  Conversely, if the audit
                 results do not support the reports as determined by TDH, HMO
                 will not receive payment of the financial incentive. TDH may
                 conduct provider chart reviews to validate the accuracy of the
                 claims data related to HMO accomplishment of performance
                 objectives.  If the results of the chart review do not support
                 HMO claims system data or HMO Detailed Data Element Report and
                 the Performance Objectives Report, TDH may recoup payments
                 made to HMO for performance objectives incentives.

13.3.3           HMO will also receive credit for performance objectives
                 performed by other organizations if a network primary care
                 provider or HMO retains documentation from the performing
                 organization which satisfies the requirements contained in
                 Appendix K of this contract.

13.3.4           HMO will receive performance objective bonuses for
                 accomplishing the following percentages of performance
                 objectives:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
 Percent of Each Performance          Percent of Performance Objective
 Objective Accomplished               Allocations Paid to HMO
----------------------------------------------------------------------------
             <S>                                         <C>
              60% to 65%                                  20%
----------------------------------------------------------------------------
              65% to 70%                                  30%
----------------------------------------------------------------------------
              70% to 75%                                  40%
----------------------------------------------------------------------------
              75% to 80%                                  50%
----------------------------------------------------------------------------
              80% to 85%                                  60%
----------------------------------------------------------------------------
              85% to 90%                                  70%
----------------------------------------------------------------------------
</TABLE>

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                                                    Dallas Service Area Contract
<PAGE>   109
<TABLE>
----------------------------------------------------------------------------
            <S>                                          <C>
              90% to 95%                                  80%
----------------------------------------------------------------------------
             95% to 100%                                  90%
----------------------------------------------------------------------------
                 100%                                    100%
----------------------------------------------------------------------------
</TABLE>

13.3.5         HMO must submit the Detailed Data Element Report and the
               Performance Objectives Report regardless of whether or not HMO
               intends to claim payment of performance objective bonuses.

13.4           PAYMENT OF PERFORMANCE OBJECTIVE BONUSES

13.4.1         Payment of performance objective bonus is contingent upon
               availability of appropriations.  If appropriations are not
               available to pay performance objective bonuses as set out below,
               TDH will equitably distribute all available funds to each HMO
               that has accomplished the performance objectives.

13.4.2         In addition to the capitation amounts set forth in Article
               13.1.2, a performance premium of two dollars ($2.00) per Member
               month will be allocated by TDH for the accomplishment of
               performance objectives.

13.4.3         HMO must submit the Performance Objectives Report and the
               Detailed Data Element Report as referenced in Article 13.3.2,
               within 150 days from the end of each State fiscal year.
               Performance premiums will be paid to HMO within 120 days after
               the State receives and validates the data contained in each
               required Performance Objectives Report.

13.4.4         The performance objective allocation for HMO shall be assigned
               to each performance objective, described in Appendix K, in
               accordance with the following percentages:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
            EPSDT SCREENS                    PERCENT OF PERFORMANCE
                                            OBJECTIVE INCENTIVE FUND
-------------------------------------------------------------------------
 <S>  <C>                                             <C>
 1.   <12 months                                        7%
-------------------------------------------------------------------------
 2.   12 to 24 months                                   7%
-------------------------------------------------------------------------
 3.   25 months - 20 years                             19%
-------------------------------------------------------------------------
 4.   <12 months = 3.8 screens                         21%
-------------------------------------------------------------------------
 5.   12 to 24 months = 2.8 screens                    14%
-------------------------------------------------------------------------
</TABLE>

                                      103

                                                    Dallas Service Area Contract
<PAGE>   110

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
            IMMUNIZATIONS                    PERCENT OF PERFORMANCE
                                            OBJECTIVE INCENTIVE FUND
-------------------------------------------------------------------------
 <S>  <C>                                            <C>
 6.   <12 months                                       6%
-------------------------------------------------------------------------
 7.   12 to 24 months                                  3%
-------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
         ADULT ANNUAL VISITS                 Percent of Performance
                                            Objective Incentive Fund
-------------------------------------------------------------------------
 <S>  <C>                                            <C>
 8.   Adult Annual Visits                              2%
-------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
           PREGNANCY VISITS                  Percent of Performance
                                            Objective Incentive Fund
-------------------------------------------------------------------------
 <S>  <C>                                            <C>
 9.   Initial prenatal exam                            6%
-------------------------------------------------------------------------
 10.  Visits by Gestational Age                        10%
-------------------------------------------------------------------------
 11.  Postpartum visit                                 5%
-------------------------------------------------------------------------
</TABLE>

13.5           ADJUSTMENTS TO PREMIUM

13.5.1         TDH may recoup premiums paid to HMO in error.  Error may be
               either human or machine error on the part of TDH or an agent or
               contractor of TDH.  TDH may recoup premiums paid to HMO if a
               Member is enrolled into HMO in error, and HMO provided no
               covered services to Member for the period of time for which
               premium was paid.  If services were provided to Member as a
               result of the error, recoupment will not be made.

13.5.2         TDH may recoup premium paid to HMO if a Member for whom premium
               is paid moves outside the United States, and HMO has not
               provided covered services to the Member for the period of time
               for which premium has been paid.  TDH will not recoup premium if
               HMO has provided covered services to the Member during the
               period of time for which premium has been paid.

13.5.3         TDH may recoup premium paid to HMO if a Member for whom premium
               is paid dies before the first day of the month for which premium
               is paid.

13.5.4         TDH may recoup or adjust premium paid to HMO for a Member if the
               Member's eligibility status or program type is changed,
               corrected as a result of error, or is retroactively adjusted.

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13.5.5         Recoupment or adjustment of premium under 13.5.1 through 13.5.4
               may be appealed using the TDH dispute resolution process.

13.5.6         TDH may adjust premiums for all Members within an eligibility
               status or program type if adjustment is required by reductions
               in appropriations and/or if a benefit or category of benefits is
               excluded or included as a covered service.  Adjustment must be
               made by amendment as required by Article 15.2.  Adjustment to
               premium under this subsection may not be appealed using the TDH
               dispute resolution process.

ARTICLE XIV               ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1           ELIGIBILITY DETERMINATION

14.1.1         TDH will identify Medicaid recipients who are eligible for
               participation in the STAR program using the eligibility status
               described below.

14.1.2         Individuals in the following categories who reside in any part
               of the Service Area MUST enroll in one of the health plans
               providing services in the Service Areas:

14.1.2.1       TANF ADULTS - Individuals age 21 and over who are eligible for
               the TANF program.  This category may also include some pregnant
               women.

14.1.2.2       TANF CHILDREN - Individuals under age 21 who are eligible for
               the TANF program.  This category may also include some pregnant
               women and some children less than one year of age.

14.1.2.3       PREGNANT WOMEN receiving Medical Assistance Only (MAO) -
               Pregnant women whose families' income is below 185% of the
               Federal Poverty Level (FPL).

14.1.2.4       NEWBORN (MAO) - Children under age one born to Medicaid-eligible
               mothers.

14.1.2.5       EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for
               TANF because of the applied income of their stepparents or
               grandparents.

14.1.2.6       EXPANSION CHILDREN (MAO) - Children under age 1 whose families'
               income is below 185% FPL.

14.1.2.7       EXPANSION CHILDREN MAO - Children age 1- 5 whose families'
               income is at or below 133% of FPL.

14.1.2.8       FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born
               before October 10, 1983, whose families' income is below the
               TANF income limit.

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14.1.2.9       CHILDREN'S HEALTH INSURANCE PROGRAM (MAO) - Children under age
               19, born on or after October 1, 1979, whose families' income is
               between the medically needy standards limit and 100% FPL.

14.1.2.10      CHIP PHASE I - Children's Health Insurance Program Phase I
               (Federal Mandate Acceleration) Children are children under age
               nineteen (19) born before October 1, 1983, with family income
               below 100% Federal Poverty Income Level.

14.1.3         The following individuals are eligible for the STAR Program and
               ARE NOT required to enroll in a health plan, but have the option
               to enroll in a plan.  HMO will be required to accept enrollment
               of those recipients from this group who elect to enroll in HMO.

14.1.3.1       DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients
               with Supplemental Security Income (SSI) benefits who are not
               eligible for Medicare may elect to participate in the STAR
               program on a voluntary basis.

14.1.3.2       Certain blind or disabled individuals who lose SSI eligibility
               because of Title II income and who are not eligible for
               Medicare.

14.1.3.3       Non-institutionalized blind and disabled people enrolled in
               1915(c) waivers whose income is above SSI limits, whose
               eligibility was determined using the institutional cap (300%),
               and who are not Medicare eligible.  (TDH will be phasing out
               this population during FY 99.)

14.1.4         During the period after which the Medicaid eligibility
               determination has been made but prior to enrollment in HMO,
               Members will be enrolled under the traditional Medicaid program.
               All Medicaid eligible recipients will remain in the
               fee-for-service Medicaid program until enrolled in or assigned
               to an HMO.

14.2           ENROLLMENT

14.2.1         TDH has the right and responsibility to enroll and disenroll
               eligible individuals into the STAR program.  TDH will conduct
               continuous open enrollment for Medicaid recipients and HMO must
               accept all persons who chose to enroll as Members in HMO or who
               are assigned as Members in HMO by TDH, without regard to the
               Member's health status or any other factor.

14.2.2         All enrollments are subject to the accessibility and
               availability limitations and restrictions contained in the
               Section 1915(b) waiver obtained by TDH.  TDH has the authority
               to limit enrollment into HMO if the number and distance
               limitations are exceeded.

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                                                    Dallas Service Area Contract
<PAGE>   113
14.2.3         TDH makes no guarantees or representations to HMO regarding the
               number of eligible Medicaid recipients who will ultimately be
               enrolled as STAR Members of HMO.

14.2.4         HMO must cooperate and participate in all TDH sponsored and
               announced enrollment activities. HMO must have a representative
               at all TDH enrollment activities unless an exception is given by
               TDH.  The representative must comply with HMO's cultural and
               linguistic competency plan (see Cultural and Linguistic
               requirements in Paragraph 8.9 of this contract).  HMO must
               provide marketing materials, HMO pamphlets, Member handbooks, a
               list of network providers, HMO's linguistic and cultural
               capabilities and other information requested or required by TDH
               or its Enrollment Broker to assist potential Members in making
               informed choices.

14.2.5         TDH will provide HMO with at least 10 days written notice of all
               TDH planned activities. Failure to participate in, or send a
               representative to a TDH sponsored enrollment activity is a
               default of the terms of the contract.  Default may be excused if
               HMO can show that TDH failed to provide the required notice, or
               if HMO's absence is excused by TDH.

14.3           DISENROLLMENT

14.3.1         HMO has a limited right to request a Member be disenrolled from
               HMO without the Member's consent.  TDH must approve any HMO
               request for disenrollment of a Member for cause. Disenrollment
               of a Member may be permitted under the following circumstances:

14.3.1.1       The Member misuses or loans the Member's HMO membership card to
               another person to obtain services.

14.3.1.2       The Member is disruptive, unruly, threatening or uncooperative
               to the extent that the Member's membership seriously impairs
               HMO's or provider's ability to provide services to the Member or
               to obtain Members, and the Member's behavior is not caused by a
               physical or behavioral health condition.

14.3.1.3       The Member steadfastly refuses to comply with managed care, such
               as repeated emergency room use combined with refusal to allow
               HMO to treat the underlying medical condition.

14.3.2         HMO must take reasonable measures to correct Member behavior
               prior to requesting disenrollment.  Reasonable measures may
               include providing education and counseling regarding the
               offensive acts or behaviors.

14.3.3         HMO must notify the Member of HMO's decision to disenroll the
               Member if all reasonable measures have failed to remedy the
               problem.

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                                                    Dallas Service Area Contract
<PAGE>   114
14.3.4         If the Member disagrees with the decision to disenroll the
               Member from HMO, HMO must notify the Member of the availability
               of the complaint procedure and TDH's fair hearing process.

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

14.4           AUTOMATIC RE-ENROLLMENT

14.4.1         Members who are disenrolled because they are temporarily
               ineligible for Medicaid will be automatically re-enrolled into
               the same health plan.  Temporary loss of eligibility is defined
               as a period of 3 months or less.

14.4.2         HMO must inform its Members of the automatic re-enrollment
               procedure.  Automatic re- enrollment must be included in the
               Member Handbook (See Article 8.2.1).

14.5           ENROLLMENT REPORTS

14.5.1         TDH will provide HMO enrollment reports listing all STAR Members
               who have enrolled in or were assigned to HMO during the initial
               enrollment period.

14.5.2         TDH will provide monthly HMO Enrollment Reports to HMO on or
               before the first of the month.

14.5.3         TDH will provide Member verification to HMO and network
               providers through telephone verification or TexMedNet.

ARTICLE XV                GENERAL PROVISIONS

15.1           INDEPENDENT CONTRACTOR

               HMO, its agents, employees, network providers and subcontractors
               are independent contractors, and do not perform services under
               this contract as employees or agents of TDH. HMO is given
               express, limited authority to exercise the State's right of
               recovery as provided in 4.9.

15.2           AMENDMENT

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                                                    Dallas Service Area Contract
<PAGE>   115
15.2.1         This contract must be amended by TDH if amendment is required to
               comply with changes in state or federal laws, rules, or
               regulations.

15.2.2         TDH and HMO may amend this contract if reductions in funding or
               appropriations make full performance of either party
               impracticable or impossible, and amendment could provide a
               reasonable alternative to termination.  If HMO does not agree to
               the amendment, contract may be terminated under Article XVIII.

15.2.3         This contract must be amended if either party discovers a
               material omission of a negotiated or required term, which is
               essential to the successful performance or maintaining
               compliance with the terms of the contract.  The party
               discovering the omission must notify the other party of the
               omission in writing as soon as possible after discovery.  If
               there is a disagreement regarding whether the omission was
               intended to be a term of the contract, the parties must submit
               the dispute to dispute resolution under paragraph 15.8 of this
               contract.

15.2.4         This contract may be amended by mutual agreement at any time.

15.2.5         All amendments to this contract must be in writing and signed by
               both parties.

15.2.6         No agreement shall be used to amend this contract unless it is
               made a part of this contract by specific reference, and is
               numbered sequentially by order of its adoption.

15.3           LAW, JURISDICTION AND VENUE

               Venue and jurisdiction shall be in the state and federal
               district courts of Travis County, Texas.  The laws of the State
               of Texas shall be applied in all matters of state law.

15.4           NON-WAIVER

               Failure to enforce any provision or breach shall not be taken by
               either party as a waiver of the right to enforce the provision
               or breach in the future.

15.5           SEVERABILITY

               Any part of this contract which is found to be unenforceable,
               invalid, void, or illegal shall be severed from the contract.
               The remainder of the contract shall be effective.

15.6           ASSIGNMENT

               This contract was awarded to HMO based on HMO's qualifications
               to perform personal and professional services.  HMO cannot
               assign this contract without the written consent of TDI and TDH.
               This provision does not prevent HMO from

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                                                    Dallas Service Area Contract
<PAGE>   116
               subcontracting duties and responsibilities to qualified
               subcontractors.  All subcontracts, which would affect the
               delivery of medical care or services to TDH STAR Health Plan
               Members, must be approved by TDH.

15.7           NON-EXCLUSIVE

               This contract is a non-exclusive agreement.  Either party may
               contract with other entities for similar services in the same
               service area.

15.8           DISPUTE RESOLUTION

               All disputes arising under this contract shall be resolved
               through TDH's dispute resolution procedures, except where a
               remedy is provided for through TDH's administrative rules or
               processes.  All administrative remedies must be exhausted prior
               to other methods of dispute resolution.

15.9           DOCUMENTS CONSTITUTING CONTRACT

               This contract includes this document and all amendments and
               appendices to this document, the Request for Application, the
               Application submitted in response to the Request for
               Application, the Texas Medicaid Provider Procedures Manual and
               Texas Medicaid Bulletins addressed to HMOs, contract
               interpretation memoranda issued by TDH for this contract, and
               the federal waiver granting TDH authority to contract with HMO.
               If any conflict in provisions between these documents occurs,
               the terms of this contract and any amendments shall prevail.
               The documents listed above constitute the entire contract
               between the parties.

15.10          FORCE MAJEURE

               TDH and HMO are excused from performing the duties and
               obligations under this contract for any period that they are
               prevented from performing their services as a result of a
               catastrophic occurrence, or natural disaster, clearly beyond the
               control of either party, including but not limited to an act of
               war, but excluding labor disputes.

15.11          NOTICES

               Notice may be given by any means which provides for verification
               of receipt.  All notices to TDH shall be addressed to Bureau
               Chief, Texas Department of Health, Bureau of Managed Care, 1100
               W. 49th Street, Austin, TX 78756-3168, with a copy to the
               Contract Administrator. Notices to HMO shall be addressed to
               CEO/President,
                          AMERICAID Texas, Inc.
               -----------------------------------------------------------------
                          617 Seventh Avenue, 2nd Floor
               -----------------------------------------------------------------
                          Fort Worth, TX 76104
               -----------------------------------------------------------------

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                                                    Dallas Service Area Contract
<PAGE>   117
15.12          SURVIVAL

               The provisions of this contract which relate to the obligations
               of HMO to maintain records and reports shall survive the
               expiration or earlier termination of this contract for a period
               not to exceed six (6) years unless another period may be
               required by record retention policies of the State of Texas or
               HCFA.

ARTICLE XVI               DEFAULT

16.1           FAILURE TO PROVIDE COVERED SERVICES

               If a member requests a fair hearing before the department
               because the HMO has failed to provide a covered service, the
               Bureau of Managed Care may recommend to the hearing officer that
               a determination be made to impose sanctions upon the HMO, in
               addition to any remedy entered for an on behalf of the Member.
               The recommendation to impose sanctions must include an amount of
               recommended sanctions.  The amount of the sanction may be in any
               amount of not less than $1000 or more than $25,000 depending
               upon the nature of the denial and the hardship or health threat
               that the denial placed upon the Member.

16.2           FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION

               Failure of HMO to perform an administrative function is a
               default under this contract. Administrative functions are any
               requirements under this contract which are not direct delivery
               of health or health-related services, including claims payment,
               encounter date submission, filing any report when due, providing
               or producing records upon request or failing to enter into
               contracts or implementing procedures necessary to carry out
               contract obligations.

16.3           HMO CERTIFICATE OF AUTHORITY

               Termination or suspension of HMO's TDI Certificate of Authority
               or any adverse action taken by TDI which TDH determines will
               affect the ability of HMO to provide health care services to
               Members is a default under this contract.

16.4           INSOLVENCY

               Failure of HMO to maintain against fiscal insolvency as required
               under State or federal law or incapacity of HMO to meet its
               financial obligation as they come due is a default under this
               contract.

16.5           FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS

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                                                    Dallas Service Area Contract
<PAGE>   118
               Failure of HMO to comply with the federal requirements for
               Medicaid, or by incorporation, Medicare standards, requirements,
               or prohibitions, is a default of this contract.

16.6           EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID

16.6.1         Exclusion of HMO or any of the managing employees or persons
               with an ownership interest whose disclosure is required by
               Section 1124(a) of the Social Security Act (the Act), under the
               provisions of Section 1128(a) and/or (b) of the Act, is a
               default of this contract.

16.6.2         Exclusion of any provider or Subcontractor or any of the
               managing employees or persons with an ownership interest of the
               provider or Subcontractor whose disclosure is required by
               Section 1124(a) of the Social Security Act (the Act), under the
               provisions of Section 1128(a) and/or (b) of the Act, is a
               default of this contract if the exclusion will materially affect
               HMO's performance under this contract.

16.7           MISREPRESENTATION, FRAUD OR ABUSE

               Misrepresentation or fraud under the provisions of Article 4.8
               of this contract is a default under this contract.

               Misrepresentation or fraud and abuse under any state or federal
               law, regulation or rule or under the common law of the State of
               Texas, is a default under this contract.

16.8           FAILURE TO MAKE CAPITATION PAYMENTS

               Failure by TDH to make capitation payments when due is a default
               under this contract.

16.9           FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS

               Failure to make timely and appropriate payments to network
               providers and Subcontractors is a default under this contract.
               Withholding or recouping capitation payments as allowed or
               required under other Articles of this contract is not a default
               under this contract.

16.10          FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS

               Failure to pass any of the mandatory system or delivery
               functions of the Readiness Review required in Article I is a
               default under the contract.

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                                                    Dallas Service Area Contract
<PAGE>   119
16.11          FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
               NETWORK PROVIDERS

16.11.1        Failure of HMO to audit, monitor, supervise, or enforce
               functions delegated by contract to another entity which results
               in a default under this contract or constitutes a violation of
               state or federal laws, rules, or regulations is a default under
               this contract.

16.11.2        Failure of HMO to properly credential, conduct reasonable
               utilization review, and quality monitoring is a default under
               this contract.

16.11.3        Failure of HMO to require providers and contractors to provide
               timely and accurate encounter, financial, statistical and
               utilization data is a default under this contract.

ARTICLE XVII              NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1           TDH will provide HMO with written notice of default under this
               contract.  The written notice must contain the following
               information:

17.1.1         A clear and concise statement of the circumstances or conditions
               which constitute a default under this contract;

17.1.2         The contract provision(s) under which default is being declared;

17.1.3         A clear and concise statement of how and/or whether the default
               may be cured;

17.l.4         A clear and concise statement of the time period HMO will be
               allowed to cure the default;

17.1.5         The amount of damages or the types of sanctions which are being
               or will be imposed pending cure, and the date they began or will
               begin;

17.l.6         Whether any part of the damages or sanctions may be equipped or
               passed through to an individual or entity who is or may be
               responsible for the act or omission for which default is
               declared;

17.1.7         Whether failure to cure within the given time period will result
               in additional damages or sanctions and/or referral for
               investigation or action by another agency, and/or termination of
               the contract.

17.2           Sanctions and damages for acts or omissions which are events of
               default under Article XVI will be imposed from the date of
               occurrence until cured, unless otherwise stated in the notice of
               default.

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                                                    Dallas Service Area Contract
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ARTICLE XVIII             REMEDIES AND SANCTIONS

18.l           TERMINATION BY TDH

18.1.1         TDH may terminate this contract if:

18.1.1.1       HMO repeatedly fails or refuses to provide services and perform
               administrative functions under this contract after notice and
               opportunity to cure;

18.1.1.2       HMO materially defaults under any of the provisions of Article
               XVI, or;

18.1.1.3       Federal or state funds for the Medicaid program are no longer
               available, or;

18.1.1.4       TDH has a reasonable belief that HMO has placed the health or
               welfare of Members in jeopardy.

18.1.2         TDH must give HMO 30 days written notice of intent to terminate
               this contract if termination is a result of HMO's failure to
               cure a default under Article XVIII.  If termination is a result
               of 18.1.1.3, TDH will provide HMO with reasonable notice under
               the circumstances.  If termination is a result of 18.1.1.4, TDH
               will give the notice required under the provisions of the
               department's formal hearing procedures in 25 Texas
               Administrative Code Section 1.2.1.  Notice may be given by any
               means that gives verification of receipt.  The termination date
               will be calculated as 30 days following the date that HMO
               receives the notice of intent to terminate.

18.1.3         HMO must continue to perform services until the last day of the
               month following 30 days from the date of receipt of notice if
               the termination is a result of 18.1.1.1, 18.1.1.2, or 18.1.1.3
               above.  TDH may prohibit HMO's further performance of services
               under the contract if the reason for termination is 18.1.1.4
               above.

18.1.4         HMO may appeal the termination of this contract under the
               provision of the Texas Human Resources Code, Section 32.034.

18.1.5         The remedies available to TDH set forth above are in addition to
               all other remedies available to TDH by law or in equity, are
               joint and several, and may be exercised concurrently or
               consecutively.  Exercise of any remedy in whole or in part shall
               not limit TDH in exercising all or part of any remaining
               remedies.

18.2           TERMINATION BY HMO

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                                                    Dallas Service Area Contract
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18.2.1         HMO may terminate this contract if TDH fails to pay HMO as
               required under Article XIII or otherwise materially defaults in
               its duties and responsibilities under this contract. Retaining
               premium, recoupment, sanctions, or penalties which are allowed
               under this contract or which result from HMO's failure to
               perform or a default under the terms of the contract are not
               cause for termination.

18.2.2         HMO must give TDH 60 days written notice of intent to terminate
               this contract.  Notice may be given by any means that gives
               verification of receipt.  The termination date will be
               calculated as the last day of the month following 60 days from
               the date the notice of intent to termination is received by TDH.

18.2.3         TDH must be given 30 days to pay all amounts due.  If TDH pays
               all amounts then due, HMO cannot terminate the contract under
               this Article.

18.2.4         This agreement may be terminated at any time and without cause
               by either party, upon at least (90) days prior written notice.
               During said ninety day notice period, both HMO and TDH shall use
               each of their best efforts to accommodate the smooth transition
               of health care services being rendered to HMO Members at time of
               termination of the Agreement, as outlined in Section 18.4

18.3           TERMINATION BY MUTUAL CONSENT

               This contract may be terminated at any time by mutual consent of
               both HMO and TDH.

18.4           DUTIES UPON TERMINATION OF CONTRACTING PARTIES

               When termination of the contract occurs, TDH and HMO must meet
               the following obligations:

18.4.1         If the contract is terminated unilaterally by TDH, because of
               failure of HMO to perform duties and obligations required by the
               contract or by mutual consent with termination initiated by HMO:

18.4.1.1       TDH is responsible for notifying all Members of the date of
               termination and how Members can continue to receive contract
               services; and

18.4.1.2       HMO is responsible for all expenses related to giving notice to
               Members.

18.4.2         If the contract is terminated for any reason other than those
               included in 18.4.1:

18.4.2.1       TDH is responsible for notifying all Members of the date of
               termination and how Members can continue to receive contract
               services; and

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18.4.2.2       TDH is responsible for all expenses related to giving notice to
               Members.

18.5           STATE AND FEDERAL DAMAGES, PENALTIES AND SANCTIONS

18.5.1         TDH may recommend to HCFA that sanctions be taken against HMO
               for violations of 42 C.F.R. 434.67(a), relating to sanctions
               against HMOs with risk comprehensive contracts.  These
               violations are also defaults of Article XVI of this contract.
               If HCFA determines that HMO has violated one or more of these
               provisions of the regulations and determines that federal
               payments will be withheld, TDH will deny and withhold payments
               for new enrollees of HMO.

18.5.1.1       HMO must be given notice and opportunity to appeal a decision of
               TDH and HCFA as required in 42 C.F.R. 434.67(c) and (d).

18.5.1.2       HMO may be subject to civil money penalties under the provisions
               of 42 C.F.R. 1003 in addition to or in place of withholding
               payments under 18.5.1.

18.5.2         HMO may be subject to damages and penalties under the Human
               Resources Code, Section 32.039, relating to damages and
               penalties for events of default under this contract and
               violations of the provisions of Section 32.039.

18.5.2.1       HMO will be given notice of the default or violation upon which
               damages or penalties are based and an opportunity to appeal
               under the provision of Section 32.039.

18.6           SUSPENSION OF NEW ENROLLMENT

18.6.1         TDH may suspend new enrollment into HMO for any default under
               this contract.

18.6.2         TDH must give HMO 30 days written notice of intent to suspend
               new enrollment other than for defaults which are imposed as a
               result of fraud and abuse or imminent danger to the health or
               safety of Members.  Notice may be given by any means which gives
               verification of receipt. The suspension date will be calculated
               as 30 days following the date that HMO receives the notice of
               intent to suspend new enrollment. During the 30-day notice
               period, HMO will be given an opportunity to cure the defaults,
               if a cure is possible.

18.6.3         TDH may immediately suspend new enrollment into HMO for a
               default declared as a result of fraud and abuse or imminent
               danger to the health and safety of Members or investigation,
               prosecution, or suspension by an agency charged with the duty of
               investigation of state and federal laws.

18.6.4         The suspension of new enrollment may be for any duration, up to
               the termination date of the contract.  TDH will impose a
               duration of suspension based upon the type and severity of the
               default and HMO's ability to cure the default.

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<PAGE>   123
18.7           TDH INITIATED DISENROLLMENT

18.7.1         TDH may initiate disenrollment of a Member or reduce the total
               number of Members enrolled in HMO through disenrollment if HMO
               fails to provide covered services to a Member or if TDH
               determines that HMO has a pattern or practice of failing to
               provide covered services to Members.

18.7.2         TDH must give HMO 30 days written notice of intent to initiate
               disenrollment of a Member. Notice may be given by any means
               which gives verification of receipt.  The TDH initiated
               disenrollment date will be calculated as 30 days following the
               date that HMO receives the notice of intent to disenroll.  HMO
               will not be given an opportunity to cure the default unless the
               right to cure is expressly authorized in the notice letter.

18.7.3         TDH may continue to reduce the number of Members enrolled in HMO
               until HMO demonstrates that it can and/or will provide covered
               services as required under this contract.

18.8           LIQUIDATED MONEY DAMAGES - WITHHOLDING PAYMENTS

18.8.1         TDH may impose liquidated money damages in addition to other
               remedies and sanctions provided under this contract.  If money
               damages are imposed, TDH may reduce the amount of any monthly
               premium payments otherwise due to HMO by the amount of the
               damages.  Money damages, which are withheld, are forfeited and
               will not be subsequently paid to HMO upon compliance or cure of
               default, unless a determination is made after appeal that the
               damages should not have been imposed.

18.8.2         Failure to perform or comply with an administrative function.
               TDH may impose and withhold the following money damages for each
               event of default:

18.8.2.1       Failure to file or filing incomplete or inaccurate annual or
               quarterly reports will result in money damages of not less than
               $3,000.00 or more than $11,000.00 for every month from the month
               the report is due until submitted in the form and format
               required by TDH.  These money damages apply separately to each
               report.

18.8.2.2       Failure to produce or provide records and information requested
               by TDH, or an entity acting on behalf of TDH, or an agency
               authorized by statute or law to require production of records at
               the time and place the records were required or requested, will
               result in money damages of not less than $1,000.00 per day for
               each day the records are not produced as required by the
               requesting entity or agency if the requesting entity or agency
               is conducting an investigation or audit relating to fraud or
               abuse, and $500.00 per day for each day records are not produced
               if the requesting entity or agency is conducting routine audits
               or monitoring activities.

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<PAGE>   124
18.8.2.3       Failure to file or filing incomplete or inaccurate encounter
               data will result in money damages of not less than $10,000 nor
               more than $25,000 for each month HMO fails to submit encounter
               data in the form and format required by TDH.  These damages are
               in addition to the damages contained in 18.8.2.1 above.  TDH
               will use the encounter data validation methodology established
               by TDH to determine the numbers of encounter data and the number
               of days for which damages will be assessed.

18.8.2.4       Failing or refusing to cooperate with TDH, an entity acting on
               behalf of TDH, or an agency authorized by statute or law to
               require the cooperation of HMO, in carrying out an
               administrative, investigative, or prosecutorial function of the
               Medicaid program, will result in money damages of not less than
               $1,000.00 per day for each day HMO fails to cooperate.

18.8.3         Failure to provide or pay for covered services.  TDH will impose
               and withhold the following money damages for each event of
               default:

18.8.3.1       Failure to provide mandatory and/or benchmarked services.  If
               HMO fails to deliver services or to report encounter data
               documenting the delivery of services which are mandated by
               federal law or for which a benchmark is established under this
               contract, TDH will impose money damages.  Damages imposed will
               be not less than $10,000 nor more than $25,000 for each month
               that HMO substantially fails to deliver the services and/or
               report the encounter data documenting the delivery of the
               services, or fails to meet the established benchmark.  These
               damages are in addition to failure to document or submit
               encounter data and reports required elsewhere in this contract.

18.8.3.2       Failure to provide a covered service requested or required by a
               Member.  If a Member requests a fair hearing before TDH because
               HMO has substantially failed to provide a covered service, the
               Bureau of Managed Care may make a recommendation to the hearing
               officer conducting the fair hearing to impose sanctions upon
               HMO.  The recommendation of the Bureau of Managed Care to impose
               sanctions must include an amount of recommended sanctions, and
               the justification for entering a finding that HMO has
               substantially failed to deliver the requested service.  The
               amount of the sanction may be in any amount of not less than
               $1,000.00 nor more than $25,000.00 depending upon the nature of
               the denial and the hardship or health threat that the denial
               placed upon the Member.

18.8.3.3       If TDH has provided or paid for a service requested by a Member
               pending a decision after a fair hearing and the decision is
               adverse to HMO, TDH will withhold the entire amount TDH paid for
               the service in addition to the damages under 18.8.3.

18.8.3.4       Failure to enter into a required or mandatory contract or
               failure to contract for or arrange to have all services required
               under this contract provided will result in money damages of
               $1,000.00 per day that HMO either fails to negotiate in good
               faith to enter into the required contract or fails to arrange to
               have required services delivered.

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                                                    Dallas Service Area Contract
<PAGE>   125
18.8.3.5       Failing to pay providers claims for covered services.  TDH will
               impose and withhold the following money damages for each event
               of default.  These money damages are in addition to the interest
               HMO is required to pay to providers under the provisions of
               7.2.7.10, above.

18.8.3.6       If TDH determines that HMO has failed to pay a provider for a
               claim or claims for which provider should have been paid, TDH
               will impose money damages of $2 per day for each day the claim
               is not paid from the date the claim should have been paid
               (calculated as 30 days from the date a clean claim was received
               by HMO) until the claim is paid by HMO.

18.8.3.7       If TDH determines that HMO has failed to pay a capitation amount
               to a provider who has contracted with HMO to provide services on
               a capitated basis, TDH will impose money damages of $10 per day,
               per Member for whom the capitation is not paid, from the date on
               which the payment was due until the capitation amount is paid.

18.8.4         TDH must provide HMO with 7 days written notice of intent to
               withhold capitation amounts under this Article 18.8.  The notice
               will include the reason for the withhold, the amount that TDH
               intends to withhold, and facts and detail sufficient for HMO to
               determine the accuracy of the proposed withhold.  Notice may be
               given by any means that gives verification of receipt.

18.8.5         HMO may appeal the decision of TDH to withhold capitation
               amounts by filing a written response to the notice clearly
               stating the reason HMO disputes the withhold, and include any
               supporting documentation with the response.  HMO must file the
               appeal within 15 days from HMO's receipt of the notice.  Filing
               an appeal will not pend or suspend the withhold.

18.8.6         HMO and TDH must attempt to informally resolve the dispute.  If
               HMO and TDH are unable to informally resolve the dispute, HMO
               must notify the Bureau Chief of Managed Care that they are
               unable to come to an agreement.  The Bureau Chief will refer the
               dispute to the Associate Commissioner for Health Care Financing
               who will appoint a committee to review the dispute under the
               department's dispute resolution procedures.  The decision of the
               dispute resolution committee will be a final administrative
               decision of the department.

18.9           FORFEITURE OF TDI PERFORMANCE BOND

               TDH may require forfeiture of all or a portion of the face
               amount of the TDI performance bond if TDH determines that an
               event of default has occurred. Partial payment of the face
               amount shall reduce the total bond amount available pro rata.

                                      119

                                                    Dallas Service Area Contract
<PAGE>   126
ARTICLE XIX               TERM

19.1           The effective date of this contract is July 1, 1999.  This
               contract will terminate on August 31, 2000, unless terminated
               earlier as provided elsewhere in this contract.

19.2           The contract will not automatically renew beyond the initial
               term.  TDH will notify HMO not less than 60 days before the end
               of the contract term of its intent not to renew the contract.

19.3           If HMO does not intend to renew beyond the initial term of the
               contract, HMO must submit a written Notice of Intent Not to
               Renew, along with a transition plan for its existing Members,
               not less than 90 days before the end of the contract term in
               19.1. HMO will be responsible for paying all costs of providing
               notice to Members and any additional costs incurred by TDH to
               ensure that Members are reassigned to other plans without
               interruption of services.

19.4           HMO may enter into a new contract to continue to provide managed
               care services under the following terms and conditions:

19.4.1         HMO submits a written Request to Continue Operations Without
               Interruption not less than 90 days before the end of the
               contract term in 19.1;

19.4.2         HMO submits to a Readiness Review by TDH under the provisions of
               Gov. Code Section 533.107;

19.4.3         HMO cures any past default or deficiencies or submits a written
               plan documenting how past defaults or deficiencies will be
               avoided under a future contract, and the written plan is
               approved by TDH;

19.4.4         HMO submits all reports and encounter data currently due or past
               due under this contract before the termination date of this
               contract.

19.4.5         If HMO submits a Request to Continue Operations Without
               Interruption but either fails to meet the requirements of this
               Article or decides prior to execution of a renewal contract not
               to continue operations, HMO will be responsible for paying all
               costs of providing notice to Members and any additional costs
               incurred by TDH to ensure that Members are reassigned to other
               plans without interruption of services. HMO must continue to
               provide services to Members for 60 days or until all Members
               have been reassigned to other plans.

19.5           This contract may be extended on a temporary basis if the
               requirements of this section have been initiated but the
               requirements of 19.3 have not been completed and/or evaluated by
               TDH before the termination date.

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                                                    Dallas Service Area Contract
<PAGE>   127
19.6           Non-renewal of this contract is not a contract termination for
               purposes of appeal rights under the Human Resources Code Section
               32.034.

<TABLE>
<S>                                      <C>
SIGNED             8th                   day of      February           , 1999.
       ---------------------------------        ------------------------

TEXAS DEPARTMENT OF HEALTH                           HMO NAME

BY:                                                  BY:
    ----------------------------                         ------------------------------
    William R. Archer III, M.D.            Printed Name:
    Commissioner of Health                               ------------------------------
                                                  Title:
                                                         ------------------------------
</TABLE>

Approved as to Form:

Office of General Counsel

                                      121

                                                    Dallas Service Area Contract
<PAGE>   128
                                   APPENDICES

Copies of the Appendices A-M will be available in the Regulatory Department
upon request.

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

                                 AMENDMENT NO.1
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No.1 is entered into between the Texas Department of Health and
AMERICAID Texas, Inc. (HMO), to amend the Contract for Services between the
Texas Department of Health and HMO in the Dallas Service Area, dated February
8, 1999.  The effective date of this Amendment is September 1, 1999.  All other
contract provisions remain in full force and effect.

(The amended sections, BOLD AND ITALICIZED, are shown throughout the entire
contract)

AGREED AND SIGNED by an authorized representative of the parties on November 1,
1999.

TEXAS DEPARTMENT OF HEALTH                               AMERICAID Texas, Inc.

By:  William R. Archer, III., M.D.                 By:   James D. Donovan, Jr.
     -----------------------------                       ---------------------
     Commissioner of Health                              President & CEO

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                                                    Dallas Service Area Contract

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