Document:

RACING CHAMPIONS ERTL CORPORATION

                              STOCK INCENTIVE PLAN

                         (as amended as of May 8, 2002)

                      Article 1.  Establishment and Purpose
                      -------------------------------------

     1.1     Establishment.  Racing  Champions  Ertl  Corporation,  a  Delaware
             -------------
corporation  (the  "Company"),  hereby  establishes  a  stock  option  plan  for
employees  and  others  providing  services to the Company, as described herein,
which  shall  be  known as the Racing Champions Ertl Corporation Stock Incentive
Plan  (the  "Plan").  It is intended that certain of the options issued pursuant
to  the  Plan to employees of the Company may constitute incentive stock options
within  the  meaning of section 422 of the Internal Revenue Code, and that other
options  issued pursuant to the Plan shall constitute nonstatutory options.  The
Board  shall determine which options are to be incentive stock options and which
are  to  be  nonstatutory  options  and  shall enter into option agreements with
recipients  accordingly.

     1.2     Purpose.  The  purpose  of  the  Plan is to provide a means for the
             -------
Company  to  attract  and  retain  competent  personnel  and  to  provide  to
participating  directors,  officers and other key employees long term incentives
for  high  levels  of  performance  by  providing them with a means to acquire a
proprietary  interest  in  the  Company's  success.

                            Article II.  Definitions
                            ------------------------

     2.1     Definitions.  For  purposes of this Plan, the following terms shall
             -----------
be  defined  as  follows:

     (a)  "Board"  means  the  Board  of  Directors  of  the  Company.

     (b)  "Cause"  means  the  definition  of  Cause  in  Optionee's  employment
          agreement,  if  any, with the Company. If no such employment agreement
          or  definition  in  such  agreement  exists, Cause means (i) breach by
          Optionee  of  any covenant not to compete or confidentiality agreement
          with  the  Company,  (ii) failure by Optionee to substantially perform
          his  duties to the reasonable satisfaction of the Board, (iii) serious
          misconduct  by  Optionee  which  is  demonstrably  and  substantially
          injurious  to  the  Company, (iv) fraud or dishonesty by Optionee with
          respect  to the Company, (v) material misrepresentation by Optionee to
          a stockholder or director of the Company or (vi) acts of negligence by
          Optionee  in  performance  of Optionee's duties that are substantially
          injurious  to the Company. The Board, by majority vote, shall make the
          determination  of  whether  Cause  exists.

<PAGE>

     (c)  "Code"  means  the Internal Revenue Code of 1986, as amended from time
          to  time,  and  any  successor  thereto.

     (d)  "Commission"  means  the  Securities  and  Exchange  Commission or any
          successor  agency.

     (e)  "Committee"  means  the  Committee  provided for by Article IV hereof,
          which  may  be  created  at  the  discretion  of  the  Board.

     (f)  "Company"  means  Racing  Champions  Ertl  Corporation,  a  Delaware
          corporation.

     (g)  "Consultant"  means  any  person  or  entity,  including an officer or
          director  of  the  Company  who  provides  services  (other than as an
          Employee) to the Company and includes a Qualified Director, as defined
          below.

     (h)  "Date  of  Exercise" means the date the Company receives notice, by an
          Optionee, of the exercise of an Option pursuant to section 9.1 of this
          Plan.  Such  notice  shall  indicate the number of shares of Stock the
          Optionee  intends  to  purchase  upon  exercise  of  an  Option.

     (i)  "Employee"  means  any person, including an officer or director of the
          Company,  who  is  employed  by  the  Company.

     (j)  "Exchange  Act"  means the Securities Exchange Act of 1934, as amended
          from  time  to  time,  and  any  successor  thereto.

     (k)  "Fair Market Value" means the fair market value of Stock upon which an
          Option  is granted under this Plan, as determined by the Board. If the
          Stock  is  traded on an over-the-counter securities market or national
          securities exchange, "Fair Market Value" shall mean an amount equal to
          the  average  of  the  highest and lowest reported sales prices of the
          Stock  reported  on  such  over-the-counter  market  or  such national
          securities  exchange  on  the applicable date or, if no sales of Stock
          have been reported for that date, on the next preceding date for which
          sales  where  reported.

     (l)  "Incentive Stock Option" means an Option granted under this Plan which
          is  intended  to  qualify  as  an  "incentive stock option" within the
          meaning  of  section  422  of  the  Code.

                                        2
<PAGE>
     (m)  "IRS"  means  the  Internal  Revenue Service, or any successor agency.

     (n)  "Nonstatutory Option" means an Option granted under this Plan which is
          not  intended  to  qualify  as  an  incentive  stock option within the
          meaning  of  section  422  of  the  Code.  Nonstatutory Options may be
          granted  at  such  times and subject to such restrictions as the Board
          shall  determine  without conforming to the statutory rules of section
          422  of  the  Code  applicable  to  incentive  stock  options.

     (o)  "Option"  means  the right, granted under this Plan, to purchase Stock
          of the Company at the option price for a specified period of time. For
          purposes  of  this Plan, an Option may be an Incentive Stock Option, a
          Nonstatutory  Option  or  a  Reload  Option.

     (p)  "Optionee" means an Employee or Consultant holding an Option under the
          Plan.

     (q)  "Parent  Corporation"  shall  have  the  meaning  set forth in section
          424(e)  of  the  Code  with  the Company being treated as the employer
          corporation  for  purposes  of  this  definition.

     (r)  "Qualified  Director" means a director who is both (a) a "Non-Employee
          Director"  as  defined  in  Rule 16b-3(b)(3)(i), as promulgated by the
          Commission under the Exchange Act, or any successor definition adopted
          by the Commission, and (b) an "Outside Director" as defined by section
          162(m)  of the Code and the regulations promulgated thereunder, or any
          successor  definition  adopted  by  the  IRS.

     (s)  "Reload  Option"  means  an  Option granted pursuant to section 8.1 of
          this  Plan.

     (t)  "Rule  16b-3" means Rule 16b-3, as promulgated by the Commission under
          Section  16(b)  of  the  Exchange  Act,  as amended from time to time.

                                        3
<PAGE>
     (u)  "Significant  Stockholder" means an individual who, within the meaning
          of  section 422(b)(6) of the Code, owns stock possessing more than ten
          percent  of the total combined voting power of all classes of stock of
          the  Company.  In  determining  whether an individual is a Significant
          Stockholder,  an  individual shall be treated as owning stock owned by
          certain  relatives  of  the  individual  and  certain  stock  owned by
          corporations  in  which  the  individual  is a partner, and estates or
          trusts  of  which  the individual is a beneficiary, all as provided in
          section  424(d)  of  the  Code.

     (v)  "Stock"  means  the  Common  Stock,  par  value $.01 per share, of the
          Company.

     2.2     Gender and Number.  Except when otherwise indicated by the context,
             -----------------
any masculine terminology when used in this Plan also shall include the feminine
gender  and the definition of any term herein in the singular shall also include
the  plural.

                  Article III.  Eligibility and Participation.
                  --------------------------------------------

     3.1     Eligibility  and  Participation.  All  Employees  are  eligible  to
             -------------------------------
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options.  All  Consultants  are eligible to participate in this Plan and receive
Nonstatutory  Options hereunder.  Optionees in the Plan shall be selected by the
Board  from  among  those  Employees  and Consultants who, in the opinion of the
Board,  are  in  a  position to contribute materially to the Company's continued
growth  and  development  and  to  its  long-term  financial  success.

                          Article IV.  Administration.
                          ----------------------------

     4.1     Administration.  The  Board  shall be responsible for administering
             --------------
the  Plan.

     The  Board  is  authorized  to interpret the Plan, to prescribe, amend, and
rescind  rules  and  regulations relating to the Plan, to provide for conditions
and  assurances  deemed  necessary  or advisable to protect the interests of the
Company,  and  to  make  all other determinations necessary or advisable for the
administration  of  the Plan, but only to the extent not contrary to the express
provisions  of  the Plan.  Determinations, interpretations or other actions made
or taken by the Board pursuant to the provisions of this Plan shall be final and
binding  and  conclusive  for  all  purposes  and  upon  all  persons.

                                        4
<PAGE>
     At  the  discretion  of  the  Board,  this  Plan  may  be administered by a
Committee  which  shall  be  a  compensation  committee of the Board, consisting
solely of two or more Qualified Directors.  The members of such Committee may be
directors  who  are eligible to receive Options under this Plan, but Options may
be granted to such persons only by action of the full Board and not by action of
the  Committee.  Such  Committee shall have full power and authority, subject to
the  limitations  of  the  Plan  and  any  limitations  imposed by the Board, to
construe,  interpret  and  administer this Plan and to make determinations which
shall  be  final,  conclusive  and  binding upon all persons, including, without
limitation,  the Company, the stockholders, the directors and any persons having
any  interests  in  any  Options  which  may  be granted under this Plan and, by
resolution  providing  for  the creation and issuance of any such Option, to fix
the  terms  upon  which,  the time or times at or within which, and the price or
prices  at  which  any  such  shares  may be purchased from the Company upon the
exercise  of  such Option, which terms, time or times and price or prices shall,
in  every  case,  be set forth or incorporated by reference in the instrument or
instruments  evidencing such Option, and shall be consistent with the provisions
of  the  Plan.

     The Board may from time to time remove members from, or add members to, the
Committee.  The Board may terminate the Committee at any time.  Vacancies on the
Committee,  howsoever caused, shall be filled by the Board.  The Committee shall
select one of its members as Chairman, and shall hold meetings at such times and
places  as  the  Chairman may determine.  A majority of the Committee at which a
quorum  is  present,  or  acts  reduced  to or approved in writing by all of the
members  of  the  Committee, shall be the valid acts of the Committee.  A quorum
shall  consist  of  two-thirds  of  the  members  of  the  Committee.

     Where  the  Committee  has  been created by the Board, references herein to
actions  to  be  taken by the Board shall be deemed to refer to the Committee as
well,  except  where  limited  by  this  Plan  or  by  the  Board.

     The  Board  shall  have  all  of the enumerated powers of the Committee but
shall  not  be  limited to such powers.  No member of the Board or the Committee
shall  be liable for any action or determination made in good faith with respect
to  the  Plan  or  any  Option  granted  under  it.

     4.2     Special Provisions for Grants to Officers or Directors.  Rule 16b-3
             ------------------------------------------------------
provides  that the grant of a stock option to a director or officer of a company
subject  to the Exchange Act will be exempt from the provisions of Section 16(b)
of  the  Exchange  Act  if the conditions set forth in Rule 16b-3 are satisfied.
Unless  otherwise  specified  by  the  Board,  grants  of  Options  hereunder to
individuals who are officers or directors of the Company for purposes of Section
16(b)  of  the  Exchange  Act  shall  be  made  in  a  manner that satisfies the
conditions  of  Rule  16b-3.

                                        5
<PAGE>

                     Article V.  Stock Subject to the Plan.
                     --------------------------------------

     5.1     Number.  The  total number of shares of Stock hereby made available
             ------
and  reserved  for  issuance  under  the Plan shall be 2,300,000.  The aggregate
number  of  shares  of  Stock  available  under  this  Plan  shall be subject to
adjustment  as provided in section 5.3.  The total number of shares of Stock may
be  authorized  but  unissued shares of Stock, or shares acquired by purchase as
directed  by  the  Board  from  time  to  time in its discretion, to be used for
issuance  upon  exercise  of  Options  granted  hereunder.

     5.2     Unused  Stock;  Payment  with  Stock.  If an Option shall expire or
             ------------------------------------
terminate  for any reason without having been exercised in full, the unpurchased
shares  of  Stock  subject thereto shall (unless the Plan shall have terminated)
become  available  for other Options under the Plan.  In addition, upon the full
or  partial payment of any option price by the transfer to the Company of shares
of  Stock  pursuant  to  section  7.7,  upon  satisfaction  of  tax  withholding
obligations  with  shares of Stock pursuant to section 15.1 or any other payment
made  or  benefit  realized under this Plan by the transfer or relinquishment of
shares  of  Stock,  only  the  net  number of shares of Stock actually issued or
transferred  by  the Company, after subtracting the number of shares of Stock so
transferred  or  relinquished,  will  be  charged  against  the  maximum  share
limitation  set  forth  in  section  5.1  above.

     5.3     Adjustment  in  Capitalization.  In  the event of any change in the
             ------------------------------
outstanding  shares  of  Stock  by  reason  of  a  stock  dividend  or  split,
recapitalization,  reclassification  or  other  similar  corporate  change,  the
aggregate  number  of  shares  of  Stock  set  forth  in  section  5.1  shall be
appropriately  adjusted  by  the Board, whose determination shall be conclusive;
provided,  however, that fractional shares shall be rounded to the nearest whole
share.  In  any such case, the number and kind of shares that are subject to any
Option  (including  any  Option outstanding after termination of employment) and
the  Option  price per share shall be proportionately and appropriately adjusted
without  any  change  in  the  aggregate  Option  price to be paid therefor upon
exercise  of  the  Option.

                       Article VI.  Duration of the Plan.
                       ----------------------------------

     6.1     Duration  of  the Plan.  The Plan shall be in effect until April 8,
             ----------------------
2007.  Any  Options outstanding at the end of such period shall remain in effect
in accordance with their terms.  The Plan shall terminate before the end of such
period  if  all  Stock  subject  to  the Plan has been purchased pursuant to the
exercise  of  Options  granted  under  the  Plan.

                                        6
<PAGE>

                      Article VII.  Terms of Stock Options.
                      -------------------------------------

     7.1     Grant  of  Options.  Subject to section 5.1, Options may be granted
             ------------------
to  Employees  or Consultants at any time and from time to time as determined by
the  Board;  provided,  however,  that Consultants may receive only Nonstatutory
Options  and  may  not  receive  Incentive  Stock Options.  The Board shall have
complete  discretion  in  determining  the  number  of  Options  granted to each
Optionee.  In  making  such  determinations, the Board may take into account the
nature  of  services  rendered by such Employee or Consultant, their present and
potential  contributions  to the Company, and such other factors as the Board in
its  discretion  shall deem relevant.  The Board shall also determine whether an
Option  is  to  be  an  Incentive  Stock  Option  or  a  Nonstatutory  Option.

     In  the  cases  of  Incentive  Stock  Options,  the total Fair Market Value
(determined  at  the  date  of  grant)  of shares of Stock with respect to which
Incentive  Stock  Options  are  exercisable  for  the first time by the Optionee
during  any  calendar  year under all plans of the Company under which incentive
stock  options  may be granted (and all such plans of any Parent Corporation and
any  subsidiary  corporations  of  the  Company)  shall  not  exceed  $100,000.
(Hereinafter,  this  requirement  is  sometimes  referred  to  as  the "$100,000
Limitation.")

     Nothing  in  this  Article  VII  of the Plan shall be deemed to prevent the
grant  of  Options  permitting exercise in excess of the maximums established by
the  preceding  paragraph  where such excess amount is treated as a Nonstatutory
Option.

     7.2     No  Tandem  Options.  Where  an  Option  granted under this Plan is
             -------------------
intended  to  be  an  Incentive Stock Option, the Option shall not contain terms
pursuant  to  which the exercise of the Option would affect the Optionee's right
to  exercise  another Option, or vice versa, such that the Option intended to be
an  Incentive  Stock  Option  would  be  deemed a tandem stock option within the
meaning  of  the  regulations  under  section  422  of  the  Code.

     7.3     Option  Agreement;  Terms  and Conditions to Apply Unless Otherwise
             -------------------------------------------------------------------
Specified.  As  determined  by the Board on the date of grant, each Option shall
---------
be  evidenced  by an Option agreement (the "Option Agreement") that includes the
nontransferability  provisions  required  by  section 11.2 hereof and specifies:
whether  the  Option  is an Incentive Stock Option or a Nonstatutory Option; the
Option price; the duration of the Option; the number of shares of Stock to which
the  Option  applies; any vesting or exercisability restrictions which the Board
may  impose;  in the case of an Incentive Stock Option, a provision implementing
the  $100,000  Limitation;  and  any  other  terms  and  conditions  as shall be
determined  by  the  Board  at  the  time  of  grant  of  the  Option.

                                        7
<PAGE>
     All  Option  Agreements  shall  incorporate  the provisions of this Plan by
reference,  with  certain  provisions to apply depending upon whether the Option
Agreement  applies  to  an  Incentive  Stock Option or to a Nonstatutory Option.

     7.4     Option  Price.  No  Incentive Stock Option granted pursuant to this
             -------------
Plan shall have an Option price that is less than the Fair Market Value of Stock
on  the  date  the  Option  is  granted.  Incentive  Stock  Options  granted  to
Significant Stockholders shall have an Option price of not less than 110 percent
of  the  Fair  Market Value of Stock on the date of grant.  The Option price for
Nonstatutory  Options  shall  be  established  by  the  Board.

     7.5     Term  of  Options.  Each  Option  shall  expire at such time as the
             -----------------
Board  shall  determine  when  it  is granted, provided, however, that no Option
shall  be  exerciseable  later  than  the  tenth  anniversary date of its grant.

     7.6     Exercise  of  Options.  Options  granted  under  this Plan shall be
             ---------------------
exercisable  at such times and be subject to such restrictions and conditions as
the  Board  shall  in  each instance approve, which need not be the same for all
Optionees.

     7.7     Payment.  Payment for all shares of Stock shall be made at the time
             -------
that an Option, or any part thereof, is exercised, and no shares shall be issued
until  full  payment  therefor has been made.  Such payment may be made in cash,
outstanding  shares  of  Stock,  in combinations thereof, or any other method of
payment  approved  by  the Board; provided, however, that (i) the deposit of any
withholding  tax  shall  be made in accordance with applicable law and (ii) that
such  shares  of  Stock  used  to  pay  the exercise price have been held by the
Participant  for  at  least six months prior to the exercise date.  If shares of
Stock  are being used in part or full payment for the shares to be acquired upon
exercise  of  the  Option,  such  shares shall be valued for the purpose of such
exchange  as  of  the date of exercise of the Option at the Fair Market Value of
the  shares.  Any  certificates  evidencing  shares  of  Stock  used  to pay the
purchase  price  shall  be accompanied by stock powers duly endorsed in blank by
the  registered  holder of the certificate (with signatures thereon guaranteed).
In  the event the certificates tendered by the holder in such payment cover more
shares  than  are  required  for  such  payment,  the  certificate shall also be
accompanied by instructions from the holder to the Company's transfer agent with
regard  to  the  disposition  of  the  balance  of  the  shares covered thereby.

                                        8
<PAGE>

                         Article VIII.  Reload Options.
                         -----------------------------

     8.1     Grants  of Reload Options.  Concurrently with any award of Options,
             -------------------------
the Board may grant Reload Options to purchase a number of shares of Stock equal
to the sum of (i) the number of outstanding shares of Stock used to exercise the
underlying  Option  pursuant  to  section  7.7, and (ii) the number of shares of
Stock  used  to satisfy any tax withholding requirement incident to the exercise
of  the underlying Options pursuant to section 15.1.  If the Board grants Reload
Options in connection with a grant of Options, the Option Agreement with respect
to  such  underlying  Options  shall state that Reload Options have been granted
with  respect to the underlying Options.  Upon exercise of an underlying Option,
the  Reload  Option  will  be evidenced by an amendment to the underlying Option
Agreement.  No  additional  Reload  Options will be granted to the Optionee when
Options  are  exercised pursuant to the terms of this Plan following termination
of  the  Optionee's  employment.

     8.2     Terms of Reload Options.  A Reload Option will be subject to all of
             -----------------------
the  terms  and  conditions of the underlying Option, except that (i) the option
price per share of Stock purchasable under a Reload Option shall be equal to the
Fair  Market Value of the Stock at time of grant upon exercise of the underlying
Option,  and  (ii) the term of the Reload Option will equal the remaining option
term  of  the  underlying  Option.

     Article IX.  Written Notice, Issuance of Stock Certificates, Stockholder
     ------------------------------------------------------------------------
                                   Privilege.
                                   ---------

     9.1     Written  Notice.  An  Optionee  wishing to exercise an Option shall
             ---------------
give  written  notice  to  the Company, in the form and manner prescribed by the
Board.  Full  payment  for  the  Options  exercised,  as provided in section 7.7
above,  must  accompany  the  written  notice.

     9.2     Issuance  of  Stock  Certificate.  As soon as practicable after the
             --------------------------------
receipt of written notice and payment, the Company shall deliver to the Optionee
or  to a nominee of the Optionee a certificate or certificates for the requisite
number  of  shares  of  Stock.

     9.3     Privileges  of  a  Stockholder.  An  Optionee  or  any other person
             ------------------------------
entitled  to  exercise  an  Option  under  this  Plan shall not have stockholder
privileges  with  respect  to  any Stock covered by the Option until the date of
issuance  of  a  stock  certificate  for  such  Stock.

                                        9
<PAGE>

               Article X.  Termination of Employment or Services.
               -------------------------------------------------

     Except  as  otherwise expressly specified by the Board, all Options granted
under  this  Plan  shall  be  subject  to  the following termination provisions.

     10.1     Death.  If an Optionee's employment in the case of an Employee, or
              -----
provision of services as a Consultant in the case of a Consultant, terminates by
reason of death, the Option may thereafter be exercised at any time prior to the
expiration  date of the Option or within 12 months after the date of such death,
whichever  period  is  the  shorter,  by the person or persons entitled to do so
under  the Optionee's will or, if the Optionee shall fail to make a testamentary
disposition  of  an  Option  or  shall  die  intestate,  the  Optionee's  legal
representative  or representatives.  The Option shall be exercisable only to the
extent  that  such  Option  was  exercisable  as  of  the  date  of  death.

     10.2     Termination Other Than for Cause or Due to Death.  In the event of
              ------------------------------------------------
an  Optionee's  termination  of  employment  in  the  case  of  an  Employee, or
termination  of  the  provision  of  services  as  a Consultant in the case of a
Consultant,  other  than  for  Cause  or  by  reason  of death, the Optionee may
exercise  such  portion  of  his Option as was exercisable by him at the date of
such termination (the "Termination Date") at any time within three months of the
Termination Date; provided, however, that where the Optionee is an Employee, and
is  terminated  due to disability within the meaning of Code section 422, he may
exercise such portion of his Option as was exercisable by him on his Termination
Date  within  one year of his Termination Date.  In any event, the Option cannot
be  exercised  after the expiration of the original term of the Option.  Options
not  exercised  within  the  applicable  period specified above shall terminate.

     In  the  case  of  an  Employee,  a change of duties or position within the
Company,  if  any,  shall  not  be  considered  a  termination of employment for
purposes of this Plan.  The Option Agreements may contain such provisions as the
Board  shall  approve  with  respect to the effect of approved leaves of absence
upon  termination  of  employment.

     10.3     Termination  for Cause.  In the event of an Optionee's termination
              ----------------------
of  employment  in  the  case of an Employee, or termination of the provision of
services  as  a  Consultant in the case of a Consultant, which termination is by
the  Company for Cause, any Option or Options held by him under the Plan, to the
extent  not  exercised  before  such  termination,  shall  forthwith  terminate.

                                       10
<PAGE>

                        Article XI.  Rights of Optionees
                        --------------------------------

     11.1     Service.  Nothing  in  this  Plan shall interfere with or limit in
              -------
any  way the right of the Company to terminate any Employee's employment, or any
Consultant's  services,  at  any time, nor confer upon any Employee any right to
continue  in  the  employ  of  the  Company, or upon any Consultant any right to
continue  to  provide  services  to  the  Company.

     11.2     Nontransferability.  Options  granted  under  this  Plan  shall be
              ------------------
nontransferable  by  the Optionee, other than by will or the laws of descent and
distribution,  and  shall  be exercisable during the Optionee's lifetime only by
the  Optionee.

                      Article XII.  Amendment, Modification
                      -------------------------------------
                           and Termination of the Plan
                           ---------------------------

     12.1     Amendment,  Modification,  and  Termination  of  the  Plan.
              -----------------------------------------------------------
The  Board  may  at any time terminate and from time to time may amend or modify
the  Plan  provided, however, that no such action of the Board, without approval
of  the  stockholders,  may:

     (a)  increase  the  total  amount  of  Stock which may be purchased through
          Options  granted  under  the  Plan,  except  as provided in Article V;

     (b)  change  the  class  of  Employees  or  Consultants eligible to receive
          Options;  or

     (c)  extend  the  maximum  exercise  period  under  section  7.5.

No  amendment,  modification  or  termination  of  the  Plan shall in any manner
adversely  affect  any  outstanding Option under the Plan without the consent of
the  Optionee  holding  the  Option.

                                       11
<PAGE>
               Article XIII.  Acquisition, Merger and Liquidation
               --------------------------------------------------

     13.1     Acquisition.  Notwithstanding  anything herein to contrary, in the
              -----------
event that an Acquisition (as defined below) occurs with respect to the Company,
the  Company  shall  have  the option, but not the obligation, to cancel Options
outstanding as of the effective date of Acquisition, whether or not such Options
are  then exercisable, in return for payment to the Optionees for each Option of
an  amount  equal to a reasonable, good faith estimate of an amount (hereinafter
the  "Spread")  equal to the difference between the net amount per share payable
in  the  Acquisition, or as a result of the Acquisition, less the exercise price
per  share  of the Option.  In estimating the Spread, appropriate adjustments to
give  effect  to the existence of the options shall be made, such as deeming the
Options  to  have  been exercised, with the Company receiving the exercise price
payable  thereunder,  and  treating  the  shares receivable upon exercise of the
Options  as  being  outstanding  in  determining  the net amount per share.  For
purposes  of  this section, an "Acquisition" shall mean any transaction in which
substantially all of the Company's assets are acquired or in which a controlling
amount  of  the  Company's  outstanding  shares  are acquired, in each case by a
single  person or entity or an affiliated group of persons and/or entities.  For
purposes  of  this  section a controlling amount shall mean more than 50% of the
issued  and  outstanding shares of stock of the Company.  The Company shall have
such  an  option  regardless  of  how the Acquisition is effectuated, whether by
direct  purchase,  through  a  merger  or  similar  corporate  transaction,  or
otherwise.  In cases where the acquisition consists of the acquisition of assets
of the Company, the net amount per share shall be calculated on the basis of the
net amount receivable with respect to shares upon a distribution and liquidation
by  the  Company  after giving effect to expenses and charges, including but not
limited  to  taxes,  payable  by  the  Company  before  the  liquidation  can be
completed.

     Where the Company does not exercise its option under this section 13.1, the
remaining provisions of this Article XIII shall apply, to the extent applicable.

     13.2     Merger  or  Consolidation.  Subject  to  section  13.1  and to any
              -------------------------
required  action  by  the  stockholders,  if  the Company shall be the surviving
corporation  in  any merger or consolidation, any Option granted hereunder shall
pertain to and apply to the securities to which a holder of the number of shares
of  Stock  subject  to  the  Option  would  have been entitled in such merger or
consolidation.

     13.3     Other  Transactions.  Subject  to  section  13.1, dissolution or a
              -------------------
liquidation of the Company or a merger and consolidation in which the Company is
not  the surviving corporation shall cause every Option outstanding hereunder to
terminate  as  of  the effective date of the dissolution, liquidation, merger or
consolidation.  However,  the  Optionee  either  (i)  shall  be  offered  a firm
commitment  whereby  the  resulting  or  surviving  corporation  in  a merger or
consolidation will tender to the Optionee an option (the "Substitute Option") to
purchase  its  shares  on  terms  and conditions both as to number of shares and
otherwise,  which  will  substantially  preserve  to the Optionee the rights and
benefits  of  the  Option  outstanding hereunder granted by the Company, or (ii)
shall have the right immediately prior to such dissolution, liquidation, merger,
or  consolidation  to  exercise  any  unexercised  Options  whether  or not then
exercisable,  subject  to  the  provisions  of  this Plan.  The Board shall have
absolute  and uncontrolled discretion to determine whether the Optionee has been
offered  a  firm  commitment  and  whether  the  tendered Substitute Option will
substantially  preserve  to  the  Optionee the rights and benefits of the Option
outstanding  hereunder.  In  any  event,  any Substitute Option for an Incentive
Stock  Option  shall  comply  with  the  requirements  of  the  Code.

                                       12
<PAGE>

                      Article XIV. Securities Registration
                      ------------------------------------

     14.1     Securities Registration.  In the event that the Company shall deem
              -----------------------
it  necessary  or  desirable  to  register  under the Securities Act of 1933, as
amended,  or any other applicable statute, any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any  such  Options or Stock under the Securities Act of 1933, as amended, or any
other  statute, then the Optionee shall cooperate with the Company and take such
action  as  is necessary to permit registration or qualification of such Options
or  Stock.

     Unless  the  Company  has  determined  that the following representation is
unnecessary,  each person exercising an Option under the Plan may be required by
the  Company,  as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he is acquiring such
shares for his own account for investment and not with a view to, or for sale in
connection  with,  the distribution of any part thereof, and (b) that before any
transfer  in  connection  with  the  resale  of  such shares, he will obtain the
written  opinion  of  counsel to the Company, or other counsel acceptable to the
Company, that such shares may be transferred.  The Company may also require that
the  certificates  representing  such  shares  contain  legends  reflecting  the
foregoing.

                          Article XV.  Tax Withholding
                          ----------------------------

     15.1     Tax  Withholding.  Whenever  shares  of  Stock are to be issued in
              ----------------
satisfaction  of  Options  exercised under this Plan, the Company shall have the
power  to  require  the recipient of the Stock to remit to the Company an amount
sufficient  to  satisfy  federal,  state and local withholding tax requirements.
Unless otherwise determined by the Board, withholding obligations may be settled
with  Stock,  including  Stock  that is part of the award that gives rise to the
withholding requirement.  The obligations of the Company under the Plan shall be
conditional  on  such payment or arrangements, and the Company, its subsidiaries
and  affiliates  shall, to the extent permitted by law, have the right to deduct
any  such  taxes  from  any  payment  otherwise  due  to  the  participant.

                                       13
<PAGE>

                          Article XVI.  Indemnification
                          -----------------------------

     16.1     Indemnification.  To  the extent permitted by law, each person who
              ---------------
is  or  shall  have  been  a  member  of the Board shall be indemnified and held
harmless  by  the Company against and from any loss, cost, liability, or expense
that  may  be  imposed  upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or  in  which he may be involved by reason of any action taken or failure to act
under  the  Plan  and  against  and  from  any  and  all  amounts paid by him in
settlement  thereof, with the Company's approval, or paid by him in satisfaction
of  judgment  in  any  such  action, suit or proceeding against him, provided he
shall  give the Company an opportunity, at its own expense, to handle and defend
it  on  his  own  behalf.  The  foregoing  right of indemnification shall not be
exclusive  of  any  other rights of indemnification to which such persons may be
entitled under the Company's articles of incorporation or bylaws, as a matter of
law,  or  otherwise, or any power that the Company may have to indemnify them or
hold  them  harmless.

                       Article XVII.  Requirements of Law
                       ----------------------------------

     17.1     Requirements  of Law.  The granting of Options and the issuance of
              --------------------
shares  of  Stock  upon  the  exercise  of  an  Option  shall  be subject to all
applicable  laws,  rules,  and  regulations,  and  to  such  approvals  by  any
governmental  agencies  or  national  securities  exchanges  as may be required.

     17.2     Governing  Law.  The  Plan  and  all agreements hereunder shall be
              --------------
construed  in accordance with and governed by the laws of the state of Delaware.

                      Article XVIII.  Compliance with Code
                      ------------------------------------

     18.1     Compliance  with  Code.  Incentive Stock Options granted hereunder
              ----------------------
are intended to qualify as "incentive stock options" under Code section 422.  If
any  provision of this Plan is susceptible to more than one interpretation, such
interpretation  shall  be  given  thereto  as is consistent with Incentive Stock
Options  granted  under this Plan being treated as incentive stock options under
the  Code.  Options  granted hereunder to any person who is a "covered employee"
under  Code  section  162(m)  at  any  time  when the Company is subject to Code
section  162(m) are intended to qualify as performance-based compensation within
the  meaning  of  Code  section  162(m)(4)(C).  If any provision of this Plan is
susceptible  to more than one interpretation, such interpretation shall be given
thereto  as  is consistent with Options granted under this Plan to such "covered
employees"  being  treated  as performance-based compensation under Code section
162(m).

                                       14ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
				DIVISION OF BUSINESS AND FINANCE
				SECTION A.     CONTRACT AMENDMENT

1. AMENDMENT    2. CONTRACT      3.   EFFECTIVE DATE      4. PROGRAM
   NUMBER:         NO.	              OF AMENDMENT:
   24              YH8-0001-08        October 1, 2002        OMC

5.  CONTRACTOR'S NAME AND ADDRESS:
    VHS, Phoenix Health Plan, Inc.
    1209 S. 7th Avenue
    Phoenix, AZ  85007

6.  PURPOSE OF AMENDMENT: To extend the term of the contract for
    one  year and to amend Sections B, C, D and E and Attachments  B,
    F, H and I.

7.  THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

A.  EXTENSION  OF CONTRACT:  In accordance with  Section  D,
    Paragraph 50, Term of Contract and Option to Renew, this contract
    is extended for the period 10/1/02 - 9/30/03.  The Contractor's
    response affirming or declining the extension must be received by
    AHCCCSA no later than 3:00 PM, September 20, 2002.

B.  CHANGES  IN REQUIREMENTS: In accordance with Section  E,
    Paragraph 30, "Changes", various changes in contract requirements
    are indicated in this contract restatement.

C.  By signing this contract amendment, the Contractor is (1)
    agreeing to perform for an additional year according to the terms
    of  the contract as amended, and (2) agreeing to the new and
    changed requirements contained herein.

    NOTE: Please sign and date both and then return one to:
    Michael Veit, MD 5700
    AHCCCS Contracts and Purchasing
    701 E Jefferson Street
    Phoenix AZ 85034

8.   EXCEPT  AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS  OF
THE  ORIGINAL  CONTRACT  NOT HERETOFORE  CHANGED  AND/OR  AMENDED
REMAIN UNCHANGED AND IN FULL EFFECT.

IN  WITNESS  WHEREOF  THE  PARTIES HERETO  SIGN  THEIR  NAMES  IN
AGREEMENT

9.  SIGNATURE OF AUTHORIZED       10. SIGNATURE OF AHCCCSA
    REPRESENTATIVE:                   CONTRACTING OFFICER:

TYPED NAME: NANCY NOVICK              MICHAEL VEIT
TITLE: CHIEF EXECUTIVE OFFICER        CONTRACTS & PURCHASING
						  ADMINISTRATOR

DATE:  9/25/02	                    DATE:  8/28/02

			TITLE XIX WAIVER GROUP RISK BAND
				   ELECTION FORM

Per Contract YH8-0001, Paragraph 37, Compensation, Risk Sharing for Title
XIX Waiver Members: For CYE '03, AHCCCSA will reconcile the contractor's
PPC and prospective medical cost expenses to PPC capitation, prospective
capitation, and hospitalized supplements paid to the Contractor
during the year.  The contractor has choice to elect:

X  Default Method:  This reconciliation will limit the Contractor's losses
   to 2% and profits to 4%. Any losses in excess of 2% will be reimbursed
   to the Contractor, and likewise, profits in excess of 4% will be recouped.

   Alternative Method:  This reconciliation will limit the Contractor's
   losses to 1% and profits to 1%. Any losses in excess of 1% will be
   reimbursed to the Contractor, and likewise, profits in excess of 1%
   will be recouped.

/s/ Nancy Novick					9/20/02
Signature						Date

Phoenix Health Plan

*Please sign and return this form to AHCCCS with the signed contract amendment.
If not returned, AHCCCS will assign the Default Method as stated above.

	           ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
			  CAPITATION RATE SUMMARY - ACUTE RATES
		       Phoenix Health Plan/Community Connection
			      CYE '03 (Effective 10/01/02)

	          TANF    TANF     TANF    TANF    TANF    SSI     SSI
Title XIX Rates:<1, M/F 1-13,M/F 14-44,F 14-44,M 45+,M/F w/Med   w/oMed
8   Gila/Pinal  $392.12 $86.18   $163.88 $111.36 $316.43 $207.22 $452.23
12  Maricopa    $365.36 $78.78   $134.98 $100.70 $281.81 $208.54 $417.41

		               KICK	   	TITLE XIX	    HOSPITALIZED
		    SFP	   DELIVERY		WAIVER GROUP    KICK
		    $19.69     $5,376.47	$210.26	    $14,716.72
		    $19.68     $5,105.23 	$202.15	    $13,340.89

		    TANF      TANF     TANF     TANF     TANF     SSI    SSI
PPC Rates:	    <1, M/F   1-13,M/F 14-44,F  14-44,M  45+,M/F  w/Med  w/oMed
8   Gila/Pinal  $983.82   $38.65   $147.69  $89.46   $225.66  $39.93 $75.59
12  Maricopa    $1,375.09 $32.39   $143.34  $84.44   $203.52  $26.12 $89.27

		    TITLE XIX
		    WAIVER GROUP
		    $182.75
		    $164.12

*Rates have been adjusted for $50,000 Reinusrance Deductible.

		TABLE OF CONTENTS

SECTION A. CONTRACT AMENDMENT

SECTION C: DEFINITIONS

SECTION D: PROGRAM REQUIREMENTS

1.  SCOPE OF SERVICES
2.  BEHAVIORAL HEALTH SERVICES
3.  AHCCCS MEDICAL POLICY MANUAL
4.  VACCINE FOR CHILDREN PROGRAM
5.  DENIALS OR REDUCTIONS OF SERVICES
6.  ENROLLMENT AND DISENROLLMENT
7.  MAINSTREAMING OF AHCCCS MEMBERS
8.  MEMBER INFORMATION
9.  MEMBER SURVEYS
10. MARKETING
11. ANNUAL ENROLLMENT CHOICE
12. TRANSITION OF MEMBERS
13. STAFF REQUIREMENTS AND SUPPORT SERVICES
14. WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS
15. ADVANCE DIRECTIVES
16. PERFORMANCE STANDARDS
17. QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)
18. PHYSICIAN INCENTIVES
19. APPOINTMENT STANDARDS
20. REFERRAL PROCEDURES AND STANDARDS
21. PROVIDER MANUAL
22. PRIMARY CARE PROVIDER STANDARDS
23. OTHER PROVIDER STANDARDS
24. NETWORK DEVELOPMENT
25. NETWORK MANAGEMENT
26. FEDERALLY QUALIFIED HEALTH CENTERS  (FQHC)
27. PROVIDER REGISTRATION
28. PROVIDER AFFILIATION  TRANSMISSION
29. PERIODIC REPORT REQUIREMENTS
30. DISSEMINATION OF INFORMATION
31. REQUESTS FOR INFORMATION
32. OPERATIONAL AND FINANCIAL READINESS REVIEWS
33. OPERATIONAL AND FINANCIAL REVIEWS
34. CLAIMS PAYMENT SYSTEM
35. HOSPITAL SUBCONTRACTING AND REIMBURSEMENT
36. NURSING FACILITY REIMBURSEMENT
37. COMPENSATION
38. CAPITATION ADJUSTMENTS
39. REINSURANCE
40. COORDINATION OF BENEFITS/THIRD PARTY LIABILITY
41. MEDICARE SERVICES AND COST SHARING
42. COPAYMENTS
43. RECORDS RETENTION
44. MEDICAL RECORDS
45. ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS
46. ACCUMULATED FUND DEFICIT
47. DATA EXCHANGE REQUIREMENT
48. ENCOUNTER DATA REPORTING
49. MONTHLY ROSTER RECONCILIATION
50. TERM OF CONTRACT AND OPTION TO RENEW
51. SUBCONTRACTS
52. SPECIALTY CONTRACTS
53. MANAGEMENT SERVICES SUBCONTRACTORS
54. MANAGEMENT SERVICES SUBCONTRACTOR AUDITS
55. MINIMUM CAPITALIZATION REQUIREMENTS
56. PERFORMANCE BOND OR BOND SUBSTITUTE
57. AMOUNT OF PERFORMANCE BOND
58. FINANCIAL VIABILITY STANDARDS/PERFORMANCE GUIDELINES
59. MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP
60. SANCTIONS
61. AUTO-ASSIGNMENT ALGORITHM
62. GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS
63. QUARTERLY GRIEVANCE REPORT
64. KIDSCARE
65. PENDING LEGISLATIVE ISSUES
66. SEPARATE INCORPORATION
67. CULTURAL COMPETENCY
68. MEDICAID IN THE PUBLIC SCHOOLS (MIPS)
69. BUSINESS CONTINUITY PLAN
70. FRAUD AND ABUSE
71. TICKET TO WORK (FREEDOM TO WORK)
72. HIFA

SECTION E: CONTRACT CLAUSES

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

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS

1)  EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF
    SERVICES
2)  RECORDS AND REPORTS
3)  LIMITATIONS ON BILLING AND COLLECTION PRACTICES
4)  ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES
5)  APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS
6)  WARRANTY OF SERVICES
7)  SUBJECTION OF SUBCONTRACT
8)  AWARDS OF OTHER SUBCONTRACTS
9)  INDEMNIFICATION BY CONTRACTOR
10) MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE
    SERVICES
11) COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS
12) SEVERABILITY
13) VOIDABILITY OF SUBCONTRACT
14) CONFIDENTIALITY REQUIREMENT
15) GRIEVANCE AND REQUEST FOR HEARING PROCEDURES
16) TERMINATION OF SUBCONTRACT
17) PRIOR AUTHORIZATION AND UTILIZATION REVIEW
18) NON-DISCRIMINATION REQUIREMENTS
19) COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND
    INSPECTION
20) CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION
21) CERTIFICATION OF COMPLIANCE  -  ANTI-KICKBACK AND
    LABORATORY TESTING
22) CONFLICT IN INTERPRETATION OF PROVISIONS
23) ENCOUNTER DATA REQUIREMENT
24) CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988
25) INSURANCE
26) FRAUD AND ABUSE

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

ATTACHMENT G: AUTO-ASSIGNMENT ALGORITHM

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND
STANDARDS

ATTACHMENT I:  ENCOUNTER SUBMISSION REQUIREMENTS

SECTION B - CAPITATION RATES

THE CONTRACTOR SHALL PROVIDE SERVICES AS DESCRIBED IN THIS
CONTRACT.  IN CONSIDERATION FOR THESE SERVICES, THE CONTRACTOR
WILL BE PAID THE ATTACHED RATES FOR THE TERM OCTOBER 1, 2002
THROUGH SEPTEMBER 30, 2003.

CAPITATION RATES
(PER MEMBER PER MONTH)

CAPITATION RATES SPECIFIC TO CONTRACTOR

SECTION C: DEFINITIONS

ADHS
Arizona Department of Health Services, the
state agency mandated to serve the public
health needs of all Arizona citizens.

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

AHCCCS
Arizona Health Care Cost Containment System,
which is composed of the Administration,
Contractors, and other arrangements through
which health care services are provided to an
eligible person, as defined by A.R.S.  36-
2902, et seq.

AHCCCS BENEFITS
See "COVERED SERVICES".

AHCCCS MEMBER
See "MEMBER".

AHCCCSA
Arizona Health Care Cost Containment System
Administration.

ALTCS
The Arizona Long Term Care System, a program
under AHCCCSA that delivers long term, acute,
behavioral health and case management services
to members, as authorized by A.R.S.  36-2932.

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

AMPM
AHCCCS Medical Policy Manual.

ANNUAL ENROLLMENT CHOICE (AEC)
The opportunity, given each member annually, to
change to another contractor in their GSA.

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

A.R.S.
Arizona Revised Statutes.

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

BCCTP
Breast and cervical cancer treatment program, a
Title XIX eligibility expansion program for
women that are not otherwise Title XIX eligible
and are diagnosed as needing treatment for
breast and/or cervical cancer.

BIDDERS LIBRARY
A repository of manuals, statutes, rules and
other reference material located at the AHCCCS
office in Phoenix.

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

CAPITATION
Payment to Contractor by AHCCCSA of a fixed
monthly payment per person in advance for which
the Contractor provides a full range of covered
services as authorized under A.R.S.  36-2942
and  36-2931.

CATEGORICALLY LINKED TITLE  XIX  MEMBER
Member eligible for Medicaid under Title XIX of
the Social Security Act including those
eligible under 1931 provisions of the Social
Security Act (previously AFDC), Sixth Omnibus
Budget Reconciliation Act (SOBRA), Supplemental
Security Income (SSI), SSI-related groups.  To
be categorically linked, the member must be
aged (65 or over), blind, disabled, a child
under age 19, parent of a dependent child, or
pregnant.

CLEAN CLAIM
A claim that may be processed without obtaining
additional information from the provider of
service or from a third party; but does not
include claims under investigation for fraud or
abuse or claims under review for medical
necessity, as defined by A.R.S.  36-2904.
CMS (formerly HCFA) Centers for Medicare and Medicaid
Services, an organization within the U.S. Department of
Health and Human Services, which administers
the Medicare and Medicaid programs and the
State Children's Health Insurance Program.

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

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

CONTRACT SERVICES
See "COVERED SERVICES".

CONTRACT YEAR (CY)
Corresponds to Federal fiscal year (Oct. 1
through Sept. 30).  For example, Contract Year
03 is 10/01/02 - 9/30/03.

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

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

CO-PAYMENT
A monetary amount specified by the Director
that the member pays directly to a Contractor
or provider at the time covered services are
rendered, as defined in R9-22-107.

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

COVERED  SERVICES
Health care services to be delivered by a
Contractor which are designated in Section D of
this contract and also AHCCCS Rules R9-22,
Article 2 and R9-31, Article 2.

CRS
Children's Rehabilitative Services, as defined
in R9-22-114.

CSHCN
Children with Special Health Care Needs ,
Children under age 19 who are: Blind/Disabled
Children and Related Populations (eligible for
SSI under Title XVI).  Children eligible under
section 1902 (e)(3) of the Social Security Act
(Katie Beckett); In foster care or other out-of-
home placement; Receiving foster care or
adoption assistance; or receiving services
through a family-centered, community-based
coordinated care system that receives grant
funds under section 501(a)(1)(D) of Title V
(CRS).

CY
See "CONTRACT YEAR".

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

DAYS
Calendar days unless otherwise specified as
defined in the text, as defined in R9-22-101.

DIRECTOR
The Director of AHCCCSA.

DISCLOSING ENTITY
An AHCCCS provider or a fiscal agent.

DME
Durable Medical Equipment, which is an item, or
appliance that can withstand repeated use, is
designated to serve a medical purpose, and is
not generally useful to a person in the absence
of a medical condition, illness or injury as
defined in R9-22-102.

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

ELIGIBILITY DETERMINATION
A process of determining, through a written
application, including required documentation,
whether an applicant meets the qualifications
for Title XIX or Title XXI.

EMERGENCY MEDICAL CONDITION
A medical condition manifesting itself by acute
symptoms of sufficient severity (including
severe pain) such that a prudent layperson, who
possess an average knowledge of health and
medicine, could reasonably expect the absence
of immediate medical attention to result in: a)
placing the patient's health in serious
jeopardy; b) serious impairment to bodily
functions; or c) serious dysfunction of any
bodily organ or part.

EMERGENCY  MEDICAL  SERVICE
Services provided after the sudden onset of a
medical condition manifesting itself by acute
symptoms of sufficient severity (including
severe pain) that the absence of immediate
medical attention could reasonably be expected
to result in: a) placing the patient's health
in serious jeopardy; b) serious impairment to
bodily functions; or c) serious dysfunction of
any bodily organ or part, as defined in R9-22-
102.

ENCOUNTER
A record of a medically related service
rendered by a provider or providers registered
with AHCCCSA to a member who is enrolled with a
Contractor on the date of service.  It includes
all services for which the Contractor incurred
any financial liability.

ENROLLMENT
The process by which an eligible person becomes
a member of a Contractor's health plan.

EPSDT
Early and Periodic Screening, Diagnosis and
Treatment; services for persons under 21 years
of age as described in AHCCCS rules R9-22,
Article 2.

FAMILY PLANNING SERVICES EXTENSION PROGRAM
A program that provides family planning
services only for a maximum of 24 months to

SOBRA women whose pregnancy has ended and the
woman is not otherwise eligible for Title XIX.

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

FEE-FOR-SERVICE (FFS)
A method of payment to registered providers on
an amount-per service basis.
FFP Federal financial participation (FFP) refers to
the contribution that the Federal government
makes to the Title XIX and Title XXI program
portions of AHCCCS as defined in 42 CFR
400.203.

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

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

GEOGRAPHIC SERVICE AREA (GSA)
A specific county or defined grouping of
counties designated by the Administration
within which a Contractor of record provides,
directly or through subcontract, covered health
care to members enrolled with that Contractor
of record

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

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

HEALTH PLAN
See "CONTRACTOR".

HIFA
Health Insurance Flexibility and Accountability
Act, a demonstration initiative by CMS which
targets State Children's Health Insurance
Program (Title XXI) funding to populations with
income below 200 percent of the Federal Poverty
Level seeking to maximize private health
insurance coverage options.

HIFA PARENTS
Parents of KidsCare and SOBRA children who are
eligible for AHCCCS benefits under the HIFA
Waiver.

IBNR
Incurred But Not Reported: Liability for
services rendered for which claims have not
been received.

IHS
Indian Health Service authorized as a Federal
agency pursuant to 25 U.S.C. 1661.

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

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

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

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

MATERIAL OMISSION
A fact, data or other information excluded from
a report, contract, etc., the absence of which
could lead to erroneous conclusions following
reasonable review of such report, contract,
etc.

MEDICAID
A Federal/State program authorized by Title XIX
of the Social Security Act, as amended.

MEDICAL EXPENSE DEDUCTION (MED)
Title XIX Waiver member whose income is more
than 100% of the Federal Poverty Level, and has
medical expenses that reduce income to or below
40% of the  Federal Poverty Level.  The 40%
Federal Poverty Level will be adjusted annually
to reflect annual Federal Poverty Level
adjustments.  MED's may have a categorical link
to a Title XIX program; however, their income
exceeds the limits of the Title XIX program.

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

MEMBER
An eligible person who is enrolled in the
system, as defined in A.R.S.  36-2901.

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

NON-CONTRACTING PROVIDER
A person who provides services as prescribed in
A.R.S.  36-2939 and who does not have a
subcontract with an AHCCCS Contractor.

OFFEROR
A person or other entity that submits a
proposal to the Administration in response to
an RFP, as defined in R9-22-106.

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

PMMIS
AHCCCSA's Prepaid Medical Management
Information System.

PRIMARY CARE PROVIDER (PCP)
An individual who meets the requirements of
A.R.S.  36-2901, and who is responsible for
the management of a member's health care.  A
PCP may be a physician defined as a person
licensed as allopathic or osteopathic physician
according to A.R.S. Title 32, Chapter 13 or
Chapter 17 or a practitioner defined as a
physician assistant licensed under A.R.S. Title
32, Chapter 25, or a certified nurse
practitioner licensed under A.R.S. Title 32,
Chapter 15.

PRIOR PERIOD
The period of time from the 1st day of the
month of application or the 1st eligible month,
whichever is later, to the day a member is
enrolled with the Contractor.  The Contractor
receives notification from the Administration
of the member's enrollment.  Also, the period
of time between the date a MED member was
approved and the date the member met spenddown
or 1st day of the month the member reduced
resources whichever is later.

PROPOSITION 204
Referendum that increased eligibility for
AHCCCS services to individuals whose income is
at or below 100% of Federal Poverty Level.

PROVIDER
Any person who contracts with the
Administration for the provision of
hospitalization and medical care to members
according to the provisions A.R.S.  36-2901 or
any subcontractor of provider delivering
services pursuant to A.R.S.  36-2901.

QUALIFIED MEDICARE  BENEFICIARY (QMB)
A person, eligible under A.R.S.  36-2971(4),
who is entitled to Medicare Part A insurance,
meets certain income and residency requirements
of the Qualified Medicare Beneficiary program.
A QMB who is also eligible for Medicaid is
commonly referred to as a QMB dual eligible.

QISMC
Quality Improvement System for Managed Care
developed by the Centers for Medicare/Medicaid
(CMS), formerly (HCFA), for use in evaluation
and management of the quality of care provided
by Medicare and Medicaid managed care
contractors.  QISMC serves as one of the key
elements for the AHCCCS QM and UM requirements
included in this contract.

RATE CODE
Eligibility classification for capitation
payment purposes.

REGIONAL BEHAVORIAL HEALTH AUTHORITY (RBHA)
An organization under contract with ADHS to
administer  covered behavioral health services
in a geographically specific area of the state.
Tribal governments, through an agreement with
ADHS, may operate a tribal regional behavioral
health authority (TRBHA) for the provision of
behavioral health services to Native American
members living on-reservation.

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

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

RFP
Request For Proposals which is a document
prepared by AHCCCSA which describes the
services required and which instructs
prospective offerors how to prepare a response
(proposal), as defined in R9-22-107.

SCOPE OF SERVICES
See "COVERED SERVICES".

SOBRA
Section 9401 of the Sixth Omnibus Budget and
Reconciliation Act, 1986, amended by the
Medicare Catastrophic Coverage Act of 1988, 42
CFR U.S.C. 1396a(a)(10)(A)(ii)(IX), July 1,
1988.

STATE
The State of Arizona.

STATE PLAN
The written agreements between the State and
CMS which describes how the AHCCCS program
meets CMS requirements for participation in the
Medicaid program and the State Children's
Health Insurance Program.

SUBCONTRACT
An agreement entered into by Contractor with a
provider of health care services who agrees to
furnish covered services to members, or with a
marketing organization, or with any other
organization or person who agrees to perform
any administrative function or service for
Contractor specifically related to fulfilling
Contractor's obligations to AHCCCSA under the
terms of this contract, as defined in R9-22-
101.

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

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

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

TEMPORARY ASSISTANCE TO NEEDY FAMILIES (TANF)
A Federal cash assistance program under  the
Social Security Act.  It replaced Aid To
Families With Dependent Children (AFDC).

TICKET TO WORK (FREEDOM TO WORK)
A Federal program that expands Title XIX
eligibility to individuals, 16 through 64 years
old, who are disabled and whose earned income
is at or below 250% of the Federal Poverty
Level.

THIRD PARTY
An individual, entity or program that is or may
be liable to pay all or part of the medical
cost of injury, disease or disability of an
AHCCCS applicant or member, as defined in R9-22-
1001.

THIRD PARTY LIABILITY
The resources available from a person or entity
that is, or may be, by agreement, circumstance
or otherwise, liable to pay all or part of the
medical expenses incurred by an AHCCCS
applicant or member, as defined in R9-22-1001.

TITLE XIX MEMBER
Member eligible for Federally funded Medicaid
programs under Title XIX of the Social Security
Act including those eligible under 1931
provisions of the Social Security Act
(previously AFDC), Sixth Omnibus Budget
Reconciliation Act (SOBRA), Supplemental
Security Income (SSI), SSI-related groups,
Title XIX Waiver groups, Medicare Cost Sharing
groups and Breast and Cervical Cancer Treatment
program.

TITLE XIX WAIVER MEMBER
All MED (Medical Expense Deduction) members,
and adults or childless couples at or below
100% of the Federal Poverty Level who are not
categorically linked to another Title XIX
program.  This would also include Title XIX
linked individuals who's income exceeds the
limits of the categorical program.

TITLE XXI MEMBER
Member eligible for acute care services under
Title XXI of the Social Security Act, referred
to in Federal legislation as the "State
Children's Health Insurance Program" (SCHIP and
HIFA).  The Arizona version of SCHIP is
referred to as "KidsCare."

TRIBAL FACILITY (638 TRIBAL FACILITY)
A facility that is operated by an Indian tribe
and that is authorized to provide services
pursuant to Public Law 93-638, as amended.

WWHP
Well Woman Healthcheck Program, administered by
the Arizona Department of Health Services and
funded by the Centers for Disease Control.

YEAR
See "Contract Year".

[END OF DEFINITIONS]

                 SECTION D: PROGRAM REQUIREMENTS

1.   SCOPE OF SERVICES
The Contractor shall provide covered services to AHCCCS members
in accordance with all applicable Federal, State and local laws,
rules, regulations and policies, including services listed in
this document, listed by reference in attachments, and AHCCCS
policies referenced in this document.  The services are described
in detail in AHCCCS Rules R9-22, Article 2 and the AHCCCS Medical
Policy Manual (AMPM), except for provisions specific to the Fee-
for-Service program, all of which are incorporated herein by
reference and may be found in the Bidder's Library.  The covered
services are briefly described below.  Covered services must be
medically necessary and provided by, or coordinated with, a
primary care provider, except for behavioral health and
children's preventive dental services.  Services must be rendered
by providers that are appropriately licensed or certified,
operating within their scope of practice, and registered as an
AHCCCS provider.  The Contractor shall provide the same standard
of care for all members regardless of the member's eligibility
category.

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

KidsCare Covered Services: Effective 10/1/01:  KidsCare members
are eligible for the same services covered for members under the
Title XIX program.

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

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

Behavioral Health:  The Contractor shall provide behavioral
health services as described in Section D, Paragraph 2,
Behavioral Health Services.

Children's Rehabilitative Services (CRS):  The program for
children with CRS-covered conditions is administered by the
Arizona Department of Health Services (ADHS) for children who
meet CRS eligibility criteria.  The Contractor shall refer
children to the CRS program who are potentially eligible for
services related to CRS covered conditions, as specified in R9-
22, Article 2 A.R.S. Title 36, Chapter 2, Article 3.  Eligibility
criteria and the referral process are described in the CRS Policy
and Procedures Manual available in the Bidder's Library.

The Contractor shall monitor referrals to CRS to ensure CRS
covered services are provided in a timely manner to eligible
members.  Referral to CRS does not relieve the Contractor of the
responsibility for providing medically necessary services not
covered by CRS to CRS eligible members. The Contractor is also
responsible for initial care of newborn members, until those
members become enrolled in CRS .  The Contractor must require the
member's Primary Care Provider (PCP) to coordinate their care
with the CRS program.  All services provided must be included in
the member's medical record maintained by the PCP.

A member with private insurance is not required to utilize CRS.
If the member uses their private insurance network for a CRS
covered condition, and the member is not enrolled with CRS, the
Contractor is responsible for all applicable deductibles and
copays.

The Contractor remains ultimately responsible for the provision
of all covered services to its members, except for instances in
which the CRS eligible member refuses to receive CRS covered
services through the CRS program.  If the Contractor becomes
aware that CRS has failed to meet the established appointment
standards, or has failed to provide medically necessary CRS
covered services, the Contractor shall immediately notify
AHCCCSA, Office of Medical Management, of the occurrence.  In
accordance with the CRS appointment standards policy, the
Contractor may seek reimbursement from CRS for providing CRS
covered services.

Chiropractic Services:  The Contractor shall provide chiropractic
services to members under age 21 when prescribed by the member's
PCP and approved by the Contractor in order to ameliorate the
member's medical condition.  Medicare approved chiropractic
services shall also be covered, subject to limitations specified
in CFR 410.22, for Qualified Medicare Beneficiaries if prescribed
by the member's PCP and approved by the Contractor.

Dental:  The Contractor shall provide all members under the age
of 21 with all medically necessary dental services including
emergency dental services, dental screening and preventive
services in accordance with the AHCCCS periodicity schedule,
therapeutic dental services, dentures, and pre-transplantation
dental services.  The Contractor shall monitor compliance with
the EPSDT periodicity schedule for dental screening services and
ensure that dental service reports are included in the member's
medical record maintained by the PCP.  The Contractor is required
to meet specific utilization rates for members as described in
Section D, Paragraph 16, Performance Standards.  The Contractor
shall ensure that members are notified when dental screenings are
due if the member has not been scheduled for a visit.  If no
dental screening is received by the member, a second notice must
be sent.  Members under the age of 21 may request dental services
without referral and may choose a dental provider from the
Contractor's provider network.  For members who are 21 years of
age and older, the Contractor shall provide emergency dental
care, medically necessary dentures and dental services for
transplantation services as specified in the AMPM.  Dental
standards may also be found in the AMPM.

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

Early and Periodic Screening, Diagnosis and Treatment (EPSDT):
The Contractor shall provide comprehensive health care services
through primary prevention, early intervention, diagnosis and
medically necessary treatment to correct or ameliorate defects
and physical or mental illness discovered by the screenings for
members under age 21.  The Contractor shall ensure that these
members receive required health screenings, including
developmental/behavioral health, in compliance with the AHCCCS
periodicity schedule (included in the AMPM) and to submit to the
AHCCCS Office of Medical Management all EPSDT reports as required
by AHCCCS medical policy.  The Contractor is required to meet
specific participation/utilization rates for members as described
in Section D, Paragraph 16, Performance Standards.  Because
behavioral health benefits for Title XIX and Title XXI members
are provided through the ADHS/RBHA system, the Contractor shall
ensure the initiation and coordination of the referral of these
members to the RBHA and shall follow up with the RBHA to monitor
whether members have received behavioral health services

Emergency services: The Contractor shall have and/or provide the
following as a minimum:

a.   Emergency services facilities adequately staffed by
     qualified medical professionals to provide pre-hospital,
     emergency care on a 24-hour-a-day, 7-day-a-week basis, for the
     sudden onset of a medically emergent condition as defined by
     AHCCCS Rule R9-22-101 and R9-31-101.  Emergency medical services
     are covered without prior authorization.  The Contractor is
     encouraged to contract with emergency service facilities for the
     provision of emergency services.  The Contractor is encouraged to
     contract with or employ the services of non-emergency facilities
     (e.g. urgent care centers) to address member non-emergency care
     issues occurring after regular office hours or on weekends.  The
     Contractor shall be responsible for educating members and
     providers regarding appropriate utilization of emergency room
     services including behavioral health emergencies.  The Contractor
     shall monitor emergency service utilization (by both provider and
     member) and shall have guidelines for implementing corrective
     action for inappropriate utilization.  For utilization review,
     the test for appropriateness of the request for emergency
     services shall be whether a prudent layperson, similarly
     situated, would have requested such services.  For purposes of
     this contract, a "prudent layperson" is a person who possesses an
     average knowledge of health and medicine.

b.   All medical services necessary to rule out an emergency
     condition

c.   Emergency transportation

d.   Member access by telephone to a physician, registered nurse,
     physician assistant or nurse practitioner for advice in emergent
     or urgent situations, 24 hours per day, 7 days per week.

e.   The Contractor shall comply with guidelines regarding the
     coordination of post-stabilization care.

Eye Examinations/Optometry:  The Contractor shall provide all
medically necessary emergency eye care, vision examinations,
prescriptive lenses, and treatments for conditions of the eye for
all members under the age of 21.  For members who are 21 years of
age and older, the Contractor shall provide emergency care for
eye conditions which meet the definition of an emergency medical
condition, cataract removal, and/or medically necessary vision
examinations and prescriptive lenses if required following
cataract removal and other eye conditions as specified in the
AMPM.

Family Planning:  The Contractor shall provide family planning
services in accordance with the AMPM, for all members who choose
to delay or prevent pregnancy.  These include medical, surgical,
pharmacological and laboratory services, as well as contraceptive
devices.  Information and counseling necessary to allow the
members to make informed decisions regarding family planning
methods shall also be included.  If the Contractor does not
provide family planning services, it must contract for these
services through another health care delivery system, which
allows members freedom of choice in selecting a provider.  A
prospective offeror may discuss arrangements for family planning
services only with other prospective offerors during the RFP
process for the purpose of making arrangements for the provision
of family planning services.

The Contractor shall provide services to members enrolled in the
Family Planning Services Extension Program; a program that
provides only family planning services for a maximum of 24 months
to women whose SOBRA eligibility has terminated.  The Contractor
is also responsible for notifying AHCCCSA when a SOBRA woman is
sterilized to prevent inappropriate enrollment in the SOBRA
Family Planning Services Extension Program.  Notification may be
made at the time the newborn is reported or after the
sterilization procedure is completed.

Health Risk Assessment and Screening:  The Contractor shall
provide these services for non-hospitalized members 21 years of
age and older.  These services include, but are not limited to,
screening for hypertension, elevated cholesterol, colon cancer,
sexually transmitted diseases, tuberculosis and HIV/AIDS;
nutritional assessment in cases when the member has a chronic
debilitating disease affected by nutritional needs; mammograms
and prostate screenings; physical examinations and diagnostic
work-ups; and immunizations. Required assessment and screening
services for members under age 21 are included in the AHCCCS
EPSDT periodicity schedule.

Home Health:  The Contractor shall provide part-time or
intermittent care for members who do not require hospital care.
This service is provided under the direction of a physician to
prevent re-hospitalization or institutionalization and may
include nursing, therapies, supplies and home health aide
services.

Hospice:  These services are covered for members under 21 years
of age who are certified by a physician as being terminally ill
and having six months or less to live.  See the AMPM for details
on covered hospice services.

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

Immunizations:  The Contractor shall provide immunizations for
adults (21 years of age and older) to include diphtheria-tetanus,
influenza, pneumococcus, rubella, measles and hepatitis-B.  For
all members under the age of 21, immunization requirements
include diphtheria, tetanus, pertussis vaccine (DPT), inactivated
polio vaccine (IPV), measles, mumps, rubella (MMR) vaccine, H.
influenza, type B (HIB) vaccine, hepatitis B (Hep B) vaccine, and
varicella zoster virus (VZV) vaccine, and pneumococcal conjugate
vaccine (PCV).  The Contractor is required to meet specific
immunization rates for members under the age of 21, which are
described in Section 16, Performance Standards.

Indian Health Services (IHS):  The Contractor may choose to
subcontract with and pay an IHS or 638 tribal facility as part of
their provider network for covered services provided to members.
The Contractor is responsible for reimbursement to IHS or tribal
facilities for emergency services provided to  Title XXI Native
American members enrolled with the Contractor.  AHCCCSA will
reimburse claims on a FFS basis to providers for acute care
services that are medically necessary and eligible for 100%
Federal reimbursement, and that are provided to Title XIX members
in an IHS or a 638 tribal facility.

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

Upon written request, a Contractor may obtain laboratory test
data on members from a laboratory or hospital based laboratory
subject to the requirements specified in A.R.S.  36-2903(R) and
(S).  The data shall be used exclusively for quality improvement
activities and health care outcome studies required and/or
approved by the Administration.

Maternity:  The Contractor shall provide pre-conception
counseling, pregnancy identification, prenatal care, treatment of
pregnancy related conditions, labor and delivery services, and
postpartum care for members.  Services may be provided by
physicians, physician assistants, nurse practitioners, or
certified nurse midwives. Members may select or be assigned to a
PCP specializing in obstetrics.  All members anticipated to have
a low-risk delivery may elect to receive labor and delivery
services in their home from their maternity provider if this
setting is included in allowable settings for the Contractor, and
the Contractor has providers in its network that offer home labor
and delivery services.  All members anticipated to have a low-
risk prenatal course and delivery may elect to receive maternity
services of prenatal care, labor and delivery and postpartum care
provided by licensed midwives if they are in the Contractor's
provider network.  All licensed midwife labor and delivery
services must be provided in the member's home since licensed
midwives do not have admitting privileges in hospitals or AHCCCS
registered free-standing birthing centers.  Members receiving
maternity services from a licensed midwife must also be assigned
to a PCP for other health care and medical services. The
Contractor shall allow women and their newborns to receive up to
48 hours of inpatient hospital care after a routine vaginal
delivery and up to 96 hours of inpatient care after a cesarean
delivery.  The attending health care provider, in consultation
with the mother, may discharge the mother or newborn prior to the
48-hour minimum length of stay.  A normal newborn may be granted
an extended stay in the hospital of birth when the mother's
continued stay in the hospital is beyond the 48 or 96 hour stay.

The Contractor shall inform all assigned AHCCCS pregnant women of
voluntary prenatal HIV testing and the availability of medical
counseling if the test is positive. The Contractor shall provide
information in the member handbook and annually in the member
newsletter to encourage pregnant women to be tested and
instructions on where to be tested.  Semi-annually, the
Contractor shall report to AHCCCS the number of pregnant women
who have been identified as HIV/AIDS positive.  This report is
due no later than 30 days after the end of the second and fourth
quarters of the contract year.

Medical Foods:  Medical foods are covered within limitations
defined in the AMPM for members diagnosed with a metabolic
condition included under the ADHS Newborn Screening Program and
specified in the AMPM. The medical foods, including metabolic
formula and modified low protein foods, must be prescribed or
ordered under the supervision of a physician.

Medically-Necessary Pregnancy Terminations:  AHCCCS covers
pregnancy termination when it is the result of rape or incest, or
in circumstances where the member suffers from a physical
disorder, physical injury, or physical illness, including a life
endangering physical condition caused by or arising form the
pregnancy itself, that would, as certified by a physician, place
the member in danger of death unless the pregnancy is terminated.
In addition, providers must submit to the Contractor a
Certificate of Medical Necessity for Pregnancy Termination.
Prior authorization is required.  If the procedure is performed
on an emergency basis, documentation, outlined in the AMPM, is
required for a member under eighteen years of age or a member who
is considered an incapacitated adult who seeks a medically
necessary pregnancy termination, as defined above.

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

Nursing Facility:  The Contractor shall provide services in
nursing facilities, including religious nonmedical health care
institutions, for members who require short-term convalescent
care not to exceed 90 days per contract year.  In lieu of a
nursing facility, the member may be placed in an assisted living
facility or alternative residential setting, or receive home and
community based services (HCBS) as defined in R9-22, Article 2
and R9-28, Article 2 that meet the provider standards described
in R9-28, Article 5, and subject to the limitations set forth in
the AMPM.

Nursing facility services must be provided in a dually-certified
Medicare/Medicaid nursing facility which includes in the per-diem
rate: nursing services, basic patient care equipment and sickroom
supplies, dietary services, administrative physician visits, non-
customized DME, necessary maintenance rehabilitation therapies,
over-the-counter medications, social, recreational and spiritual
activities, and administrative, operational medical direction
services.  The Contractor shall provide medically necessary
nursing facility services for any member who has a pending ALTCS
application, who is currently residing in a nursing facility and
is eligible for services provided under this contract.  If the
member becomes ALTCS eligible and is enrolled with an ALTCS
Program Contractor before the end of the maximum 90 days of
nursing facility coverage, the Contractor is only responsible for
nursing facility coverage during the time the member is enrolled
with the Contractor.  Nursing facility services covered by a
third party insurer (including Medicare) while the member is
enrolled with the Contractor shall be applied to the 90 day
limitation.  See Paragraph 36, Nursing Facility Reimbursement,
for further details.

The Contractor shall notify the Assistant Director of the
Division of Member Services in writing when a member has been
residing in a nursing facility for 75 days.  This will allow
AHCCCSA time to follow-up on the status of the ALTCS application
and to prepare for potential fee-for-service coverage if the stay
goes beyond the 90-day maximum.

Nutrition:  Nutritional assessments may be conducted as a part of
the EPSDT screenings for members under age 21, and to assist
members 21 years of age and older whose health status may improve
with nutritional intervention.  Assessment of nutritional status
on a periodic basis may be provided as determined necessary, and
as a part of the health risk assessment and screening services
provided by the member's PCP.  AHCCCS covers nutritional therapy
on an enteral, parenteral or oral basis, when determined
medically necessary to provide either complete daily dietary
requirements, or to supplement a member's daily nutritional and
caloric intake and when AHCCCS criteria specified in the AMPM are
met.

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

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

Prescription Medications:  Medications ordered by a PCP,
attending physician or dentist and dispensed under the direction
of a licensed pharmacist are covered subject to limitations
related to prescription supply amounts, Contractor formularies
and prior authorization requirements, as well as restrictions for
immunosuppressant drugs addressed in AHCCCS medical policies for
transplantations.  Appropriate over-the-counter medication may be
prescribed when it is determined to be a lower-cost alternative
to prescription medication.

Primary Care Provider (PCP):  PCP services are covered when
provided by a physician, physician assistant or nurse
practitioner selected by, or assigned to, the member.  The PCP
provides primary health care and serves as a gatekeeper and
coordinator in referring the member for specialty medical
services.  The PCP is responsible for maintaining the member's
primary medical record, which contains documentation of all
health risk assessments and health care services of which they
are aware whether or not they were provided by the PCP.

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

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

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

Transplantation of Organs and Tissue, and Related
Immunosuppressant Drugs:  These services are covered within
limitations defined in the AMPM for members diagnosed with
specified medical conditions.  Such limitations include whether
the stage of the disease is such that the transplant can affect
the outcome; the member has no other conditions that
substantially reduce the potential for successful
transplantation; and whether the member will be able to comply
with necessary and required regimens of treatment. Bone grafts
are also covered under this service.  Services include pre-
transplant inpatient or outpatient evaluation; donor search;
organ/tissue harvesting or procurement; preparation and
transplantation services; and convalescent care.  In addition, if
a member receives a transplant covered by a source other than
AHCCCS, medically necessary non-experimental services are
provided within limitations after the discharge from the acute
care hospitalization for the transplantation.   AHCCCS has
contracted with transplantation providers for the Contractor's
use or the Contractor may select its own transplantation
provider.

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

Triage/Screening and Evaluation:  These are covered services when
provided by acute care hospitals, IHS facilities and urgent care
centers to determine whether or not an emergency exists, assess
the severity of the member's medical condition and determine
services necessary to alleviate or stabilize the emergent
condition. Triage/screening services must be reasonable, cost
effective and meet the criteria for severity of illness and
intensity of service.

2.   BEHAVIORAL HEALTH SERVICES

Title XIX and Title XXI  members are eligible for comprehensive
behavioral health services.  The behavioral health benefit for
these members is provided through the ADHS - Regional Behavioral
Health Authority (RBHA) system.  The Contractor shall be
responsible for member education regarding these benefits;
provision of limited emergency inpatient services; and screening
and referral to the RBHA system of members identified as
requiring behavioral health services.

Member Education: The Contractor shall be responsible for
educating members in the member handbook and other printed
documents about covered behavioral health services and where and
how to access services. Covered services include:

a. Behavior Management (behavioral health personal assistance,
   family support, peer support)
b. Case Management Services
c. Emergency/Crisis Behavioral Health Services
d. Emergency Transportation
e. Evaluation and Screening
f. Group Therapy and Counseling
g. Individual Therapy and Counseling
h. Family Therapy and Counseling
i. Inpatient Hospital
j. Inpatient Psychiatric Facilities (residential treatment
   centers and sub-acute facilities)
k. Institutions for Mental Diseases (with limitations)
l. Laboratory and Radiology Services for Psychotropic
   Medication Regulation and Diagnosis
m. Non-Emergency Transportation
n. Partial Care (Supervised day program, therapeutic day
   program, and medical day program)
o. Psychosocial Rehabilitation (living skills training; health
   promotion; pre-job training, education and development; job
   coaching and employment support)
p. Psychotropic Medication
q. Psychotropic Medication Adjustment and Monitoring
r. Respite Care (with limitations)
s. Therapeutic foster care services

Referrals:  As specified in Section D, Paragraph 1, EPSDT, the
Contractor must provide developmental/behavioral health
screenings for members up to 21 years of age in compliance with
the AHCCCS periodicity schedule.  The Contractor shall ensure the
initiation and coordination of behavioral health referrals of
these members to the RBHA when determined necessary through the
screening process.

The Contractor is responsible for RBHA referral and follow-up
collaboration, as necessary, for other Title XIX and Title XXI
members identified as needing behavioral health evaluation and
treatment.  Members may also access the RBHA system for
evaluation by self-referral or be referred by schools, State
agencies or other service providers.  The Contractor is
responsible for providing transportation to a member's first RBHA
evaluation appointment if a member is unable to provide their own
transportation.

Emergency Services: For Title XIX and Title XXI members not
enrolled with ADHS, the Contractor is responsible for up to three
days of inpatient behavioral health services per emergency
episode not to exceed 12 days per contract year.  A referral to
the RBHA for evaluation and enrollment should be initiated as
soon as possible after admission.

When Title XIX and Title XXI members present in an emergency room
setting, the Contractor is responsible for all emergency medical
services including triage, physician assessment and diagnostic
tests.  For Title XIX and Title XXI members not enrolled with
ADHS, the Contractor is responsible to provide medically
necessary psychiatric consultations or psychological
consultations in emergency room settings to help stabilize the
member or determine the need for inpatient behavioral health
services.  ADHS is responsible for medically necessary
psychiatric consultations provided to Title XIX and Title XXI
ADHS enrolled members in emergency room settings.

Coordination of Care: The Contractor is responsible for ensuring
that a medical record is established by the PCP when behavioral
health information is received from the RBHA or provider about an
assigned member even if the PCP has not yet seen the assigned
member.  In lieu of actually establishing a medical record, such
information may be kept in an appropriately labeled file but must
be associated with the member's medical record as soon as one is
established.  The Contractor shall require the PCP to respond to
RBHA/provider information requests pertaining to ADHS enrolled
members including, but not limited to, current diagnosis,
medication, pertinent laboratory results, last PCP visit, and
last hospitalization.  For prior period coverage, the Contractor
is responsible for payment of all claims for medically necessary
covered behavioral health services to members not enrolled with
ADHS.

Medication Management Services: The Contractor shall allow PCPs
to provide medication management services (prescriptions,
medication monitoring visits, laboratory and other diagnostic
tests necessary for diagnosis and treatment of behavioral
disorders) to members with diagnoses of depression, anxiety and
attention deficit hyperactivity disorder.  The Contractor shall
make available, on the Contractor's formulary, medications for
the treatment of these disorders.

The Contractor shall ensure that training and education is
available to PCPs regarding behavioral health referral and
consultation procedures.  The Contractor shall establish policies
and procedures for referral and consultation and shall include
them in their provider manual.

The Contractor shall ensure that its quality management program
incorporates monitoring of the PCP's management of behavioral
health disorders.

3.   AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by
reference into this contract.  The Contractor is responsible for
complying with the requirements set forth within.  The AMPM with
search capability and linkages to AHCCCS rules, Statutes and
other resources is available to all interested parties through
the AHCCCS Home Page on the Internet (www.ahcccs.state.az.us).
Upon adoption by AHCCCSA, AMPM updates will be available through
the Internet at the beginning of each month.  If required, the
Contractors may receive one hard copy of the AMPM, free of
charge, from AHCCCSA, Office of Medical Management, however, the
Contractor shall be responsible for maintaining such copies
current with these updates.

4.   VACCINE FOR CHILDREN PROGRAM

Federal legislation passed in 1993 (OBRA 93) amended Title XIX of
the Social Security Act and created the Vaccine for Children
(VFC) program which became effective 10/1/94.  Through this
program, the Federal and State governments purchase, and make
available to providers free of charge, vaccines for AHCCCS
children under age 19.  Therefore, the Contractor shall not
utilize AHCCCS funding to purchase vaccines for members under the
age of 19. If vaccines are not available through the VFC Program,
the Contractor shall contact AHCCCS, Office of Medical
Management, Clinical Quality Management Unit.  Any provider,
licensed by the State to administer immunizations, may register
with ADHS as a "VFC provider" and receive free vaccines.  The
Contractor shall comply with all VFC requirements and monitor its
providers to ensure that, if providing immunizations to AHCCCS
members under the age of 19, the providers are registered with
ADHS/VFC.

5.   DENIALS OR REDUCTIONS OF SERVICES

When any covered service subject to prior authorization is
denied, reduced, suspended or terminated, the Contractor shall
comply with the notice, request for hearing and continuation of
benefit requirements specified in 42 CFR 431.200, et seq.,
A.A.C. R9-22-Article 13 and R9-31-Article 13, and the AHCCCS
Member Rights and Responsibilities Policy.  This information must
be explained in the Member handbook provided for each member by
the Contractor.  The Contractor is required to promptly provide
any services specified in the AHCCCS Director's decisions,
irrespective of whether or not a Petition for Rehearing is filed.
Also, refer to Attachment H, Grievance and Request for Hearing
Process and Standards.

6.   ENROLLMENT AND DISENROLLMENT

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

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

Department of Economic    	DES determines eligibility for the
Security (DES)	            families with children under section
		                  1931 of the Social Security Act,
	                        pregnant women and children under
	  	                  SOBRA, the Adoption Subsidy Program,
		                  Title IV-E foster care children, Young
		                  Adult Transition Insurance Program,
		                  the Federal Emergency Services program
		                  (FES), HIFA parents and the Title XIX
		                  Waiver Members, including the State
		                  Emergency Services (SES) program.

AHCCCSA                   	AHCCCSA determines eligibility for the
		                  SSI/MAO groups, including the FES
		                  program for this population (aged,
		                  disabled, blind), the Arizona Long-
		                  Term Care System (ALTCS), the
		                  Qualified Medicare Beneficiary program
		                  and other Medicare cost sharing
		                  programs, BCCTP, the Ticket to Work
		                  program, the Title XXI KidsCare
		                  program, and HIFA parents.

AHCCCS acute care members are enrolled with Contractors in
accordance with the rules set forth in R9-22, Article 17, and R9-
31-306, 307, and 309.

Health Plan Choice

Title XIX members, including Title XIX waiver members, have a
choice of available health plans.  A listing of the available
health plans and their telephone numbers will be given to each
applicant during the application process for AHCCCS benefits.
Also included are instructions to applicants to call the health
plans directly with specific questions concerning the health
plan.  If there is only one health plan available for the
applicant's Geographic Service Area, no choice is offered.
Members who do not choose prior to AHCCCSA's being notified of
their eligibility are automatically assigned to a health plan
based on family continuity or the auto-assignment algorithm. See
Section 61 for further explanation of the auto-assignment
algorithm.

Exceptions to the above enrollment policies for Title XIX members
include: previously enrolled members who have been disenrolled
for less than 90 days will be automatically enrolled with the
same Contractor, if that Contractor is still available.  Also,
women who are eligible for the Family Planning Services Extension
Program will automatically remain assigned to the same health
plan.  The Family Planning Services Extension Program provides a
maximum of 24 months of family planning services.  Refer to the
Division of Member Service (DMS) enrollment policy for additional
exceptions.

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

Title XXI members must select a health plan prior to being
determined eligible and therefore, will not be auto-assigned.
When a member is transferred from Title XIX to Title XXI and has
not made a health plan choice for Title XXI, the member will
remain with the Title XIX health plan and a choice notice will be
sent to the member.  The member may then change plans no later
than 16 days from the date the choice notice is sent.  Refer to
Paragraph 72 for information regarding HIFA parents.

The effective date of enrollment for a Title XXI member will be
the first day of the month following notification to the health
plan.  If a Title XXI member is determined eligible by the 25th
of the month, the member will be enrolled with the health plan as
of the 1st of the following month.  If the member is determined
eligible AFTER the 25th of the month, the member will be enrolled
with the health plan as of the 1st of the second following month.

Prior Period Coverage:  AHCCCS provides prior period coverage for
Title XIX members. Prior period coverage starts from the first
day of the month of application, or first eligible month,
whichever is later, to the day a member is enrolled with the
Contractor.  For MED's, prior period coverage is the time period
from the date the member met spenddown to the date of eligibility
approval.  The Contractor is responsible for payment of all
claims for medically necessary covered services provided to
members during prior period coverage. This may include services
provided prior to the contract year (See Section D, Paragraph 37,
Compensation, for a description of the Contractor's reimbursement
from AHCCCSA for this eligibility time period.)

Newborns:  Newborns born to AHCCCS-eligible mothers, including
Title XXI mothers, who were enrolled at the time of the child's
birth, and whose newborn notification was received by AHCCCSA,
will be enrolled with the mother's health plan.  The Contractor
is responsible for notifying AHCCCSA of a child's birth to an
enrolled member. Capitation for the newborn to the Contractor
will begin on the date notification is received by AHCCCSA
(except for cases of births during prior period coverage).  The
effective date of AHCCCS eligibility will be the newborn's date
of birth, and the Contractor is responsible for all covered
services to the newborn whether or not AHCCCSA has received
notification of the child's birth.  Note that AHCCCSA is
currently available to receive notification calls 24 hours a day,
7 days a week.  Eligible mothers of newborns are sent a letter
advising them of their right to choose a different Contractor for
their child; otherwise the child will remain with the mother's
Contractor.

Newborns of FES mothers are auto-assigned to a health plan and
mothers of these newborns are sent a letter advising them of
their right to choose a different health plan for their child.
In the event the FES mother chooses a different health plan,
AHCCCS will recoup all capitation paid to the originally assigned
plan and the baby will be enrolled retroactive to the date of
birth in the second plan.  The second plan will receive prior
period capitation from the date of birth to the day before
assignment and prospective capitation from the date of assignment
forward.  The second Contractor will be responsible for all
covered services to the newborn from date of birth.

Enrollment Guarantees:  Upon initial capitated enrollment as a
Title XIX-eligible member, the member is guaranteed a minimum of
five full months of continuous enrollment.  Upon initial
capitated enrollment as a Title XXI-eligible member, the member
is guaranteed a minimum of 12 full months of continuous
enrollment. Enrollment guarantees do not apply to HIFA parents,
Native Americans who choose to obtain their covered services
through Indian Health Services (IHS) on a fee-for-service basis
or children enrolled with Department of Economic
Security/Comprehensive Medical and Dental Program.  The
enrollment guarantee is a one time benefit for Title XIX and
Title XXI members, except for HIFA parents.  If a member changes
from one Contractor to another within the enrollment guarantee
period, the remainder of the guarantee period applies to the new
Contractor.  The enrollment guarantee may not be granted or may
be terminated if the member is incarcerated or, if a minor child
is adopted.  AHCCCS Rule R9-22, Article 17 and R9-31, Article 3
describes other reasons for which the enrollment guarantee may
not apply.

Native Americans:  Native Americans, on or off-reservation, have
a choice to receive services from Indian Health Services (IHS), a
PL 93-638 tribal facility or any available Contractor.  If choice
is not available or made within the specified time limit, Native
American Title XIX members living on-reservation will be assigned
to IHS.  Native American Title XIX members living off-reservation
will be assigned to an available Contractor using AHCCCSA's
family continuity policy and auto-assignment algorithm.  Native
Americans may change from IHS to a Contractor or from a
Contractor to IHS at any time.  Native American Title XXI members
must make a choice prior to being determined eligible.

7.   MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall
take affirmative action so that members are provided covered
services without regard to payer source, race, color, creed, sex,
religion, age, national origin, ancestry, marital status, sexual
preference, genetic information, or physical or mental handicap,
except where medically indicated. Contractors must take into
account a member's culture, when addressing members and their
concerns, and must take reasonable steps to encourage
subcontractors to do the same.  The Contractor must make
interpreters available for members to ensure appropriate delivery
of covered services.

Examples of prohibited practices include, but are not limited to,
the following:

a.   Denying or not providing a member any covered service or
     access to an available facility.

b.   Providing to a member any covered service which is
     different, or is provided in a different manner or at a different
     time from that provided to other members, other public or private
     patients or the public at large except where medically necessary.

c.   Subjecting a member to segregation or separate treatment in
     any manner related to the receipt of any covered service;
     restricting a member in any way in his or her enjoyment of any
     advantage or privilege enjoyed by others receiving any covered
     service.

d.   The assignment of times or places for the provision of
     services on the basis of the race, color, creed, religion, age,
     sex, national origin, ancestry, marital status, sexual
     preference, income status, AHCCCS membership, or physical or
     mental handicap of the participants to be served.

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

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

8.   MEMBER INFORMATION

The Contractor will be accessible by phone for general member
information during normal business hours.  All enrolled members
will have access to a toll free phone number.  All informational
materials prepared by the Contractor shall be approved by AHCCCSA
prior to distribution to members. The reading level and name of
the evaluation methodology used should be included.

All  materials shall be translated when the Contractor  is  aware
that a language is spoken by 3,000 or 10% (whichever is less)  of
the   Contractor's   members  who  also  have   Limited   English
Proficiency (LEP) in that language.

All  vital  materials shall be translated when the Contractor  is
aware  that  a  language is spoken by 1,000 or 5%  (whichever  is
less)  of  the  Contractor's members who also have  LEP  in  that
language.   Vital  materials must include, at a minimum,  notices
for denials, reductions, suspensions or terminations of services,
vital information from the member handbooks and consent forms.

All   written  notices  informing  members  of  their  right   to
interpretation  and translation services in a language  shall  be
translated  when  the  Contractor  is  aware  that  1,000  or  5%
(whichever  is  less)  of  the Contractor's  members  speak  that
language and have LEP.

When there are program or service site changes, notification
shall be provided to the affected members at least 14 days before
implementation.  The Contractor shall review and update the
Member Handbook at least once a year. The Handbook must be
submitted to AHCCCSA Office of Managed Care for approval by Sept.
1 of each contract year, or within four weeks of receiving the
annual renewal amendment, whichever is later.

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

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

I.     A Member Handbook which, at a minimum, shall include the
following items that are also listed in the Office of Managed
Care, Operations Policy #404, Member Information Policy:

  a.   A table of contents.

  b.   A general description of how managed care works,
       particularly in regards to member responsibilities, appropriate
       utilization of services and the PCP's role as gatekeeper of
       services.

  c.   A description of all available covered services and an
       explanation of any service limitations or exclusions from
       coverage and a notice stating that the Contractor will be liable
       only for those services authorized by the Contractor.  The
       description should include a brief explanation of the
       Contractor's approval and denial process.

  d.   Information on what to do when family size changes.

  e.   How to obtain a PCP.

  f.   How to change PCPs.

  g.   How to make, change and cancel appointments with a PCP or
       dentist.

  h.   List of applicable copayments (including a statement that
       care will not be denied due to lack of copayment).  The member
       handbook must clearly state that members cannot be billed for
       covered services (other than applicable copayments), what to do
       if they are billed, and under what circumstances a member may be
       billed for non-covered services.

  i.   Dual eligibility (i.e. Medicare and Medicaid); services
       received in and out of the Contractor's network; copayments.  See
       Section D, Paragraph 41, Medicare Services and Cost Sharing.

  j.   The process of referral to specialists and other providers,
       including access to behavioral health services provided by the
       ADHS RBHA system.

  k.   How to contact Member Services and a description of its
       function.

  l.   What to do in case of an emergency and instructions for
       receiving advice on getting care in case of an emergency.  In a
       life-threatening situation, the member handbook should instruct
       members to use the emergency medical services (EMS) available
       and/or activate EMS by dialing 9-1-1.  The handbook should
       contain information on proper emergency service utilization.

  m.   How to obtain emergency transportation and medically
       necessary transportation.

  n.   EPSDT services.  A description of the purpose and benefits
       of EPSDT services, including the required components of EPSDT
       screenings and the provision of all medically necessary services
       to treat a physical or mental illness discovered by the
       screenings.  Screenings include a comprehensive history and
       developmental/behavioral health screening, comprehensive
       unclothed physical examination, appropriate vision testing,
       hearing testing, laboratory tests, dental screening and
       immunizations.

  o.   Maternity and family planning services.

  p.   Description of covered behavioral health services and how to
       access these services.

  q.   Description of all covered dental services and how to access
       these services.

  r.   Out of county/out of state moves.

  s.   Grievance and request for hearing procedures, including a
       clear explanation of the members right to file a grievance and
       request for hearing and to appeal any decision that affects the
       member's receipt of covered services.

  t.   Contributions the member can make towards his/her own
       health, member responsibilities, appropriate and inappropriate
       behavior, and any other information deemed essential by the
       Contractor or AHCCCS.  This shall include a statement that the
       member is responsible for protecting his or her ID card and that
       misuse of the card, including loaning, selling or giving it to
       others could result in loss of the members eligibility and/or
       legal action.  A sentence shall be included that stresses the
       importance of members keeping, not discarding, the swipe ID card.

  u.   How to access after-hours care (urgent care).

  v.   Advance directives for adults.

  w.   Use of other sources of insurance.  See Section D, Paragraph
       40, Coordination of Benefits.

  x.   The last revision date.

  y.   Member's notification rights and responsibilities under AAC
       R9-22, Article 13 and AHCCCS policy.

  z.   A description of Fraud and Abuse including instructions on
       how to report suspected fraud or abuse.  This shall include a
       statement that misuse of a member's identification card,
       including loaning, selling or giving it to others could result in
       loss of the member's eligibility and/or legal action against the
       member

  aa.  A statement that informs the member of their right to
       request information on whether or not the health plan has
       Physician Incentive Plans (PIP) that affect the use of referral
       services, the right to know the types of compensation
       arrangements the plan uses, the right to know whether stop-loss
       insurance is required and the right to a summary of member survey
       results (in accordance with PIP regulation).

  bb.  Members right to be treated fairly regardless of race,
       religion, sex, age or ability to pay.

  cc.  Instructions for obtaining culturally competent materials,
       including translated member materials.

  dd.  A description of the criteria and procedures for requesting
       a health plan change.

  ee.  Information regarding prenatal HIV testing and counseling
       services.

  ff.  Member's right to know of providers who speak languages
       other than English.

Regardless of the format chosen by the Contractor, the member
handbook must be printed in a type style and size, which can
easily be read by members with varying degrees of visual
impairment.  At a minimum, the member handbook shall also contain
the following language regarding questions, problems, grievances
and requests for hearings (Ref. AHCCCS Rule R9-22-518 and R9-31-
518):

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

Q.   What if I'm not happy with the help given to me by the
     Member Representative?
A.   If you are unhappy with the answer you receive, you can tell
     the Member Representative you want to file a written or oral
     grievance.  The grievance must be filed not later than 60
     days after the date of the action, decision, or incident.
A.   [Contractor's name] will make a final decision for
     grievances within 30 days of receiving your written or oral
     grievance.  A letter will be mailed to you stating the
     health plan's decision and the reason for the decision.  The
     letter will tell you how you can appeal the decision if you
     are still unhappy.  You must let the health plan know you
     want to appeal the decision letter.
A.   If you are appealing the health plan's decision,
     [Contractor's name] will send your request for appeal to the
     AHCCCSA.  You will receive information from AHCCCSA on how
     your appeal will be handled.  AHCCCSA will then decide if
     the health plan's decision was correct under the
     circumstances.

II.  A list of the names, telephone numbers and service site
addresses of PCPs available for selection by the
member and a description of the selection process.  Upon request
by the member, the Contractor must make information
available regarding provider qualifications.

9.   MEMBER SURVEYS

Unless waived by AHCCCSA, the Contractor shall perform its own
annual general or focused member survey. All such Contractor
surveys, along with a timeline for the project, shall be approved
in advance by AHCCCS Office of Managed Care, Operations Unit.
The results and the analysis of the results shall be submitted to
the Operations Unit within 45 days of the completion of the
project.  AHCCCSA may periodically conduct a survey of a
representative sample of the Contractor's membership.  AHCCCSA
will design a questionnaire to assess accessibility, availability
and continuity of care with PCPs; communication between members
and the Contractor; and general member satisfaction with the
AHCCCS program.  To ensure comparability of results, the
questions to the members will be the same for all Contractors.
AHCCCSA will consider suggestions from the Contractor for
questions to be included in each survey.  The results of these
surveys will become public information and available to all
interested parties upon request.

10.  MARKETING

The Contractor shall submit all proposed marketing and outreach
materials and events that will involve the general public to the
AHCCCS Marketing Committee for prior approval in accordance with
the AHCCCS Health Plan Marketing Policy.  The Contractor must
have signed contracts with PCPs, specialists, dentists, and
pharmacies in order for them to be included in marketing
materials.

11.  ANNUAL ENROLLMENT CHOICE

AHCCCSA conducts an Annual Enrollment Choice (AEC) for members on
their annual anniversary date.  AHCCCSA may hold an open
enrollment as deemed necessary.  During AEC, members may change
Contractors subject to the availability of other Contractors
within their Geographic Service Area.  Members are mailed a
printed enrollment form and may choose a new Contractor by
contacting AHCCCSA to complete the enrollment process.  If the
member does not participate in the AEC, no change of Contractor
will be made (except for approved changes under the Change of
Plan Policy) during the new anniversary year.  This holds true if
the Contractor's contract is renewed and the member continues to
live in the Contractor's service area.  The Contractor shall
comply with the Office of Managed Care Member Transition for
Annual Enrollment Choice and Other Plan Changes policy.

12.  TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM, and the Office of
Managed Care Member Transition for Annual Enrollment Choice and
Other Plan Changes standards for member transitions between
health plans or GSAs, to or from an ALTCS Program Contractor,
IHS, a PL 93-638 tribal entity, and upon termination or
expiration of a contract.  The Contractor shall develop and
implement policies and procedures, which comply with AHCCCS
medical policy to address transition of:

a.   Members with significant medical conditions such as a high-
     risk pregnancy or pregnancy within the last 30 days, the need for
     organ or tissue transplantation, chronic illness resulting in
     hospitalization or nursing facility placement, etc.;

b.   Members who are receiving ongoing services such as dialysis,
     home health, chemotherapy and/or radiation therapy or who are
     hospitalized at the time of transition;

c.   Members who have received prior authorization for services
     such as scheduled surgeries, out-of-area specialty services,
     nursing home admission;

d.   Prescriptions, DME and medically necessary transportation
     ordered for the transitioning member by the relinquishing
     Contractor; and

e.   Medical records of the transitioning member (the cost of
     reproducing and forwarding medical records shall be the
     responsibility of the relinquishing AHCCCS Contractor).

When relinquishing members, the Contractor is responsible for
timely notification of the receiving Contractor regarding
pertinent information related to any special needs of
transitioning members.  The Contractor, when receiving a
transitioning member with special needs, is responsible to
coordinate care with the relinquishing Contractor in order that
services not be interrupted, and for providing the new member
with health plan and service information, emergency numbers and
instructions of how to obtain services.

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

a.   Notification of subcontractors and members.

b.   Payment of all outstanding obligations for medical care
     rendered to members.

c.   Until AHCCCSA is satisfied that the Contractor has paid all
     such obligations, the Contractor shall provide the following
     reports to AHCCCSA:

     (1) A monthly claims aging report by provider/creditor
     including IBNR amounts;

     (2) A monthly summary of cash disbursements;

     (3) Copies of all bank statements received by the
         Contractor.

d.   Such reports shall be due on the fifth day of each
     succeeding month for the prior month.

e.   In the event of termination or suspension of the contract by
     AHCCCSA, such termination or suspension shall not affect the
     obligation of the Contractor to indemnify AHCCCSA for any claim
     by any third party against the State or AHCCCSA arising from the
     Contractor's performance of this contract and for which the
     Contractor would otherwise be liable under this contract.

f.   Any dispute by the Contractor with respect to termination or
     suspension of this contract by AHCCCSA shall be exclusively
     governed by the provisions of Section E, Paragraph 26, Disputes.

g.   Any funds advanced to the Contractor for coverage of members
     for periods after the date of termination shall be returned to
     AHCCCSA within 30 days of termination of the contract.

13.  STAFF REQUIREMENTS AND SUPPORT SERVICES

The Contractor shall have in place the organization, management
and administrative systems capable of fulfilling all contract
requirements.  For the purposes of this contract, the Contractor
shall not employ or contract with any individual that has been
debarred, suspended or otherwise lawfully prohibited from
participating in any public procurement activity.  At a minimum,
the following staff is required.

a.   A full-time Administrator/CEO/COO who is available at all
     times to fulfill the responsibilities of the position and to
     oversee the entire operation of the health plan.  The
     Administrator shall devote sufficient time to the Contractor's
     operations to ensure adherence to program requirements and timely
     response to AHCCCS Administration.

b.   A Medical Director who shall be an Arizona-licensed
     physician.  The Medical Director shall be actively involved in
     all-major clinical programs and QM/UM components of the
     Contractor's health plan.  The Medical Director shall devote
     sufficient time to Contractor's health plan to ensure timely
     medical decisions, including after-hours consultation as needed.

c.   A Chief Financial Officer/CFO who is available at all times
     to fulfill the responsibilities of the position and to oversee
     the budget and accounting systems implemented by the Contractor.

d.   A Quality Management/Utilization Management Coordinator who
     is an Arizona-licensed registered nurse, physician or physician's
     assistant.

e.   A Maternal Health/EPSDT Coordinator who shall be an Arizona-
     licensed registered nurse, physician or physician's assistant; or
     have a Master's degree in health services, public health or
     health care administration or other related field.

f.   A Behavioral Health Coordinator who shall be a behavioral
     health professional as described in Health Services Rule R9-20.
     The Behavioral Health Coordinator shall devote sufficient time to
     ensure that the Contractor's behavioral health referral and
     coordination activities are implemented per AHCCCSA requirements.

g.   Prior Authorization staff to authorize medical care 24 hours
     per day, 7 days per week.  This staff shall include an Arizona-
     licensed registered nurse, physician or physician's assistant.

h.   Concurrent Review staff to conduct inpatient concurrent
     review.  This staff shall consist of an Arizona-licensed
     registered nurse, physician, physician's assistant or an Arizona-
     licensed practical nurse experienced in concurrent review and
     under the direct supervision of a registered nurse, physician or
     physician's assistant.

i.   Member Services Manager and staff to coordinate
     communications with members and act as member advocates.  There
     shall be sufficient Member Service staff to enable members to
     receive prompt resolution to their problems, and to meet the
     Contractor's standards for telephone abandonment rates and
     telephone hold times.

j.   Provider Services Manager and staff to coordinate
     communications between the Contractor and its subcontractors.
     There shall be sufficient Provider Services staff to enable
     providers to receive prompt resolution to their problems or
     inquiries.

k.   A Claims Administrator and Claims Processors to ensure the
     timely and accurate processing of original claims, claims
     correction letters, re-submissions and overall adjudication of
     claims.

l.   Encounter Processors to ensure the timely and accurate
     processing and submission to AHCCCSA of encounter data and
     reports.

m.   A Grievance Coordinator who will manage and adjudicate
     member and provider grievances.

n.   Clerical and Support staff to ensure appropriate functioning
     of the Contractor's operation.

o.   Compliance Officer who will implement and oversee the
     Contractor's compliance program.  The compliance officer shall be
     a senior, on-site official, available to all employees, with
     designated and recognized authority to access records and make
     independent referrals to the AHCCCSA, Office of Program
     Integrity.

The Contractor shall inform AHCCCS, Office of Managed Care, in
writing within seven days, when an employee leaves one of the key
positions listed below.  The name of the interim contact person
should be included with the notification.  The name and resume of
the permanent employee should be submitted as soon as the new
hire has taken place.

  Administrator             	  Member Services Manager
  Medical Director              Provider Services Manager
  Chief Financial Officer       Claims Administrator
  Maternal Health/ EPSDT        Quality Management/Utilization
  Coordinator                   Management Coordinator
  Grievance Coordinator         Behavioral Health Coordinator
  Compliance Officer

The Contractor shall ensure that all staff has appropriate
training, education, experience and orientation to fulfill the
requirements of the position.

14.  WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies,
procedures and job descriptions for each functional area of its
health plan, consistent in format and style.  The Contractor
shall maintain written guidelines for developing, reviewing and
approving all policies, procedures and job descriptions.  All
policies and procedures shall be reviewed at least annually to
ensure that the Contractor's written policies reflect current
practices.  Reviewed policies shall be dated and signed by the
Contractor's appropriate manager, coordinator, director or
administrator.  All medical and quality management policies must
be approved and signed by the Contractor's Medical Director.  Job
descriptions shall be reviewed at least annually to ensure that
current duties performed by the employee reflect written
requirements.

15.  ADVANCE DIRECTIVES

The Contractor shall maintain policies and procedures addressing
advanced directives for adult members that specify:

a.   Each contract or agreement with a hospital, nursing
     facility, home health agency, hospice or organization responsible
     for providing personal care must comply with Federal and State
     law regarding advance directives for adult members.  Requirements
     include:

  (1)  Maintaining written policies that address the rights of
       adult members to make decisions about medical care, including the
       right to accept or refuse medical care, and the right to execute
       an advance directive.  If the agency/organization has a
       conscientious objection to carrying out an advance directive, it
       must be explained in policies.  (A health care provider is not
       prohibited from making such objection when made pursuant to
       A.R.S.  36-3205.C.1.)

  (2)  Provide written information to adult members regarding each
       individual's rights under State law to make decisions regarding
       medical care, and the health care provider's written policies
       concerning advance directives (including any conscientious
       objections).

  (3)  Documenting in the member's medical record whether or not
       the adult member has been provided the information and whether an
       advance directive has been executed.

  (4)  Not discriminating against a member because of his or her
       decision to execute or not execute an advance directive, and not
       making it a condition for the provision of care.

  (5)  Providing education to staff on issues concerning advance
       directives including notification of direct care providers of
       services, such as home health care and personal care, of any
       advanced directives executed by members to whom they are assigned
       to provide services.

b.   Contractors shall encourage subcontracted PCPs to comply
     with the requirements of subparagraph a. (2) through (5) above.
     Contractors shall also encourage health care providers specified
     in subparagraph a. to provide a copy of the member's executed
     advanced directive, or documentation of refusal, to the member's
     PCP for inclusion in the member's medical record.

16.  PERFORMANCE STANDARDS

All Performance Standards described below apply to all member
populations.

Contractors must meet AHCCCS stated Minimum Performance
Standards.  However, it is equally important that Contractors
continually improve their performance indicator outcomes from
year to year.  Contractors shall strive to meet the ultimate
standard, or Benchmark, established by AHCCCS.

Any statistically significant drop in the Contractor's
performance level for any indicator must be explained by the
Contractor in its annual quality management program evaluation.
If a Contractor has a significant drop in any indicator without a
justifiable explanation, it will be required to submit a
corrective action plan and may be subject to sanctions.

AHCCCS has established three levels of performance:

  Minimum Performance Standard - A Minimum Performance Standard
  is the minimal expected level of performance by the
  Contractor.   If a Contractor does not achieve this standard,
  the Contractor will be required to submit a corrective action
  plan and may be subject to sanctions.  If the rate for any
  indicator declines to a level below the AHCCCS Minimum
  Performance, the Contractor will be required to submit a
  corrective action plan and may be subject to sanctions.

  Goal - A Goal is a reachable standard for a given performance
  indicator for the Contract Year.  If the Contractor has
  already met or exceeded the AHCCCS Minimum Performance
  Standard for any indicator, the Contractor must strive to meet
  the CYE 2003 Goal for the indicator(s).

  Benchmark - A Benchmark is the ultimate standard to be
  achieved.  Contractors that have already achieved or exceeded
  the Goal for any performance indicator must strive to meet the
  Benchmark for the indicator(s).  Contractors that have
  achieved the Benchmark are expected to maintain this level of
  performance for future years.

A Contractor that has not shown demonstrable and sustained
improvement toward meeting AHCCCS Performance Standards shall
develop a corrective action plan.  The corrective action plan
must be received by the Office of Medical Management within 30
days of receipt of notification from AHCCCS.  This plan must be
approved by AHCCCS prior to implementation.  AHCCCS may conduct
one or more follow-up onsite reviews to verify compliance with a
corrective action plan.  Failure to achieve adequate improvement
may result in sanction imposed by AHCCCS.

Performance Indicators:  For CYE 2003, the Contractor shall
comply with AHCCCS quality management requirements to improve
performance for all AHCCCS established performance indicators.
Complete descriptions of these indicators can be found in the
Technical Specifications section of the most recently published
Health Plan Performance Standards Results and Analysis documents
for perinatal, pediatric and adult/adolescent services.  For CYE
2002, the indicator for postpartum visits was eliminated as a
contractual performance standard.  The Contractor shall continue
to monitor rates for postpartum visits and implement
interventions as necessary to improve or sustain its rates.  This
activity will be monitored by AHCCCS during the annual
Operational and Financial Review.

In addition, AHCCCS has established standards for the following
indicators:

EPSDT Participation:  The Contractor shall take affirmative steps
to increase member participation in the EPSDT program.  The
participant rate is the number of children younger than 21 years
receiving at least one medical screen during the contract year,
compared to the number of children expected to receive at least
one medical screen.  The number of children expected to receive
at least one medical screen is based on the AHCCCS EPSDT
periodicity schedule and the average period of eligibility.

Pediatric immunizations:  The Contractor shall ensure members
under age 21 receive age-appropriate immunizations as specified
in the AMPM.

The Contractor shall participate in an annual immunization audit
based on random sampling to assess and verify the immunization
status of two-year-old members.  AHCCCS will provide the
Contractor the selected sample, specifications for conducting the
audit, the AHCCCSA reporting requirements, and technical
assistance.  The Contractor shall identify each child's PCP,
conduct the assessment, and report to AHCCCS in the required
format all immunization data for the two-year-old children
sampled.  If medical records are missing for more than 5 percent
of the sample group, the Contractor is subject to sanctions by
AHCCCSA.  An External Quality Review Organization (EQRO) may
conduct a study to validate the Contractor's reported rates.

The following table identifies the Minimum Performance Standards,
Goals and Benchmarks for each indicator:

Performance				CYE 03 Minimum	    CYE 03	Benchmark*
Indicator				Performance Standard  Goal	(Healthy
					People Goals)

Immunization of two-year-            78%               82%     90%
olds 3 antigen series
(4:3:1)
Immunization of two-year-             67%               73%     90%
olds 5 antigen series
(4:3:1:2:3)
Immunizations of two-year-
olds
     DtaP         4 doses             82%               85%     90%
     Polio        3 doses             88%               90%     90%
     MMR -    1 dose                  88%  	        90%     90%
     Hib           2 doses            85%               90%     90%
     HBV        3 doses               81%               87%     90%
     Varicella  1 dose                73%               80%     90%
Dental visits                         45%               55%     56%
Well-child Visits 15 Months           58%               64%     90%
Well-child Visits 3-6 Years           48%               64%     80%
EPSDT Participation                   58%               80%     80%
Children's Access to PCP's            77%               80%     97%
Cervical Cancer Screening (3-         57%               60%     90%
yr period) **
Breast Cancer Screening               55%               60%     70%
Adolescent Well-care Visits           48%               49%     50%
Adult Ambulatory/Preventive           78%               80%     96%
Care
Low Birth Weight                     8.5%               7.5%     5%
Prenatal Care in the First            59%                65%    90%
Trimester

*Benchmarks for each performance indicator are based on Healthy
People 2000 or 2010 goals for health promotion and disease
prevention, as determined by the U.S. Department of Health and
Human Services.

Access to Care: AHCCCSA will continue to measure and report
results for the Performance Measures "Provider Turnover" and
"Availability of Language Interpretation Services".

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

Quality Management (QM):  The Contractor shall provide quality
medical care to members, regardless of payer source or
eligibility category.  The Contractor shall execute processes to
assess, plan, implement and evaluate quality management and
improvement activities, as specified in the AMPM, that include at
least the following:

Conducting Quality Improvement Projects (QIPs);
QM monitoring and evaluation activities;
Credentialing and recredentialing processes;
Investigation, analysis, tracking and trending of quality of
  care issues, abuse and/or complaints; and
AHCCCS mandated performance indicators.

The Contractor shall submit, within timelines specified in
Attachment F, a written QM plan that addresses its strategies for
quality improvement and conducting the quality management
activities described in this section. Although the Contractor is
no longer required to conduct two clinical studies during each
contract year, the Contractor shall conduct quality improvement
projects as required by the AMPM, Chapter 900.

The Contractor may combine its plan for quality improvement and
quality management activities with the plan that addresses
utilization management as described below.

Utilization Management (UM):  The Contractor shall execute
processes to assess, plan, implement and evaluate utilization
management activities, as specified in the AMPM, that include at
least the following:

Prior authorization;
Concurrent review;
Continuity and coordination of care;
Monitoring and evaluation of over and /or under utilization
  of services;
Evaluation of new medical technologies, and new uses of
  existing technologies; and
Development and/or adoption of practice guidelines.

The Contractor shall maintain a written UM plan that addresses
its plan for monitoring UM activities described in this section.
The plan must be submitted for review by AHCCCS Office of Medical
Management (OMM) within timelines specified in Attachment F.

18.  PHYSICIAN INCENTIVES

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

The Contractor shall not enter into contractual arrangements that
place providers at significant financial risk as defined in CFR
417.479 unless specifically approved in advance by the Office of
Managed Care.  In order to obtain approval, the following must be
submitted to the Office of Managed Care 45 days prior to the
implementation of the contract:

  1.   A complete copy of the contract
  2.   A plan for the member satisfaction survey
  3.   Details of the stop-loss protection provided
  4.   A summary of the compensation arrangement that meets the
       substantial financial risk definition.

The Contractor shall disclose to AHCCCSA the information on
physician incentive plans listed in 42 CFR 417.479(h)(1) through
417.479(I) upon contract renewal, prior to initiation of a new
contract, or upon request from AHCCCSA or CMS.  Please refer to
the "Physician Incentive Guidelines" in the Bidder's Library for
details on providing required disclosures.

19.  APPOINTMENT STANDARDS

For purposes of this section, "urgent" is defined as an acute,
but not necessarily life-threatening disorder, which, if not
attended to, could endanger the patient's health.  The Contractor
shall have procedures in place that ensure the following
standards are met:

a.   Emergency PCP appointments-same day of request
b.   Urgent care PCP appointments-within two days of request
c.   Routine care PCP appointments-within 21 days of request

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

a.   Emergency appointments-within 24 hours of referral
b.   Urgent care appointments-within three days of referral
c.   Routine care appointments-within 30 days of referral

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

a.   Emergency appointments-within 24 hours of request
b.   Urgent appointments-within three days of request
c.   Routine care appointments-within 45 days of request

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

a.   First trimester-within 14 days of request
b.   Second trimester-within 7 days of request
c.   Third trimester-within three days of request
d.   High risk pregnancies-within three days of
       identification of high risk by the Contractor or maternity
       care provider, or immediately if an emergency exists

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

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

The Contractor shall have written policies and procedures about
educating its provider network regarding appointment time
requirements.  The Contractor must assign a specific staff member
or unit within its organization to monitor compliance with
appointment standards, and shall require a corrective action plan
when appointment standards are not met.  Appointment standards
shall be included in the Provider Manual.  The Contractor is
encouraged to include the standards in the provider subcontract.

20.  REFERRAL PROCEDURES AND STANDARDS

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

a.   Use of referral forms clearly identifying the Contractor

b.   A system for resolving disputes regarding the referrals

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

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

e.   Referral to Medicare HMO including payment of copayments

The Contractor shall comply with all applicable physician
referral requirements and conditions defined in Sections 1903(s)
and 1877 of the Social Security Act.  Upon finalization of the
regulations, the Contractor shall comply with all applicable
physician referral requirements and conditions defined in 42 CFR
Part 411, Part 424, Part 435 and Part 455.  Sections 1903(s) and
1877 of the Act prohibits physicians from making referrals for
designated health services to health care entities with which the
physician or a member of the physician's family has a financial
relationship.  Designated health services include:

a.   Clinical laboratory services
b.   Physical therapy services
c.   Occupational therapy services
d.   Radiology services
e.   Radiation therapy services and supplies
f.   Durable medical equipment and supplies
g.   Parenteral and enteral nutrients, equipment and supplies
h.   Prosthetics, orthotics and prosthetic devices and supplies
i.   Home health services
j.   Outpatient prescription drugs
k.   Inpatient and outpatient hospital services

21.  PROVIDER MANUAL

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

a.   Introduction to the Contractor which explains the
     Contractor's organization and administrative structure
b.   Provider responsibility and the Contractor's expectation of
     the provider
c.   Overview of the Contractor's Provider Service department and
     function
d.   Listing and description of covered and non-covered services,
     requirements and limitations including behavioral health services
e.   Emergency room utilization (appropriate and non-appropriate
     use of the emergency room)
f.   EPSDT Services - screenings include a comprehensive history,
     developmental/behavioral health screening, comprehensive
     unclothed physical examination, appropriate vision testing,
     hearing testing, laboratory tests, dental screenings and
     immunizations
g.   Dental services
h.   Maternity/Family Planning services
i.   The Contractor's policy regarding PCP assignments
j.   Referrals to specialists and other providers, including
     access to behavioral health services provided by the ADHS/RBHA
     system
k.   Grievance and request for hearing rights
l.   Billing and encounter submission information
	-indicate which form UB92, HCFA 1500, or Form C is to be used
	 for services
	-indicate which fields are required for a claim to be
	 considered acceptable by the Contractor.  A completed sample
	 of each form shall be included
m.   Policies and procedures relevant to the providers including,
     but not limited to, utilization management and claims submission
n.   Reimbursement, including reimbursement for dual eligibles
     (i.e. Medicare and Medicaid) or members with other insurance
o.   Explanation of remittance advice
p.   Prior authorization and notification requirements
q.   Claims medical review
r.   Concurrent review
s.   Fraud and Abuse
t.   Formularies (with updates and changes provided in advance to
     providers, including pharmacies)
u.   AHCCCS appointment standards
v.   Americans with Disabilities Act (ADA) requirements and
     Title VI, as applicable
w.   Eligibility verification
x.   Cultural competency information, including notification
     about Title VI of the Civil Rights Act of 1964. Providers should
     also be informed of how to access interpretation services to
     assist members who speak a language other the English or who use
     sign language.
y.   Peer review approval process.

22.  PRIMARY CARE PROVIDER STANDARDS

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

The Contractor shall assess the PCP's ability to meet AHCCCS
appointment availability and other standards, when determining
the appropriate number of its members to be assigned to a PCP.
The Contractor should also consider the PCP's total panel size
(i.e. AHCCCS and non-AHCCCS patients) when making this
determination.  AHCCCS members shall not comprise the majority of
a PCP's panel of patients.  AHCCCSA shall inform the Contractor
when a PCP has a panel of more than 1,800 AHCCCS members
(assigned by a single Contractor or multiple Contractors), to
assist in the assessment of the size of their panel.  This
information will be provided on a quarterly basis.  The
Contractor will adjust the size of a PCP's panel, as needed, for
the PCP to meet AHCCCS standards.

The Contractor shall have a system in place to monitor and ensure
that each member is assigned to an
individual PCP and that the Contractor's data regarding PCP
assignments is current.  The Contractor is
encouraged to assign members with complex medical conditions, who
are age 12 and younger, to Board
Certified pediatricians.  PCP's with assigned members diagnosed
with AIDS or as HIV positive shall meet
criteria and standards set forth in the AHCCCS Medical Policy
Manual.

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

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

a.   Supervision, coordination and provision of care to each
     assigned member
b.   Initiation of referrals for medically necessary specialty
     care
c.   Maintaining continuity of care for each assigned member
d.   Maintaining the member's medical record, including
     documentation of all services provided to the member by the PCP,
     as well as any specialty or referral services.

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

23.  OTHER PROVIDER STANDARDS

The Contractor shall develop and implement policies and
procedures to:

a.   Recruit sufficient specialty physicians, dentists, health
     care professionals, health care institutions and support services
     to meet the medical needs of its members.
b.   Monitor the adequacy, accessibility and availability of its
     provider network to meet the needs of its members, including the
     provision of care to members with limited proficiency in English.

Contractor policies shall be subject to approval by AHCCCSA,
Office of Managed Care, and shall be monitored through
operational audits.

For specialty services, the Contractor shall ensure that:

a.   PCP referral shall be required for specialty physician
     services, except that women shall have direct access to GYN
     providers, including physicians, physician assistants and nurse
     practitioners within the scope of their practice, without a
     referral for preventive and routine services.  Any waiver of this
     requirement by the Contractor must be approved in advance by
     AHCCCSA.
b.   Specialty physicians shall not begin a course of treatment
     for a medical condition other than that for which the member was
     referred, unless approved by the member's PCP.
c.   The specialty physicians shall provide to the member's PCP
     complete documentation of all diagnostic services including
     copies: of test results; if applicable; treatment services
     provided; and the resulting outcome for each.

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

a.   Arizona licensed allopathic and/or osteopathic physicians
     who are general practitioners or specialize in family practice or
     obstetrics
b.   Physician Assistants
c.   Nurse Practitioners
d.   Certified Nurse Midwives

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

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

24.  NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that
is sufficient to provide all covered services to AHCCCS members.
It shall ensure covered services are provided promptly and are
reasonably accessible in terms of location and hours of
operation.  There shall be sufficient personnel for the provision
of covered services, including emergency medical care on a 24-
hour-a-day, 7-days-a-week basis.  The proposed network shall be
sufficient to provide covered services within designated time and
distance limits.  For Maricopa and Pima Counties only, this
includes a network such that 95% of its members residing within
the boundary area of metropolitan Phoenix and Tucson do not have
to travel more than 5 miles to see a PCP, dentist or pharmacy.
95% of its members residing outside the boundary area must not
have to travel more than 10 miles to see such providers.  See
Attachment B, Minimum Network Requirements, for details on
network requirements by Geographic Service Area.  Also see
Section D, Paragraph 35, Hospital Subcontracting and
Reimbursement, for details on changes in hospital subcontracting
effective October 1, 2001.

Under the Balanced Budget Act of 1997, the Contractor shall not
discriminate with respect to participation in the AHCCCS program,
reimbursement or indemnification against any provider based
solely on the provider's type of licensure or certification.
This provision, however, does not prohibit the Contractor from
limiting provider participation to the extent necessary to meet
the needs of the Contractor's members.  This provision also does
not interfere with measures established by the Contractor to
control costs consistent with its responsibilities under this
contract.

25.  NETWORK MANAGEMENT

The Contractor shall have policies and procedures in place that
pertain to all service specifications described in the AMPM.  In
addition, the Contractor shall have policies on how the
Contractor will:
a.   Communicate with the network regarding contractual and/or
     program changes and requirements
b.   Monitor and control network compliance with policies and
     rules of AHCCCSA and the Contractor, including compliance with
     all policies and procedures related to the grievance process and
     ensuring the member's care is not compromised during the
     grievance process
c.   Evaluate the quality of services delivered by the network
d.   Provide or arrange for medically necessary covered services
     should the network become temporarily insufficient within the
     contracted service area
e.   Monitor network capacity to ensure that there are sufficient
     providers to handle the volume of members
f.   Ensure service accessibility, including monitoring
     appointment procedures standards, appointment waiting times, and
     service provision standards.

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

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

26.  FEDERALLY QUALIFIED HEALTH  CENTERS (FQHC)

The Contractor is encouraged to use FQHCs in Arizona to provide
covered services and must comply with the Federal mandates.
Section 4712(b)(2) of the Balanced Budget Act requires that
"rates of payment between FQHCs/RHCs and MCOs shall not be less
than the amount of payment for a similar set of services with a
non-FQHC/RHC."  The intention of this provision is to ensure that
contractors negotiate rates of payment with FQHCs that are
comparable to the rates paid to providers that provide similar
services.

In compliance with the Benefits Improvement and Protection Act of
2000 (BIPA), AHCCCSA established a baseline Prospective Payment
System (PPS) rate for each FQHC.  AHCCCSA will adjust the PPS
rate annually using the Medicare Economic Index (MEI).  AHCCCSA
will perform, within 5 months of contract year-end, an annual
reconciliation using encounter and reimbursement data submitted
by Contractors and FQHCs.  The reconciliation is a comparison of
the total reimbursement to total eligible encounters valued at
the PPS rate.

Contractors are required to submit member information for Title
XIX members for each FQHC on a quarterly basis to AHCCCS Office
of Managed Care.  AHCCCSA and the FQHCs have agreed that AHCCCSA
will reimburse each FQHC for Title XIX members, on a quarterly
basis, a per member per month (pmpm) rate that was calculated by
inflating the 2001 PPS rate.  AHCCCSA will perform periodic
audits of the member information submitted.  Contractors should
refer to the Office of Managed Care's policy on FQHC
reimbursement for further guidance.  The following FQHCs are
currently recognized by CMS:

          Canyonlands Community Health Care
          Chiricahua Community Health Centers, Inc.
          Clinica Adelante, Inc.
          Desert Senita Community Health Center
          El Rio Health Center
          Inter-Tribal Health Care Center
          Marana Health Center
          Mariposa Community Health Center, Inc.
          Mountain Park Health Center
          Native American Community Health Center, Inc.
          Native Americans for Community Action Family Health Center
          North Country Community Health Center
          Sun Life Family Health Center
          Sunset Community Health Center (formerly Valley Health Center, Inc.)
          United Community Health Center, Inc.

Any other clinics that subsequently become FQHC's will be subject
to the reimbursement methodology described above.

27.  PROVIDER REGISTRATION

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

28.  PROVIDER AFFILIATION  TRANSMISSION

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

29.  PERIODIC REPORT REQUIREMENTS

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

     a.   Timeliness:   Reports or other required data shall be
          received on or before scheduled due dates.
     b.   Accuracy:   Reports or other required data shall be prepared
          in strict conformity with appropriate authoritative sources
          and/or AHCCCS defined standards.
     c.   Completeness:  All required information shall be fully
          disclosed in a manner that is both responsive and pertinent to
          report intent with no material omissions.

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

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

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

30.  DISSEMINATION OF INFORMATION

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

31.  REQUESTS FOR INFORMATION

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

32.  OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews
on all successful offerors and will, subject to the availability
of resources, provide technical assistance as appropriate.  The
Readiness Reviews will be conducted prior to the start of
business. The purpose of Readiness Reviews is to assess new
Contractors' readiness and ability to provide contract services
to members at the start of the contract year and current
Contractors' readiness to expand to new geographic service areas.
A new Contractor will be permitted to commence operations only if
the Readiness Review factors are met to AHCCCSA's satisfaction.

33.  OPERATIONAL AND FINANCIAL REVIEWS

In accordance with CMS requirements, AHCCCSA will conduct regular
Operational and Financial Reviews for the purpose of (but not
limited to) ensuring operational and financial program
compliance.  The Reviews will identify areas where improvements
can be made and make recommendations accordingly, monitor the
Contractor's progress towards implementing mandated programs and
provide the Contractor with technical assistance if necessary.
The Contractor shall comply with all other medical audit
provisions as required by AHCCCS Rule R9-22-521 and R9-31-521.

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

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

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

34.  CLAIMS PAYMENT SYSTEM

The Contractor shall develop and maintain a claims payment system
capable of processing, cost avoiding and paying claims in
accordance with ARS 36-2904(H) and (J), AHCCCS Rules R9-22-705,
and R9-22-709, a copy of which may be found in the Bidder's
Library.  In the absence of a subcontract provision to the
contrary, claims submission deadlines shall be calculated from
the date of service or the effective date of eligibility posting,
whichever is later.  Remittance advices accompanying the
Contractor's payments to providers must contain, at a minimum,
adequate descriptions of all denials and adjustments, the reasons
for such denials and adjustments, the amount billed, the amount
paid, and grievance and request for hearing rights.  The
Contractor's claims payment system, as well as its prior
authorization and concurrent review process, must minimize the
likelihood of having to recoup already-paid claims.  Any
recoupment in excess of $50,000 per provider within a contract
year must be approved in advance by AHCCCSA, Office of Managed
Care.

In accordance with the Balanced Budget Act of 1997, unless a
subcontract specifies otherwise, the Contractor shall ensure that
90% of all clean claims are paid within 30 days of receipt of the
clean claim and 99% are paid within 90 days of receipt of the
clean claim.  The Contractor shall not require subcontracting
providers to initially submit claims earlier than 6 months after
date of service or to submit clean claims less than 12 months
after date of service for which payment is claimed, unless a
subcontract exists which specifies otherwise.

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

35.  HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

Maricopa and Pima counties only:  Legislation authorizes the
Hospital Reimbursement Pilot Program (Pilot), which is effective
from October 1, 2001, through September 30, 2003.  The Pilot as
defined by AHCCCS Rule R9-22-718 requires hospital subcontracts
to be negotiated between health plans in Maricopa and Pima
counties and hospitals to establish reimbursement levels, terms
and conditions.  Subcontracts shall be negotiated by the
Contractor and hospitals to cover operational concerns, such as
timeliness of claims submission and payment, payment of discounts
or penalties, legal resolution, which may, as an option, include
establishing arbitration procedures.  These negotiated
subcontracts shall remain under close scrutiny by AHCCCSA to
ensure availability of quality services within specific service
districts, equity of related party interests, reasonableness of
rates.  The general provisions of this program encompass acute
care hospital services and outpatient hospital services that
result in an admission.  The Contractor shall submit all hospital
subcontracts and any amendments to AHCCCSA, Office of Managed
Care, for prior approval.  For non-emergency patient-days, the
Contractor shall ensure that at least 65% of its members use
contracted hospitals.  AHCCCSA reserves the right to subsequently
adjust the 65% standard.  Further, if in AHCCCSA's judgment the
number of emergency days at a particular non-contracted hospital
becomes significant, AHCCCSA may require a subcontract at that
hospital.

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

The Contractor may conduct prepayment and postpayment medical
reviews of all hospital claims including outlier claims.
Erroneously paid claims are subject to recoupment.  If the
Contractor fails to identify lack of medical necessity through
concurrent review and/or prepayment medical review, lack of
medical necessity identified during postpayment medical review
shall not constitute a basis for recoupment by the Contractor.
This prohibition does not apply to recoupments that are a result
of an AHCCCS reinsurance audit.  See also Section D, Paragraph
34, Claims Payment System.  For a more complete description of
the guidelines for hospital reimbursement, please consult the
Bidder's Library for applicable statutes and rules.

For Out-of-State Hospitals:  The Contractor shall reimburse out-
of-state hospitals in accordance with AHCCCS Rule R9-22-705.

36.  NURSING FACILITY REIMBURSEMENT

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

The Contractor shall provide medically necessary nursing facility
services for any member who has a pending ALTCS application, who
is currently residing in a nursing facility and is eligible for
services provided under this contract.  If the member becomes
ALTCS eligible and is enrolled with an ALTCS Program Contractor
before the end of the maximum 90 days per contract year of
nursing facility coverage, the Contractor is only responsible for
nursing facility coverage during the time the member is enrolled
with the Contractor.  Nursing facility services covered by a
third party insurer (including Medicare) while the member is
enrolled with the Contractor shall be applied to the 90 day per
contract year limitation.

The Contractor shall notify the Assistant Director of the
Division of Member Services in writing, when a member has been
residing in a nursing facility for 75 days.  This will allow
AHCCCSA time to follow-up on the status of the ALTCS application
process and to prepare for potential fee-for-service coverage if
the stay goes beyond the 90-day per contract year maximum.

37.  COMPENSATION

The method of compensation under this contract will be Prior
Period Coverage (PPC) capitation, prospective capitation,
delivery supplement, hospitalized supplement for Title XIX Waiver
members, HIV-AIDS supplement, reinsurance (PPC and prospective),
and third party liability, as described and defined within this
contract and appropriate laws, regulations or policies.

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

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

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

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

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

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

For Title XIX Waiver members, AHCCCS reserves the right to make
prospective capitation rate adjustments if the actual enrollment
or enrollment mix differ materially from the initial estimates
and it affects the actuarial soundness of the rates.

Prior Period Coverage (PPC) Capitation:  The Contractor will be
paid capitation for all PPC member months, including partial
member months.  This capitation includes the cost of providing
medically necessary covered services to members during prior
period coverage.  The PPC capitation rates will be set by AHCCCSA
and will be paid to the Contractor along with the prospective
capitation described below.  Contractors will not receive PPC
capitation for newborns of members who were enrolled at the time
of delivery.

Prospective Capitation:  The Contractor will be paid capitation
for all prospective member months, including partial member
months.  This capitation includes the cost of providing medically
necessary covered services to members during the prospective
period coverage.  The prospective capitation rates will be set by
AHCCCSA and will be paid to the Contractor along with the PPC
capitation described above.

Reconciliation of PPC Costs to Reimbursement:  Effective for CYE
`03,  AHCCCS will no longer reconcile  PPC costs to
reimbursement.  PPC rates for CYE '03 have been adjusted to
reflect this change.

Risk Sharing for Title XIX Waiver Members:  For CYE `03, AHCCCSA
will reconcile the Contractor's PPC and prospective medical cost
expenses (net of reinsurance, excluding administrative and non-
operating expenses) to PPC capitation, prospective capitation,
and hospitalized supplements (net of administration) paid to the
Contractor during the year.  This reconciliation will limit the
Contractor's losses to 2% and profits to 4%.  Any losses in
excess of 2% will be reimbursed to the Contractor, and likewise,
profits in excess of 4% will be recouped.  Encounter data will be
used to determine medical expenses.

The Contractor may choose to elect an alternative risk sharing
methodology on October 1, 2002 for CYE `03.  In this alternative
risk sharing methodology, AHCCCSA will recoup profits in excess
of 1% and reimburse losses in excess of 1%.  Refer to the Title
XIX Waiver Reconciliation Policy for details of the
reconciliation process.

Delivery Supplement:  When the Contractor has an enrolled woman
who delivers during a prospective enrollment period, the
Contractor will be entitled to a supplemental payment.
Supplemental payments will not apply to women who deliver in a
prior period coverage time period.  AHCCCSA reserves the right at
any time during the term of this contract to adjust the amount of
this payment for women who deliver at home.

Hospital Kick Payment: If a Title XIX Waiver member is an
inpatient on the date of application for AHCCCS eligibility, and
the date of application falls within the member's eligibility
period, the Contractor is entitled to a supplemental payment to
help defray costs related to the inpatient stay.  The payment is
a one-time supplement that is paid when the member is enrolled
with the Contractor and is subject to review during the term of
the contract.

HIV-AIDS Supplement:  On a quarterly basis, the Contractor shall
submit to AHCCCSA, Office of Managed Care, an unduplicated
monthly count of members, by rate code, who are using approved
HIV/AIDS drugs along with the supporting pharmacy log.  The
report shall be submitted, along with the quarterly financial
reporting package, within 60 days after the end of each quarter.
The rate of reimbursement for this separate per member per month
payment is specified in Section B and is subject to review during
the term of the contract.  AHCCCSA reserves the right to recoup
any amounts paid for ineligible members as well as an associated
penalty for incorrect encounter reporting.

Refer to the Office of Managed Care's HIV/AIDS supplemental
payment and review policies for further details and requirements.

38.  CAPITATION ADJUSTMENTS

Incentive Fund:  AHCCCSA may retain a specified percentage of
capitation reimbursement in order to distribute to Contractors
based on their performance measure outcomes.  AHCCCSA will notify
Contractors 60 days prior to a new contract year if this
methodology will be implemented and will provide details of the
reimbursement methodology at that time.

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

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

a.   death of a member
b.   member's incarceration (not eligible for AHCCCS benefits
     from the date of incarceration)
c.   duplicate capitation to the same Contractor
d.   adjustment based on change in member's contract type
e.   voluntary withdrawal

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

39.  REINSURANCE

Regular   Inpatient  Reinsurance:   Reinsurance  is  a  stop-loss
program  provided by AHCCCSA to the Contractor  for  the  partial
reimbursement  of  covered  inpatient facility  medical  services
incurred  for a member with an acute medical condition beyond  an
annual  deductible  level.   AHCCCSA  is  self-insured  for   the
reinsurance  program  and  the program  is  characterized  by  an
initial deductible level with a subsequent coinsurance percentage
(see  table below).  The coinsurance percent is the rate at which
AHCCCSA  will  reimburse  the Contractor  for  inpatient  covered
services  incurred above the deductible.  The deductible  is  the
responsibility  of  the  Contractor.  Per  diem  rates  paid  for
nursing  facility services provided within 30 days  of  an  acute
hospital  stay,  including room and board, provided  in  lieu  of
hospitalization for up to 90 days in any contract year  shall  be
eligible for reinsurance coverage.

		  Title	Non-TXIX			Non-TXIX
Statewide	  XIX		Waiver			Waiver
Plan		  Waiver	Group				Group
Enrollment	  Group	Deductible Coinsurance  Deductible  Coinsurance
=======================================================================
0-19,999      $15,000   $20,000    75%          $5,000      100%

20,000-       $15,000   $35,000    75%          $5,000      100%
49,999

50,000 and    $15,000   $50,000    75%          $5,000      100%
over

a)  Prospective Reinsurance: This coverage applies to prospective
enrollment  periods.   The  deductible  level  is  based  on  the
Contractor's   statewide  AHCCCS  acute  care   enrollment   (not
including SOBRA Family Planning Extension services) as of October
1st  each contract year for all rate codes and counties, as shown
in  the  table  above.  These deductible levels  are  subject  to
change  by AHCCCSA during the term of this contract.  Any  change
would  have a corresponding impact on capitation rates.     Refer
to  the  AHCCCS Reinsurance Claims Processing Manual for  further
details on the Reinsurance Program.

A  Contractor  whose  enrollment qualifies  for  the  $35,000  or
$50,000  deductible level may, prior to the start of the contract
period, elect one of the lower deductible levels indicated in the
above  table.   Contractors  may  not  elect  to  increase  their
deductible level.  If a Contractor's actual deductible is $35,000
or  $50,000,  AHCCCSA  will increase the Contractor's  capitation
rate  awarded by defined amounts for each capitation risk  group.
These  specific  capitation adjustments are  available  from  the
Office of Managed Care. (Effective October 1, 2001, the Title XIX
Waiver  Group  is  no longer eligible for prior  period  coverage
reinsurance.)

b)   Prior  Period Coverage Reinsurance:  A separate  reinsurance
deductible  and  coinsurance percentage will apply  during  prior
period  coverage.  As noted in the table above, all  Contractors,
regardless  of enrollment, will be subject to a $5,000 deductible
level.   The coinsurance percentage for the prior period coverage
reinsurance  is  100%.   Expenses incurred  during  prior  period
coverage  will  not  apply  toward  the  prospective  reinsurance
thresholds.   (Effective October 1, 2001, the  Title  XIX  Waiver
Group  will  no  longer  be eligible for  prior  period  coverage
reinsurance.)

c)   Title  XIX  Waiver Members: Effective October,  1,  2001,  a
separate  reinsurance deductible for the Title XIX  Waiver  Group
applies  for both the prospective and prior period coverage  time
periods.  There can only be one reinsurance case for prior period
and prospective enrollment.

Catastrophic  Reinsurance:  The reinsurance  program  includes  a
special    Catastrophic   Reinsurance   program.   This   program
encompasses  members diagnosed with hemophilia, von  Willebrand's
Disease,  and  Gaucher's Disease.    For  additional  detail  and
restrictions  refer to the AHCCCS Reinsurance  Claims  Processing
Manual  and  the AMPM.  There are no deductibles for catastrophic
reinsurance  cases.   All  catastrophic  claims  are  subject  to
medical review by AHCCCSA.

The   Contractor  shall  notify  AHCCCSA,  Office  of  Medical
Management,   Reinsurance   Unit,   of   cases   identified   for
catastrophic reinsurance coverage within 30 days of  (a)  initial
diagnosis,  (b)  enrollment  with the  Contractor,  and  (c)  the
beginning  of each contract year.  Catastrophic reinsurance  will
be  paid for a maximum 30-day retroactive period from the date of
notification to AHCCCSA.  The determination of whether a case  or
type  of  case is catastrophic shall be made by the  Director  or
designee based on the following criteria; 1) severity of  medical
condition,  including  prognosis; and  2)  the  average  cost  or
average  length of hospitalization and medical care, or both,  in
Arizona for the type of case under consideration.

HEMOPHILIA:    When   a   member   is   identified    as    being
catastrophically  eligible  by  AHCCCSA  due  to   the   specific
diagnosis  of  hemophilia (ICD9 codes 286.0, 286.1,  286.2),  all
medically necessary covered services provided during the contract
year   shall  be  eligible  for  reimbursement  at  85%  of   the
Contractor's paid amount.

VON  WILLEBRAND'S DISEASE:  Catastrophic reinsurance coverage  is
available for all members diagnosed with von Willebrand's Disease
who are non-DDAVP responders and dependent on Plasma Factor VIII.
All  medically  necessary covered services  provided  during  the
contract year shall be eligible for reimbursement at 85%  of  the
Contractor's paid amount.

GAUCHER'S  DISEASE:  Catastrophic reinsurance  is  available  for
members diagnosed with Gaucher's Disease classified as Type I and
are  dependent  on  enzyme replacement  therapy.   All  medically
necessary  covered  services provided during  the  contract  year
shall  be  eligible for reimbursement at 85% of the  Contractor's
paid amount.

Breast  and  Cervical  Cancer  Treatment  Program  (BCCTP):   The
reinsurance  program  also  covers Contractor  reimbursement  for
BCCTP.  When a member becomes eligible for BCCTP, DMS will notify
the  Office  of Medical Management, Reinsurance Section,  of  the
member's  eligibility so a reinsurance case can  be  established.
The  Contractor  will  be reimbursed for 100%  of  the  medically
necessary costs. There are no deductibles for BCCTP cases nor  is
there a coinsurance percentage.

Transplants:  This program covers members who are  eligible  to
receive  covered major organ and tissue transplantation including
bone  marrow, heart, heart/lung, lung, liver, kidney,  and  other
organ  transplantation.   Bone grafts and cornea  transplantation
services are not eligible for transplant reinsurance coverage but
are  eligible  under  the regular inpatient reinsurance  program.
Refer  to  the  AMPM for covered services for  organ  and  tissue
transplants.   Reinsurance coverage for transplants is limited to
85%  of  the  AHCCCS  contract  amount  for  the  transplantation
services  rendered,  or  85%  of the  Contractor's  paid  amount,
whichever  is lower. The AHCCCS contracted transplantation  rates
may  be found in the Bidder's Library.  When a member is referred
to  a transplant facility for an AHCCCS-covered organ transplant,
the   Contractor   shall  notify  AHCCCSA,  Office   of   Medical
Management.

Effective  October 1, 2002, Contractors will be  reimbursed  100%
for  all  medically  necessary covered  expenses  provided  in  a
contract  year,  after  any type of reinsurance  case,  excluding
transplants, reaches $650,000.

Encounters:

a)   Encounter  Submission: A Contractor shall  prepare,  review,
verify,  certify,  and  submit, encounters for  consideration  to
AHCCCSA.   Upon  submission, the Contractor  certifies  that  the
services listed were actually rendered, medically necessary,  and
within  the  scope  of AHCCCS benefits.  The encounters  must  be
submitted  in  the format prescribed by AHCCCSA.  The  Contractor
must initiate and evaluate an encounter for probable 1st and  3rd
party  liability before submitting the encounter for  reinsurance
consideration,  unless  the encounter  involves  underinsured  or
uninsured  motorist  liability  insurance,  1st  and  3rd   party
liability insurance or a tort feasor.

The  Contractor must maintain evidence that costs  incurred  have
been   paid  by  the  Contractor  before  submitting  reinsurance
encounters.   This  information is  subject  to  AHCCCSA  review.
Collections from 1st and 3rd parties should be reflected  by  the
Contractor as reductions in the encounters submitted on a dollar-
for-dollar basis.  For purposes of AHCCCSA reinsurance,  payments
made  by Contractor-purchased reinsurance are not considered  1st
and 3rd party collections.

All  reinsurance  claims must reach a clean claim  status  within
fifteen  months  from  the  end  date  of  service,  or  date  of
eligibility posting, whichever is later.

b)   Encounter  Processing:  AHCCCSA will accept  for  processing
only  those encounters that are submitted directly by  an  AHCCCS
Contractor  and  that comply with the AHCCCS Encounter  Reporting
User Manual.

c)  Payment of Regular Reinsurance Cases:  AHCCCSA will reimburse
a  Contractor  for  costs incurred in excess  of  the  applicable
deductible  level,  subject to coinsurance  percentages.  AHCCCSA
will  use  inpatient encounter data to determine prospective  and
prior  period  coverage reinsurance benefits.  Reimbursement  for
these  reinsurance benefits will be made to the  Contractor  each
month.   AHCCCSA  will  also  provide  for  a  reconciliation  of
reinsurance  payments in the case where encounters  used  in  the
calculation of reinsurance benefits are subsequently adjusted  or
voided.

Effective  October  1,  1998,  when  a  member  with  an   annual
enrollment choice changes Contractors within a contract year, for
reinsurance  purposes,  all  eligible  inpatient  costs,  nursing
facility costs and inpatient psychiatric costs incurred for  that
member  will  follow  the  member to the receiving  health  plan.
Therefore,  all  submitted encounters from the  health  plan  the
member  is  leaving  (for  dates of service  within  the  current
contract  year)  will  be applied toward,  but  not  exceed,  the
receiving  health plan's deductible level.  For  further  details
regarding this policy and other reinsurance policies refer to the
AHCCCS Reinsurance Claims Processing Manual.

The amount applied against the deductible shall be determined  by
the  costs  paid  by the Contractor, or if under  a  subcapitated
arrangement, the lower of the AHCCCS fee schedule or the reported
health plan paid amount.

Amounts  in  excess of the deductible level shall be  paid  based
upon  costs paid by the Contractor, minus the coinsurance  unless
the  costs  are  paid  under  a  subcapitated  arrangement.    In
subcapitated   arrangements,  the   Administration   shall   base
reimbursement  of  reinsurance encounters on  the  lower  of  the
AHCCCS  allowed amount or the reported health plan  paid  amount,
whichever  is  lower,  minus  the  coinsurance  and  Medicare/TPL
payment and applicable quick pay discounts.

d)  Payment of Catastrophic and BCCTP Reinsurance Cases:  AHCCCSA
will  reimburse  a  Contractor for all eligible  costs  incurred,
subject  to  coinsurance percentages if applicable. AHCCCSA  will
use   encounter   data   to   determine   reinsurance   benefits.
Reimbursement for these reinsurance benefits will be made to  the
Contractor  each  month.   AHCCCSA  will  also  provide   for   a
reconciliation  of  reinsurance  payments  in  the   case   where
encounters  used in the calculation of reinsurance  benefits  are
subsequently adjusted or voided.

e)   Payment   of  Transplant  Reinsurance  Cases:    Reinsurance
benefits are based upon the lower of the  AHCCCS contract  amount
or   the   Contractor's  paid  amount,  subject  to   coinsurance
percentages.  While  encounter data  is  not  used  to  determine
reinsurance  payments  for transplant services,  Contractors  are
required to encounter all services provided for which a financial
liability  is  incurred.  Please refer to the Reinsurance  Claims
Processing  Manual  for  the appropriate  billing  of  transplant
services.  Reimbursement for these reinsurance benefits  will  be
made to the Contractor each month.

Reinsurance  Audits: AHCCCSA may limit reinsurance  reimbursement
to  a  lower  or  alternative level of care if  the  Director  or
designee  determines that the less costly alternative  could  and
should  have  been  used by the Contractor.   Medical  audits  on
prospective and prior period coverage reinsurance cases  will  be
determined  based  on  statistically valid  retrospective  random
sampling.   AHCCCSA, Office of Medical Management, will  generate
the  sampling  and  will notify the Contractor  of  documentation
needed  for the retrospective medical audit process to  occur  at
the  Contractor's  offices.  Reinsurance  consideration  will  be
given  to  inpatient  facility contracts, and  hearing  decisions
rendered  by the Office of Legal Assistance.  Pre-hearing  and/or
hearing penalties discoverable during the review process will not
be  reimbursed  under reinsurance.  A recoupment  of  reinsurance
reimbursements  made to the Contractor will occur  based  on  the
results  of  the  medical audit sampling.   The  results  of  the
medical  audit  sampling may be separately  extrapolated  to  the
entire   prospective   and  prior  period  coverage   reinsurance
reimbursement  populations  in  the  audit  timeframe   for   the
Contractor.  AHCCCSA will give the Contractor at  least  45  days
advance  notice of any on-site audit.  The Contractor shall  have
all   requested  medical  records  on-site.   Any  documents  not
requested  in  advance by AHCCCSA shall be  made  available  upon
request  of  the Audit Team during the course of the audit.   The
Contractor representative shall be available to the Audit Team at
all  times  during AHCCCSA on-site audit activities.   While  on-
site, the Contractor shall provide the Audit Team with workspace,
access  to  a  telephone,  electrical  outlets  and  privacy  for
conferences.   The Contractor will be furnished  a  copy  of  the
Reinsurance Post-Audit Results letter approximately 60 days after
the  onsite audit and given an opportunity to comment and provide
additional  medical  documentation  on  any  audit  findings.   A
Contractor whose reinsurance case is reduced or denied  shall  be
notified in writing by AHCCCSA and will include the cause for the
reduction  or  denial and describe the applicable  grievance  and
appeal process available.

40.  COORDINATION OF BENEFITS/THIRD PARTY LIABILITY

By law, AHCCCSA is the payer of last resort.  This means AHCCCSA
shall be used as a source of payment for covered services only
after all other sources of payment have been exhausted.  The two
methods used in the coordination of benefits are cost avoidance
and postpayment recovery.  The Contractor shall use these methods
as described in A.A.C. R9-22-1001.  See Section D, Paragraph 41,
Medicare Services and Cost Sharing.

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

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

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

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

Uninsured/underinsured motorist insurance  	Restitution Recovery
First-and third-party liability insurance  	Worker's Compensation
Tortfeasors, including casualty  			Estate recovery
Special Treatment Trusts recovery

The Contractor shall report any cases involving the above
circumstances to AHCCCSA's authorized representative should the
Contractor identify such a situation.  See AHCCCS Rule R9-22-1002
and R9-31-1002.  The Contractor shall cooperate with AHCCCSA's
authorized representative in all collection efforts.  In joint
cases involving both AHCCCS fee-for-service or reinsurance and
the Contractor, AHCCCSA's authorized representative is
responsible for performing all research, investigation and
payment of lien-related costs, subsequent to the referral of any
and all relevant case information to AHCCCSA's authorized
representative by the Contractor.  AHCCCSA's authorized
representative is also responsible for negotiating and acting in
the best interest of all parties to obtain a reasonable
settlement in joint cases and may compromise a settlement in
order to maximize overall reimbursement, net of legal and other
costs.  Effective October 1, 2002, the Contractor will
responsible for their prorated share of the contingency fee.  The
Contractor's share of the contingency fee will be deducted from
the settlement proceeds prior to AHCCCSA remitting the settlement
to the Contractor.  For total plan cases involving only payments
from the Contractor, the Contractor is responsible for performing
all research, investigation, the filing of liens and payment of
lien filing fees and other related costs. The Contractor shall
use the cover sheet as prescribed by AHCCCS when filing liens.

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

a.   Total collections received do not exceed the total amount of
     the Contractor's financial liability for the member
b.   There are no payments made by AHCCCS related to fee-for-
     service, reinsurance or administrative costs (i.e. lien filing
     and contingency fees, etc.)
c.   Such recovery is not prohibited by State or Federal law

Reporting:  The Contractor may be required to report case level
detail of third-party collections and cost avoidance, including
number of referrals on total plan cases.  In addition, upon
AHCCCSA's request, the Contractor shall provide an electronic
extract of the Casualty cases, including open and closed cases.
Data elements include, but are not limited to: the member's first
and last name; AHCCCS ID; date of incident; claimed amount;
paid/recovered amount; and case status.  The AHCCCSA TPL Section
shall provide the format and reporting schedule for this
information to the Contractor.  The Contractor shall notify
AHCCCSA's authorized representative within five working days of
the identification of a third-party liability case with
reinsurance.  Failure to report reinsurance cases may result in
one of the remedies specified in Paragraph 60 (Sanctions) of
Section D.  The Contractor shall communicate any known change in
health insurance information, including Medicare, to AHCCCS
Administration, Division of Member Services, not later than 10
days from the date of discovery using the AHCCCS Third-Party
Coverage Form found in the Bidder's Library.

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

Title XXI (KidsCare) and HIFA Parents:  Eligibility for KidsCare
and HIFA parents benefits require that the applicant/member not
be enrolled with or entitled to any other health insurance
benefits.  If the Contractor becomes aware of any such potential
coverage, the Contractor shall notify AHCCCSA immediately.  The
Contractor shall follow the same cost avoidance and postpayment
recovery practices for the KidsCare and HIFA parents population
as it does for the Title XIX and HIFA parents population, and
shall maintain a reporting system which allows Title XIX and
Title XXI information to be reported separately.

Contract Termination:  Upon termination of this contract, the
Contractor will complete the existing third party liability cases
or make any necessary arrangements to transfer the cases to
AHCCCSA's authorized  TPL representative.

41.  MEDICARE SERVICES AND COST SHARING

AHCCCS has members enrolled who are eligible for both Medicaid
and Medicare.  These members are referred to as "dual eligible".
Generally, Contractors are responsible for payment of Medicare
coinsurance and/or deductibles for covered services provided to
dual eligible members.  However, there are different cost sharing
responsibilities that apply to dual eligible members based on a
variety of factors.  The Contractor is responsible for adhering
to the cost sharing responsibilities presented in the AHCCCS
Medicare Cost Sharing policy.  Effective 10/1/97, the Contractor
shall have no cost sharing obligation if the Medicare payment
exceeds what the Contractor would have paid for the same service
of a non-Medicare member.

42.  COPAYMENTS

The Contractor is responsible for the collection of copayments
from members in accordance with AHCCCS Rule R9-22-711 and R9-31-
711. The Contractor may not collect copayments for the following
services:

  a.   Prenatal care including all obstetrical visits;
  b.   Well-baby and EPSDT care;
  c.   Care in nursing facilities and intermediate care facilities
       for the mentally retarded;
  d.   Visits scheduled by a primary care physician or
       practitioner, and not at the request of a member;
  e.   Drugs and medications;
  f.   Family planning services.

43.  RECORDS RETENTION

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

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

The Contractor shall preserve and make available all records for
a period of five years from the date of final payment under this
contract.

If this contract is completely or partially terminated, the
records relating to the work terminated shall be preserved and
made available for a period of five years from the date of any
such termination.  Records which relate to grievances, disputes,
litigation or the settlement of claims arising out of the
performance of this contract, or costs and expenses of this
contract to which exception has been taken by AHCCCSA, shall be
retained by the Contractor for a period of five years after the
date of final disposition or resolution thereof.

44.  MEDICAL RECORDS

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

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

The Contractor shall have written standards for documentation on
the medical record for legibility, accuracy and plan of care
which comply with the AMPM.

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

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

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

Information related to fraud and abuse may be released so long as
protected HIV-related information is not disclosed. (A.R.S. 36-
664I)

45.  ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

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

46.  ACCUMULATED FUND DEFICIT

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

47.  DATA EXCHANGE REQUIREMENT

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

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

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

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

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

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

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

Health Insurance Portability and Accountability Act (HIPAA):  The
Contractor shall comply with the Administrative Simplification
requirements of Subpart F of the HIPAA of 1996 (Public Law 107-
191, 110 Statutes 1936) and all Federal regulations implementing
that Subpart that are applicable to the operations of the
Contractor by the dates required by the implementing Federal
regulations.

48.  ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to
the success of the AHCCCS program.  AHCCCSA uses encounter data
to pay reinsurance benefits, set fee-for-service and capitation
rates, determine disproportionate share payments to hospitals,
and to determine compliance with performance standards.  The
Contractor shall submit encounter data to AHCCCSA for all covered
services for which the Contractor incurred a financial liability,
including services provided during prior period coverage.  This
requirement is a condition of the CMS grant award.

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

An Encounter Submission Tracking Report must be maintained and
made available to AHCCCSA upon request.  The Tracking Report's
purpose is to link each claim to an adjudicated or pended
encounter returned to the Contractor.  Further information
regarding the Encounter Submission Tracking Report may be found
in The Encounter User's Manual.

49.  MONTHLY ROSTER RECONCILIATION

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

AHCCCSA also produces a daily Manual Payment Roster which
identifies enrollment or disenrollment activity that was not
included on the Daily Roster due to internal edits.  The
Contractor shall use the Manual Payment Roster in addition to the
Daily Roster to update its member records.

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

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

50.  TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/97 through
9/30/98.  In addition, AHCCCSA reserves the sole option to extend
the term of the contract.  Legislation was passed that allows
AHCCCSA the right to extend the contract in excess of five years.
As a result of this legislation, AHCCCSA is exercising its right
to extend the contract to 9/30/03.  The new contract cycle will
be effective 10/01/03.  All contract extensions shall be through
contract amendment.  If, in conjunction with a contract
extension, AHCCCSA elects to increase the capitation rate for any
risk category, such increase will not exceed in aggregate the
inflation rate recognized by the Arizona Legislature.

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

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

Contractor's Notice of Intent Not To Renew:  If the Contractor
chooses not to renew this contract, the Contractor may be liable
for certain costs associated with the transition of its members
to a different health plan.  If the Contractor provides AHCCCSA
written notice of its intent not to renew this contract at least
180 days before its expiration, this liability for transition
costs may be waived by AHCCCSA.

51.  SUBCONTRACTS

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

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

a.   Automated data processing
b.   Third-party administrators
c.   Management Services  (See also Section D, Paragraphs 53 & 54)
d.   Model subcontracts
e.   Capitated or other risk subcontracts requiring claims
     processing by the subcontractor must be submitted to AHCCCSA,
     Office of Managed Care.

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

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

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

a.   If a provider who provides services more than 25 times
     during the contract year refuses to enter into a written
     agreement with the Contractor, the Contractor shall submit
     documentation of such refusal to AHCCCS Office of Managed Care
     within seven days of its final attempt to gain such agreement.
b.   If a provider performs emergency services such as an
     emergency room physician or an ambulance company, a written
     agreement is not required.

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

a.   Full disclosure of the method and amount of compensation or
     other consideration to be received by the subcontractor.
b.   Identification of the name and address of the subcontractor.
c.   Identification of the population, to include patient
     capacity, to be covered by the subcontractor.
d.   The amount, duration and scope of medical services to be
     provided, and for which compensation will be paid.
e.   The term of the subcontract including beginning and ending
     dates, methods of extension, termination and re-negotiation.
f.   The specific duties of the subcontractor relating to
     coordination of benefits and determination of third-party
     liability.
g.   A provision that the subcontractor agrees to identify
     Medicare and other third-party liability coverage and to seek
     such Medicare or third party liability payment before submitting
     claims to the Contractor.
h.   A description of the subcontractor's patient, medical and
     cost record keeping system.
i.   Specification that the subcontractor shall cooperate with
     quality assurance programs and comply with the utilization
     control and review procedures specified in 42 CFR Part 456, as
     implemented by AHCCCSA.
j.   A provision stating that a merger, reorganization or change
     in ownership of a subcontractor that is related to or affiliated
     with the Contractor shall require a contract amendment and prior
     approval of AHCCCSA.
k.   Procedures for enrollment or re-enrollment of the covered
     population (may also refer to the Provider Manual).
l.   A provision that the subcontractor shall be fully
     responsible for all tax obligations, Worker's Compensation
     Insurance, and all other applicable insurance coverage
     obligations which arise under this subcontract, for itself and
     its employees, and that AHCCCSA shall have no responsibility or
     liability for any such taxes or insurance coverage.
m.   A provision that the subcontractor must obtain any necessary
     authorization from the Contractor or AHCCCSA for services
     provided to eligible and/or enrolled members.
n.   A provision that the subcontractor must comply with
     encounter reporting and claims submission requirements as
     described in the subcontract.

52.  SPECIALTY CONTRACTS

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

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

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

53.  MANAGEMENT SERVICES SUBCONTRACTORS

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

54.  MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

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

55.  MINIMUM CAPITALIZATION REQUIREMENTS

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

Minimum capitalization requirements by GSA are as follows:

Geographic Service Area	  Capitalization Requirement
GSA #2	Yuma			  $1,400,000
GSA #4	Mohave, La Paz	   1,150,000
GSA #6	Yavapai, Coconino	   1,250,000
GSA #8	Pinal, Gila		   1,450,000
GSA #10	Pima			   1,250,000
GSA #12	Maricopa		   2,500,000
GSA #14	Graham, Greenlee	     350,000
GSA #16	Apache, Navajo	     650,000
GSA #18	Cochise, Santa Cruz  1,450,000

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

Continuing Offerors:  Continuing offerors that are bidding a
county or GSA that they are currently servicing must meet the
equity per member standard (see Section D, Paragraph 58,
Financial Viability Criteria) for their current membership.
Continuing offerors that do not meet the equity standard must
fund through capital contribution the necessary amount to meet
this requirement.  Continuing offerors that are bidding a new GSA
must provide the additional capitalization for the new GSA they
are bidding.  (See the table of requirements by GSA above).
Continuing offerors will not be required to provide additional
capitalization if they currently meet the equity per member
standard with their existing membership and their excess equity
is sufficient to cover the proposed additional members, or they
have at least $5,000,000 in equity.

56.  PERFORMANCE BOND OR BOND SUBSTITUTE

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

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

a.   Paying any damages sustained by providers, non-contracting
     providers and nonproviders by reason of a breach of the
     Contractor's obligations under this contract,
b.   Reimbursing AHCCCSA for any payments made by AHCCCSA on
     behalf of the Contractor, and
c.   Reimbursing AHCCCSA for any extraordinary administrative
     expenses incurred by reason of a breach of the Contractor's
     obligations under this contract, including, but not limited to,
     expenses incurred after termination of this contract for reasons
     other than the convenience of the State by AHCCCSA.

In the event AHCCCSA agrees to accept substitute security in lieu
of the Performance Bond, irrevocable letter of credit or cash
deposit, the Contractor agrees to execute any and all documents
and perform any and all acts necessary to secure and enforce
AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and necessary
UCC filings pursuant to the Arizona Uniform Commercial Code.  In
the event such substitute security is agreed to and accepted by
AHCCCSA, the Contractor acknowledges that it has granted AHCCCSA
a security interest in such substitute security to secure
performance of its obligations under this contract.  The
Contractor is solely responsible for establishing the credit-
worthiness of all forms of substitute security.  AHCCCSA may,
after written notice to the Contractor, withdraw its permission
for substitute security, in which case the Contractor shall
provide AHCCCSA with a form of security described above.  The
Contractor may not change the amount, duration or scope of the
performance bond without prior written approval from AHCCCSA,
Office of Managed Care.

The Contractor shall not leverage the bond for another loan or
create other creditors using the bond as security.

57.  AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 110%
of the total capitation payment expected to be paid in the month
of October 1997, or as determined by AHCCCSA.  The total
capitation amount shall include SOBRA supplemental payments.
This requirement must be satisfied by the Contractor not later
than 15 days after notification by AHCCCSA of the amount
required.  Thereafter, AHCCCSA shall evaluate the enrollment
statistics of the Contractor on a monthly basis.  If there is an
increase in capitation payment that exceeds 10% of the
performance bond amount, AHCCCSA may require an increase in the
amount of the Performance Bond.  The Contractor shall have 15
days following notification by AHCCCSA to increase the amount of
the Performance Bond.  The Performance Bond amount that must be
maintained after the contract term shall be sufficient to cover
all outstanding liabilities and will be determined by AHCCCSA.
The Contractor may not change the amount of the performance bond
without prior written approval from AHCCCSA, Office of Managed
Care.

58.  FINANCIAL VIABILITY STANDARDS/PERFORMANCE GUIDELINES

AHCCCSA has established the following financial viability
standards/performance guidelines.  On a quarterly basis, AHCCCSA
will review the following ratios with the purpose of monitoring
the financial health of the Contractor.  The two Financial
Viability Standards, the Current Ratio and Equity per Member, are
the standards that best represent the financial solvency of the
Contractor. Therefore, the Contractor must comply with these two
financial viability standards.

AHCCCSA will also monitor the Medical Expense Ratio, the
Administrative Cost Percentage, and the RBUC's Days Outstanding.
These guidelines are analyzed as part of AHCCCSA's due diligence
in financial statement monitoring.  Sanctions will not be imposed
if the Contractor does not meet these performance guidelines.
However, if a critical combination of the Financial Viability
Standards and Performance Guidelines are not met, additional
monitoring, such as monthly reporting, may be required.

FINANCIAL VIABILITY STANDARDS:

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

         *if current assets includes a receivable
         from a parent company, the parent company
         must have liquid assets that support the
         amount of the inter-company loan.

Equity per Member
	   Equity*, less on-balance sheet performance
         bond, divided by the number of non-SOBRA
         Family Planning Extension Services members
         enrolled at the end of the period.
         Standard: At least $150
         (Failure to meet this standard may result
         in an enrollment cap being imposed in any
         or all contracted GSAs.)

         *for purposes of this measurement, the
         equity to be measured must be supported by
         unencumbered current assets.

PERFORMANCE
GUIDELINES:

Medical Expense Ratio
	   Total medical expenses divided by total
         capitation + Delivery Supplement +
         Hospital Kick Payment +TPL+ Reinsurance +
         HIV/AIDS Supplement
         Standard:  At least 85%

Administrative Cost Percentage
	   Total administrative expenses (excluding
	   income taxes), divided by total capitation
         + Delivery Supplement + Hospital Kick
         Payment + TPL + Reinsurance + HIV/AIDS
         Supplement.
         Standard: No more than 10%

Received But Unpaid claim (Days Outstanding)
	   Received but unpaid claims divided by the
	   average daily medical expenses for the
	   period, net of sub-capitation expense.
   	   Standard:  No more than 30 days

59.  MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

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

60.  SANCTIONS

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

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

a.   Marketing violations
b.   Failure to meet AHCCCS Financial Viability Standards
c.   Material deficiency in the Contractor's provider network
d.   Quality of care and quality management issues
e.   Failure to meet AHCCCS encounter standards

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

61.  AUTO-ASSIGNMENT ALGORITHM

Members who do not exercise their right to choose and don't have
family continuity, are assigned to Contractors through an auto-
assignment algorithm.  The algorithm is a mathematical formula
used to distribute members to the various Contractors in a manner
that is predictable and consistent with AHCCCSA goals.  The
algorithm favors those Contractors with lower capitation rates.
For further details on the AHCCCS Auto-Assignment Algorithm,
refer to Attachment G.  AHCCCSA may change the algorithm at any
time during the term of the contract and frequently does so in
response to Contractor-specific issues of non-compliance (e.g.
imposition of an enrollment cap).  The Contractor should consider
this in preparing its response to this RFP.  AHCCCSA is not
obligated to adjust for any financial impacts this may have on
the Contractor.

62.  GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS

The Contractor shall have in place a written grievance and
request for hearing process for members and providers which
defines and explains their rights regarding any adverse action by
the Contractor.  The Contractor shall provide the appropriate
personnel to establish, implement and maintain the necessary
functions related to grievances, requests for hearing, and
denials and reductions of services.  Refer to Attachment H for
Grievance and Request for Hearing Process and Standards and
Paragraph 5, Denials and Reductions of Services.

The grievance and request for hearing process shall be in
accordance with applicable Federal and State laws, AHCCCS rules
and policies, including, but not limited to R9-22-Article 8, R9-
31-Article 8 and the Members Rights and Responsibilities Policy.
The Contractor must ensure that the Contractor's grievance and
request for hearing policies include processing procedures and
documentation requirements.  The Contractor must ensure that it
provides written information to both members and providers which
clearly explains the grievance and request for hearing process.

The Contractor shall be responsible to provide the necessary
professional, paraprofessional, and clerical services for the
representation of the Contractor in all issues relating to
grievances, denials and reductions of services and any other
matters arising under this contract which rise to the level of
administrative hearing or a judicial proceeding.

63.  QUARTERLY GRIEVANCE REPORT

The Contractor shall submit a Quarterly Grievance Report to
AHCCCSA, Office of Legal Assistance, using the Quarterly
Grievance Report Format.  The Quarterly Grievance Report must be
received by the AHCCCSA, Office of Legal Assistance, no later
than 45 days from the end of the quarter.

64.  KIDSCARE

On November 1, 1998, AHCCCSA implemented a Title XXI Children's
Health Insurance Program, referred to as "KidsCare".  KidsCare
provides health care coverage statewide to eligible children
under age 19 and is provided through the existing AHCCCS health
plans, state employee HMOs that elect to participate at the
beginning of a contract cycle, and tribal facilities or Indian
Health Service for Native Americans who elect to receive services
through them.  Behavior health services for KidsCare members are
provided through the ADHS/RBHA system.

The KidsCare service package is established by the legislature
and approved by CMS through the State Plan. Capitation rates
payable to the Contractor for KidsCare members will be set by
AHCCCSA in conjunction with an independent actuary.

KidsCare members in families with gross household income over
150% and up to 200% of the Federal poverty limit shall pay a
premium to AHCCCSA.  The premium amount shall be based on the
number of children in the family and the gross family income in
accordance with 9 A.A.C., Article 14.

65.  PENDING LEGISLATIVE ISSUES

The Balanced Budget Act of 1997 final rules are effective August
13, 2002 and have numerous changes to Medicaid managed care
regulations.  The states will have one year until August 13, 2002
to come into compliance with the regulations.  AHCCCS is
analyzing the impact on our 1115 managed care waiver program.

66.  SEPARATE INCORPORATION

As specified in A.R.S.  36-2906.01, within 60 days of contract
award, a non-governmental Contractor shall have established a
separate corporation for the purposes of this contract, whose
sole activity is the performance of contract function with
AHCCCS.

67.  CULTURAL COMPETENCY

The Contractor shall have a Cultural Competency Plan that meets
the requirements of the AHCCCS Cultural Competency Policy.  An
annual assessment of the effectiveness of the plan, along with
any modifications to the plan, must be submitted to the Office of
Managed Care, Operations Unit, no later than 45 days after the
start of each contract year.  The Contractor must identify a
staff member responsible for the cultural competency plan and
inform the office of Managed Care of that person's identity.

68.  MEDICAID IN THE PUBLIC SCHOOLS (MIPS)

Pursuant to an Intergovernmental Agreement with the Department of
Education, and a contract with a Third Party Administrator,
AHCCCS reimburses participating school districts for specifically
identified Medicaid services when provided to Medicaid-eligible
children who are included under the Individuals with Disabilities
Education Act (IDEA).  The Medicaid services must be identified
in the member's Individual Education Plan (IEP) as medically
necessary for the child to obtain a public school education.
Services include speech, physical and occupational therapies,
nursing services, attendant care (health aid services provided in
the classroom), transportation to and from school on days when
the child receives an AHCCCS-covered MIPS service, and behavioral
health services.

Services provided through MIPS are specifically intended to allow
children to attend school and do not replace medically necessary
services provided outside the educational setting.  Thus, the
Contractor's determination of whether services are medically
necessary and should be provided to a child shall be made
independently of whether that child also is receiving MIPS
services.  If a request is made for services that also are
covered under the MIPS program for a child enrolled with the
Contractor, the request shall be evaluated on the same basis as
any request for a covered service.

69.  BUSINESS CONTINUITY PLAN

The Contractor shall develop a Business Continuity Plan to deal
with unexpected events that may affect its ability to adequately
serve members. This plan shall, at a minimum, include planning
and training for:

    Healthcare facility closure/loss of a major provider
    Electronic/telephonic failure at the Contractor's main place of
	business
    Complete loss of use of the main site
    Loss of primary computer system/records

The Business Continuity Plan shall be updated annually. All key
staff shall be trained and familiar with the Plan.

70.  FRAUD AND ABUSE

It  shall  be the responsibility of the Contractor to report  all
cases of suspected fraud and abuse by subcontractors, members  or
employees  in  accordance  with  A.R.S.   36-2918.01  and  AHCCCS
policy.  The Contractor shall provide written notification of all
such incidents to AHCCCSA.  The Contractor shall develop programs
to  detect  and prevent fraud and abuse and shall cooperate  with
AHCCCSA  investigations and audits. Contractors are  required  to
research  potential overpayments identified by a fraud and  abuse
investigation or audit conducted by AHCCCSA.  After conducting  a
cost  benefit analysis to determine if such action is  warranted,
the   Contractor  should  attempt  to  recover  any  overpayments
identified  due to erroneous, false or fraudulent billings.   The
Contractor shall comply with the AHCCCS Health Plans and  Program
Contractors  Policy for Prevention, Detection  and  Reporting  of
Fraud  and Abuse, which is available in the Bidder's Library  and
incorporated   herein   by  reference.   The   Contractor   shall
participate in a fraud and abuse workgroup, which will consist of
representatives   from   acute   care   health   plans,   Program
Contractors,  AHCCCSA,  the Attorney  General's  office  and  the
Center  for Medicare and Medicaid Services.  The purpose  of  the
workgroup is to explore ways to minimize the occurrence of  fraud
and  abuse within the AHCCCS system and to recommend updates  and
revisions to the policy.

The  Contractor  shall develop specific controls to  prevent  and
detect abuse of members.

As  stated  in A.R.S.  13-2310, incorporated herein by reference,
any person who knowingly obtains any benefit by means of false or
fraudulent  pretenses,  representations,  promises  or   material
omissions is guilty of a Class 2 felony.

71.  TICKET TO WORK (FREEDOM TO WORK)

 Legislation was passed to adopt a Federal program that expands
Title XIX eligibility to individuals, 16 through 64 years old who
meet SSI disability criteria, and whose earned income is at or
below 250% FPL.  This program will be implemented early in 2003.

72.  HIFA Parents

In conjunction with the HIFA demonstration initiative, which
attempts to maximize the number of individuals with health
insurance coverage using current-level resources, CMS granted
AHCCCS a HIFA waiver.  The HIFA waiver allows unspent Title XXI
KidsCare funds to be used to cover parents of eligible SOBRA or
KidsCare children not otherwise eligible for Medicaid (HIFA
parents).

HIFA parents will have prospective enrollment only, will pay a
premium ranging from $15 to $35 (except IHS members), and will
not have a guaranteed enrollment period. Due to funding
considerations, this program will have an enrollment cap of
approximately 21,250 members.

The program will be implemented in two phases.  First, HIFA
parents in the Premium Sharing Program (PSP) will be converted
for Title XXI funding effective October 1, 2002.  Contractors
that contract with PSP will continue to be paid capitation by PSP
for the period October 1, 2002 through December 31, 2002.  The
PSP benefits package will continue to be in effect for this time
period.  Contractors will be required to provide financial and
claims information for this population.  Effective January 1,
2003, the PSP conversion population will be eligible for full
AHCCCS benefits, and eligibility will be posted into PIMMIS
retroactively to October 1, 2002.

Phase two will be effective January 1, 2003 when eligible parents
of  SOBRA or KidsCare children will be enrolled with contractors,
subject to an enrollment cap.  Contractors will be paid TANF
rates for HIFA parents after January 1, 2003.  Contracts will be
amended to reflect this change.

[END OF SECTION D]

SECTION E: CONTRACT CLAUSES

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

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

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

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

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

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

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

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

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

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

8)   GENERAL INDEMNIFICATION
The Contractor shall defend, indemnify and hold harmless the
State from any claim, demand, suit, liability, judgment and
expense (including attorney's fees and other costs of litigation)
arising out of or relating to injury, disease, or death of
persons or damage to or loss of property resulting from or in
connection with the negligent performance of this contract by the
Contractor, its agents, employees, and subcontractors or anyone
for whom the Contractor may be responsible.  The obligations,
indemnities and liabilities assumed by the Contractor under this
paragraph shall not extend to any liability caused by the
negligence of the State or its employees.  The Contractor's
liability shall not be limited by any provisions or limits of
insurance set forth in this contract.  The State shall reasonably
notify the Contractor of any claim for which it may be liable
under this paragraph.  The Administration shall bear no liability
for subcontracts that a Contractor executes with other parties
for the provision of administrative or management services,
medical services or covered health care services, or for any
other purposes.

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

10)  COMPLIANCE WITH APPLICABLE  LAWS, RULES AND REGULATIONS
The materials and services supplied under this contract shall
comply with all applicable Federal, state and local laws, and the
Contractor shall maintain all applicable licenses and permits.

11)  ADVERTISING AND PROMOTION OF CONTRACT
The Contractor shall not advertise or publish information for
commercial benefit concerning this contract without the prior
written approval of the Contracting Officer.

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

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

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

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

16)  GRATUITIES
AHCCCSA may, by written notice to the Contractor, immediately
terminate this contract if it determines that employment or a
gratuity was offered or made by the Contractor or a
representative of the Contractor to any officer or employee of
the State for the purpose of influencing the outcome of the
procurement or securing the contract, an amendment to the
contract, or favorable treatment concerning the contract,
including the making of any determination or decision about
contract performance.  AHCCCSA, in addition to any other rights
or remedies, shall be entitled to recover exemplary damages in
the amount of three times the value of the gratuity offered by
the Contractor.

17)  SUSPENSION OR DEBARMENT
The Contractor shall not employ, consult, subcontract or enter
into any agreement for Title XIX services with any person or
entity who is debarred, suspended or otherwise excluded from
Federal procurement activity.  This prohibition extends to any
entity which employs, consults, subcontracts with or otherwise
reimburses for services any person substantially involved in the
management of another entity which is debarred, suspended or
otherwise excluded from Federal procurement activity.

The Contractor shall not retain as a director, officer, partner
or owner of 5% or more of the Contractor entity, any person, or
affiliate of such a person, who is debarred, suspended or
otherwise excluded from Federal procurement activity.

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

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

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

In the event the Contractor requests a hearing prior to
termination, AHCCCSA is required by the Balanced Budget Act of
1997 to oversee the operation of the Contractor entity through
appointment of temporary management prior to the hearing.

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

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

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

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

22)  NON-EXCLUSIVE REMEDIES
The rights and the remedies of AHCCCSA under this contract are
not exclusive.

23)  NON-DISCRIMINATION
The Contractor shall comply with State Executive Order No. 99-4,
which mandates that all persons, regardless of race, color,
religion, sex, national origin or political affiliation, shall
have equal access to employment opportunities, and all other
applicable Federal and state laws, rules and regulations,
including the Americans with Disabilities Act and Title VI.  The
Contractor shall take positive action to ensure that applicants
for employment, employees, and persons to whom it provides
service are not discriminated against due to race, creed, color,
religion, sex, national origin or disability.

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

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

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

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

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

d.   Professional Liability (if applicable): Provides coverage
     for alleged professional misconduct or lack of ordinary skills in
     the performance of a professional act of service.

The above coverage's may be evidenced by either one of the
following:

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

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

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

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

27)  RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS
AHCCCSA may, at reasonable times, inspect the part of the plant
or place of business of the Contractor or subcontractor that is
related to the performance of this contract, in accordance with
A.R.S. 41-2547.

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

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

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

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

31)  TYPE OF CONTRACT
Firm Fixed-Price

32)  AMERICANS WITH DISABILITIES ACT
People with disabilities may request special accommodations such
as interpreters, alternative formats or assistance with physical
accessibility.  Requests for special accommodations must be made
with at least three days prior notice by calling Michael Veit at
(602) 417-4762.

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

34)  NO GUARANTEED QUANTITIES
AHCCCSA does not guarantee the Contractor any minimum or maximum
quantity of services or goods to be provided under this contract.

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

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

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

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

39)  OWNERSHIP OF INFORMATION AND DATA
Any data or information system, including all software,
documentation and manuals, developed by Contractor pursuant to
this contract, shall be deemed to be owned by AHCCCSA.  The
Federal government reserves a royalty-free, nonexclusive, and
irrevocable license to reproduce, publish, or otherwise use and
to authorize others to use for Federal government purposes, such
data or information system, software, documentation and manuals.
Proprietary software which is provided at established catalog or
market prices and sold or leased to the general public shall not
be subject to the ownership or licensing provisions of this
section.

Data, information and reports collected or prepared by Contractor
in the course of performing its duties and obligations under this
contract shall be deemed to be owned by AHCCCSA.  The ownership
provision is in consideration of Contractor's use of public funds
in collecting or preparing such data, information and reports.
These items shall not be used by Contractor for any independent
project of Contractor or publicized by Contractor without the
prior written permission of AHCCCSA.  Subject to applicable state
and Federal laws and regulations, AHCCCSA shall have full and
complete rights to reproduce, duplicate, disclose and otherwise
use all such information.  At the termination of the contract,
Contractor shall make available all such data to AHCCCSA within
30 days following termination of the contract or such longer
period as approved by AHCCCSA, Office of the Director.  For
purposes of this subsection, the term "data" shall not include
member medical records.

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

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

If AHCCCS undertakes direct operation of the Contractor, AHCCCS,
through designees appointed by the Director, shall be vested with
full and exclusive power of management and control of the
Contractor as necessary to ensure the uninterrupted care to
persons and accomplish the orderly transition of persons to a new
or existing Contractor, or until the Contractor corrects the
Contract Performance failure to the satisfaction of AHCCCS.
AHCCCS shall have the power to employ any necessary assistants,
to execute any instrument in the name of the Contractor, to
commence, defend and conduct in its name any action or proceeding
in which the Contractor may be a party.

All reasonable expenses of AHCCCS related to the direct operation
of the Contractor, including attorney fees, cost of preliminary
or other audits of the Contractor and expenses related to the
management of any office or other assets of the Contractor, shall
be paid by the Contractor or withheld from payment due from
AHCCCS to the Contractor.

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

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

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

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

43)  CHOICE OF FORUM
The parties agree that jurisdiction over any action arising out
of or relating to this contract shall be brought or filed in a
court of competent jurisdiction located in the State of Arizona.

[END OF SECTION E]
ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS

[The following provisions must be included verbatim in every
subcontract.]

1)   EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF
     SERVICES
The Arizona Health Care Cost Containment System Administration
(AHCCCSA) or the U.S. Department of Health and Human Services may
evaluate, through inspection or other means, the quality,
appropriateness or timeliness of services performed under this
subcontract.

2)   RECORDS AND REPORTS
The Contractor shall maintain all forms, records, reports and
working papers used in the preparation of reports, files,
correspondence, financial statements, records relating to quality
of care, medical records, prescription files, statistical
information and other records specified by AHCCCSA for purposes
of audit and program management. The Contractor shall comply with
all specifications for record-keeping established by AHCCCSA.
All books and records shall be maintained to the extent and in
such detail as shall properly reflect each service provided and
all net costs, direct and indirect, of labor, materials,
equipment, supplies and services, and other costs and expenses of
whatever nature for which payment is made to the Contractor.
Such material shall be subject to inspection and copying by the
state, AHCCCSA and the U.S. Department of Health and Human
Services during normal business hours at the place of business of
the person or organization maintaining the records.

The Contractor agrees to make available at the office of the
Contractor, at all times reasonable times, any of its records for
inspection, audit or reproduction, by any authorized
representative of the state or Federal governments.

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

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

b.   Records which relate to disputes, litigation or the
     settlement of claims arising out of the performance of this
     subcontract, or costs and expenses of this subcontract to
     which exception has been taken by the state, shall be
     retained by the Contractor until such disputes, litigation,
     claims or exceptions have been disposed of.

The Contractor shall provide all reports requested by AHCCCSA,
and all information from records relating to the performance of
the Contractor which AHCCCSA may reasonably require.  The
Contractor reporting requirements may include, but are not
limited to, timely and detailed utilization statistics,
information and reports.

3)   LIMITATIONS ON BILLING AND COLLECTION PRACTICES
The Contractor shall not bill, nor attempt to collect payment
directly or through a collection agency from a person claiming to
be AHCCCS eligible without first receiving verification from
AHCCCSA that the person was ineligible for AHCCCS on the date of
service, or that services provided were not AHCCCS covered
services.  This provision shall not apply to patient
contributions to the cost of services delivered by nursing homes.

4)   ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES
No payment due the Contractor under this subcontract may be
assigned without the prior approval of AHCCCSA. No assignment or
delegation of the duties of this subcontract shall be valid
unless prior written approval is received from AHCCCSA.

5)   APPROVAL OF SUBCONTRACTS, AMENDMENTS OR TERMINATIONS
This subcontract is subject to prior approval by AHCCCSA.  The
prime contractor shall notify AHCCCSA in the event of any
proposed amendment or termination during the term hereof.  Any
such amendment or termination is subject to the prior approval of
AHCCCSA.  Approval of the subcontract may be rescinded by the
Director of AHCCCSA for violation of Federal or State laws or
rules.

6)   WARRANTY OF SERVICES
The Contractor, by execution of this subcontract, warrants that
it has the ability, authority, skill, expertise and capacity to
perform the services specified in this contract.

7)   SUBJECTION OF SUBCONTRACT
The terms of this subcontract shall be subject to the applicable
material terms and conditions of the contract existing between
the Contractor and AHCCCSA for the provision of covered services.

8)   AWARDS OF OTHER SUBCONTRACTS
AHCCCSA and/or the prime contractor may undertake or award other
contracts for additional or related work to the work performed by
the Contractor and the Contractor shall fully cooperate with such
other contractors, subcontractors or state employees.  The
Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor,
subcontractor or state employee.

9)   INDEMNIFICATION BY CONTRACTOR
The Contractor agrees to hold harmless the state, all state
officers and employees, AHCCCSA and other appropriate state
agencies, and all officers and employees of AHCCCSA and all
AHCCCS eligible persons in the event of nonpayment to the
Contractor.  The Contractor shall further indemnify and hold
harmless the state, AHCCCSA, other appropriate state agencies,
AHCCCS contractors, and their agents, officers and employees
against all injuries, deaths, losses, damages, claims, suits,
liabilities, judgments, costs and expenses which may, in any
manner, accrue against the State, AHCCCSA or its agents, officers
or employees, or AHCCCS contractors, through the intentional
conduct, negligence or omission of the Contractor, its agent,
officers or employees.

10)  MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE
       SERVICES
The Contractor shall be registered with AHCCCSA and shall obtain
and maintain all licenses, permits and authority necessary to do
business and render service under this subcontract and, where
applicable, shall comply with all laws regarding safety,
unemployment insurance, disability insurance and worker's
compensation.

11)  COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS
The Contractor shall comply with all Federal, State and local
laws, rules, regulations, standards and executive orders
governing performance of duties under this subcontract, without
limitation to those designated within this subcontract.

12)  SEVERABILITY
If any provision of these standard subcontract terms and
conditions is held invalid or unenforceable, the remaining
provisions shall continue valid and enforceable to the full
extent permitted by law.

13)  VOIDABILITY OF SUBCONTRACT
This subcontract is voidable and subject to immediate termination
by AHCCCSA upon the Contractor becoming insolvent or filing
proceedings in bankruptcy or reorganization under the United
States Code, or upon assignment or delegation of the subcontract
without AHCCCSA's prior written approval.

14)  CONFIDENTIALITY REQUIREMENT
Confidential information shall be safeguarded pursuant to 42 CFR
Part 431, Subpart F, A.R.S. 36-107, 36-2903, 41-1959 and 46-135,
and AHCCCS and/or ALTCS Rules.

15)  GRIEVANCE AND REQUEST FOR HEARING PROCEDURES
Any grievance and request for hearings filed by the Contractor
shall be adjudicated in accordance with AHCCCS Rules.  However,
on a case by case basis, the parties may agree to resolve the
dispute through binding arbitration.

16)  TERMINATION OF SUBCONTRACT
AHCCCSA may, by written notice to the Contractor, terminate this
subcontract if it is found, after notice and hearing by the
State, that gratuities in the form of entertainment, gifts, or
otherwise were offered or given by the Contractor, or any agent
or representative of the Contractor, to any officer or employee
of the State with a view towards securing a contract or securing
favorable treatment with respect to the awarding, amending or the
making of any determinations with respect to the performance of
the Contractor; provided, that the existence of the facts upon
which the state makes such findings shall be in issue and may be
reviewed in any competent court.  If the subcontract is
terminated under this section, unless the prime contractor is a
governmental agency, instrumentality or subdivision thereof,
AHCCCSA shall be entitled to a penalty, in addition to any other
damages to which it may be entitled by law, and to exemplary
damages in the amount of three times the cost incurred by the
Contractor in providing any such gratuities to any such officer
or employee.

17)  PRIOR AUTHORIZATION and UTILIZATION REVIEW
The prime contractor and Contractor shall develop, maintain and
use a system for Prior Authorization  and Utilization Review
which is consistent with AHCCCS Rules and the prime contractor's
policies.

18)  NON-DISCRIMINATION REQUIREMENTS
If applicable, the Contractor shall comply with:

a.   The Equal Pay Act of 1963, as amended, which prohibits sex
     discrimination in the payment of wages to men and women
     performing substantially equal work under similar working
     conditions in the same establishment.

b.   Title VI of the Civil Rights Act of 1964, as amended, which
     prohibits the denial of benefits of, or participation in,
     contract services on the basis of race, color, or national
     origin.

c.   Title VII of the Civil Rights Act of 1964, as amended which
     prohibits private employers, state and local governments, and
     educational institutions from discriminating against their
     employees and job applicants on the basis of race, religion,
     color, sex, or national origin.

d.   Title I of the Americans with Disabilities Act of 1990, as
     amended, which prohibits private employers and state and local
     governments from discriminating against job applicants and
     employees on the basis of disability.

e.   The Civil Rights Act of 1991, which reverses in whole or in
     part, several recent Supreme Court decisions interpreting Title
     VII.

f.    The Age Discrimination in Employment Act (A.R.S. Title 41-
      1461, et seq.); which prohibits discrimination based on age.

g.   State Executive Order 99-4 and Federal Order 11246 which
     mandates that all persons, regardless of race, color, religion,
     sex, age, national origin or political affiliation, shall have
     equal access to employment opportunities.

h.   Section 503 of the Rehabilitation Act of 1973, as amended,
     which prohibits discrimination in the employment or advancement
     of the employment of qualified persons because of physical or
     mental handicap.

i.   Section 504 of the Rehabilitation Act of 1973, as amended,
     which prohibits discrimination on the basis of handicap in
     delivering contract services.

19)  COMPLIANCE WITH AHCCCS RULES RELATING TO AUDIT AND
     INSPECTION
The Contractor shall comply with all applicable AHCCCS Rules and
Audit Guide relating to the audit of the Contractor's records and
the inspection of the Contractor's facilities.  If the Contractor
is an inpatient facility, the Contractor shall file uniform
reports and Title XVIII and Title XIX cost reports with AHCCCSA.

20)  CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION
By signing this subcontract, the Contractor certifies that all
representations set forth herein are true to the best of its
knowledge.

21)  CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK and LABORATORY
     TESTING
By signing this subcontract, the Contractor certifies that it has
not engaged in any violation of the Medicare Anti-Kickback
statute (42 USC 1320a-7b) or the "Stark I" and "Stark II" laws
governing related-entity referrals (PL 101-239 and PL 101-432)
and compensation therefrom.  If the Contractor provides
laboratory testing, it certifies that it has complied with 42 CFR
411.361 and has sent to AHCCCSA simultaneous copies of the
information required by that rule to be sent to the Health Care
Financing Administration.

22)  CONFLICT IN INTERPRETATION OF PROVISIONS
In the event of any conflict in interpretation between provisions
of this subcontract and the AHCCCS Minimum Subcontract
Provisions, the latter shall take precedence.

23)  ENCOUNTER DATA REQUIREMENT
If the Contractor does not bill the prime contractor (e.g.,
Contractor is capitated), the Contractor shall submit encounter
data to the prime contractor in a form acceptable to AHCCCSA.

24)  CLINICAL LABORATORY IMPROVEMENT AMENDMENT (CLIA) OF 1988
The Clinical Laboratory Improvement Amendment (CLIA) of 1988
requires laboratories and other facilities that test human
specimens to obtain either a CLIA Waiver or CLIA Certificate in
order to obtain reimbursement from the Medicare and Medicaid
(AHCCCS) programs.  In addition, they must meet all the
requirements of 42 CFR 493, Subpart A.

To comply with these requirements, AHCCCSA requires all clinical
laboratories to provide verification of CLIA Licensure or
Certificate of Waiver during the provider registration process.
Failure to do so shall result in either a termination of an
active provider ID number or denial of initial registration.
These requirements apply to all clinical laboratories.

Pass-through billing or other similar activities with the intent
of avoiding the above requirements are prohibited.  Prime
contractor may not reimburse providers who do not comply with the
above requirements.

25)  INSURANCE
[This provision applies only if  the Contractor provides services
directly to AHCCCS members]

The Contractor shall maintain, for the duration of this
subcontract, a policy or policies of professional liability
insurance, comprehensive general liability insurance and
automobile liability insurance.  The Contractor agrees that any
insurance protection required by this subcontract, or otherwise
obtained by the Contractor, shall not limit the responsibility of
the Contractor to indemnify, keep and save harmless and defend
the State and AHCCCSA, their agents, officers and employees as
provided herein.  Furthermore, the Contractor shall be fully
responsible for all tax obligations, Worker's Compensation
Insurance, and all other applicable insurance coverage, for
itself and its employees, and AHCCCSA shall have no
responsibility or liability for any such taxes or insurance
coverage.

26)  FRAUD AND ABUSE
If the Contractor discovers, or is made aware, that an incident
of potential fraud or abuse has occurred, the Contractor shall
report the incident to the prime contractor, who shall proceed in
accordance with the AHCCCS Health Plans and Program Contractors
Policy for Prevention, Detection and Reporting of Fraud and
Abuse.  Incidents involving potential member eligibility fraud
should be reported to AHCCCSA, Office of Program Integrity,
Member Fraud Unit.  All other incidents of potential fraud should
be reported to AHCCCSA, Office of the Director, Office of Program
Integrity.  (See AHCCCS Rule R9-22-511.)

ATTACHMENT B: MINIMUM NETWORK STANDARDS
(By Geographic Service Area)

INSTRUCTIONS:
Contractors shall have in place an adequate network of providers capable
of meeting contract requirements. The information that follows describes
the minimum network requirements by Geographic Service Area (GSA).
In some GSA's there are required service sites located outside of the
geographical boundary of a GSA. The reason for this relates to practical
access to care. In certain instances. a member must travel a much greater
distance to receive services within their assigned GSA, if the member were
not allowed to receive services in an adjoining GSA or state.

Split zip codes occur in some counties. Split zip codes are those which
straddle two different counties.  Enrollment for members residing in these
zip codes is based upon the county and GSA to which the entire zip
code has been assigned by AHCCCS. The Contractor shall be responsible
for providing services to members residing in the entire zip code that is
assigned to the GSA for which the Contractor has agreed to provide services.
The split zip cooes GSA assignments are as follows:

ZIP CODE	SPLIT BETWEEN		COUNTY ASSIGNED	ASSIGNED GSA
		THESE COUNTIES		TO
---------------------------------------------------------------------------
85220		Pinal and Maricopa	Maricopa		12
85242		Pinal and Maricopa	Maricopa		12
85292		Gila and Pinal		Gila			8
85342		Yavapai and Maricopa	Maricopa		12
85358		Yavapai and Maricopa	Maricopa		12
85390		Yavapai and Maricopa	Maricopa		12
85643		Graham and Cochise	Cochise		18
85645		Pima and Santa Cruz	Santa Cruz		18
85943		Apache and Navajo		Navajo		16
86336		Coconino and Yavapai	Yavapai		6
86351		Coconino and Yavapai	Coconino		6
86434		Mohave and Yavapai	Yavapai		6

If outpatient specialty services (OB, family planning and
pediatrics) are not included in the primary care provider contract,
at least one subcontract is required for each of these specialties in
the service sites specified. General surgeons must be available within
50 miles of service sites.

In Tucson (GSA 10) and Metropolitan Phoenix (GSA 12), the Contractor
must demonstrate its ability to provide PCP, dental and pharmacy services
so that members don't need to travel more than 5 miles from their residence.
Metropolitan Phoenix is defined on the Minimum Network Standard
page specific to GSA # 12.

At a minimum, the Contractor shall have a physician with admitting and
treatment privileges with each hospital in its network. Contractors in
GSA 10 and/or GSA 12 must have at least one hospital contract in each
service district. This requirement is part of the Hospital Subcontracting
and Reimbursement Pilot Program, described more fully in Section D,
Paragraph 35, Hospital Reimbursement. A list of Phoenix and Tucson area
hospitals are included.
Provider categoriessrequired at various service delivery sites included in
the Service Area Minimum Network Standards are indicated as follows:

	H	Hospitals
	P	Primary Care Proyjders (physicians, certified nurse
		practitioners and physician assistants)
	D	Dentists
	Ph	Pharmacies

HOSPITALS IN PHOENIX METROPOLITAN AREA (By service district, by zip code)

DISTRICT 1
85006 	Good Samaritan Regional Medical Center Phoenix Children's Hospital
		St. Luke's Medical Center
85007 	Phoenix Memorial Hospital
85008 	Maricopa Medical Center
85013 	St. Joseph's Hospital & Medical Center
85015 	Phoenix Baptist Hospital & Medical Center
85020 	John C. Lincoln Hospital -North Mountain
85027 	John C. Lincoln Hospital-Deer Valley

DISTRICT 2
85031 	Maryvale Hospital Medical Center
85031 	Paradise Valley Hospital
85306 	Thunderbird Samaritan Medical Center
85308 	Arrowhead Community Hospital & Medical Center
8535 I 	Walter O. Boswell Memorial Hospital
85375 	Del E. Webb Memorial Hospital
85054 	Mayo Clinic Hospital

DISTRICT 3
85201 	Mesa General Hospital Medical Center
		Mesa Lutheran Hospital
85202 	Desert Samaritan Medical Center
85206 	Valley Lutheran Hospital
85224 	Chandler Regional Hospital
8525 J 	Scottsdale Healthcare- Osborn
8526 J 	Scottsdale Healthcare- Shea
85281 	Tempe St. Luke's Hospital

HOSPITALS IN TUCSON METROPOLITAN AREA (By service district, by zip code)

DISTRICT 1
85719 	University Medical Center
85741 	Northwest Hospital
85745 	Carondelet St. Mary's Hospital

DISTRICT 2
85711 	Carondelet St. Joseph's Hospital
85712 	El Dorado Hospital
		Tucson Medical Center
85713 	Kino Community Hospital

Minimum Network Standards
Geographic Service Area 2

COUNTY: YUMA
Hospitals
Yuma

Primary Care Providers
Yuma
Somerton
Wellton

Dentist
Yuma

Pharmacies
Yuma

[MAP]

Minimum Network Standards
Geographic Service Area 4

COUNTIES: LA PAZ AND MOHAVE

Hospitals
Bullhead City
Kingman
Lake Havasu City
Parker
St. George, Utah

Primary Care Providers
Blythe
Bullhead City
Colorado City/HilldalelKnab, Utah
Kingman
Lake Havasu City
Parker
St. George. Utah/Mesquite

Dentist
Blythe
Bullhead City
Colorado City/HilIdale/Kanab, Utah
Kingman
Lake Havasu city
Parker
St. George, Utah/Mesquite

Pharmacies
Blythe
Bullhead City
Kanab, Utah
Kingman
Lake Havasu City
Parker
St. George, Utah/Mesquite

[MAP]

Minimum Network Standards
Geographic Service Area 4

COUNTIES: COCONINO AND YAVAPAI

Hospitals
Cottonwood
Flagstaff
Kanab, Utah
Kingman
Page
Payson
PhoenixWickenburg
Prescott
Winslow

Primary Care Providers
Camp Verde
Cottonwood
Flagstaff
Knab, Utah
Kingman
Page
Payson
Phoenix/Wickenburg
Prescott
Prescott Valley
Sedona
Williams
Winslow

Dentist
SAME AS PRIMARY CARE
PROVIDERS

Pharmacies
SAME AS PRIMARY CARE
PROVIDERS

[MAP]

Minimum Network Standards
Geographic Service Area 8

COUNTIES: PINAL AND GILA

Hospital
Casa Grande
Claypool
Mesa
Payson

Primary Care Providers
Apache Junction
Casa Grande
Coolidge/Florence
Eloy
Globe/Miami/Claypool
Kearney
Mammoth/San Manuel/Oracle
Mesa
Payson

Dentist
Apache Junction
Casa Grande
Coolidge/FIorence
Eloy
Globe/Miami/CIaypool
Kearney
Mammoth/San ManueVOracle
Mesa
Payson

Pharmacies
Apache Junction
Casa Grande
Coolidge/Florence
Globe/Miami/Claypool
Kearney
Mammoth/San Manuel/Oracle
Mesa
Payson

[MAP]

Minimum Network Standards
Geographic Service Area 10

COUNTY: PIMA

Hospital
Tucson
District 1
Contract Required
District 2
Contract Required
Nogales
Physician(s) w/admit and treatment
privileges required

Primary Care Providers
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

Dentist
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

Pharmacies
Ajo
Catalina
Green Valley/Continental
Nogales
Oro Valley
Tucson

[MAP]

Minimum Network Standards
Geographic Service Area 12

COUNTY: MARICOPA

Hospital
Metropolitan Phoenix*
District 1
Contract Required
District 2
Contract Required
District 3
Contract Required
Wickenburg
Physician(s) w/admit and treatnx:nt
privileges required

Primary Care Providers
Avondale/Goodyear/Litchfield
Park/Tolleson
Buckeye
Gila Bend
Metropolitan Phoenix*
Queen Creek
Wickenburg

Dentist
Avondale/Buckeye/Goodyear/Litchfield
Park/Tolleson
Metropolitan Phoenix*
Wickenburg

Pharmacies
Avondale/Goodyear/Litchfield
Park/Tolleson
Buckeye
Metropolitan Phoenix*
Wickenburg

[MAP]

*For Purposes of this RFP, Metropolitan Phoenix encompasses the following:
Phoenix, Paradise Valley, Cave Creek/Carefree, Fountain Hills, Scottsdale,
Glendale, Sun City/Sun City West, Tempe, Mesa, Gilbert, Chandler,
Apache Junction, Peoria, El Mirage, Guadalupe, Surprise and Youngstown.
Within this area,  distance standards must be met as specified in
Attachment B.

Minimum Network Standards
Geographic Service Area 14

COUNTIES: GRAHAM AND GREENLEE

Hospital
Safford

Primary Care Providers
Morenci/Clifton
Safford

Dentist
Morenci/Clifton
Safford

Pharmacies
Morenci/Clifton
SaffordfThatcher

[MAP]

Minimum Network Standards
Geographic Service Area 16

COUNTIES: APACHE AND NAVAJO

Hospital
Gallup, NM
Showlow
Springerville
Winslow

Primary Care Providers
Gallup, NM
Holbrook
Showlow /Pinetop/Lakeside
Snowflake/Taylor
Springerville/Eager
St. Johns
Winslow

Dentist
Gallup, NM
Holbrook
Showlow/Pinetop/Lakeside
Snowflake/Taylor
Springerville/Eager
St. Johns
Winslow

Pharmacies
Gallup, NM
Holbrook
Showlow/Pinetop/Lakeside
Snowflake/Taylor
Springerville/Eager
St. Johns
Winslow

[MAP]

Minimum Network Standards
Geographic Service Area 18

COUNTIES: COCHISE AND SANTA CRUZ

Hospital
Benson
Bisbee
Douglas
Nogales
Sierra Vista
Tucson
Wilcox

Primary Care Providers
Benson
Bisbee
Douglas
Nogales
Sierra Vista
Tucson
Wilcox

Dentist
Benson/Wilcox
Bisbee
Douglas
Nogales
Sierra Visas
Tucson

Pharmacies
Benson
Bisbee
Douglas
Nogales
Sierra Vista
Tucson
Wilcox

[MAP]

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

The following table is a summary of the periodic reporting
requirements for AHCCCS acute care contractors and is subject to
change at any time during the term of the contract.  The table is
presented for convenience only and should not be construed to
limit the Contractor's responsibilities in any manner.
"Reporting Guide" refers to the Reporting Guide for Acute Health
Care Contractors with the Arizona Health Care Cost Containment
System.

 REPORT           WHEN DUE         	SOURCE/		AHCCCS
			                  REFERENCE         CONTACT:

 Monthly          30  days  after   Reporting Guide   Financial
 Financial        the  end of the                     Manager
 Reporting        month, as
 Package          applicable

 Quarterly        60  days  after   Reporting Guide   Financial
 Financial        the end of each                     Manager
 Reporting        quarter
 Package

 Draft Annual     90  days  after  	Reporting Guide   Financial
 Financial        the end of each                     Manager
 Reporting        fiscal year
 Package

 Final Annual     120  days after   Reporting Guide	Financial
 Financial        the end of each                  	Manager
 Reporting        fiscal year
 Package

 Management       120  days after   Reporting Guide   Financial
 Services         the  end of the                     Manager
 Subcontractor    subcontractor's
 Audit Report     fiscal year
(if services >
 $50,000)

 Physician        Annually by  	RFP, Section  D,	Financial
 Incentive Plan   October 1st  of  	Paragraph 18      Manager
 (PIP) reporting  each year

 Provider         10 business  	PMMIS Provider-	Operations
 Affiliation      days after the    to-Health Plan	Manager
 Transmission     beginning of  	submission and
			each quarter     	processing

Corrected         Monthly,		Encounter		Encounter
Pended	      according to 	Manual		Administrator
Encounter		established
Data			schedule

New Day	      Monthly, 		Encounter		Encounter
Encounter	      according to	Manual		Administrator
Data			established
			schedule

Medical	      90 days after the	RFP,  Section C,	Encounter
Records	      request received from	Paragraph 1	Administrator
for	        	AHCCCSA
Validation

Quarterly	      45 days after the end	RFP, Section D,	Administrative
Grievance	      of each quarter		Paragraph 63	Assistant
and Appeals
Report

Comprehensive
EPSDT	        	Annually on		RFP, Section D,	OMM/CQM
Plan	        	December 15th	Paragraph 16
including
Dental

EPSDT	        	15 days after the end	AMPM,		OMM/CQM
Progress          of each quarter		Chapter 400
Report
including
Dental-
Quarterly
Update

Quarterly         15 days after the end	State Medicaid	OMM CSM
Inpatient	      of each quarter		Manual and AMPM,	Administrator
Hospital  						Chapter 1000
Showing

Quality           Annually on		AMPM,			OMM/CQM
Management/  	December 15th	Chapter 900
Utilization
Management
Plan
Evaluation and
Revision

Monthly           End of the month	AMPM,			OMM/CQM
Pregnancy         following the	Chapter 400
Termination       pregnancy
Report

Maternity         Annually on		AMPM,			OMM/CQM
Care Plan         December 15th	Chapter 400

Semi-	         	30 days after the end	AMPM,		OMM/CQM
annual	      of the 2nd and 4th	Chapter 400
report of	      quarter of each contract
number of         year
pregnant
women who
are HIV/AIDS
positive

Cultural          55 days after the first	AHCCCS Cultural	OMC,
Competency    	day of a new contract		Competency Policy	Operations
Plan	        	year

Quality           Annually on December	AMPM,		OMM/CQM
Improvement  	15th				Chapter 900
Project
Proposal
(initial/
baseline year
of the project)

Quality           Annually on December	AMPM,		OMM,CQM
Improvement  	15th				Chapter 900
Project
Interim
Report
(intervention/
measurement
year(s) of the
project)

Quality           Within 180 days of the	AMPM		OMM/CQM
Improvement   	end of the project, as	Chapter 900
Project Final    	defined in the project
Report	      proposal approved by
		      AHCCCS OMM

Provider          Immediately following	AHCCCS Internal	Office of Program
Fraud/	      discovery			Audit/Program	Integrity Manager
Abuse							Investigation
Report						Policy for Prevention,
							Detection and Reporting
							of Fraud and Abuse

Eligible          Immediately following	AHCCCS Internal	Office of Program
Person	      discovery			Audit/Program	Integrity Manager
Fraud/						Investigation
Abuse							Policy for Prevention,
Report						Detection and Reporting
							of Fraud and Abuse

Non-	       	Annually, within 30 	RFP, Section D,	OMM CMS
Transplant        days of the beginning	Paragraph 39	Reinsurance Manager
Catastrophic    	of the contract year,
Reinsurance     	enrollment to the plan,
covered           and when newly diagnosed.
Diseases

ATTACHMENT G: AUTO-ASSIGNMENT ALGORITHM
Members who have the right to choose but do not exercise this right,
are assigned to contractors through an auto-assignment algorithm.
The algorithm is a mathematical formula used to distribute members to
the various contractors in a manner that is predictable and consistent
with AHCCCSA goals.

The algorithm employs a data table and a formula to assign cases (a case
may be a member or a household of members) to contractors using the target
percentages developed. The algorithm data table consists of all the
zip codes in the state, all contractors serving each zip code area, and
the target percentages by rate code within each zip code.

The contractor farthest away from its target percentage within a zip code
and rate code, the largest negative difference, is assigned the next case
for that zip code. The equation used is:

	(t/T) - P = d

t = The total members assigned to the zip code per rate code category
    for the contractor
T = The total members assigned to the zip code per rate code category, all
    contractors combined
P = The target percentage of members for the rate code for the contractor
d = The difference

The algorithm is calculated after each assignment to give a new difference
for each contractor. When more than one contractor has the same difference,
and their differences are greater than all other contractors, the
contractor with the lowest Health Plan I.D. Number will be assigned the case.

All contractors, within a given geographic service area (GSA) and for each
rate code, will have a placement in the algorithm and will receive members
accordingly. A contractor with a more favorable target percentage in the
algorithm will receive proportionally more
members. Conversely, a contractor with a lower target
percentage in the algorithm will receive proportionally fewer members.
The algorithm favors contractors with both lower final bids and awarded
rates. The algorithm also favors those contractors with programs that score
higher based on AHCCCSA's evaluation criteria.

Development of the Target Percentages

For the first year of the contract, the algorithm target percentages
will be developed using the methodology described below. However, for
subsequent years, AHCCCS reserves the right to change the algorithm
methodology to assure assignments are made in the best interest of the
AHCCCS program and the state. A contractor's placement in the algorithm
is based upon the following three factors which are weighted equally
(i.e., 33.33%):

1. The final capitation rate bid submitted by the contractor. Final bids
   that are below the bottom of the rate range will be assigned to the
   bottom of the rate range for development of the target percentages.
2. The contractor's final awarded rate from AHCCCSA.
3. The contractor's score on the Program component of the proposal.

Points will be assigned to each contractor by rate code by GSA.
Based on the rankings of the final bids submitted and the final awarded
rates, each contractor will be assigned a number of points for each of
these two components separately as follows:

TABLE FOR FACTORS #1 AND #2

Number of	Lowest 2nd    3rd    4th    5th    6th	7th	 8th
Awards in   Rate   Lowest Lowest Lowest Lowest Lowest Lowest Lowest
GSA		Rate	 Rate	  Rate   Rate   Rate   Rate	Rate   Rate

2	   	60	40
3	   	44	32	  24
4	   	35	28	  22	   15
5	   	30	25	  20	   15	    10
6	   	26	23	  19	   15	    11     6
7	   	25	20	  17	   14	    11     8	5
8	   	25	17	  15	   13	    11     8	6      5

Contractors that have equal bids in a GSA for the same rate code will be
given an equal percentage of the points for all of the positions combined.

The third component of the calculation, program scores, will be assigned
a number of points based on where the contractor ranks among the scores.
The higher the score, the more points assigned.  For this
component, points will be assigned as follows:

TABLE FOR FACTOR #3

Number of   Highest 2nd     3rd   	4th	  5th	    6th	7th	  8th
Awards in   Program Highest Highest	Highest Highest Highest	Highest Highest
GSA	   	Rate	  Rate    Rate	Rate	  Rate    Rate	Rate	  Rate

2	   	60	  40
3	   	44	  32	    24
4	 	35	  28	    22	15
5	   	30	  25	    20	15	  10
6	   	26	  23	    19	15	  11	    6
7	  	25	  20	    17	14	  11	    8		5
8	   	25	  17	    15	13	  11	    8	      6	  5

Contractors that have equal program scores will be given an equal percentage
of the points for all of the positions combined.

The points awarded for the three components will be combined as follows to
give the target pententage for each contractor by GSA by rate code.

Final Bid Points + Awarded Bid Points + Program Score Points = TARGET PERCENTAGE
------------------------------------------------------------
				300

Contractors that have equal bids in a GSA for the same rate code will be
given an equal percentage of the positions combined.

ATTACHMENT H: GRIEVANCE AND REQUEST FOR HEARING PROCESS AND STANDARDS

The Contractor shall have in place a written grievance and
request for hearing policy for members and providers which
defines and explains their rights regarding any adverse action by
the Contractor.  The Contractor shall also ensure compliance with
the Members' Rights and Responsibilities Policy, as well as R9-22-
Article 13 and R9-31-Article 13.  The written grievance and
request for hearing policy shall be in accordance with applicable
Federal and State laws and AHCCCS rules and policies including,
but not limited to, R9-22-Article 8 and R9-31-Article 8.  The
grievance and request for hearing policy shall include the
following provisions:

a.   The grievance and request for hearing policy shall be
     provided to members at the time of enrollment with the
     Contractor.
b.   The grievance and request for hearing policy shall be
     provided to all subcontractors at the time of contract.  For
     providers without a contract, the grievance and request for
     hearing policy may be mailed with a remittance advice, provided
     the remittance is sent within 45 days of receipt of a claim.
c.   The grievance and request for hearing policy must specify
     that all grievances, with the exception of those challenging
     claim denials, must be filed with the Contractor no later than 60
     days from the date of the adverse action.  Grievances challenging
     claim denials must be filed in writing with the Contractor no
     later that 12 months from the date of service, 12 months after
     the date of eligibility posting or within 60 days after the date
     of a timely claim submission, whichever is later.
d.   Specific individuals are appointed with authority to require
     corrective action and with requisite experience to administer the
     grievance and request for hearing policy.
e.   A log is maintained for all grievances and requests for
     hearing containing sufficient information to identify the
     Complainant, date of receipt, nature of the grievance and the
     date the grievance is resolved.  Separate logs must be maintained
     for provider and member grievances
f.   Within five working days of receipt, the Complainant is
     informed by letter that the grievance has been received.
g.   All correspondence must be provided in a second language in
     accordance with the Member Information standards set forth in
     Section D, Paragraph 8.  In addition, the Contractor must make
     arrangements to ensure that it complies with "cultural competency
     requirements."
h.   Each grievance and request for hearing is thoroughly
     investigated using the applicable statutory, regulatory,
     contractual and policy provisions, ensuring that facts are
     obtained from all parties.
i.   All documentation received and mailed by the Contractor
     during the grievance and request for hearing process is dated
     upon receipt.
j.   All grievances and requests for hearing are filed in a
     secure designated area and are retained for five years following
     the Contractor's decision, the Administration's decision,
     judicial appeal or close of the grievance, whichever is later.
k.   A copy of the Contractor's decision will be either hand-
     delivered or delivered by certified mail to all parties whose
     interest has been adversely affected by the decision.  The
     decision shall be mailed to all other individuals by regular
     mail.  The date of the decision shall be the date of personal
     delivery or, if mailed, the postmark date of the mailing.  The
     decision must include and describe in detail, the following:
     1.   the nature of the grievance
     2.   the issues involved
     3.   the reasons supporting the Contractor's decision, explained
          in easy to understand terms for members, including references to
          applicable statute, rule, applicable contractual provisions,
          policy and procedure
    4.    the Complainant's right to request a hearing by filing the
          request for hearing to the Contractor no later than 30 days after
          the date of the Contractor's decision.
l.   If the Contractor's decision is appealed and a request for
     hearing is filed, the Contractor must ensure that all supporting
     documentation is received by the AHCCCSA, Office of Legal
     Assistance, no later than five working days from the date the
     Contractor receives the request for hearing or from the date of
     the verbal or written request from AHCCCSA, Office of Legal
     Assistance.  The file sent by the Contractor must contain a cover
     letter that includes:
     1.   Complainant's name
     2.   Complainant's AHCCCS ID number
     3.   Complainant's address
     4.   Complainant's phone number (if applicable)
     5.   date of receipt of grievance
     6.   summary of the Contractor's actions undertaken to resolve
          the grievance and basis of the determination
m.   The following material shall be included in the file sent by
     the Contractor:
     1.   written request of the Complainant asking for the request
          for hearing
     2.   copies of the entire file which includes the investigations
          and/or medical records; and the Contractor's decision
     3.   other information relevant to the resolution of the
          grievance
n.   The Contractor may attempt to use alternative resolution
     procedures to resolve disputes presented to the Contractor
     verbally or in writing.  If the Contractor elects to use an
     alternative resolution process, it must be administered and
     completed within 10 days from receipt of the dispute.  If the
     matter is not resolved to the Complainant's satisfaction within
     the 10-day time period, the dispute must then be adjudicated
     using the grievance and request for hearing standards referenced
     above.  However, the Contractor must render the written decision
     no later than 30 days from the date of the initial filing of the
     grievance or dispute unless a longer period was agreed to by the
     parties involved.
o.   For all disputes where an alternative resolution is
     proposed, the Contractor must maintain a separate log, complying
     with the relevant paragraphs above.

ATTACHMENT I:  ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed sanctions for noncompliance with
encounter submission requirements.  AHCCCSA may also perform
special reviews of encounter data, such as comparing encounter
reports to the Contractor's claims files.  Any findings of
incomplete or inaccurate encounter data may result in the
imposition of sanctions or requirement of a corrective action
plan.

Pended Encounter Corrections

The Contractor must resolve all pended encounters within 120 days
of the original processing date.  Sanctions will be imposed
according to the following schedule for each encounter pended for
more than 120 days unless the pend is due to AHCCCSA error:

0-120 days    121-180 days   181-240 days   241-360 days   361 + days
No sanction   $5 per month   $10 per month  $15 per month  $20 per month

"AHCCCSA error" is defined as a pended encounter which (1)
AHCCCSA acknowledges to be the result of its own error, and (2)
requires a change to the system programming, an update to the
database reference table, or further research by AHCCCSA.
AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA, in writing, that the
resolution of a pended encounter depends on AHCCCSA rather than
the Contractor, AHCCCSA will respond in writing within 30 days of
receipt of such notification.  The AHCCCSA response will report
the status of each pending encounter problem or issue in
question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA
reviews the Contractor's notification and asks the Contractor to
research the issue and provide additional substantiating
documentation, or if AHCCCSA disagrees with the Contractor's
claim of AHCCCSA error.  If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error,
the Contractor may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor, in
writing, of the total number of sanctionable encounters pended
more than 120 days.
Pended encounters shall not be deleted by the Contractor as a
means of avoiding sanctions for failure to correct encounters
within 120 days.  The Contractor shall document deleted
encounters and shall maintain a record of the deleted CRNs with
appropriate reasons indicated.  The Contractor shall, upon
request, make this documentation available to AHCCCSA for review.

Encounter Validation Studies

Per CMS requirement, AHCCCSA will conduct encounter validation
studies of the Contractor's encounter submissions, and sanction
the Contractor for noncompliance with encounter submission
requirements.  The purpose of encounter validation studies is to
compare recorded utilization information from a medical record or
other source with the Contractor's submitted encounter data.  Any
and all covered services may be validated as part of these
studies.  Encounter validation studies will be conducted at least
yearly.

AHCCCSA may revise study methodology, timelines, and sanction
amounts based on agency review or as a result of consultations
with CMS.  The Contractor will be notified in writing of any
significant change in study methodology.

AHCCCSA will conduct two encounter validation studies.  Study "A"
examines non-institutional services (form HCFA 1500 encounters),
and Study "B" examines institutional services (form UB-92
encounters).

AHCCCSA will notify the Contractor in writing of the sanction
amounts and of the selected data needed for encounter validation
studies.  The Contractor will have 90 days to submit the
requested data to AHCCCSA.  In the case of medical records
requests, the Contractor's failure to provide AHCCCSA with the
records requested within 90 days may result in a sanction of
$1,000 per missing medical record.  If AHCCCSA does not receive a
sufficient number of medical records from the Contractor to
select a statistically valid sample for a study, the Contractor
may be sanctioned up to 5% of its annual capitation payment.

The criteria used in encounter validation studies may include
timeliness, correctness, and omission of encounters.   These
criteria are defined as follows:

Timeliness:   The time elapsed between the date of service and
the date that the encounter is received at AHCCCS.  All
encounters must be received by AHCCCSA no later than 240 days
after the end of the month in which the service was rendered, or
the effective date of enrollment with the Contractor, whichever
is later.  For all encounters for which timeliness is evaluated,
a sanction per encounter error extrapolated to the population of
encounters may be assessed if the encounter record is received by
AHCCCSA more than 240 days after the date determined above.  It
is anticipated that the sanction amount will be $1.00 per error
extrapolated to the population of encounters; however, sanction
amounts may be adjusted if AHCCCSA determines that encounter
quality has changed, or if CMS changes sanction requirements.
The Contractor will be notified of the sanction amount in effect
for the studies at the time the studies begin.

Correctness:   A correct encounter contains a complete and
accurate description of AHCCCS covered services provided to a
member.  A sanction per encounter error extrapolated to the
population of encounters may be assessed if the encounter is
incomplete or incorrectly coded.  It is anticipated that the
sanction amount will be $1.00 per error extrapolated to the
population of encounters; however, sanction amounts may be
adjusted if AHCCCSA determines that encounter quality has
changed, or if CMS changes sanction requirements.  The Contractor
will be notified of the sanction amount in effect for the studies
at the time the studies begin.

Omission of data:   An encounter not submitted to AHCCCSA or an
encounter inappropriately deleted from AHCCCSA's pending
encounter file or historical files in lieu of correction of such
record.  For Study "A" and for Study "B", a sanction per
encounter error extrapolated to the population of encounters may
be assessed for an omission.  It is anticipated that the sanction
amount will be $5.00 per error extrapolated to the population of
encounters for Study "A" and $10.00 per error extrapolated to the
population of encounters for Study "B"; however, sanction amounts
may be adjusted if AHCCCSA determines that encounter quality has
changed, or if CMS changes sanction requirements.  The Contractor
will be notified of the sanction amount in effect for the studies
at the time the studies begin.

For encounter validation studies, AHCCCSA will select all
approved and pended encounters to be studied no earlier than 240
days after the end of the month in which the service was
rendered.  Once AHCCCSA has selected the Contractor's encounters
for encounter validation studies, subsequent encounter
submissions for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters,
or may select a sample.  The sample size, or number of encounters
to be reviewed, will be determined using statistical methods in
order to accurately estimate the Contractor's error rates.  Error
rates will be calculated by dividing the number of errors found
by the number of encounters reviewed.  A 95% confidence interval
will be used to account for limitations caused by sampling.  The
confidence interval shows the range within which the true error
rate is estimated to be.  If error rates are based on a sample,
the error rate used for sanction purposes will be the lower limit
of the confidence interval.

Encounter validation methodology and statistical formulas are
provided in the AHCCCS Encounter Data Validation Technical
Document, which is available in the Bidders Library.  This
document also provides examples, which illustrate how AHCCCSA
determines study sample sizes, error rates, confidence intervals,
and sanction amounts.

Written preliminary results of all encounter validation studies
will be sent to the Contractor for review and comment.  The
Contractor will have a maximum of 30 days to review results and
provide AHCCCSA with additional documentation that would affect
the final calculation of error rates and sanctions.  AHCCCSA will
examine the Contractor's documentation and may revise study
results if warranted.  Written final results of the study will
then be sent to the Contractor and communicated to CMS, and any
sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed
by AHCCCSA not more than 35 days after the Contractor receives
final study results from AHCCCSA.  Challenges will be reviewed by
AHCCCSA and a written decision will be rendered no later than 60
days from the date of receipt of a timely challenge.  Sanctions
shall not apply to encounter errors successfully challenged.  A
challenge must be filed on a timely basis and a decision must be
rendered by AHCCCSA prior to filing a grievance and request for
hearing pursuant to Article 8 of AHCCCS Rules.  Sanction amounts
will be deducted from the Contractor's capitation payment.

Encounter Adjustments

Contractors are required to submit adjusted or voided encounters
in the event that claims are subsequently adjusted or denied
after the initial encounter submission.  This includes
adjustments for inaccuracies identified by fraud and abuse audits
or investigations conducted by AHCCCSA or the Contractor.
Contractors shall refer to the Encounter User's Manual for
further instructions regarding adjustments to encounters.

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