Document:

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                                                                    Exhibit 10.3

           Confidential Materials omitted and filed separately with
      The Securities and Exchange Commission. Asterisks denote omissions.

                                   AGREEMENT

           This Agreement is entered into effective the 1/st/ day of January,
  2001, by and between Network Health Plan of Wisconsin, Inc. (hereinafter
  referred to as "NHP"), a Wisconsin insurance corporation, and Managed Health
  Services Insurance Corp. (hereinafter referred to as "MHSIC"), a Wisconsin
  insurance corporation.

          WHEREAS, NHP is a domestic insurance corporation organized under the
  laws of the State of Wisconsin and maintaining a health maintenance
  organization for its eligible members through contractual arrangements with
  various participating providers and other entities;

          WHEREAS, NHP has contracted with the Wisconsin Department of Health
  and Family Services (hereinafter referred to as "DHFS") to provide and pay for
  Medical Assistance/BadgerCare contract services to recipients enrolled in NHP
  under the State Medical Assistance Plan (hereinafter referred to as
  "ENROLLEES");

          WHEREAS, the DHFS contract for services permits NHP to subcontract its
  duties and functions subject to the right of DHFS to approve such
  subcontracts;

          WHEREAS, MHSIC desires to enter into a subcontract with NHP under the
terms and conditions set forth herein;

          WHEREAS, the parties desire to enter into this Agreement in order to
 facilitate the provision of cost effective, covered health care services to NHP
 ENROLLEES in Wisconsin;

          NOW, THEREFORE, in consideration of the premises set forth above and
 the terms, covenants and conditions set forth below, the parties mutually agree
 as follows:

          1. MHSIC agrees to be obligated to NHP for all functions and duties
 assumed by NHP in the Contract for Services between NHP and DHFS, as renewed.
 amended, or replaced (hereinafter referred to as the "CONTRACT FOR SERVICES"),
 with respect to all NHP ENROLLEES in Wisconsin, with the exception of those
 functions specified herein as the obligations of NHP. MHSIC shall be
 responsible to comply with the requirements of the CONTRACT FOR SERVICES to the
 same extent as NHP is responsible for such requirements to DHFS. Unless the
 contract clearly requires otherwise, words used in this Agreement shall have
 the meanings assigned to them by the CONTRACT FOR SERVICES. A copy of the
 CONTRACT FOR SERVICES is attached hereto as Exhibit 1.

          2. The parties agree that MHSIC may enter into written agreements or
 subcontracts in order to fulfill MHSIC's duties under this Agreement. Such
 subcontracts shall be in accord with the requirements set forth in the CONTRACT
 FOR SERVICES, Addendum I-Subcontracts. MHSIC affirms that it may terminate a
 subcontract agreement immediately whenever the MHSIC Quality Assurance
 Committee and MHSIC Board of Directors determine the health or safety of
 ENROLLEES utilizing such subcontractor is endangered by actions of the
 subcontractor.

          3. In consideration for the services to be provided hereunder. NHP
 agrees to pay MHSIC an amount equal to all premium payments, supplemental
 payments and any other form

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of compensation received by NHP under the CONTRACT FOR SERVICES from the
State of Wisconsin or its agent or representative allocable to periods during
which this Agreement is in effect, less an amount equal to [****] per month per
member, plus an amount equal to the actual per member assessment for the Health
Insurance Risk Sharing Pool (HIRSP) that is allocable to all NHP ENROLLEES in
Wisconsin for the period during which this Agreement is in effect. NHP shall
give DHFS written authorization to issue directly to MHSIC monthly checks and
any and all other payments for the full amount of the compensation paid to NHP
by the State of Wisconsin. Within five (5) business days from the receipt of
such monthly compensation from the State of Wisconsin, MHSIC shall remit
directly to NHP on a monthly basis the amount specified above per NHP Enrollee
in Wisconsin.

          4. ENROLLEES shall be held harmless by MHSIC and/or its subcontracted
 providers for payment of monies owed by MHSIC. Neither MHSIC nor its
 subcontracted providers shall bill, collect from, or charge ENROLLEES for
 Covered Services or impose any surcharges for the provision of Covered
 Services. If MHSIC learns of any such unauthorized charge or surcharge, MHSIC
 shall take appropriate action to ensure a prompt refund. MHSIC and/or its
 subcontracted providers may bill ENROLLEES for noncovered services, or for
 services rendered after the ENROLLEES discontinue, or cease to be eligible for
 NHP membership. This section supersedes any present or future agreement to the
 contrary between an ENROLLEE or an ENROLLEE'S representative and MHSIC
 regarding payment for Covered Services.

         5. NHP, or its designee, has the right, at reasonable times, on a
 concurrent and/or retrospective basis, to review and/or obtain copies at NHP's
 sole expense, of medical records of NHP ENROLLEES in order to determine
 compliance with quality assurance standards and utilization review standards,
 NHP's medical director, or his or her designee, shall have the right to attend,
 as an observer, any utilization review or quality assurance meeting at MHSIC at
 which care rendered to NHP ENROLLEES is discussed, if such attendance will not
 violate any Wisconsin law regarding confidentiality of peer review discussions
 and peer review documents. NHP agrees that the person designated to attend such
 meetings shall be a licensed, medical professional and shall agree in advance
 to abide by all requirements of confidentiality of peer review documents and
 peer review discussions in accordance with Wisconsin law.

         6. The parties agree that all information, records and data collected
 in connection with this Agreement shall be protected from unauthorized
 disclosure as provided in Chapter 19, Subchapter II of this Wisconsin Statutes,
 and 42 C.F.R. ch. 431 Subpart F. Except as otherwise required by law, access to
 such information shall be limited by MHSIC to persons who, or agencies that
 require the information in order to perform their duties related to the
 Agreement. These persons or agencies include, but are not limited to, NHP, the
 US Department of Health and Human Services, the Wisconsin Department of
 Health and Family Services, and the Wisconsin Office of the Commissioner of
 Insurance, as may be necessary for compliance by NHP with the provisions of
 certain federal and state regulations. MHSIC shall maintain such records in
 accordance with the CONTRACT FOR SERVICES.

         7. MHSIC shall maintain a process for Credentialing all physicians
listed as providers in the provider directory provided to NHP ENROLLEES by MHSIC
and shall verify

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the Medicaid certification of all subcontracted providers pursuant to the
requirements of the CONTRACT FOR SERVICES.

          8.  MHSIC shall be responsible for prompt review and reconciliation of
ENROLLEE eligibility.

          9.  NHP, with reasonable cause, shall have the right to review and
provide oversight for all activities that have been questioned by Federal or
State agencies as non-compliant with the Federal HMO Act or the CONTRACT FOR
SERVICES and are performed by MHSIC. The method by which review and oversight
shall occur shall be subject to mutual written agreement of both parties.

          10. The effective date of this Agreement shall be January 1, 2001, and
shall have an initial term of six (6) years thereafter. This Agreement shall
thereafter be automatically renewed for successive five (5) year terms unless
terminated by mutual consent or pursuant to this Section. Either party may
terminate this Agreement upon notification to the other party two years prior to
the end of the original or any renewal term. In no case shall such termination
end the obligations of MHSIC and NHP to perform any remaining obligations either
party has pursuant to the CONTRACT FOR SERVICES or any remaining obligations of
either party as set forth in this Agreement. In addition, this Agreement may be
terminated during any initial or renewal term by MHSIC due to modifications
mandated by changes in the CONTRACT FOR SERVICES or in federal or state law,
regulations, or policies that materially affect MHSIC's rights or
responsibilities under this Agreement. In such case, MHSIC shall notify NHP. in
writing, at least ninety (90) days prior to the proposed date of termination of
its intent to terminate this Agreement pursuant to this Section.

          11. This Agreement shall terminate if the CONTRACT FOR SERVICES is
terminated. In the event of such termination, MHSIC shall be obligated to
perform the obligations set forth in Article X of the CONTRACT FOR SERVICES in
the paragraph entitled "Obligations of Contracting Parties" to the same extent
that NHP is obligated to DHFS and NHP agrees to fulfill any remaining
obligations it has to MHSIC pursuant to the terms of this Agreement.

          12. In the event that either party defaults in the performance of any
duties or obligations hereunder, including either party's inability or refusal
to provide services hereunder or either party's frustration of the purpose of
this Agreement so that the nondefaulting party is unable to perform its duties
hereunder, and the default or breach has not been cured within sixty (60) days
of the nondefaulting party's giving of written notice of the default, specifying
the nature of the alleged default or breach, the nondefaulting party may give
notice of intent to terminate this Agreement, and this Agreement will terminate
on the last day of the month in which the notice of intent to terminate is
received.

          13. NHP and MHSIC are separate and independent entities and neither
NHP nor MHSIC, nor the employees, servants, agents or representatives of either
shall be considered to be the employees, servants, agents or representatives of
the other party. The parties further agree that this Agreement shall also not be
construed to create a partnership or joint venture between the parties.

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     14.  MHSIC agrees that ENROLLEES shall not be discriminated against on the
basis of age, race, color, creed, religion, sex, sexual preference, national
origin, health status, or income level.

     15.  This Agreement may not be assigned by either party without the prior
written consent of the other party, except that NHP agrees that MHSIC may assign
this agreement to any one or more of its affiliates without the prior written
consent of NHP. MHSIC will notify NHP of any assignments in a timely manner.

     16.  Any controversy between the parties hereto not informally resolved by
appropriate representatives of the parties shall, upon the request of one (1)
party served on the other, be submitted to arbitration in accordance with the
following provision:

          If any claim, dispute or controversy shall arise among the parties
          hereto with respect to the making or termination of, construction of,
          the terms of, or the interpretation of this Agreement or the rights of
          any party hereto or with respect to any transaction involved, the
          claim, dispute or controversy shall be settled by arbitration by three
          (3) arbitrators in accordance with the then current Center for Public
          Resources Rules for Non-Administered Arbitration of Business Disputes.
          The arbitration shall be governed by the United States Arbitration
          Act, 9 U.S.C. (S)(S) 1-16, and judgment based on the arbitration award
          may be entered in any court having jurisdiction thereof. The place of
          the arbitration shall be Milwaukee, Wisconsin. The arbitrators are not
          empowered to award damages in excess of compensatory damages. Not
          withstanding the foregoing requirements, any party shall have the
          right to seek equitable relief, in a court of competent jurisdiction,
          to the extent that equitable relief is available to a person hereto.
          If a person chooses to pursue equitable relief, such conduct shall not
          constitute a waiver of or be deemed inconsistent with the arbitration
          provision set forth above.

     17.  MHSIC shall not use the name of Network Health Plan, or any derivative
thereof in any advertising or materials distributed to ENROLLEES, except for
normal operational correspondence with ENROLLEES.

     18.  Any notice, request, demand or other communication required or
permitted hereunder will be given in writing, by certified mail, to the party to
be notified. All communications will be deemed given upon delivery or attempted
delivery to the address specified herein. The addresses for the parties are as
follows:

     To NHP: Donald T. Schumann
             Director of Business Development
             Affinity Health System
             1570 Midway Place
             Menasha, WI 54952

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     To MHS: Kathleen Crampton
             President & CEO
             Managed Health Services
             1205 South 70/th/ Street
             West Allis, WI 53214

     19.  MHSIC shall maintain general liability insurance and professional
liability insurance in accord with industry standards at all times during the
term of this Agreement. Upon request of NHP, MHSIC shall provide a certificate
of insurance evidencing such coverage. MHSIC further agrees to require that
physician members and subcontracted providers of MHSIC maintain such
professional liability insurance as required by Wisconsin law to participate in
the Wisconsin Patients Compensation Fund.

     20.  MHSIC shall indemnify and hold NHP, its shareholders, officers,
directors, employees, and agents harmless from and against any and all
liabilities, losses, settlements, claims, demands and expenses of any kind
(including, without limitation, reasonable attorneys fees), that may result from
any business dispute between MHSIC and any ENROLLEE in Wisconsin, or that may
arise as a result of any negligent act or intentional misconduct on the part of
MHSIC, its agents, employees or representatives, with respect to the performance
or failure to perform any duties assumed by MHSIC pursuant to this Agreement.
NHP shall, as a condition to such indemnification, notify MHSIC within ten (10)
business days after receipt of notice of any claim against NHP for which NHP
seeks indemnification hereunder, and MHSIC shall be entitled to make such
investigation, settlement, or defense of the claim as it deems prudent. This
provision shall survive the termination of this Agreement.

     21.  NHP shall indemnify and hold MHSIC, its officers, directors, employees
and representatives harmless from and against any and all liabilities, losses,
settlements, claims, demands, and expenses of any kind (including, without
limitation, reasonable attorneys fees) that may result from the contractual
relationship between NHP and the State of Wisconsin or NHP and any ENROLLEE in
Wisconsin or that may arise as a result of any negligent act or intentional
misconduct caused or alleged to have been caused by NHP or its agents, employees
or representatives in the performance or failure to perform any of the duties
assumed by NHP pursuant to this Agreement. MHSIC shall, as a condition to such
indemnification, notify NHP within ten (10) business days after receipt of
notice of any claim against MHSIC for which MHSIC seeks indemnification
hereunder, and NHP shall be entitled to make such investigation, settlement, or
defense of the claim as it deems prudent. This section shall survive the
termination of this Agreement.

     22.  Unless notice to terminate this Agreement for the next contract year
is given pursuant to Sections 10-12 above by either party, MHSIC shall be
responsible for preparation of any certification application renewals for
succeeding contract years for submission to DHFS with respect to the CONTRACT OF
SERVICES, unless otherwise agreed to by the parties in writing.

     23.  In the event that NHP should become insolvent, MHSIC agrees to provide
covered services as set forth in the CONTRACT FOR SERVICES for NHP ENROLLEES in
Wisconsin, provided that NHP continues to authorize DHFS to pay MHSIC directly,
until the sooner of

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     (a)  the duration of the period for which MHSIC has received payments from
     DHFS and until the time of discharge for ENROLLEES confined in an inpatient
     facility according to the terms set forth in the CONTRACT FOR SERVICES; or

     (b)  the ENROLLEES become covered under another plan of health insurance
     and/or medical assistance plan with similar benefits.

     24.  No delay or failure by either party hereto in exercising any rights or
powers accruing upon noncompliance or default by the other party with respect to
any terms of this Agreement shall impair such right or power or be construed to
be a waiver of any succeeding breach thereof or of any other covenant, condition
or agreement herein contained.

     25.  If any part of this Agreement is found to be void or unenforceable,
such part shall be treated as severable, leaving valid the remainder of the
Agreement notwithstanding the part or parts found void or unenforceable.

     26.  The Agreement shall be exclusive on the part of NHP as regards
Wisconsin Medicaid recipients.

     27.  This Agreement shall be governed by the laws of the State of Wisconsin
notwithstanding any state's choice of law rules to the contrary.

     28.  This Agreement constitutes the entire understanding of the parties
hereto, and supersedes all previous agreements, whether oral or written, among
the parties or their affiliates on the subject matter hereof. No changes,
amendments or alterations shall be effective unless in writing signed by both
parties. This agreement supercedes all prior or contemporaneous agreements or
understandings between the parties, written or oral, all of which are merged
herein.

     29.  A waiver by either party of a breach or failure to perform shall not
constitute a waiver of any subsequent breach or failure. No term or condition of
this Agreement may be waived except in a writing by the party charged with the
waiver.

     30.  During the term of this Agreement, NHP shall use its best efforts to
obtain subsequent renewals and extensions of the existing CONTRACT FOR SERVICES
and/or new contracts with DHFS, subject in all cases however to the written
approval of the terms and conditions of such renewals, extensions or contracts
by MHSIC.

     31.  Each party hereto shall maintain any and all licenses, permits,
authorizations and contracts with DHFS, the State of Wisconsin and the Wisconsin
Office of the Commissioner of Insurance necessary to maintain the business
described herein and shall maintain compliance with all laws, regulations and
requirements necessary for such licenses, permits, authorizations, and/or
contracts.

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     32.  As between NHP and MHSIC, MHSIC shall have the right to determine any
appropriate changes to the applicable county service area under the CONTRACT FOR
SERVICES, including, without limitation, the counties to be served.

     IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
dates specified below.

NETWORK HEALTH PLAN

By: /s/ [ILLEGIBLE]             Date: 3/9/01
    ------------------------          ----------

Attest: [ILLEGIBLE]             Date: 3/9/01
        --------------------          ----------

MANAGED HEALTH SERVICES INSURANCE CORP.

By: /s/ Kathleen R. Crampton    Date: 03/9/01
    ------------------------          ----------

Attest: [ILLEGIBLE]             Date: 3/9/01
        --------------------          ----------

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                                  ADDENDUM I

                  SUBCONTRACTS AND MEMORANDA OF UNDERSTANDING

     NOTE:    This Addendum does not apply to subcontracts between the
              Department and the HMO. The Department shall have sole authority
              to determine the conditions and terms of such subcontracts.

     1.    Original Review and Approval for HMOs that did not have a
           Medicaid/BadgerCare HMO Contract in the Prior Contract Period, or
           that are going to accept enrollment of recipients in a new county.

           a.  The Department may approve, approve with modification, or deny
               subcontracts under this Contract at its sole discretion. The
               Department may, at its sole discretion and without the need to
               demonstrate cause, impose such conditions or limitations on its
               approval of a subcontract as it deems appropriate. The Department
               may consider such factors as it deems appropriate to protect the
               interests of the State and recipients, including but not limited
               to the proposed subcontractor's past performance. DHFS will give
               the HMO (1) 120 days to implement a change that requires the HMO
               to find a new subcontractor, and (2) 60 days to implement any
               other change required by DHFS. DHFS will acknowledge the approval
               or disapproval of a subcontract within 14 days after its receipt
               from the HMO.

           b.  The Department will review and approve or disapprove each
               subcontract before contract signing. Any disapproval of
               subcontracts may result in the application by the Department of
               remedies pursuant to Article IX of this Contract. The
               Department's subcontract review will assure that the HMO has
               inserted the following standard language in subcontracts (except
               for specific provisions that are inapplicable in a specific HMO
               management subcontract);

          c.   Subcontractor (hereafter identified as subcontractor) agrees to
               abide by all applicable provisions of the (HMO's NAME)'s contract
               with the Department of Health and Family Services, hereafter
               referred to as the Medicaid/BadgerCare HMO Contract.
               Subcontractor compliance with the Medicaid/HMO Contract
               specifically includes but is not limited to the following
               requirements:

               1.   Subcontractor uses only Medicaid-certified providers in
                    accordance with Article III. AA. of the Medicaid/BadgerCare
                    HMO Contract.

               2.   No terms of this subcontract are valid which terminate legal
                    liability of HMO in accordance with Article III. Z. of the
                    Medicaid/BadgerCare HMO Contract.

HMO Contract for January 1, 2000 - December 31, 2001

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               3.   Subcontractor agrees to participate in and contribute
                    required data to HMO Quality Assessment/Performance
                    Improvement programs as required in Article III. W. of the
                    Medicaid/BadgerCare HMO Contract.

               4.   Subcontractor agrees to abide by the terms of the
                    Medicaid/BadgerCare HMO Contract (Article III. D.) for the
                    timely provision of emergency and urgent care. Where
                    applicable, subcontractors agrees to follow those procedures
                    for handling urgent and emergency care cases stipulated in
                    any required hospital/emergency room MOUs signed by HMO in
                    accordance with Article III. J. of the Medicaid/BadgerCare
                    HMO Contract.

               5.   Subcontractor agrees to submit HMO encounter data in the
                    format specified by the HMO, so the HMO can meet the
                    Department specifications required by Article VI and
                    Addendum IV of the Medicaid/BadgerCare HMO Contract. HMOs
                    will evaluate the credibility of data obtained from
                    subcontracted vendors' external databases to ensure that any
                    patient-reported information has been adequately verified.

               6.   Subcontractor agrees to comply with all non-discrimination
                    requirements in Article III. O. of the Medicaid/BadgerCare
                    HMO Contract.

               7.   Subcontractor agrees to comply with all record retention
                    requirements and, where applicable, the special reporting
                    requirements on abortions, sterilizations, hysterectomies,
                    and HealthCheck requirements.

               8.   Subcontractor agrees to provide representatives of the HMO,
                    as well as duly authorized agents or representatives of DHFS
                    and the Federal Department of Health and Human Services,
                    access to its premises and its contract and/or medical
                    records in accordance with Article III and Article IX of the
                    Medicaid/BadgerCare HMO Contract. Subcontractor agrees
                    otherwise to preserve the full confidentiality of medical
                    records in accordance with Article XII of the
                    Medicaid/BadgerCare HMO Contract.

               9.   Subcontractor agrees to the requirements for maintenance
                    and transfer of medical records stipulated in Article III.
                    W. of the Medicaid/BadgerCare HMO Contract.

              10.   Subcontractor agrees to ensure confidentiality of family
                    planning services in accordance with Article III. B. of the
                    Medicaid/BadgerCare HMO Contract.

HMO Contract for January 1, 2000 - December 31, 2001

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              11.   Subcontractor agrees not to create barriers to access to
                    care by imposing requirements on recipients that are
                    inconsistent with the provision of medically necessary and
                    covered Medicaid benefits (e.g., COB recovery procedures
                    that delay or prevent care).

              12.   Subcontractor agrees to clearly specify referral approval
                    requirements to its providers and in any sub-subcontracts.

              13.   Subcontractor agrees not to bill a Medicaid/BadgerCare
                    enrollee for medically necessary services covered under the
                    Medicaid/BadgerCare HMO Contract and provided during the
                    enrollee's period of HMO enrollment pursuant to Section 1128
                    B(d)(l) of the Social Security Act. This provision shall
                    continue to be in effect even if the HMO becomes insolvent.
                    However, if an enrollee agrees in writing to pay for a non-
                    Medicaid covered service, then the HMO, HMO provider, or HMO
                    subcontractor can bill.

                    The standard release form signed by the enrollee at the time
                    of services does not relieve the HMO and its providers and
                    subcontractors from the prohibition against billing a
                    Medicaid enrollee in the absence of a knowing assumption of
                    liability for a non-Medicaid covered service. The form or
                    other type of acknowledgment relevant to Medicaid/
                    BadgerCare enrollee liability must specifically state the
                    admissions, services, or procedures that are not covered by
                    Medicaid.

              14.   Subcontractors must forward to the HMO medical records
                    pursuant to grievances, within 15 working days of the HMO's
                    request. If the subcontractor does not meet the 15 day
                    requirement, the subcontractor must explain why and indicate
                    when the medical records will be provided.

              15.   Subcontractor agrees to abide by the terms of Article III.
                    H. regarding appeals to the HMO and to the Department for
                    HMO non-payment of service providers.

              16.   Subcontractor agrees to abide by the HMO marketing/informing
                    requirements. Subcontractor will forward to the HMO for
                    prior approval a11 flyers, brochures, letters, and pamphlets
                    the subcontractor intends to distribute to its
                    Medicaid/BadgerCare enrollees concerning its HMO
                    affiliation(s), changes in affiliation, or relates directly
                    to the Medicaid/BadgerCare population. Subcontractor will
                    not distribute any "marketing" or recipient informing
                    materials without the consent of the HMO and the
                    Department.

HMO Contract for January 1, 2000 - December 31, 2001

                                       111

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          2.  The Department will also review HMO management subcontracts to
              assure that rates are reasonable.

              a.  Subcontracts for HMO management must clearly describe the
                  services to be provided and the compensation to be paid.

              b.  Any potential bonus, profit-sharing, or other compensation not
                  directly related to costs of providing goods and services to
                  the HMO, shall be identified and clearly defined in terms of
                  potential magnitude and expected magnitude during the
                  Medicaid/BadgerCare HMO Contract period.

              c.  Any such bonus or profit-sharing shall be reasonable compared
                  to services performed. The HMO shall document reasonableness.

              d.  A maximum dollar amount for such bonus or profit-sharing shall
                  be specified for the contract period.

              e.  Requirements A through D do not have to relate to non-
                  Medicaid/BadgerCare enrollees if the HMO wishes to have
                  separate arrangements for these Medicaid enrollees.

          3.  Subcontract Review for HMOs that have had a Medicaid/BadgerCare
              HMO Contract in the Previous Contract Period and are Not Expanding
              into New Service Areas during the Current Contract Period.

              a.  The HMO, shall1 submit, and the Department shall review,
                  before signing this Contract, an affidavit that the contract
                  language required above in all Medicaid/BadgerCare HMO
                  subcontracts is included in all the HMO's subcontracts for
                  medical services (and dental care, if covered). The affidavit
                  shall specify the expiration date of all subcontracts.

              b.  These HMOs shall submit the HMO management subcontract for
                  review as specified for new contractors above.

          4.  Review and Approval of New Subcontracts and Changes in Approved
              Subcontracts During the Contract Period.

              a.  New subcontracts and changes in approved subcontracts shall be
                  reviewed and approved by the Department before taking effect.
                  This requirement will be considered met if the Department has
                  not responded within 15 consecutive days of the date of
                  Departmental receipt of request.

              b.  This review requirement applies to changes which affect the
                  amount, duration, scope. location, or quality of services. In
                  other words, technical changes do not have to be approved.

          HMO Contract for January 1, 2000 - December 31, 2001

                                       112

<PAGE>

              c.  Changes in rates paid do not have to be approved, with the
                  exception of changes in the amounts paid to HMO management
                  services subcontractors.

              d.  The HMO shall submit notice within 10 days to the Department
                  of addition or deletion of subcontracts involving: (i) a
                  clinic or group of physicians, (ii) an individual physician.

              e.  The HMO shall notify the Department's enrollment broker within
                  10 days of additions to, and deletions from the provider
                  network.

              f.  The HMO shall submit to the enrollment broker an electronic
                  listing of all network Medicaid providers, facilities and
                  pharmacies within the first 10 days of each calendar quarter
                  in a mutually agreed upon format approved by the Department.
                  This listing will include, but is not limited to, provider
                  name, provider number, address, phone number, and specialty as
                  well as indicators designating whether a provider can be
                  selected as a PCP, and whether the PCP is accepting new
                  patients. The listing shall include only Medicaid certified
                  providers who are contracted with the HMO to provide contract
                  services to Medicaid/BadgerCare enrollees.

              g.  The HMO must send timely written notification to enrollees
                  whose PCP, mental health provider, gatekeeper or dental clinic
                  terminates a contract with the HMO. The Department must
                  approve notifications before they are sent to enrollees.

              h.  The HMO shall be required to submit transition plans when a
                  primary care provider(s), mental health provider(s),
                  gatekeeper or dental clinic terminates their contractual
                  relationship with the HMO. The transition plan will address
                  continuity of care issues, enrollee notification and any other
                  information required by the Department to assure adequate
                  enrollee access. The Department will either approve, deny, or
                  modify the transition plan prior to the effective date of the
                  subcontract change.

          5.  Disclosure Statements

              Ownership

              The HMO agrees to submit to the Department within 30 days of
              contract signing full and complete information as to the identity
              of each person or corporation with an ownership or controlling
              interest in the HMO, or any subcontractor in which the HMO has a 5
              percent or more ownership interest.

              a.  Definition of "Person with an Ownership or Controlling
                  Interest." --A "person with an ownership or controlling
                  interest" means a person or corporation that:

                  1.   Owns directly or indirectly, 5 percent or more of the
                       HMO's capital or stock or receives 5 percent or more of
                       its profits (see subsection B);

HMO Contract for January 1. 2O00 - December 31, 2001

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                  2 .  Has an interest in any mortgage, deed of trust, note, or
                       other obligation secured in whole or in part by the HMO
                       or by its property or assets, and that interest is equal
                       to or exceeds 5 percent of the total property and assets
                       of the HMO; or

                  3.   Is an officer or director of the HMO (if it is organized
                       as a corporation) or is a partner in the HMO (if it is
                       organized as a partnership).

          b.      Calculation of 5 percent Ownership or Receipt of Profits.-The
                  percentage of direct ownership or control is calculated by
                  multiplying the percent of interest which a person owns by the
                  percent of the HMO's assets used to secure the obligation.
                  Thus, if a person owns 10 percent of a note secured by 60
                  percent of the HMO's assets, the person owns 6 percent of the
                  HMO.

                  The percentage of indirect ownership or control is calculated
                  by multiplying the percentages of ownership in each
                  organization. Thus, if a person owns 10 percent of the stock
                  in a corporation which owns 80 percent of the stock of the
                  HMO, the person owns 8 percent of the HMO.

          c.      Information to be Disclosed - The following information must
                  be disclosed:

                  1.   The name and address of each person with an ownership or
                       controlling interest of 5 percent or more in the HMO or
                       in any subcontractor in which the HMO has direct or
                       indirect ownership of 5 percent or more;

                  2.   A statement as to whether any of the persons with
                       ownership or controlling interest is related to any other
                       of the persons with ownership or controlling interest as
                       spouse, parent, child, or sibling; and

                  3.   The name of any other organization in which the person
                       also has ownership or controlling interest. This is
                       required to the extent that the HMO can obtain this
                       information by requesting it in writing. The HMO must
                       keep copies of all of these requests and responses to
                       them, make them available upon request, and advise the
                       Department when there is no response to a request.

          d.      Potential Sources of Disclosure Information - This information
                  may already have been reported on Form HCFA-1513.  "Disclosure
                  of Ownership and Controlling Interest Statement." Form HCFA-
                  1513 is likely to have been completed in two different cases.
                  First, if an HMO is Federally qualified and has a Medicare
                  contract, it is required to file Form HCFA-1513 with HCFA
                  within 120 days of the HMO's fiscal year end. Secondly. if the
                  HMO is owned by or has subcontracts with Medicaid providers
                  which are reviewed by the State survey agency these providers
                  may have completed Form HCFA-1513 as part of the survey
                  process. If Form HCFA-15 13 has not been completed, the HMO

HMO Contract for January 1, 2000 - December 31. 2001

                                       114

<PAGE>

               may supply the ownership and,controlling information on a
               separate report or submit reports filed with the State's
               insurance or health regulators as long as these reports provide
               the necessary information for the prior 12 month period.

          e.   As directed by the HCFA Regional Office (RO), this Department
               must provide documentation of this disclosure information as part
               of the prior approval process for contracts. This documentation
               must be submitted to the Department and the RO prior to each
               contract period. If an HMO has not supplied the information that
               must be disclosed, a contract with the HMO is not considered
               approvable for this period of time and no FFP is available for
               the period of time preceding the disclosure.

         f.    A managed care entity may not knowingly have a person who is
               debarred, suspended, or otherwise excluded from participating in
               procurement activities under the Federal Acquisition Regulation
               or from participating in non-procurement activities as a
               director, officer, partner, or person with beneficial ownership
               of more than 5 percent of the entity's equity, or have an
               employment, consulting, or other agreement for the provision of
               items and services that are significant and material to the
               entity's obligations under irs contract with the State.

          g.   Business Transactions

               All HMOs which are not Federally qualified must disclose to the
               Department information on certain types of transactions they have
               with a "party in interest" as defined in the Public Health
               Service Act. (See Sections 1903(m)(2)(A)(viii) and 1903(m)(4) of
               the Act.):

               1.   Definition of a Party in Interest - As defined in Section
                    1318(b) of the Public Health Service Act, a party in
                    interest is:

                    a)   Any director, officer, partner, or employee responsible
                         for Management or administration of an HMO and HIO; any
                         person who is directly or indirectly the beneficial
                         owner of more than 5 percent of the equity of the HMO:
                         any person who is the beneficial owner of more than 5
                         percent of the HMO; or, in the case of an HMO organized
                         as a nonprofit corporation, an incorporator or member
                         of such corporation under applicable State corporation
                         law;

HMO Contract for January 1, 2000 - December 31, 2001

                                      -115-

<PAGE>

                    b)   Any organization in which a person described in
                         subsection 1 is director, officer or partner; has,
                         directly or indirectly a beneficial interest of more
                         than 5 percent of the equity of the HMO; or has a
                         mortgage, deed of trust, note, or other interest
                         valuing more than 5 percent of the assets of the HMO,

                    c)   Any person directly or indirectly controlling,
                         controlled by, or under common control with an HMO; or

                    d)   Any spouse, child, or parent of an individual described
                         in subsections 1, 2, or 3.

               2.   Types of Transactions Which Must Be Disclosed--Business
                    transactions which must be disclosed include:

                    a)   Any sale, exchange or lease of any property between the
                         HMO and a party in interest;

                    b)   Any lending of money or other extension of credit
                         between the HMO and a party in interest; and

                    c)   Any furnishing for consideration of goods, services
                         (including management services) or facilities between
                         the HMO and the party in interest. This does not
                         include salaries paid to employees for services
                         provided in the normal course of their employment.

               3.   The information which must be disclosed in the transactions
                    listed in subsection b, between an HMO and a party in
                    interest includes:

                    a)   The name of the party in interest for each transaction;

                    b)   A description of each transaction and the quantity or
                         units involved;

                    c)   The accrued dollar value of each transaction during the
                         fiscal year; and

                    d)   Justification of the reasonableness of each
                         transaction.

               4.   If this Medicaid/BadgerCare HMO Contract is being renewed or
                    extended, the HMO must disclose information on these
                    business transactions which occurred during the prior
                    contract period. If the Contract is an initial contract with
                    Medicaid, but the HMO has operated previously in the
                    commercial or Medicare markets, information on business
                    transactions for the entire year preceding the initial
                    contract

HMO Contract for January 1, 2000 - December 31, 2001

                                      -116-

<PAGE>

                    period must be disclosed. The business transactions which
                    must be reported are not limited to transactions related to
                    serving the Medicaid enrollment. All of these HMO business
                    transactions must be reported.

     6.   The HMO shall notify Department within seven days of any notice by the
          HMO to a subcontractor, or any notice to the HMO from a subcontractor,
          of a subcontract termination, a pending subcontract termination, or a
          pending modification in subcontract terms, that could reduce
          Medicaid/BadgerCare enrollee access to care.

          a. If the Department determines that a pending subcontract termination
          or pending modification in subcontract terms will jeopardize enrollee
          access to care, then the Department may invoke the remedies provided
          for in Article IX and Article X of this Contract. These remedies
          include contract termination (notice to HMO and opportunity to correct
          are provided for), suspension of new enrollment, and giving enrollees
          an opportunity to enroll in a different HMO.

     7.   The HMO shall submit MOUs referred to in this Contract to the
          Department upon the Department's request.

     8.   The HMO shall submit to the Department copies of new MOUs, or changes
          in existing MOUs within 15 days of signing.

HMO Contract for January 1, 2000 - December 31, 2001

                                      -117-<PAGE>

                                                                    Exhibit 10.4

                                             TDH Document No.___________________

                                      1999

                              CONTRACT FOR SERVICES

                                     Between

                         THE TEXAS DEPARTMENT OF HEALTH

                                       And

                                       HMO

                                               El Paso Service Area HMO Contract

                                                                         5-14-99

<PAGE>

                                TABLE OF CONTENTS

APPENDICES.................................................................   v

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

ARTICLE II        DEFINITIONS..............................................   3

ARTICLE III       PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS......  13

3.1      ORGANIZATION AND ADMINISTRATION...................................  13
3.2      NON-PROVIDER SUBCONTRACTS.........................................  14
3.3      MEDICAL DIRECTOR..................................................  16
3.4      PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS.................  17
3.5      RECORDS REQUIREMENTS AND RECORDS RETENTION........................  18
3.6      HMO REVIEW OF TDH MATERIALS.......................................  19

ARTICLE IV        FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS.....  19

4.1      FISCAL SOLVENCY...................................................  19
4.2      MINIMUM EQUITY....................................................  20
4.3      PERFORMANCE BOND..................................................  20
4.4      INSURANCE.........................................................  21
4.5      FRANCHISE TAX.....................................................  21
4.6      AUDIT.............................................................  21
4.7      PENDING OR THREATENED LITIGATION..................................  22
4.8      MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO
         OPERATIONS........................................................  22
4.9      THIRD PARTY RECOVERY..............................................  22
4.10     CLAIMS PROCESSING REQUIREMENTS....................................  24
4.11     INDEMNIFICATION...................................................  25

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

5.1      COMPLIANCE WITH FEDERAL, STATE AND LOCAL LAWS.....................  26
5.2      PROGRAM INTEGRITY.................................................  26
5.3      FRAUD AND ABUSE COMPLIANCE PLAN...................................  26
5.4      SAFEGUARDING INFORMATION..........................................  28
5.5      NON-DISCRIMINATION................................................  28
5.6      HISTORICALLY UNDERUTILIZED BUSINESS (HUBs)........................  29
5.7      BUY TEXAS.........................................................  29
5.8      CHILD SUPPORT.....................................................  30
5.9      REQUESTS FOR PUBLIC INFORMATION...................................  30
5.10     NOTICE AND APPEAL.................................................  31

ARTICLE VI        SCOPE OF SERVICES........................................  31

6.1      SCOPE OF SERVICES - GENERAL.......................................  31
6.2      PRE-EXISTING CONDITIONS...........................................  31
6.3      SPAN OF ELIGIBILITY...............................................  31
6.4      CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS...................  32
6.5      EMERGENCY SERVICES................................................  33
6.6      BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS................  34
6.7      FAMILY PLANNING - SPECIFIC REQUIREMENTS...........................  36
6.8      TEXAS HEALTH STEPS (EPSDT)........................................  38
6.9      PERINATAL SERVICES................................................  40
6.10     EARLY CHILDHOOD INTERVENTION (ECI)................................  41
6.11     SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS
         AND CHILDREN (WIC) - SPECIFIC REQUIREMENTS........................  42
6.12     TUBERCULOSIS (TB).................................................  43
6.13     PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS.........  44
6.14     HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS................  46
6.15     SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN IMMUNODEFICIENCY
         VIRUS (HIV).......................................................  48
6.16     BLIND AND DISABLED MEMBERS........................................  50

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<PAGE>

ARTICLE VII       PROVIDER NETWORK REQUIREMENTS............................  51

7.1      PROVIDER ACCESSIBILITY............................................  51
7.2      PROVIDER CONTRACTS................................................  52
7.3      PHYSICIAN INCENTIVE PLANS.........................................  55
7.4      PROVIDER MANUAL AND PROVIDER TRAINING.............................  56
7.5      MEMBER PANEL REPORTS..............................................  57
7.6      PROVIDER COMPLAINT AND APPEAL PROCEDURES..........................  57
7.7      PROVIDER QUALIFICATIONS - GENERAL.................................  58
7.8      PRIMARY CARE PROVIDERS............................................  59
7.9      OB/GYN PROVIDERS..................................................  63
7.10     SPECIALTY CARE PROVIDERS..........................................  63
7.11     SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES...................  64
7.12     BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)..........  64
7.13     SIGNIFICANT TRADITIONAL PROVIDERS (STPs)..........................  66
7.14     RURAL HEALTH PROVIDERS............................................  67
7.15     FEDERALLY QUALIFIED HEALTH CENTERS (FQHCs) AND RURAL
         HEALTH CLINICS (RHCs).............................................  67
7.16     COORDINATION WITH PUBLIC HEALTH...................................  68
7.17     COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND
         REGULATORY SERVICES...............................................  72
7.18     PROVIDER NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs).....  72

ARTICLE VIII      MEMBER SERVICES REQUIREMENTS.............................  75

8.1      MEMBER EDUCATION..................................................  75
8.2      MEMBER HANDBOOK...................................................  75
8.3      ADVANCE DIRECTIVES................................................  75
8.4      MEMBER ID CARDS...................................................  77
8.5      MEMBER HOTLINE....................................................  77
8.6      MEMBER COMPLAINT PROCESS..........................................  77
8.7      MEMBER NOTICE, APPEALS AND FAIR HEARINGS..........................  80
8.8      MEMBER ADVOCATES..................................................  81
8.9      MEMBER CULTURAL AND LINGUISTIC SERVICES...........................  81

ARTICLE IX        MARKETING AND PROHIBITED PRACTICES.......................  84

9.1      MARKETING MATERIAL MEDIA AND DISTRIBUTION.........................  84
9.2      MARKETING ORIENTATION AND TRAINING................................  84
9.3      PROHIBITED MARKETING PRACTICES....................................  84
9.4      NETWORK PROVIDER DIRECTORY........................................  85

ARTICLE X         MIS SYSTEM REQUIREMENTS..................................  86

10.1     MODEL MIS REQUIREMENTS............................................  86
10.2     SYSTEM-WIDE FUNCTIONS.............................................  87
10.3     ENROLLMENT/ELIGIBILITY SUBSYSTEM..................................  88
10.4     PROVIDER SUBSYSTEM................................................  89
10.5     ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM.............................  90
10.6     FINANCIAL SUBSYSTEM...............................................  92
10.7     UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM.........................  92
10.8     REPORT SUBSYSTEM..................................................  94
10.9     DATA INTERFACE SUBSYSTEM..........................................  95
10.10    TPR SUBSYSTEM.....................................................  96
10.11    YEAR 2000 (Y2K) COMPLIANCE........................................  96

ARTICLE  XI       QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM........  97

11.1     QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM..........................  97
11.2     WRITTEN QIP PLAN..................................................  97
11.3     QIP SUBCONTRACTING................................................  97
11.4     ACCREDITATION.....................................................  98
11.5     BEHAVIORAL HEALTH INTEGRATION INTO QIP............................  98
11.6     QIP REPORTING REQUIREMENTS........................................  98

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                                                                         5-14-99

                                       iii

<PAGE>

ARTICLE XII       REPORTING REQUIREMENTS...................................  98

12.1     FINANCIAL REPORTS.................................................  98
12.2     STATISTICAL REPORTS............................................... 100
12.3     ARBITRATION/LITIGATION CLAIMS REPORT.............................. 101
12.4     SUMMARY REPORT OF PROVIDER COMPLAINTS............................. 102
12.5     PROVIDER NETWORK REPORTS.......................................... 102
12.6     MEMBER COMPLAINTS................................................. 103
12.7     FRAUDULENT PRACTICES.............................................. 103
12.8     UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH................ 103
12.9     UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH.................. 103
12.10    QUALITY IMPROVEMENT REPORTS....................................... 104
12.11    HUB REPORTS....................................................... 105
12.12    THSTEPS REPORTS................................................... 105
12.13    REPORTING REQUIREMENTS DUE DATES.................................. 105

ARTICLE XIII      PAYMENT PROVISIONS....................................... 105

13.1     CAPITATION AMOUNTS................................................ 106
13.2     EXPERIENCE REBATE TO STATE........................................ 107
13.3     PERFORMANCE OBJECTIVES............................................ 108
13.4     PAYMENT OF PERFORMANCE OBJECTIVE BONUSES.......................... 109
13.5     ADJUSTMENTS TO PREMIUM............................................ 110

ARTICLE XIV       ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT............... 111

14.1     ELIGIBILITY DETERMINATION......................................... 111
14.2     ENROLLMENT........................................................ 113
14.3     DISENROLLMENT..................................................... 113
14.4     AUTOMATIC RE-ENROLLMENT........................................... 114
14.5     ENROLLMENT REPORTS................................................ 115

ARTICLE XV        GENERAL PROVISIONS....................................... 115

15.1     INDEPENDENT CONTRACTOR............................................ 115
15.2     AMENDMENT......................................................... 115
15.3     LAW, JURISDICTION AND VENUE....................................... 116
15.4     NON-WAIVER........................................................ 116
15.5     SEVERABILITY...................................................... 116
15.6     ASSIGNMENT........................................................ 116
15.7     NON-EXCLUSIVE..................................................... 116
15.8     DISPUTE RESOLUTION................................................ 116
15.9     DOCUMENTS CONSTITUTING CONTRACT................................... 116
15.10    FORCE MAJEURE..................................................... 117
15.11    NOTICES........................................................... 117
15.12    SURVIVAL.......................................................... 117

ARTICLE XVI       DEFAULT.................................................. 117

16.1     FAILURE TO PROVIDE COVERED SERVICES............................... 117
16.2     FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION..................... 118
16.3     HMO CERTIFICATE OF AUTHORITY...................................... 118
16.4     INSOLVENCY........................................................ 118
16.5     FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS............... 118
16.6     EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID.............. 118
16.7     MISREPRESENTATION, FRAUD OR ABUSE................................. 119
16.8     FAILURE TO MAKE CAPITATION PAYMENTS............................... 119
16.9     FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS
         AND SUBCONTRACTORS................................................ 119
16.10    FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT
         FUNCTIONS......................................................... 119
16.11    FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF
         CONTRACTORS OR NETWORK PROVIDERS.................................. 119

ARTICLE XVII      NOTICE OF DEFAULT AND CURE OF DEFAULT.................... 120

                                               El Paso Service Area HMO Contract

                                                                         5-14-99

                                       iv

<PAGE>

ARTICLE XVIII     REMEDIES AND SANCTIONS................................... 120

18.1     TERMINATION BY TDH................................................ 120
18.2     TERMINATION BY HMO................................................ 121
18.3     TERMINATION BY MUTUAL CONSENT..................................... 122
18.4     DUTIES UPON TERMINATION OF CONTRACTING PARTIES.................... 122
18.5     STATE AND FEDERAL DAMAGES, PENALTIES AND SANCTIONS................ 122
18.6     SUSPENSION OF NEW ENROLLMENT...................................... 123
18.7     TDH INITIATED DISENROLLMENT....................................... 123
18.8     LIQUIDATED MONEY DAMAGES - WITHHOLDING PAYMENTS................... 124
18.9     FORFEITURE OF TDI PERFORMANCE BOND................................ 126

ARTICLE XIX       TERM..................................................... 127

                                               El Paso Service Area HMO Contract

                                                                         5-14-99

                                        v

<PAGE>

                                   APPENDICES

APPENDIX A
         Standards for Quality Improvement Programs

APPENDIX B
         HUB Progress Assessment Reports

APPENDIX C
         Scope of Services

APPENDIX D
         Family Planning Providers

APPENDIX E
         Transplant Facilities

APPENDIX F
         Trauma Facilities

APPENDIX G
         Hemophilia Treatment Centers And Programs

APPENDIX H
         Utilization Management Report - Behavioral Health

APPENDIX I
         Managed Care Financial - Statistical Report

APPENDIX J
         Utilization Management Report - Physical Health

APPENDIX K
         Preventive Health Performance Objectives

APPENDIX L
         Cost Principals for Administrative Expenses

APPENDIX M
         Required Critical Elements

                                               El Paso Service Area HMO Contract

                                                                         5-14-99

                                       vi

<PAGE>

                                      1999

                              CONTRACT FOR SERVICES

                                     Between

                         THE TEXAS DEPARTMENT OF HEALTH

                                       And

                                       HMO

This contract is entered into between the Texas Department of Health (TDH) and
_________________ (HMO). The purpose of this contract is to set forth the terms
and conditions for HMO's participation as a managed care organization in the TDH
STAR Program (STAR or STAR Program). Under the terms of this contract HMO will
provide comprehensive health care services to qualified and eligible Medicaid
recipients through a managed care delivery system. This is a risk-based
contract. HMO was selected to provide services under this contract under Health
and Safety Code, Title 2, ss. 12.011 and ss. 12.021, and Texas Government Code
ss. 533.001 et. seq. HMO's selection for this contract was based upon HMO's
Application submitted in response to TDH's 1998 Request for Application (RFA).
Representations and responses contained in HMO's Application are incorporated
into and are enforceable provisions of this contract.

ARTICLE I          PARTIES AND AUTHORITY TO CONTRACT

1.1         The Texas Legislature has designated the Texas Health and Human
            Services Commission (THHSC) as the single State agency to administer
            the Medicaid program in the State of Texas. THHSC has delegated the
            authority to operate the Medicaid managed care delivery system for
            acute care services to TDH. TDH has authority to contract with HMO
            to carry out the duties and functions of the Medicaid managed care
            program under Health and Safety Code, Title 2, ss. 12.011 and ss.
            12.021 and Texas Government Code ss. 533.001 et seq.

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

                                               El Paso Service Area HMO Contract

                                                                         5-14-99

<PAGE>

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

1.4         Readiness Review. This contract is subject to TDH's Readiness Review
            of HMO. Under the provisions of Human Resources Code ss. 32.043(a),
            TDH is required to review all HMOs with whom it contracts to
            determine whether HMO has complied with the TDH/HMO contract and/or
            can continue to meet all contract obligations.

1.4.1       Readiness Review will be conducted through: on-site inspection of
            service authorization, claims payment systems, complaint-processing
            systems, and other processes or systems required by the contract, as
            determined by TDH.

1.4.2       TDH will provide HMO with written notice of the elements and
            scheduling of the reviews, any deficiencies which must be corrected,
            and the timeline by which deficiencies must be corrected.

1.4.3       TDH may discontinue enrollment of Members into HMO if the Readiness
            Review reveals that HMO is not currently prepared to meet its
            contractual obligations or has failed to correct or cure defaults
            under the provisions of Article XVII.

1.5         Implementation Plan. Texas Government Code ss. 533.007(b) requires
            that each HMO that contracts with TDH to provide health care
            services to Members in a service area must submit an implementation
            plan not later than the 90th day before the Implementation Date in
            the service area.

1.5.1       The implementation plan must include, but not limited to: (1)
            staffing patterns by function for all operations, including
            enrollment, information systems, Member services, quality
            improvement, claims management, case management, and provider and
            recipient training, and (2) specific time frames for demonstrating
            preparedness for implementation before the Implementation Date in
            the service area.

1.5.2       TDH will respond to an implementation plan not later than the 10th
            day after the date HMO submits the plan if the plan does not
            adequately meet preparedness guidelines.

1.5.3       HMO must submit status reports on the implementation plan not later
            than the 60th day and the 30th day before the Implementation Date
            and every 30th day after the Implementation Date, until the 180th
            day after the Implementation Date.

1.6         AUTHORITY OF HMO TO ACT ON BEHALF OF TDH. HMO is given express,
            limited authority to exercise the State's right of recovery as
            provided in Article 4.9, and to enforce provisions of this contract
            which require providers or Subcontractors to produce records,
            reports, encounter data, public health data, and other documents to
            comply with this contract and which TDH has authority to require
            under State or federal laws.

                                               El Paso Service Area HMO Contract

                                                                         5-14-99

<PAGE>

ARTICLE II         DEFINITIONS

Terms used throughout this Contract have the following meaning, unless the
context clearly indicates otherwise:

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

Action means a denial, termination, suspension, or reduction of covered services
or the failure of HMO to act upon request for covered services within a
reasonable time or a denial of a request for prior authorization for covered
services affecting a Member. This term does not include reaching the end of
prior authorized services.

Adjudicate means to deny or pay a clean claim.

AFDC and AFDC-related means the federally funded program that provides financial
assistance to single-parent families with children who meet the categorical
requirements for aid. This program is now called Temporary Assistance to Needy
Families (TANF).

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

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

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

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

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

                                               El Paso Service Area HMO Contract

                                                                         5-14-99

<PAGE>

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

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

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

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

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

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

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

Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to HMO, with any respect of HMO's operation, including but not limited
to dissatisfaction with plan administration; an appeal of an adverse
determination to HMO; the way a service is provided; or disenrollment decisions
expressed by a complainant. A complaint is not a misunderstanding or
misinformation that is resolved promptly by supplying the appropriate
information or clearing up the misunderstanding to the satisfaction of the
Member, or a request for a Fair Hearing to TDH.

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

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

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

Contract anniversary date means September 1 of each year after the first year of
this contract, regardless of the date of execution of effective date of the
contract.

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

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

Covered services means health care services and health-related services HMO must
provide to Members, including all services required by this contract and state
and federal law, and all value-added services described by HMO in its response
to the Request For Application (RFA) for this contract.

Day means a calendar day unless specified otherwise.

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

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

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

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

Effective date of the contract means the day on which this contract is signed
and the parties are bound by the terms and conditions of this contract.

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

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

Emergency Medical Condition means a medical condition manifesting itself by
acute symptoms of sufficient severity (including severe pain), such that a
prudent layperson, who possesses an average knowledge of health and medicine
could reasonably expect the absence of immediate medical care could result in:

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

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

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

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

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

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

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

Fair Hearing means a due process hearing conducted by the Texas Department of
Health that complies with 25 TAC ss. 1.51 et seq. and federal rules found at 42
CFR Subpart E, relating to Fair Hearings for Applicants and Recipients.

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

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

HCFA means the federal Health Care Financing Administration.

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

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

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

JCAHO means Joint Accreditation of Health Care Organizations.

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

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

Local tuberculosis control program means a tuberculosis program that is managed
by a local or regional health department.

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

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

Medical education refers to the State-supported allopathic medical schools and
schools of osteopathic medicine, their teaching institutions and faculties,
those entities that have Primary Care Residency Programs approved by the
Accreditation Council for Graduate Medical Education.

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Medical home means a primary or specialty care provider who has accepted the
responsibility for providing accessible, continuous, comprehensive and
coordinated care to Members participating in TDH's Medicaid managed care
program.

Medically necessary behavioral health services means those behavioral health
services which:

(a)         are reasonable and necessary for the diagnosis or treatment of a
            mental health or chemical dependency disorder or to improve or to
            maintain or to prevent deterioration of functioning resulting from
            such a disorder;

(b)         are in accordance with professionally accepted clinical guidelines
            and standards of practice in behavioral health care;

(c)         are furnished in the most appropriate and least restrictive setting
            in which services can be safely provided;

(d)         are the most appropriate level or supply of services which can be
            safely provided; and

(e)         could not be omitted without adversely affecting the Member's mental
            and/or physical health or the quality of care rendered.

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

(a)         reasonable and necessary to prevent illnesses or medical conditions,
            or provide early screening, interventions, and/or treatments for
            conditions that cause suffering or pain, cause physical deformity or
            limitations in function, threaten to cause or worsen a handicap,
            cause illness or infirmity of a Member, or endanger life;

(b)         provided at appropriate facilities and at the appropriate levels of
            care for the treatment of a Member's medical conditions;

(c)         consistent with health care practice guidelines and standards that
            are issued by professionally recognized health care organizations or
            governmental agencies;

(d)         consistent with the diagnoses of the conditions; and

(e)         no more intrusive or restrictive than necessary to provide a proper
            balance of safety, effectiveness, and efficiency.

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

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

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

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

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

MIS means management information system.

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

Performance premium means an amount which may be paid to a managed care
organization as a bonus for accomplishing a portion or all of the performance
objectives contained in this contract.

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

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

Provider means an individual or entity and its employees and Subcontractors that
directly provide health care services to HMO's Members under TDH's Medicaid
managed care program.

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

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

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

Rehabilitation services for mental illness means specialized services provided
to people age 18 or over with severe and persistent mental illness and people
under age 18 with severe emotional disturbance. The individual must have severe
mental disorders and institutionalization. Mental Health Rehabilitation includes
the following:

            plan of care oversight; community support services; day programs
            services (adult); and day programs services (children).

RFA means Request For Application issued by TDH on June 17,1998, and all RFA
addenda, corrections or modifications.

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

Rural Health Clinic (RHC) means an entity that meets all of the requirements for
designation as a rural health clinic under ss. 1861 (aa) (1) of the Social
Security Act and approved for participation in the Texas Medicaid Program.

SED means severe emotional disturbance as determined by the Local Mental Health
Authority.

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

SPMI means severe and persistent mental illness as determined by the Local
Mental Health Authority.

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY '97 and all other providers in
a county that, when listed by provider type in descending order by the number of
recipient encounters, provided the top 80 percent of recipient encounters for
each provider type in FY'97.

Special hospital means an establishment that:

(a)         offers services, facilities, and beds for use for more than 24 hours
            for two or more unrelated individuals who are regularly admitted,
            treated, and discharged and who require services more intensive than
            room, board, personal services, and general nursing care;

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<PAGE>

(b)         has clinical laboratory facilities, diagnostic x-ray facilities,
            treatment facilities, or other definitive medical treatment;

(c)         has a medical staff in regular attendance; and

(d)         maintains records of the clinical work performed for each patient.

STAR Program is the name of the State of Texas Medicaid managed care program.
"STAR" stands for the State of Texas Access Reform.

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

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

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

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

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

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

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

TDMHMR means the Texas Department of Mental Health and Mental Retardation, which
is the State agency responsible for developing mental health policy for public
and private sector providers.

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<PAGE>

Temporary Assistance to Needy Families (TANF) means the federally funded program
that provides assistance to single-parent families with children who meet the
categorical requirements for aid. This program was formerly known as Aid to
Families with Dependent Children (AFDC).

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

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

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

THHSC means the Texas Health and Human Services Commission.

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

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

THSteps means Texas Health Steps.

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

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

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

Urgent condition means a health condition, including an urgent behavioral health
situation, which is not an emergency but is severe or painful enough to cause a
prudent layperson possessing an average knowledge of medicine to believe that
his or her condition required medical treatment-

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<PAGE>

evaluation or treatment within 24 hours by the Member's PCP or PCP designee to
prevent serious deterioration of the Member's condition or health.

Value-added services means services which were not included in the RFA as
mandatory covered services but which were submitted by HMO with or subsequent to
its response to the RFA and which have been approved by TDH to be included in
this contract as value-added services in Appendix C - Scope of Services. These
services must be provided to all mandatory Members as part of the covered
services under this contract. No additional capitation will be paid for these
services, under the current capitation rate.

ARTICLE III        PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

3.1         ORGANIZATION AND ADMINISTRATION
            -------------------------------

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

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

3.1.3       HMO must maintain an administrative office in the service area
            (local office). The local office must comply with the American with
            Disabilities Act (ADA) requirements for public buildings. Member
            Advocates for the service area must be located in this office (see
            Article 8.8).

3.1.4       HMO must provide training and development programs to all assigned
            staff to ensure they know and understand the service requirements
            under this contract including the reporting requirements, the
            policies and procedures, cultural and linguistic requirements and
            the scope of services to be provided.

3.1.5       By Phase I of Readiness Review, HMO must submit a current
            organizational chart showing basic functions, the number of
            employees for those functions, and a list of key managers in HMO who
            are responsible for the basic functions of the organization. HMO
            must submit a description and organizational chart which illustrates
            how behavioral health service administration is integrated into the
            overall administrative structure of HMO, including individuals
            assigned to be behavioral health liaisons with TDH. If HMO uses
            Subcontractors or other entities to administer or manage behavioral
            health, a second chart must be attached describing these entities
            and identifying key positions, departments and management functions.
            HMO must notify TDH within fifteen (15) working days of any change
            in key managers or behavioral health Subcontractors. This
            information must be updated

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<PAGE>

            annually or when there is a significant change in organizational
            structure or personnel.

3.1.6       Participation in Regional Advisory Committee. HMO must participate
            in a Regional Advisory Committee established in the service area in
            compliance with the Texas Government Code, ss.ss. 533.021-533.029.
            The Regional Advisory Committee in each managed care service area
            must include representatives from at least the following entities:
            hospitals; managed care organizations; primary care providers; state
            agencies; consumer advocates; Medicaid recipients; rural providers;
            long-term care providers; specialty care providers, including
            pediatric providers; and political subdivisions with a
            constitutional or statutory obligation to provide health care to
            indigent patients. HHSC and TDH will determine the composition of
            each Regional Advisory Committee.

3.1.6.1     The Regional Advisory Committee is required to meet at least
            quarterly for the first year after appointment of the committee and
            at least annually in subsequent years. The actual frequency may vary
            depending on the needs and requirements of the committee.

3.2         NON-PROVIDER SUBCONTRACTORS
            ---------------------------

3.2.1       HMO must enter into written contracts with all Subcontractors and
            maintain copies of the subcontract in HMO's administrative office.
            HMO non-provider subcontracts relating to the delivery or payment of
            covered health services must be submitted to TDH no later than 120
            days prior to Implementation Date. On an on-going basis, HMO must
            make non-provider subcontracts available to TDH upon request, at the
            time and location requested by TDH.

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

3.2.2       Subcontracts which are requested by any agency with authority to
            investigate and prosecute fraud and abuse must be produced at the
            time and in the manner requested by the requesting Agency.
            Subcontracts requested in response to a Public Information request
            must be produced within 48 hours of the request. All requested
            records must be provided free-of-charge.

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

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<PAGE>

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

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

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

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

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

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

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

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

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<PAGE>

            employees and Contractors must cooperate fully in making themselves
            available in person for interviews, consultation, grand jury
            proceedings, pretrial conference, hearings, trial and in any other
            process, including investigations. Compliance with this Article is
            at HMO's and Subcontractors' own expense.

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

3.3         MEDICAL DIRECTOR
            ----------------

3.3.1       HMO must have a full-time physician (M.D. or D.O.) licensed in
            Texas, to serve as Medical Director. HMO must enter into a written
            contract or written employment agreement with the Medical Director
            describing the following authority, duties and responsibilities:

3.3.1.1     Ensure that medical necessity decisions, including prior
            authorization protocols, are rendered by qualified medical personnel
            and are based on TDH's definition of medical necessity.

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

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

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

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

3.3.1.6     Oversight responsibility for medically related complaints.

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

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

3.4         PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS
            -------------------------------------------------

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<PAGE>

3.4.1       HMO and its Subcontractors must receive written approval from TDH
            for all written materials containing information about the STAR
            Program prior to distribution to Members, prospective Members,
            providers within HMO's network, or potential providers who HMO
            intends to recruit as network providers.

3.4.2       Member materials must meet cultural and linguistic requirements as
            stated in Article VIII. Unless otherwise required, Member materials
            must be:

3.4.2.1     written at a 4th- 6th grade reading comprehension level; and

3.4.2.2     translated into the language of any major population group.

3.4.3       All materials regarding the STAR Program must be submitted to TDH
            for approval prior to distribution. TDH has 15 working days to
            review the materials and recommend any suggestions or required
            changes, If TDH has not responded to HMO by the fifteenth day, HMO
            may submit a written request for deemed approval. Requests for
            deemed approval must clearly identify the materials for which deemed
            approval is requested by title of document, date of submission, and
            the timelines for publication and distribution. TDH must respond in
            writing within two working days from the date a deemed approval
            request is received. TDH reserves the right to request HMO to modify
            plan materials.

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

3.4.5       HMO must provide TDH with at least five copies of all written
            materials that HMO is required to submit under this contract, unless
            otherwise specified by TDH.

3.5         RECORDS REQUIREMENTS AND RECORDS RETENTION
            ------------------------------------------

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

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

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

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

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

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

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

3.6         HMO REVIEW OF TDH MATERIALS
            ---------------------------

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<PAGE>

            TDH will submit all studies or audits that relate or refer to HMO
            for review and comment to HMO 15 days prior to releasing the report
            to the public or to Members.

ARTICLE IV         FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

4.1         FISCAL SOLVENCY
            ---------------

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

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

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

4.2         MINIMUM EQUITY
            --------------

4.2.1       HMO has minimum equity equal to the greater of (a) $1,500,000; (b)
            an amount equal to the sum of twenty-five dollars ($25) times the
            number of all enrollees including Medicaid Members; or (c) an amount
            that complies with standards adopted by TDI. Equity is calculated by
            subtracting accrued liabilities from admitted assets, as those terms
            are defined in 28 TAC ss. 11.806 and ss. 11.2(b) respectively.

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

4.3         PERFORMANCE BOND
            ----------------

            HMO has furnished TDH with a performance bond in the form prescribed
            by TDH and approved by TDI, naming TDH as Obligee, securing HMO's
            faithful performance of the terms and conditions of this contract.
            The performance bond has been issued in the amount of $100,000. If
            the contract is renewed or extended under Article XVIII, a separate
            bond will be required for each additional term of the

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<PAGE>

            contract. The bond has been issued by a surety licensed by TDI, and
            specifies cash payment as the sole remedy. Performance Bond
            requirements under this Article must comply with Texas Insurance
            Code ss. 11. 1805, relating to Performance and Fidelity Bonds. The
            bond must be delivered to TDH at the same time the signed HMO
            contract is delivered to TDH.

4.4         INSURANCE

            ---------

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

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

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

4.4.4       Any exceptions to the requirements of this Article must be approved
            in writing by TDH prior to the contract Implementation Date. HMOs
            and providers who qualify as either state or federal units of
            government are exempt from the insurance requirements of this
            Article and are not required to obtain exemptions from these
            provisions prior to the contract Implementation Date. State and
            federal units of goverment are required to comply with and are
            subject to the provisions of the Texas or Federal Tort Claims Act.

4.5         FRANCHISE TAX
            -------------

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

4.6         AUDIT
            -----

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

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<PAGE>

4.6.2       TDH is required to conduct an audit of HMO at least once every three
            years. HMO is responsible for paying the costs of an audit conducted
            under this Article. The costs of the audit may be allowed as a
            credit against premium taxes paid by HMO under the provisions of the
            Texas Insurance Code.

4.7         PENDING OR THREATENED LITIGATION
            --------------------------------

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

4.8         MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO OPERATIONS
            --------------------------------------------------------------------

4.8.1       HMO was awarded this contract based upon the responses and
            representations contained in HMO's application submitted in response
            to TDH's RFA. All responses and representations upon which scoring
            was based were considered material to the decision of whether to
            award the contract to HMO. RFA responses are incorporated into this
            contract by reference. The provisions of this contract control over
            any RFA response if there is a conflict between the RFA and this
            contract, or if changes in law or policy have changed the
            requirements of HMO contracting with TDH to provide Medicaid Managed
            Care.

4.8.2       This contract was awarded in part based upon HMO's representation of
            its current equity and financial ability to bear the risks under
            this contract. TDH will consider any misrepresentations of HMO's
            equity, HMO's ability to bear financial risks of this contract or
            inflating the equity of HMO, solely for the purpose of being awarded
            this contract, a material misrepresentation and fraud under this
            contract.

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

4.9         THIRD PARTY RECOVERY
            --------------------

4.9.1       Third Party Recovery. All Members are required to assign their
            rights to any benefits to the State and agree to cooperate with the
            State in identifying third parties who may be liable for all or part
            of the costs for providing services to the Member, as a

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<PAGE>

            condition for participation in the Medicaid program. HMO is
            authorized to act as the State's agent in enforcing the State's
            rights to third party recovery under this contract.

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

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

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

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

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

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<PAGE>

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

4.9.6       Accountability. HMO must report all third party recovery efforts and
            amounts recovered as required in Article 12.1.12. If HMO fails to
            pursue and recover from third parties no later than 180 days after
            the date of service, TDH may pursue third party recoveries and
            retain all amounts recovered without accounting to HMO for the
            amounts recovered. Amounts recovered by TDH will be added to
            expected third party recoveries to reduce future capitation rates,
            except recoveries from those excepted third party resources listed
            in Article 4.9.3.

4.10        CLAIMS PROCESSING REQUIREMENTS
            ------------------------------

4.10.1      HMO and claims processing Subcontractors must comply with TDH's
            Texas Managed Care Claims Manual (Claims Manual), which contains
            TDH's claims processing requirements.

4.10.2      HMO must forward claims submitted to HMO in error to either: 1) the
            correct HMO if the correct HMO can be determined from the claim or
            is otherwise known to HMO; 2) the State's claims administrator; or
            3) the provider who submitted the claim in error, along with an
            explanation of why the claim is being returned.

4.10.3      HMO must not pay any claim submitted by a provider who is under
            investigation for or has been excluded or suspended from the
            Medicare or Medicaid programs for fraud and abuse when HMO is on
            actual or constructive notice of the investigation, exclusion or
            suspension.

4.10.4      All provider clean claims must be adjudicated (finalized as paid or
            denied adjudicated) within 30 days from the date the claim is
            received by HMO. HMO must pay providers interest on a clean claim
            which is not adjudicated within 30 days from the date the claim is
            received by HMO or becomes clean at a rate of 1.5% per month (18%
            annual) for each month the clean claim remains unadjudicated.

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

4.10.4.2    Claims that are suspended (pended internally) must be subsequently
            paid-adjudicated, denied-adjudicated, or denied for additional
            information (pended externally) within

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<PAGE>

            30 days from date of receipt. No claim can be suspended for a period
            exceeding 30 days from date of receipt of the claim.

4.10.4.3    HMO must identify each data field of each claim form that is
            required from the provider in order for HMO to adjudicate the claim.
            HMO must inform all network providers about the required fields at
            least 30 days prior to the service area Implementation Date or as a
            provision within HMO/provider contract. Out of network providers
            must be informed of all required fields if the claim is denied for
            additional information. The required fields must include those
            required by HMO and TDH.

4.10.5      HMO is subject to the Remedies and Sanctions Article of this
            contract for claims that are not processed on a timely basis as
            required by this contract and the Claims Manual.

4.10.6      HMO must offer to its Subcontractors the option of submitting and
            receiving claims information through electronic data interchange
            (EDI) that allows for automated processing and adjudication of
            claims. EDI processing must be offered as an alternative to the
            filing of paper claims.

4.11        INDEMNIFICATION

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

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

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

4.11.1.2    Claims arising from HMO's, HMO's network provider's or other
            Subcontractor's negligent or intentional conduct in not providing
            covered services; and

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

4.11.2      HMO/Provider: HMO is prohibited from requiring any providers to
            indemnify HMO for HMO's own acts or omissions which result in
            damages or sanctions being assessed against HMO either under this
            contract or under state or federal law.

ARTICLE V          STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

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                                                                         5-14-99

<PAGE>

5.1         COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS
            ----------------------------------------------

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

5.1.2       HMO must require, through contract provisions, that all network
            providers or Subcontractors comply with all state and federal laws
            and regulations relating to the Texas Medicaid Program and all rules
            relating to the Medicaid managed care program adopted by TDH, TDI,
            THHSC, TDMHMR and any other state agency delegated authority to
            operate Medicaid or Medicaid Managed Care programs.

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

5.2         PROGRAM INTEGRITY
            -----------------

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

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

5.3         FRAUD AND ABUSE COMPLIANCE PLAN
            -------------------------------

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

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<PAGE>

            Attorney General's Medicaid Fraud Control Unit. All copies of
            records must be provided free-of-charge.

5.3.2       HMO must submit a written compliance plan to TDH for approval at
            least 120 days prior to the Implementation Date. HMO must submit any
            updates or modifications to TDH for approval at least 30 days prior
            to modifications going into effect.

5.3.2.1     The plan must ensure that all officers, directors, managers and
            employees know and understand the provisions of HMO's fraud and
            abuse compliance plan. The written plan must contain procedures
            designed to prevent and detect potential or suspected abuse and
            fraud in the administration and delivery of services under this
            contract. The plan must contain provisions for the confidential
            reporting of plan violations to the designated person. The plan must
            contain provisions for the investigation and follow-up of any
            compliance plan reports. The fraud and abuse compliance plan must
            ensure that the identity of individuals reporting violations of the
            plan is protected. The plan must contain specific and detailed
            internal procedures for officers, directors, managers and employees
            for detecting, reporting, and investigating fraud and abuse
            compliance plan violations. The compliance plan must require that
            confirmed violations be reported to TDH.

5.3.2.2     The plan must require any confirmed or suspected fraud and abuse
            under state or federal law be reported to TDH, the Medicaid Program
            Integrity section of the Office of Investigations and Enforcement of
            the Texas Health and Human Services Commission, and/or the Medicaid
            Fraud Control Unit of the Texas Attorney General. The written plan
            must ensure that no individual who reports plan violations or
            suspected fraud and abuse is retaliated against.

5.3.3       HMOs must comply with the requirements of the Model Compliance Plan
            for HMOs when this model plan is issued by the U.S. Department of
            Health and Human Services, the Office of Inspector General (OIG).
            HMO must designate executive and essential personnel to attend
            mandatory training in fraud and abuse detection, prevention and
            reporting. The training will be conducted by the Office of
            Investigation and Enforcement, Health and Human Services Commission
            and will be provided free-of-charge. Training must be scheduled not
            later than 150 days before the Implementation Date and be completed
            by all designated personnel not later than 60 days before the
            Implementation Date.

5.3.4       HMO must designate an officer or director in its organization who
            has the responsibility and authority for carrying out the provisions
            of the fraud and abuse compliance plan.

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

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<PAGE>

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

5.4         SAFEGUARDING INFORMATION
            ------------------------

5.4.1       All Member information, records and data collected or provided to
            HMO by TDH or another State agency is protected from disclosure by
            state and federal law and regulations. HMO may only receive and
            disclose information which is directly related to establishing
            eligibility, providing services and conducting or assisting in the
            investigation and prosecution of civil and criminal proceedings
            under state or federal law. HMO must include a confidentiality
            provision in all subcontracts with individuals.

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

5.4.3       HMO is responsible for educating Members and providers concerning
            the Human Immunodeficiency Virus (HIV) and its related conditions
            including Acquired Immune Deficiency Syndrome (AIDS). PCP must
            develop and implement a policy for protecting the confidentiality of
            AIDS and HIV-related medical information and an anti-discrimination
            policy for employees and Members with communicable diseases. Also
            see Health and Safety Code, Chapter 85, Subchapter E, relating to
            the Duties of State Agencies and State Contractors.

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

5.5         NON-DISCRIMINATION
            ------------------

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

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

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<PAGE>

            benefits, or be subjected to any discrimination under any program or
            activity receiving federal funds

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

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

5.6         HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)
            --------------------------------------------

5.6.1       TDH is committed to providing procurement and contracting
            opportunities to historically underutilized businesses (HUBs), under
            the provisions of Texas Government Code, Title 10, Subtitle D,
            Chapter 2161 and 1 TAC ss. 111.11 (b) and 111. 13(c)(7). TDH
            requires its Contractors and Subcontractors to make a good faith
            effort to assist HUBs in receiving a portion of the total contract
            value of this contract.

5.6.2       The HUB good faith effort goal for this contract is 18. 1 % of total
            premiums paid. HMO agrees to make a good faith effort to meet or
            exceed this goal. HMO acknowledges it made certain good faith effort
            representations and commitments to TDH during the HUB good faith
            effort determination process. HMO agrees to use its best efforts to
            abide by these representations and commitments during the contract
            period.

5.6.3       HMO is required to submit HUB quarterly reports to TDH as required
            in Article 12.11.

5.6.4       TDH will assist HMO in meeting the contracting and reporting
            requirements of this Article.

5.7         BUY TEXAS
            ---------

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

5.8         CHILD SUPPORT
            -------------

5.8.1       The Texas Family Code ss.231.006 requires TDH to withhold contract
            payments from any for-profit entity or individual who is at least 30
            days delinquent in child support obligations. It is HMO's
            responsibility to determine and verify that no owner, partner, or
            shareholder who has at least at 25% ownership interest is delinquent
            in child support obligations. HMO must attach a list of the names
            and Social Security

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<PAGE>

            numbers of all shareholders, partners or owners who have at least a
            25% ownership interest in HMO.

5.8.2       Under Section 231.006 of the Family Code, the contractor certifies
            that the contractor is not ineligible to receive the specified
            grant, loan, or payment and acknowledges that this contract may be
            terminated and payment may be withheld if this certification is
            inaccurate. A child support obligor who is more than 30 days
            delinquent in paying child support or a business entity in which the
            obligor is a sole proprietor, partner, shareholder, or owner with an
            ownership interest of at least 25% is not eligible to receive the
            specified grant, loan or payment.

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

5.9         REQUESTS FOR PUBLIC INFORMATION
            -------------------------------

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

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

5.9.3       If HMO believes that the requested information qualifies as a trade
            secret or as commercial or financial information, HMO must notify
            TDH-within three working days of HMO's receipt of the request -of
            the specific text, or portions of text, which HMO claims is excepted
            from required public disclosure. HMO is required to identify the
            specific provisions of the Public Information Act which HMO believes
            are applicable.

5.10        NOTICE AND APPEAL
            -----------------

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            HMO must comply with the notice requirements contained in 25 TAC
            ss.36.21, and the maintaining benefits and services contained in 25
            TAC ss.36.22, whenever HMO intends to take an action affecting the
            Member benefits and services under this contract. Also see the
            Member appeal requirements contained in Article 8.7 of this
            contract.

ARTICLE VI         SCOPE OF SERVICES

6.1         SCOPE OF SERVICES - GENERAL
            ---------------------------

            HMO must provide or arrange to have provided to Members all health
            care services listed in Appendix C -Scope of Services, which is
            attached and incorporated into this contract. HMO must also provide
            or arrange to have provided to mandatory Members all value-added
            services listed in HMO's response to the RFA for this contract. The
            RFA and responses are incorporated into this contract by reference.

6.2         PRE-EXISTING CONDITIONS
            -----------------------

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

6.3         SPAN OF ELIGIBILITY
            -------------------

            HMO must provide all covered services to Members assigned to HMO for
            all periods for which HMO has received payment, except as follows:

6.3.1       Inpatient admission to hospital or free-standing psychiatric
            facility (facility) prior to enrollment in HMO. HMO is responsible
            for payment of physician and non-hospital/non-facility services from
            the date of enrollment in HMO. HMO is not responsible for
            hospital/facility charges for Members admitted prior to enrollment.

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

6.3.3       Discharge after voluntary disenrollment from HMO and re-enrollment
            into a new HMO. HMO remains responsible for payment of
            hospital/facility charges until the Member is discharged. HMO to
            whom Member transfers is responsible for payment

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            of all physician and non-hospital/non-facility charges beginning on
            the effective date of enrollment into the new HMO.

6.3.4       Hospital Transfer. Discharge from one hospital and readmission or
            admission to another hospital within 24 hours for continued
            treatment shall not be considered discharge under this Article.

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

6.4         CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
            -----------------------------------------------

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

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

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

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

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6.5         EMERGENCY SERVICES
            ------------------

6.5.1       HMO must provide or arrange to have provided, and pay for emergency
            services. Emergency services includes all emergency facility charges
            related to behavioral health diagnoses except those charges by
            specialized behavioral health emergency facilities. HMO cannot
            require prior authorization as a condition for payment for emergency
            services. HMO must have a system for providers to verify Member
            enrollment in HMO 24 hours a day, 7 days a week.

6.5.2       HMO must provide emergency services 24 hours a day, 7 days a week,
            at a hospital, by access to physician consultation or emergency
            medical care through HMO's own facilities or through arrangements
            approved by TDH with other providers. HMO must provide conveniently
            located emergency services sites for providing after-hours emergency
            services.

6.5.3       HMO must have toll-free emergency and crisis hotline services
            available 24 hours a day, 7 days a week, throughout the service
            area. Staff must be qualified to assess the immediate health care
            needs and determine whether an emergency condition exists and
            provide triage, advice, and referral, and-if necessary-arrange for
            treatment of the Member. Crisis-hotline staff must include or have
            access to qualified behavioral health professionals to assess
            behavioral health emergencies. Emergency and crisis behavioral
            health services may be arranged through mobile crisis teams. It is
            not acceptable for an emergency intake line to be answered by voice
            mail or an answering machine.

6.5.4       HMO must develop and maintain an educational program to ensure that
            Members understand what is an emergency medical condition and know
            where and how to obtain medically necessary services in emergency
            situations, 24 hours a day, 7 days a week.

6.5.5       HMO must include in its provider network TDH designated trauma
            centers which are within the service area.

6.5.6       HMO must coordinate with emergency response systems in the
            community, including the police, fire and EMS departments, child
            protective services, and chemical dependency emergency services.

6.5.7       HMO must pay for emergency services provided to Members inside or
            outside of HMO's provider network and service area. HMO must pay
            reasonable and customary reimbursement amounts for providers and
            emergency services required to assess whether an emergency exists,
            and deliver emergency services required.

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6.5.8       HMO may establish reasonable deadlines for providers to submit
            claims for out-of- network and out-of-service-area emergency
            services. HMO must pay out-of-network and service-area provider
            clean claims within 30 days from HMO's receipt of a clean claim.

6.5.9       HMO must provide a written copy of its policies and procedures for
            emergency admissions to TDH for approval not later than 90 days
            prior to the Implementation Date. Modifications or amendments to
            policies and procedures must be submitted to TDH for approval at
            least 60 days prior to the implementation of the modification or
            amendment.

6.6         BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS
            --------------------------------------------------

6.6.1       HMO must provide or arrange to have provided to Members all
            Behavioral Health Services listed in Appendix C - Scope of Services
            which is attached and incorporated into this contract.

6.6.2       HMO must maintain a behavioral health provider network that includes
            psychiatrists, psychologists and other behavioral health providers.
            HMO must provide the scope of behavioral health benefits described
            in Appendix C. The network must include providers with experience in
            serving children and adolescents to ensure accessibility and
            availability of qualified providers to all eligible children and
            adolescents in the service area. The list of providers including
            names, addresses and phone numbers must be available to TDH upon
            request.

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

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

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

6.6.6       HMO must permit Members to self refer to any in-network behavioral
            health care provider without a referral from the Member's PCP. HMO
            must permit Members to participate in the selection or assignment of
            the appropriate behavioral health individual practitioner(s) who
            will serve them. HMO must provide a written copy of its policies and
            procedures for self-referral to TDH for approval 90 days prior to

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<PAGE>

            the Implementation Date in the service area. Changes or amendments
            to those policies and procedures must be submitted to TDH for
            approval at least 60 days prior to their effective date.

6.6.7       HMO must require its PCPs to have medical history, screening and
            evaluation procedures for behavioral health problems and disorders
            and either treat or refer the Member for evaluation and treatment of
            known or suspected behavioral health problems and disorders. PCPs
            may provide any clinically appropriate behavioral health services
            within the scope of their practice. This requirement must be
            included in all Provider Manuals.

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

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

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

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

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

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

6.6.12      HMO must comply with 28 TACss.ss.3.8001 et seq., regarding
            utilization review of chemical dependency treatment.

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<PAGE>

6.7         FAMILY PLANNING - SPECIFIC REQUIREMENTS
            ---------------------------------------

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

6.7.2       Freedom of Choice. HMO must ensure that the Member has the right to
            choose any Medicaid participating family planning provider in or out
            of its network (family planning providers are listed in Appendix D).
            HMO must provide Member access to information about the providers of
            family planning services available in the network and the Member's
            right to choose any Medicaid family planning provider. HMO must
            provide access to confidential family planning services.

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

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

6.7.4.1     general benefits of family planning services and contraception;

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

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

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

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<PAGE>

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

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

6.7.4.7     information on HIV/STD infection and prevention, and a safe-sex
            discussion.

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

6.7.6       HMO must develop, implement, monitor, and maintain standards,
            policies and procedures for providing information regarding family
            planning to providers and Members, specifically regarding State and
            federal laws governing Member confidentiality (including minors).

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

6.8         TEXAS HEALTH STEPS (EPSDT)
            --------------------------

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

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

6.8.3       Provider Education and Training. HMO must provide appropriate
            training to all network providers and provider staff in the
            providers' area of practice regarding the scope of benefits
            available and the THSteps program. Training must include THSteps
            benefits, the periodicity schedule for THSteps checkups and
            immunizations, and services available under the THSteps program
            which are not available to all Medicaid recipients and are available
            to ensure that Members can comply with the periodicity schedule,
            including but not limited to transportation, dental check-ups, and

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<PAGE>

            CCP. Providers must also be educated and trained regarding the
            requirements imposed upon TDH and contracting HMOs under the Consent
            Decree entered in Frew v. McKinney, et al., Civil Action No.
            3:93CV65, in the United States District Court for the Eastern
            District of Texas, Paris Division. Providers should be educated and
            trained to treat each THSteps visit as an opportunity for a
            comprehensive assessment of the Member.

6.8.4       Member Outreach. HMO must provide an outreach unit that works with
            Members to ensure they receive prompt services and are knowledgeable
            about available Texas Health Step services. Outreach staff must
            coordinate with TDH Texas Health Step outreach staff to ensure that
            Members have access to the Medical Transportation Program (MTP), and
            that any coordination with other agencies is maintained. MTP will
            not transport Members to value-added services offered by HMO.

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

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

6.8.7       Newborn Checkups. HMO must have mechanisms in place to ensure that
            all newborn children of Members have an initial newborn checkup
            before discharge from the hospital and again within two weeks from
            the time of birth. HMO must require providers to send all THSteps
            newborn screens to the TDH Bureau of Laboratories or a TDH certified
            laboratory. Providers must include detailed identifying information
            for all screened newborns and the Member's mother to allow TDH to
            link the screens performed at the hospital with screens performed at
            the two week follow-up.

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

6.8.9       Immunizations and Laboratory Tests. HMO must require providers to
            comply with the THSteps program requirements for submitting
            laboratory tests to the TDH

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<PAGE>

            Bureau of Laboratories or the Texas Center for Infectious Disease
            Cytopathology Laboratory Department.

6.8.9.1     ImmTrac Compliance. HMO must educate providers about and require
            providers to comply with the requirements of Chapter 161, Health and
            Safety Code, relating to the Texas Immunization Registry (ImmTrac).

6.8.9.2     Vaccines for Children Program. Registered providers can also receive
            the vaccines free from TDH through the Vaccines for Children Program
            (VFC). These vaccines are supplied to provider offices through local
            and state public health departments. (Please refer to Texas Medicaid
            Service Delivery Guide, pages 4-9.)

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

6.8.11      Compliance With THSteps Performance Milestones. TDH will establish
            performance milestones against which HMO's full compliance with the
            THSteps periodicity schedule will be measured. The performance
            milestones will establish minimum compliance measures which will
            increase over time. HMO must meet all performance milestones
            required for THSteps services. HMO must submit all THSteps reports
            and encounters as required under this contract. Failure to meet or
            exceed the performance milestones may result in: removal of THSteps
            component of the capitation amounts paid to HMO; or any of the
            Remedies contained in Article XVIII. Repeated non-compliance with
            the THSteps performance milestones is a major breach of the terms of
            this contract and could result in termination of the contract, or
            non-renewal of the contract, in addition to all money damages and
            sanctions assessed against HMO for non-compliance with reporting
            administrative requirements.

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

6.9         PERINATAL SERVICES
            ------------------

6.9.1       HMO's perinatal health care services must ensure appropriate care is
            provided to women and infants, from the preconception period through
            the infant's first year of life. HMO's perinatal health care system
            must comply with the requirements of

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            Health & Safety Code, Chapter 32 Maternal and Infant Health
            Improvement Act and 25 TAC ss.37.233 et seq.

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

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

6.9.2.2     perinatal risk assessment of nonpregnant women, pregnant and
            postpartum women, and infants up to one year of age;

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

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

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

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

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

6.9.3       HMO must have procedures in place to assign a PCP to an unborn child
            prior to birth of the child.

6.9.4       HMO must provide inpatient care for a Member and a newborn child in
            a health care facility, if requested by the mother or is determined
            to be medically necessary by the Member's PCP, for a minimum of:

6.9.4.1     48 hours following an uncomplicated vaginal delivery; and

6.9.4.2     96 hours for an uncomplicated caesarian delivery.

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

6.9.6       HMO is responsible for all covered services provided to the newborn
            Member unless and until the newborn is enrolled into another plan.

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<PAGE>

6.10        EARLY CHILDHOOD INTERVENTION (ECI)
            ----------------------------------

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

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

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

6.10.4      Coordination. HMO must coordinate and cooperate with local ECI
            programs which perform assessment in the development of the
            Individual Family Service Plan (IFSP), including on-going case
            management and other non-capitated services required by the Member's
            IFSP. Cooperation includes conducting medical diagnostic procedures
            and providing medical records required to perform developmental
            assessments and develop the IFSP within the time lines established
            at 34 C.F.R. 303.1 et seq. ECI case management is not an HMO
            capitated service.

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

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<PAGE>

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

6.11.1      HMO must coordinate with WIC to provide certain medical information
            which is necessary to determine WIC eligibility, such as height,
            weight, hematocrit or hemoglobin (see Article 7.16.4.2).

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

6.11.3      HMO must coordinate with existing WIC providers to ensure Members
            have access to the Special Supplemental Nutrition Program for Women,
            Infants and Children; or HMO must provide these services.

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

6.12        TUBERCULOSIS (TB)
            -----------------

6.12.1      Education, Screening, Diagnosis and Treatment. HMO must provide
            Members and providers with education on the prevention, detection
            and effective treatment of tuberculosis (TB). HMO must establish
            mechanisms to ensure all procedures required to screen at-risk
            Members and to form the basis for a diagnosis and proper prophylaxis
            and management of TB are available to all Members, except services
            listed in Appendix C as non-capitated services. HMO must develop
            policies and procedures to ensure that Members who may be or are at
            risk for exposure to TB are screened for TB. An at-risk Member
            refers to a person who is susceptible to TB because of the
            association with certain risk factors, behaviors or environmental
            conditions. HMO must consult with the local TB control program to
            ensure that all services and treatments provided by HMO are in
            compliance with the guidelines recommended by the American Thoracic
            Society (ATS) and the Centers for Disease Control and Prevention
            (CDC) and TDH policies and standards.

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

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

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

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

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

6.12.4.3    HMO may contract with the local TB control programs to perform any
            of the capitated services required in Article 6.12.

6.13        PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS
            ---------------------------------------------------------

6.13.1      HMO shall provide the following services to persons with
            disabilities or chronic or complex conditions. These services are in
            addition to the services listed in Appendix C - Scope of Services.

6.13.2      HMO must develop and maintain a system and procedures for
            identifying Members who have disabilities or chronic or complex
            medical and behavioral health conditions. Once identified, HMO must
            have effective health delivery systems to provide the covered
            services to meet the special preventive, primary acute, and
            speciality health care needs appropriate for treatment of the
            individual's condition. The guidelines and standards established by
            the American Academy of Pediatrics, the American College of
            Obstetrics/Gynecologists, the U.S. Public Health Service, and other
            medical and professional health organizations and associations'
            practice guidelines whose standards are recognized by TDH must be
            used in determining the medically necessary services and plan of
            care for each individual.

6.13.3      HMO must require that the PCP for all persons with disabilities or
            chronic or complex conditions develops a plan of care to meet the
            needs of the Member. The plan of care must be based on health needs,
            specialist(s) recommendations, and periodic reassessment of the
            Member's functional status and service delivery needs. HMO must
            require providers to maintain record keeping systems to ensure that
            each Member who has been identified with a disability or chronic or
            complex condition

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            has an initial plan of care in the primary care provider's medical
            records and that the plan is updated as often as the Member's needs
            change, but at least annually.

6.13.4      HMO must provide primary care and specialty care provider network
            for persons with disabilities or chronic or complex conditions.
            Specialty and subspecialty providers serving all Members must be
            Board Certified/Board Eligible in their specialty. HMO may request
            exceptions from TDH for approval of traditional providers who are
            not board-certified or board-eligible but who otherwise meet HMO's
            credentialing requirements.

6.13.5      When treating Members with disabilities or chronic or complex
            conditions, HMO must ensure that PCPs and specialty care providers
            have documented experience in treating people with similar
            disabilities or chronic or complex conditions. For services to
            children with disabilities or chronic or complex conditions, HMO
            must ensure that PCPs and specialty care providers have demonstrated
            experience with children with disabilities or chronic or complex
            conditions in pediatric specialty centers such as children's
            hospitals, medical schools, teaching hospitals and tertiary center
            levels.

6.13.6      HMO must provide information, education and training programs to
            Members, families, PCPs , specialty physicians, and community
            agencies about the care and treatment available in HMO's plan for
            Members with disabilities or chronic or complex conditions.

6.13.7      HMO must coordinate care and establish linkages, as appropriate for
            a particular Member, with existing community-based entities and
            services, including but not limited to Maternal and Child Health,
            Chronically Ill and Disabled Children's Services (CIDC), the
            Medically Dependent Children Program (MDCP), Community Resource
            Coordination Groups (CRCGs), Interagency Council on Early Childhood
            Intervention (ECI), Home and Community-based Services (HCS),
            Community Living Assistance and Support Services (CLASS), Community
            Based Alternatives (CBA), In Home Family Support, Primary Home Care,
            Day Activity and Health Services (DAHS), Deaf/Blind Multiple
            Disabled waiver program and Medical Transportation Program (MTP).

6.13.8      HMO must include TDH approved pediatric transplant centers, TDH
            designated trauma centers, and TDH designated hemophilia centers in
            its provider network (see Appendices E, F, and G for a listing of
            these facilities).

6.13.9      HMO must ensure Members with disabilities or chronic or complex
            conditions have access to treatment by a multidisciplinary team when
            determined to be medically necessary for effective treatment, or to
            avoid separate and fragmented evaluations and service plans. The
            teams must include both physician and non-physician providers
            determined to be necessary by the Member's PCP for the comprehensive
            treatment of the Member. The team must:

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6.13.9.1    Participate in hospital discharge planning;

6.13.9.2    Participate in pre-admission hospital planning for non-emergency
            hospitalizations;

6.13.9.3    Develop specialty care and support service recommendations to be
            incorporated into the primary care provider's plan of care;

6.13.9.4    Provide information to the Member and the Member's family concerning
            the specialty care recommendations; and

6.13.9.5    Develop and implement training programs for primary care providers,
            community agencies, ancillary care providers, and families
            concerning the care and treatment of a Member with a disability or
            chronic or complex conditions.

6.13.10     HMO must identify coordinators of medical care to assist providers
            who serve Members with disabilities and chronic or complex
            conditions and the Members and their families in locating and
            accessing appropriate providers inside and outside HMO's network.

6.13.11     HMO must assist eligible Members in accessing providers of
            non-capitated Medicaid services listed in Appendix C, as applicable.

6.13.12     HMO must ensure that Members who require routine or regular
            laboratory and ancillary medical tests or procedures to monitor
            disabilities or chronic or complex conditions are allowed by HMO to
            receive the services from the provider ordering the procedure or at
            a lab located at or near the provider's office.

6.14        HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS
            --------------------------------------------------

6.14.1      Group Needs Assessment. HMO must conduct a group needs assessment of
            enrolled STAR Members to determine Member health education needs and
            literacy levels. HMO may cooperatively conduct a group needs
            assessment of all enrolled STAR Members with one or more HMOs also
            contracting with TDH in the service area to provide services to
            Medicaid recipients.

6.14.2      Group Needs Assessment Report. The Group Needs Assessment Report is
            due six months after the Implementation Date. The Needs Assessment
            Report would include, but not be limited to, demographic
            information, prevalence of health conditions, and stated preferences
            for health education.

6.14.2.1    Group Needs Assessment Methodology Report and Preliminary Health
            Education Plan. The Group Needs Assessment Methodology Report and
            the Preliminary Health Education Plan are due no later than 30 days
            following the Implementation Date. They should be combined into one
            document.

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6.14.2.1.1  Group Needs Assessment Methodology Report. HMO must submit a report
            to TDH summarizing the methodology, key activities, timeline for
            implementation and HMO personnel responsible for analyzing and
            interpreting results of the assessment and establishing health
            education priorities. The Group Needs Assessment Methodology must
            evidence use or planned use of local and/or state public health
            department information resources and how HMO will coordinate with
            the TDH regional office.

6.14.2.1.2  Preliminary Health Education Plan. The Group Needs Assessment
            Methodology Report must also include a preliminary health education
            plan that uses local and/or state public health department
            information resources.

6.14.3      Health Education Plan. The health education plan must tell Members
            how HMO system operates, how to obtain services, including emergency
            care and out-of-plan services. The plan must emphasize the value of
            screening and preventive care and must contain disease-specific
            information and educational materials. HMO must submit health
            education plan updates annually. The final Health Education Plan is
            due 30 days after the Group Needs Assessment Report has been
            completed and filed with TDH.

6.14.3.1    Member Education Materials. Member education materials must be
            approved in advance by TDH and must meet language and reading level
            requirements. Materials must be submitted to TDH for approval not
            later than 90 days prior to the Implementation Date. Modifications
            or amendments to these materials must be submitted for approval
            within 60 days prior to their implementation.

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

            HMO must: (1) develop, maintain and distribute health education
            services standards, policies and procedures to providers; (2)
            monitor provider performance to ensure the standards for health
            education services are complied with; (3) inform providers in
            writing about any non-compliance with the plan standards, policies
            and procedures; (4) establish systems and procedures that ensure
            that provider's medical instruction and education on preventive
            services provided to the Member are documented in the Member's
            medical record; and (5) establish mechanisms for promoting
            preventive care services to Members who do not access care, e.g.
            newsletters, reminder cards, and mail-outs.

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6.14.4      Implementation of Health Education and Wellness Plan. HMO must
            implement its health education and wellness plan. The plan could
            include health education classes targeted to the needs of the
            Members, distribution of health education and wellness promotion
            pamphlets, audiovisual programs, health fairs, case management and
            one-on-one education. HMO staff has the option to provide the
            education directly or through contracted vendors and/or referrals to
            community agencies. HMO may use the nutrition education provided to
            WIC participants to satisfy nutrition counseling requirements. HMO
            must coordinate and integrate the health education system with the
            quality improvement program.

6.14.5      Health Education Activities Schedule. HMO must submit a proposed
            Health Education Activities Schedule to TDH or its designee on the
            last day of the month prior to the beginning of each State fiscal
            year quarter. The schedule should include the time and location of
            classes, health fairs or other events covering all areas of the
            service area.

            HMO may cooperatively conduct Health Education classes of all
            enrolled STAR members with one or more HMOs also contracting with
            TDH in the service area to provide services to Medicaid recipients
            in contiguous counties of the service area.

6.14.5.1    HMO must submit quarterly summary reports of health education
            activities. The reports are due thirty (30) days after the end of
            each State fiscal year quarter.

6.15        SEXUALLY TRANSMITTED DISEASES (STDS) AND HUMAN IMMUNODEFICIENCY
            ---------------------------------------------------------------
            VIRUS (HIV)
            -----------

            HMO must provide STD services that include STD/HIV prevention,
            screening, counseling, diagnosis, and treatment. HMO is responsible
            for implementing procedures to ensure that Members have prompt
            access to appropriate services for STDs, including HIV.

6.15.1      HMO must allow Members access to STD services and HIV diagnosis
            services without prior authorization or referral by PCP. HMO must
            comply with Texas Family Code ss.32.003, relating to consent to
            treatment by a child.

6.15.2      HMO must provide all covered services required to form the basis for
            a diagnosis and treatment plan for STD/HIV by the provider.

6.15.3      HMO must consult with TDH regional public health authority to ensure
            that Members receiving clinical care of STDs, including HIV, are
            managed according to a protocol which has been approved by TDH (see
            Article 7.16.1 relating to cooperative agreements with public health
            authorities).

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6.15.4      HMO must make education available to providers and Members on the
            prevention, detection and effective treatment of STDs, including
            HIV.

6.15.5      HMO must require providers to report all confirmed cases of STDs,
            including HIV, to the local or regional health authority according
            to 25 Texas Administrative Code, Sections 97.131 - 97.134, using the
            required forms and procedures for reporting STDs.

6.15.6      HMO must coordinate with the TDH regional health authority to ensure
            that Members with confirmed cases of syphilis, chancroid, gonorrhea,
            chlamydia and HIV receive risk reduction and partner
            elicitation/notification counseling. Coordination must be included
            in the subcontract required by Article 7.16.1. HMO may contract with
            local or regional health authorities to perform any of the covered
            services required in Article 6.15.

6.15.7      HMO's PCPs may enter into contracts or agreements with traditional
            HIV service providers in the service area to provide services such
            as case management, psychosocial support and other services. If the
            service provided is a covered service under this contract, the
            contract or agreement must include payment provisions.

6.15.8      The subcontract with the respective TDH regional offices and city
            and county health departments, as described in Article 7.16.1, must
            include, but not be limited to, the following topics:

6.15.8.1    Access for Case Investigation. Procedures must be established to
            make Member records available to public health agencies with
            authority to conduct disease investigation, receive confidential
            Member information, and follow up.

6.15.8.2    Medical Records and Confidentiality. HMO must require that providers
            have procedures in place to protect the confidentiality of Members
            provided STD/HIV services. These procedures must include, but are
            not limited to, the manner in which medical records are to be
            safeguarded; how employees are to protect medical information; and
            under what conditions information can be shared. HMO must inform and
            require its providers who provide STD/HIV services to comply with
            all state laws relating to communicable disease reporting
            requirements. HMO must implement policies and procedures to monitor
            provider compliance with confidentiality requirements.

6.15.8.3    Partner Referral and Treatment. Members who are named as contacts to
            an STD, including HIV, should be evaluated and treated according to
            HMO's protocol. All protocols must be approved by TDH. HMO's
            providers must coordinate referral of non-Member partners to local
            and regional health department STD staff.

6.15.8.4    Informed Consent and Counseling. HMO must have policies and
            procedures in place regarding obtaining informed consent and
            counseling Members. The Subcontracts

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<PAGE>

            with providers who treat HIV patients must include provisions
            requiring the provider to refer Members with HIV infection to public
            health agencies for in-depth prevention counseling, on-going partner
            elicitation and notification services and other prevention support
            services. The Subcontracts must also include provisions that require
            the provider to direct-counsel or refer an HIV-infected Member about
            the need to inform and refer all sex and/or needle-sharing partners
            that might have been exposed to the infection for prevention
            counseling and antibody testing.

6.16        BLIND AND DISABLED MEMBERS
            --------------------------

6.16.1      HMO must arrange for all covered health and health-related services
            required under this contract for all voluntarily enrolled Blind and
            Disabled Members. HMO is not required to provide value-added
            services to Blind and Disabled Members.

6.16.2      HMO must perform the same administrative services and functions as
            are performed for mandatory Members under this contract. These
            administrative services and functions include, but are not limited
            to:

6.16.2.1    Prior authorization of services;

6.16.2.2    All customer services functions offered Members in mandatory
            participation categories, including the complaint process,
            enrollment services, and hotline services;

6.16.2.3    Linguistic services, including providing Member materials in
            alternative formats for the blind and disabled;

6.16.2.4    Health education;

6.16.2.5    Utilization management using TDH Claims Administrator encounter data
            to provide appropriate interventions for Members through
            administrative case management;

6.16.2.6    Quality assurance activities as needed and Focused Studies as
            required by TDH; and

6.16.2.7    Coordination to link Blind and Disabled Members with applicable
            community resources and targeted case management programs (see
            Non-Capitated Services in Appendix C - Scope of Services).

6.16.3      HMO must require network providers to submit claims for health and
            health-related services to TDH's Claims Administrator for claims
            adjudication and payment.

6.16.4      HMO must provide services to Blind and Disabled members within HMO's
            network unless necessary services are unavailable within network.
            HMO must also allow referrals to out-of-network providers if
            necessary services are not available within

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            HMO's network. Records must be forwarded to Member's PCP following a
            referral visit.

ARTICLE VII        PROVIDER NETWORK REQUIREMENTS

7.1         PROVIDER ACCESSIBILITY
            ----------------------

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

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

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

7.1.3.1     Urgent Care within 24 hours of request;

7.1.3.2     Routine care within 2 weeks of request;

7.1.3.3     Physical/Wellness Exams for adults must be provided within 8 to 10
            weeks of the request;

7.1.3.4     HMO must establish policies and procedures to ensure that THSteps
            Checkups be provided within 90 days of new enrollment, except
            newborns should be seen within 2 weeks of enrollment, and in all
            cases be consistent with the American Academy of Pediatrics and/or
            THSteps periodicity schedule. If the Member does not request a
            checkup, HMO must establish a procedure for contacting the Member to
            schedule the checkup.

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

7.2         PROVIDER CONTRACTS
            ------------------

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7.2.1       HMO must enter into written contracts with all providers (provider
            contracts). Provider contracts include all contracts between
            intermediary entities and the direct provider of health services.
            HMO must make all contracts available to TDH at the time and
            location requested by TDH. All standard formats of provider
            contracts must be submitted to TDH for approval no later than 120
            days prior to the Implementation Date. Standard formats of provider
            contracts to be executed later than 120 days prior to the
            Implementation Date must be submitted to TDH prior to use of the
            standard format. All contracts are subject to the terms and
            conditions of this contract and must contain the provisions of
            Article V, Statutory and Regulatory Compliance, and the provisions
            contained in Article 3.2.4. HMO must notify TDH not less than 90
            days prior to terminating any subcontract affecting a major
            performance function of this contract. TDH will require assurances
            that any contract termination will not result in an interruption of
            an essential service or major contract function.

7.2.2       Primary Care Provider (PCP) contracts and specialty care contracts
            must contain provisions relating to the requirements of the provider
            types found in this contract. For example, PCP contracts must
            contain the requirements of Article 7.8 relating to Primary Care
            Providers.

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

7.2.4       The form and substance of all provider contracts are subject to
            approval by TDH. TDH retains the authority to reject or require
            changes to any contract that do not comply with the requirements or
            duties and responsibilities of this contract. HMO REMAINS
            RESPONSIBLE FOR PERFORMING AND FOR ANY FAILURE TO PERFORM ALL
            DUTIES, RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS
            OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED TO
            ANOTHER FOR ACTUAL PERFORMANCE.

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

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

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

7.2.7.1     [Provider] is being contracted to deliver Medicaid managed care
            under the TDH STAR program. HMO must provide copies of the TDH/HMO
            Contract to the [Provider] upon request. [Provider] understands that
            services provided under this contract are funded by State and
            federal funds under the Medicaid program. [Provider] is subject to
            all state and federal laws, rules and regulations that apply to all
            persons or entities receiving state and federal funds. [Provider]
            understands that any violation by a provider of a State or federal
            law relating to the delivery of services by the provider under this
            HMO/Provider contract, or any violation of the TDH/HMO contract
            could result in liability for money damages, and/or civil or
            criminal penalties and sanctions under state and/or federal law.

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

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

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

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

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            [Provider] must report any suspected fraud or abuse including any
            suspected fraud and abuse committed by HMO or a Medicaid recipient
            to TDH for referral to THHSC.

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

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

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

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

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

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

7.2.8       HMO must comply with the provisions of Chapter 20A ss.18A of HMO Act
            relating to Physician and Provider contracts, except Subpart (e),
            which relates to capitation payments.

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

7.3         PHYSICIAN INCENTIVE PLANS
            -------------------------

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

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

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

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

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

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

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

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

7.3.3       HMO must submit the information required in Articles 7.3.2.1 -
            7.3.2.5 to TDH 90 days prior to the Implementation Date of the
            program in the service area and each anniversary date of the
            contract.

7.3.4       HMO must submit the information required in Article 7.3.2.6 one year
            after the effective date of initial contract or effective date of
            renewal contract, and annually each subsequent year under the
            contract.

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

7.3.5.1     whether HMO uses a physician incentive plan that covers referral
            services;

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

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7.3.5.3     whether stop-loss protection is provided; and

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

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

7.4         PROVIDER MANUAL AND PROVIDER TRAINING
            -------------------------------------

7.4.1       HMO must prepare and issue a Provider Manual(s), including any
            necessary specialty manuals (e.g. behavioral health), to the
            providers in HMO network and to newly contracted providers in HMO
            network within five (5) working days from inclusion of the provider
            into the network. The Provider Manual must contain sections relating
            to special requirements of the STAR Program as required under this
            contract. See Appendix M, Required Critical Elements, for specific
            details regarding content requirements.

            HMO must submit a Provider Manual to TDH for approval 120 days prior
            to the Implementation Date (see Article 3.4.1 regarding the process
            for plan materials review).

7.4.2       HMO must provide training to all network providers and their staff
            regarding the requirements of the TDH/HMO contract and special needs
            of STAR Members.

7.4.2.1     HMO training for all providers must be completed within 30 days of
            placing a newly contracted provider on active status. HMO must
            provide on-going training to new and existing providers as required
            by HMO or TDH to comply with this contract.

7.4.2.2     HMO must include in all PCP training how to screen for and identify
            behavioral health disorders, HMO's referral process to behavioral
            health services and clinical coordination requirements for
            behavioral health. HMO must include in all training for behavioral
            health providers how to identify physical health disorders, HMO's
            referral process to primary care and clinical coordination
            requirements between physical medicine and behavioral health
            providers. HMO must include training on coordination and quality of
            care such as behavioral health screening techniques for PCPs and new
            models of behavioral health interventions.

7.4.3       HMO must provide primary care and behavioral health providers with
            screening tools and instruments approved by TDH.

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

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7.4.5       HMO must have its written policies and procedures for the screening,
            assessment and referral processes between behavioral health
            providers and physical medicine providers available for TDH review
            not later than 120 days before the Implementation Date.

7.5         MEMBER PANEL REPORTS
            --------------------

            HMO must furnish each provider with a current list of enrolled
            Members enrolled or assigned to that Provider within 5 days from HMO
            receiving the Member list from the Enrollment Broker each month.

7.6         PROVIDER COMPLAINT AND APPEAL PROCEDURES
            ----------------------------------------

7.6.1       HMO must establish a written provider complaint and appeal procedure
            for network providers. HMO must submit the written complaint and
            appeal procedure to TDH by Phase II of Readiness Review. The
            complaint and appeals procedure must be the same for all providers
            and must comply with Texas Insurance Code, Art. 20A.12.

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

7.6.3       HMO's complaint and appeal process cannot contain provisions
            referring the complaint or appeal to TDH for resolution.

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

7.7         PROVIDER QUALIFICATIONS - GENERAL
            ---------------------------------

            The providers in HMO network must meet the following qualifications:

--------------------------------------------------------------------------------
FQHC               A Federally Qualified Health Center meets the standards
                   established by federal rules and procedures. The FQHC must
                   also be an eligible provider enrolled in the Medicaid
                   program.

--------------------------------------------------------------------------------
Physician          An individual who is licensed to practice medicine as an M.D.
                   or a D.O. in the State of Texas either as a primary care
                   provider or in the area of specialization under which they
                   will provide medical services under contract with HMO; who is
                   a provider enrolled in the Medicaid program; and who has a
                   valid Drug Enforcement Agency registration number and a Texas
                   Controlled Substance Certificate, if either is required in
                   their
--------------------------------------------------------------------------------

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--------------------------------------------------------------------------------
                   practice.
--------------------------------------------------------------------------------
Hospital           An institution licensed as a general or special hospital by
                   the State of Texas under Chapter 241 of the Health and Safety
                   Code and Private Psychiatric Hospitals under Chapter 577 of
                   the Health and Safety Code (or is a provider which is a
                   component part of a State or local government entity which
                   does not require a license under the laws of the State of
                   Texas), which is enrolled as a provider in the Texas Medicaid
                   Program. HMO will require that all facilities in the network
                   used for acute inpatient specialty care for people under age
                   21 with disabilities or chronic or complex conditions will
                   have a designated pediatric unit; 24-hour laboratory and
                   blood bank availability; pediatric radiological capability;
                   meet JCAHO standards; and have discharge planning and social
                   service units.
--------------------------------------------------------------------------------
Non-Physician      An individual holding a license issued by the applicable
Practitioner       licensing agency of the State of Texas who is enrolled in the
Provider           Texas Medicaid Program or an individual properly trained to
                   provide behavioral health support services who practices
                   under the direct supervision of an appropriately licensed
                   professional.

--------------------------------------------------------------------------------
Clinical           An entity having a current certificate issued under the
Laboratory         Federal Clinical Laboratory Improvement Act (CLIA), and
                   enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health       An institution which meets all of the criteria for
Clinic (RHC)       designation as a rural health clinic, and enrolled in the
                   Texas Medicaid Program.
--------------------------------------------------------------------------------
Local Health       A local health department established pursuant to Health and
Department         Safety Code, Title 2, Local Public Health Reorganization Act
                   ss.121.031ff.

--------------------------------------------------------------------------------
Local Mental       Under Section 531.002(8) of the Health and Safety Code, the
Health Authority   local component of the TXMHMR system designated by TDMHMR to
(LMHA)             carry out the legislative mandate for planning, policy
                   development, coordination, and resource
                   development/allocation and for supervising and ensuring the
                   provision of mental health services to persons with mental
                   illness in one or more local service areas.

--------------------------------------------------------------------------------
Non-Hospital       A provider of health care services which is licensed and
Facility Provider  credentialed to provide services, and enrolled in the Texas
                   Medicaid Program.
--------------------------------------------------------------------------------
School Based       Clinics located at school campuses that provide on-site
Health Clinic      primary and preventive care to children and adolescents.
(SBHC)
--------------------------------------------------------------------------------

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7.8         PRIMARY CARE PROVIDERS
            ----------------------

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

7.8.2       HMO must maintain a primary care provider network in sufficient
            numbers and geographic distribution to serve a minimum of forty-five
            percent (45%) of the mandatory STAR eligibles in each county of the
            service area, unless an exception to this requirement is made by
            TDH. HMO is required to increase the capacity of the network as
            necessary to accommodate enrollment growth beyond the forty-fifth
            percentile (45%).

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

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

7.8.5       HMO must have the equivalent of one full-time-equivalent (FTE)
            primary care provider (PCP) for every 2,000 Members. HMO must have
            one FTE PCP with pediatric training or experience for every 2,500
            Members under the age of 21.

7.8.5.1     Individual PCPs may serve more than 2,000 Members. However, if TDH
            determines that a PCP's Member enrollment exceeds the PCP's ability
            to provide accessible, quality care, TDH may prohibit the PCP from
            receiving further enrollments. TDH may disenroll Members if required
            accessibility and quality of care to all Members is jeopardized.

7.8.6       HMO must have PCPs available throughout the service area to ensure
            that no Member must travel more than 30 miles to access the PCP,
            unless an exception to this distance requirement is made by TDH.

7.8.7       HMO's primary care provider network may include providers from any
            of the following practice areas: General Practitioners; Family
            Practitioners; Internists; Pediatricians;
            Obstetricians/Gynecologists (OB/GYN); Pediatric and Family Advanced
            Practice Nurses (APNs) and Certified Nurse Midwives (CNMs)
            practicing under the supervision of a physician; Physician
            Assistants (PAs) practicing under the

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<PAGE>

            supervision of a specialist in Internal Medicine, Pediatric or
            Obstetric/Gynecology provider; or Federally Qualified Health Centers
            (FQHCs); Rural Health Clinics (RCHs) and similar community clinics;
            and specialists who are willing to provide medical homes to selected
            Members with special needs and conditions (see Article 7.8.8).

7.8.8       The PCP for a Member with disabilities or chronic or complex
            conditions may be a specialist who agrees to provide PCP services to
            the Member. The specialty provider must agree to perform all PCP
            duties required in the contract and PCP duties must be within the
            scope of the specialist's license. Any interested person may
            initiate the request for a specialist to serve as a PCP for a member
            with disabilities or chronic or complex conditions.

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

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

            Acceptable:

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

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

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

            Unacceptable:

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

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

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<PAGE>

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

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

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

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

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

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

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<PAGE>

7.8.11.4    HMO must require PCPs for children under the age of 21 to provide or
            arrange to have provided all services required under Article 6.8
            relating to Texas Health Steps, Article 6.9 relating to Perinatal
            Services, Article 6.10 relating to Early Childhood Intervention,
            Article 6.11 relating to WIC, Article 6.13 relating to People With
            Disabilities or Chronic or Complex Conditions, and Article 6.14
            relating to Health Education and Wellness and Prevention Plans. PCP
            must cooperate and coordinate with HMO to provide Member and the
            Member's family with knowledge of and access to available services.

7.8.12      All Medicaid recipients who are eligible for participation in the
            STAR program have the right to select the PCP and HMO to whom they
            will be assigned. Female recipients also have the right to select an
            OB/GYN in addition to a PCP. Recipients who are mandatory STAR
            participants who do not select a PCP or HMO during the time period
            allowed will be defaulted to a PCP and/or HMO using the TDH default
            process. Members may change PCPs at any time, but these changes are
            limited to four (4) times per year. An HMO may limit a Member's
            request to change an obstetrician or gynecologist to no more than
            four changes in any 12-month period. If a PCP or OB/GYN who has been
            selected by or assigned to a Member is no longer in HMO's provider
            network, HMO must contact the Member and provide them an opportunity
            to reselect. If the Member does not want to change the PCP or OB/GYN
            to another provider in HMO network, the Member must be directed to
            the Enrollment Broker for resolution or reselection. If a PCP or
            OB/GYN who has been selected by or assigned to a Member is no longer
            in an IPA's provider network but continues to participate in HMO
            network, HMO or IPA may not change the Member's PCP or OB/GYN.

7.9         OB/GYN PROVIDERS
            ----------------

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

7.9.1       One well-woman examination per year;

7.9.2       Care related to pregnancy;

7.9.3       Care for all active gynecological conditions; and

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<PAGE>

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

7.10        SPECIALTY CARE PROVIDERS
            ------------------------

7.10.1      HMO must maintain specialty providers, including pediatric specialty
            providers, within the network in sufficient numbers and areas of
            practice to meet the needs of all Members requiring specialty care
            or services.

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

7.10.3      HMO must ensure availability and accessibility to appropriate
            specialists.

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

7.11        SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
            -----------------------------------------------

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

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

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

7.11.4      HMO must include in its provider network a TDH-designated perinatal
            care facility, as established by ss.32.042, Texas Health and Safety
            Code, once the designated system is finalized and perinatal care
            facilities have been approved for the service area (see Article
            6.9.1).

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<PAGE>

7.12        BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)
            --------------------------------------------------------

7.12.1      Assessment to determine eligibility for rehabilitative and targeted
            MHMR case management services is a function of the LMHA. HMO must
            provide all services listed in Appendix C to Members with SPMI and
            SED, when medically necessary, whether or not they are also
            receiving targeted case management or rehabilitation services
            through the LMHA.

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

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

7.12.3.1    Describe the behavioral health services in Appendix C, including the
            amount, duration, and scope of basic and value-added services, and
            HMO's responsibility to provide these services;

7.12.3.2    Describe criteria, protocols, procedures and instrumentation for
            referral of STAR Members from and to HMO and LMHA;

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

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

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

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

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

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

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

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

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

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

7.13        SIGNIFICANT TRADITIONAL PROVIDERS (STPS)
            ----------------------------------------

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

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

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

7.13.2.2    STP must meet the credentialing requirements of HMO. HMO must not
            require STPs to meet a different or higher credentialing standard
            than is required of other providers providing the same or similar
            services. HMO must not require STP's to contract with a
            Subcontractor which requires a different or higher credentialing
            standard than the HMO's if the application of the higher standard
            results in a disproportionate number of STPs being excluded from the
            Subcontractor.

7.13.3      HMO must demonstrate a good faith effort to include STPs in its
            provider network. HMO's compliance with TDH's good faith effort
            requirement for STPs must be reported using report requirements
            defined by TDH. HMO must submit quarterly

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<PAGE>

            reports, in a format provided by TDH, documenting HMO's compliance
            with TDH's good faith effort requirement for STP's.

7.13.4      Failure to demonstrate a good faith effort to meet TDH's compliance
            objectives to include STPs in HMO's provider network, or failure to
            report efforts and compliance as required in Article 7.13.3, are
            defaults under this contract and may result in any or all of the
            sanctions and remedies included in Article XVIII of this contract.

7.14        RURAL HEALTH PROVIDERS
            ----------------------

7.14.1      In rural areas of the service area, HMO must seek the participation
            in its provider network of rural hospitals, physicians, home and
            community support service agencies, and other rural health care
            providers who:

7.14.1.1    are the only providers located in the service area; and

7.14.1.2    are Significant Traditional Providers.

7.14.2      In order to contract with HMO, rural health providers must:

7.14.2.1    agree to accept the prevailing provider contract rate of HMO based
            on provider type; and

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

7.14.3      HMO must reimburse rural hospitals with 100 or fewer licensed beds
            in counties with fewer than 50,000 persons for acute care services
            at a rate calculated using the higher of the prospective payment
            system rate or the cost reimbursed methodology authorized under the
            Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Hospitals
            reimbursed under TEFRA cost principles shall be paid without the
            imposition of the TEFRA cap.

7.14.4      HMO must reimburse physicians who practice in rural counties with
            fewer than 50,000 persons at a rate using the current Medicaid fee
            schedule.

7.15        FEDERALLY QUALIFIED HEALTH CENTERS (FQHCS) AND RURAL HEALTH CLINICS
            -------------------------------------------------------------------
            (RHCS)

            ------

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

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<PAGE>

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

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

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

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

7.16        COORDINATION WITH PUBLIC HEALTH
            -------------------------------

7.16.1      Reimbursed Arrangements. HMO must make a good faith effort to enter
            into a subcontract for the covered health care services as specified
            below with TDH Public Health Regions, city and/or county health
            departments or districts in each county of the service area that
            will be providing these services to the Members (Public Health
            Entities), who will be paid for services by HMO, including any or
            all of the following services:

7.16.1.1    Sexually Transmitted Diseases (STDs) Services (see Article 6.15);

7.16.1.2    Confidential HIV Testing (see Article 6.15);

7.16.1.3    Immunizations (see Article 6.8.9); and

7.16.1.4    Tuberculosis (TB) Care (see Article 6.12).

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7.16.2      The subcontract must include any covered services which the public
            health department has agreed to provide:

7.16.2.1    Family Planning Services (see Article 6.7);

7.16.2.2    THSteps checkups (see Article 6.8); and

7.16.2.3    Prenatal services.

7.16.3      HMO must make a good faith effort to enter into subcontracts with
            public health entities at least 90 days prior to the Implementation
            Date for the service area. The subcontracts must be available for
            review by TDH or its designated agent(s) on the same basis as all
            other subcontracts. If an HMO's unable to enter into a contract with
            any of the public health entities, HMO must submit documentation
            substantiating its reasonable efforts to enter into such an
            agreement, to TDH. The subcontracts must include the following
            areas:

7.16.3.1    General Relationship Between HMO and the Public Health Entity. The
            subcontracts must specify the scope and responsibilities of both
            parties, the methodology and agreements regarding billing and
            reimbursements, reporting responsibilities, Member and provider
            educational responsibilities, and the methodology and agreements
            regarding sharing of confidential medical record information between
            the public health entity and the PCP.

7.16.3.2    Public Health Entity Responsibilities:

            (1)    Public health providers must inform Members that confidential
                   health care information will be provided to the PCP.

            (2)    Public health providers must refer Members back to PCP for
                   any follow-up diagnostic, treatment, or referral services.

            (3)    Public health providers must educate Members about the
                   importance of having a PCP and assessing PCP services during
                   office hours rather than seeking care from Emergency
                   Departments, Public Health Clinics, or other Primary Care
                   Providers or Specialists.

            (4)    Public health entities must identify a staff person to act as
                   liaison to HMO to coordinate Member needs, Member referral,
                   Member and provider education, and the transfer of
                   confidential medical record information.

7.16.3.3    HMO Responsibilities:

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            (1)    HMO must identify care coordinators who will be available to
                   assist public health providers and PCPs in getting efficient
                   referrals of Members to the public health providers,
                   specialists, and health-related service providers either
                   within or outside HMO's network.

            (2)    HMO must inform Members that confidential healthcare
                   information will be provided to the PCP.

            (3)    HMO must educate Members on how to better utilize their PCPs,
                   public health providers, emergency departments, specialists,
                   and health-related service providers.

7.16.4      Non-Reimbursed Arrangements with Public Health Entities

7.16.4.1    Coordination with Public Health Entities. HMO must make a good faith
            effort to enter into a Memorandum of Understanding (MOU) with Public
            Health Entities regarding the provision of services for essential
            public health services. These MOUs must be entered into at least 90
            days before the Implementation Date in the service area and are
            subject to TDH approval. If HMO is unable to enter into an MOU with
            any public entity, HMO must submit documentation substantiating
            reasonable efforts to enter into such an agreement to TDH. These
            MOUs must contain the roles and responsibilities of HMO and the
            public health department for the following services:

            (1)    Public health reporting requirements regarding communicable
                   diseases and/or diseases which are preventable by
                   immunization as defined by state law;

            (2)    Notification of and referral to the local Public Health
                   Entity, as defined by state law, of communicable disease
                   outbreaks involving Members;

            (3)    Referral to the local Public Health Entity for TB contact
                   investigation and evaluation and preventive treatment of
                   persons whom the Member has come into contact;

            (4)    Referral to the local Public Health Entity for STD/HIV
                   contact investigation and evaluation and preventive treatment
                   of persons whom the Member has come into contact;

            (5)    Referral for WIC services and information sharing; and

            (6)    Coordination and follow-up of suspected or confirmed cases of
                   childhood lead exposure.

7.16.4.2    Coordination with Other TDH Programs. HMOs must make a good faith
            effort to enter into a Memorandum of Understanding (MOU) with other
            TDH programs regarding the provision of services for essential
            public health services. These MOUs

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            must be entered into at least 90 days before the Implementation Date
            in the service area and are subject to TDH approval. If HMO is
            unable to enter into an MOU with any public health entity, HMO must
            submit documentation substantiating reasonable efforts to enter into
            such an agreement to TDH. These MOUs must delineate the roles and
            responsibilities of HMO and the public health department for the
            following services:

            (1)    Use of the TDH laboratory for THSteps newborn screens; lead
                   testing; and hemoglobin/hematocrit tests;

            (2)    Availability of vaccines through the Vaccines for Children
                   Program;

            (3)    Reporting of immunizations provided to the statewide ImmTrac
                   Registry including parental consent to share data;

            (4)    Referral for WIC services and information sharing;

            (5)    Pregnant, Women and Infant (PWI) Targeted Case Management;

            (6)    THSteps outreach, informing and Medical Case Management;

            (7)    Participation in the community-based coalitions with the
                   Medicaid-funded case management programs in MHMR, ECI, TCB,
                   and TDH (PWI, CIDC and THSteps Medical Case Management);

            (8)    Referral to the TDH Medical Transportation Program (MTP);

            (9)    Cooperation with activities required of public health
                   authorities to conduct the annual population and community
                   based needs assessment; and

            (10)   Coordination and follow-up of suspected or confirmed cases of
                   childhood lead exposure.

7.16.5      All public health contracts must contain provider network
            requirements in Article VII, as applicable.

7.17        COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
            ---------------------------------------------------------------
            SERVICES

            --------

7.17.1      HMO must cooperate and coordinate with the Texas Department of
            Protective and Regulatory Services (TDPRS) for the care of a child
            who is receiving services from or has been placed in the
            conservatorship of TDPRS.

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7.17.2      HMO must comply with all provisions of a Court Order or TDPRS
            Service Plan with respect to a child in the conservatorship of TDPRS
            (Order) entered by a Court of Continuing Jurisdiction placing a
            child under the protective custody of TDPRS or a Service Plan
            voluntarily entered into by the parents or person having legal
            custody of a minor and TDPRS, which relates to the health and
            behavioral health services required to be provided to the Member.

7.17.3      HMO cannot deny, reduce, or controvert the medical necessity of any
            health or behavioral health services included in an Order. Any
            modification or termination of ordered services must be presented
            and approved by the court with jurisdiction over the matter for
            decision.

7.17.4      A Member or the parent or guardian whose rights are subject to an
            Order or Service Plan cannot appeal the necessity of the services
            ordered through HMO's complaint or appeal processes, or to TDH for a
            Fair Hearing.

7.17.5      HMO must include information in its provider training and manuals
            regarding:

7.17.5.1    providing medical records;

7.17.5.2    scheduling medical and behavioral health appointments within 14 days
            unless requested earlier by TDPRS; and

7.17.5.3    recognition of abuse and neglect and appropriate referral to TDPRS.

7.17.6      HMO must continue to provide all covered services to a Member
            receiving services from or in the protective custody of TDPRS until
            the Member has been disenrolled from HMO as a result of loss of
            eligibility in Medicaid managed care or placement into foster care.

7.18        PROVIDER NETWORKS (IPAS, LIMITED PROVIDER NETWORKS AND ANHCS)
            -------------------------------------------------------------

7.18.1      All HMO contracts with independent physician, provider associations
            or similar provider groups, organizations, or networks (IPA
            contracts) and standard IPA contracts with contracted providers
            (IPA/Provider contracts) must be submitted to TDH no later than 120
            days prior to Implementation Date. The form and substance of all
            HMO/IPA and IPA/Provider contracts are subject to approval by TDH.
            TDH retains the authority to reject and require changes to any
            HMO/IPA or IPA/Provider contract which:

7.18.1.1    does not contain the mandatory contract provisions for all
            Subcontractors in this contract;

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7.18.1.2    does not comply with the requirements, duties and responsibilities
            of this contract;

7.18.1.3    creates a barrier for full participation to significant traditional
            providers;

7.18.1.4    interferes with TDH's oversight and audit responsibilities including
            collection and validation of encounter data; or

7.18.1.5    is inconsistent with the federal requirement for simplicity in the
            administration of the Medicaid program.

7.18.1.6    HMO must include this contract as an attachment to any IPA contract
            for Medicaid managed care services.

7.18.2      HMO cannot delegate claims payment to an IPA, even under a capitated
            partial or full-risk arrangement. This provision does not apply to a
            limited healthcare service plan, a single healthcare service plan or
            a basic healthcare service plan.

7.18.3      In addition to the mandatory provisions for all subcontracts under
            Articles 3.2 and 7.2, all HMO/IPA contracts must include the
            following mandatory standard provisions:

7.18.3.1    HMO is required to include subcontract provisions in its IPA
            contracts which require the UM protocol used by an IPA to produce
            substantially similar outcomes, as approved by TDH, as the UM
            protocol employed by the contracting HMO. The responsibilities of an
            HMO in delegating UM functions to an IPA will be governed by Article
            16.11.

7.18.3.2    The IPA must comply with the same encounter, utilization, quality,
            and financial reporting requirements as HMO under this contract. The
            IPA must comply with the same report filing timelines and include
            the same information and use the same format as HMO under this
            contract.

7.18.3.3    The IPA must comply with the same records retention and production
            requirements as HMO under this contract, including Public
            Information requests.

7.18.3.4    The IPA is subject to the same marketing restrictions and
            requirements as HMO under this contract.

7.18.3.5    HMO is responsible for ensuring that IPAs comply with the
            requirements and provisions of the TDH/HMO contract. TDH will impose
            appropriate sanctions and remedies upon HMO for any default under
            the TDH/HMO contract which is caused directly or indirectly by the
            acts or omissions of the IPA. Sanctions imposed by TDH upon HMO
            cannot be passed through or recouped from the IPA or network

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            providers unless specifically allowed by TDH in the Notice of
            Default and the pass through or recoupment is disclosed as an
            HMO/IPA contract provision.

7.18.4      HMO cannot enter into contracts with IPAs to provide services under
            this contract which require the participating providers to enter
            into exclusive contracts with the IPA as a condition for
            participation in the IPA.

7.18.4.1    Article 7.18.4 does not apply to providers who are employees or
            participants in limited or closed panel provider networks.

7.18.5      All limited provider or closed panel IPA networks with whom HMO
            contracts must either independently meet the access provisions of 28
            Texas Administrative Code ss.11.1607, relating to access
            requirements, or HMO must provide for access through other network
            providers outside the closed panel IPA.

7.18.6      HMO cannot delegate to an IPA the enrollment, reenrollment,
            assignment or reassignment of a Member.

7.18.7      In addition to the above provision HMO and Approved Non-Profit
            Health Corporations (ANHCs) must comply with all of the requirements
            contained in 28 TAC ss.11.1604, relating to Requirements of Certain
            Contracts between Primary HMOs and ANHCs and Primary HMOs and
            Provider HMOs.

7.18.8      HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES
            AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
            RESPONSIBILITY OR SERVICE IS CONTRACTED OR DELEGATED TO ANOTHER. HMO
            MUST PROVIDE A COMPLETE COPY OF THIS CONTRACT TO ANY PROVIDER
            NETWORK OR GROUP WITH WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE
            SERVICES ON A RISK SHARING OR CAPITATED BASIS OR TO PROVIDE HEALTH
            CARE SERVICES OTHER THAN MEDICAL CARE SERVICE OR ANCILLARY SERVICES.

ARTICLE VIII       MEMBER SERVICES REQUIREMENTS

8.1         MEMBER EDUCATION
            ----------------

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

8.2         MEMBER HANDBOOK
            ---------------

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8.2.1       HMO must mail each Member a Member Handbook within five (5) days
            from the date that the Member's name appears on the Enrollment
            Report. The Member Handbook must be written at a 4th - 6th grade
            reading comprehension level. The Member Handbook must contain all
            critical elements specified by TDH. See Appendix M, Required
            Critical Elements, for specific details regarding content
            requirements. HMO must submit a Member Handbook to TDH for approval
            not later than 90 days before the Implementation Date (see Article
            3.4.1 regarding the process for plan materials review).

8.2.2.      Member Handbook Updates. HMO must provide updates to the Handbook to
            all Members as changes are made to the above policies. HMO must make
            the Member Handbook available in the languages of the major
            population groups and in a format accessible to blind or visually
            impaired Members.

8.2.3       THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE APPROVED BY
            TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO MEMBERS.

8.3         ADVANCE DIRECTIVES
            ------------------

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

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

8.3.1.2     the Member's rights under the Natural Death Act (Texas Health and
            Safety Code, Chapter 672) to execute an advance written Directive to
            Physicians, or to make a non-written directive regarding their right
            to withhold or withdraw life sustaining procedures in the event of a
            terminal condition;

8.3.1.3     the Member's rights under Texas Health and Safety Code, Chapter 674,
            relating to written and non-written Out-of-Hospital
            Do-Not-Resuscitate Orders;

8.3.1.4     the Member's right to execute a Durable Power of Attorney for Health
            Care regarding their right to appoint an agent to make medical
            treatment decisions on their behalf

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            if the member becomes incapacitated (Civil Practice and Remedies
            Code, Chapter 135); and

8.3.1.5     HMO's policies for implementing a Member's advance directives,
            including a clear and concise statement of limitations if HMO or a
            participating provider cannot or will not be able to carry out a
            Member's advance directive.

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

8.3.2.1     clarify any differences between HMO's conscience objections and
            those which may be raised by the Member's PCP or other providers;

8.3.2.2     identify the state legal authority permitting HMO's conscience
            objections to carrying out an advance directive; and

8.3.2.3     describe the range of medical conditions or procedures affected by
            the conscience objection.

8.3.3       The policies and procedures must require HMO and Subcontractor to
            comply with the requirements of state and federal laws relating to
            advance directives. HMO must provide education and training to
            employees, Members and the community on issues concerning advance
            directives. HMO must submit a copy of its policies and procedures
            for TDH review and approval during Phase I of Readiness Review.

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

8.3.5       HMO must notify Members of any changes in state or federal laws
            relating to advance directives within 90 days from the effective
            date of the change, unless the law or regulation contains a specific
            time requirement for notification.

8.4         MEMBER ID CARDS
            ---------------

8.4.1       A Medicaid Identification Form (Form 3087) is issued monthly by the
            TDHS and includes the "STAR" Program, the name of the Member's PCP
            and health plan. A Member may have a temporary Medicaid
            Identification (Form 1027-A) which will include a STAR indicator.

8.4.2       HMO must issue a Member Identification Card to the Member within
            five (5) days from receiving notice of enrollment of the Member into
            HMO. The Member

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            Identification Card must include, at a minimum, the following:
            Member's name; Member's Medicaid number, the effective date of the
            card; PCP's name, address, and telephone number; name of HMO; name
            of IPA to which the Member's PCP belongs, if applicable; the
            24-hour, seven (7) day a week toll-free telephone number operated by
            HMO; the toll-free number for behavioral health services; and
            directions for what to do in an emergency. Identification Card must
            be reissued if the Member reports a lost card, there is a Member
            name change, if Member requests a new PCP, or for any other reason
            which results in a change to the information disclosed on the
            Identification Card.

8.5         MEMBER HOTLINE
            --------------

            HMO must maintain a toll-free Member telephone hotline 24 hours a
            day, seven days a week for Members to obtain assistance in accessing
            services under this contract. Telephone availability must be
            demonstrated through an abandonment rate of less than 10%.

8.6         MEMBER COMPLAINT PROCESS
            ------------------------

8.6.1       HMO must develop, implement and maintain a Member complaint system
            that complies with the requirements of Article 20A.12 of the Texas
            Insurance Code, relating to the Complaint System, except where
            otherwise provided in this contract or in federal law.

8.6.2       HMO must have written policies and procedures for taking, tracking,
            reviewing, and reporting and resolving of member complaints. The
            procedures must be reviewed and approved in writing by TDH before
            Phase I of Readiness Review. Any amendments to the procedures must
            be submitted to TDH for approval thirty (30) days prior to the
            effective date of the amendment.

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

8.6.4       HMO must have a routine process to detect patterns of complaints and
            disenrollments and involve management and supervisory staff to
            develop policy and procedural improvements to address the
            complaints. HMO must cooperate with TDH and TDH's enrollment broker
            in addressing Member complaints relating to enrollment and
            disenrollment.

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

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

8.6.7       HMO's process must include a requirement that the Governing Body of
            HMO reviews the written records (logs) for complaints and appeals.
            An officer of HMO must be designated to have direct responsibility
            for the complaint system.

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

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

8.6.10      If a complaint relates to the denial, delay, reduction, termination
            or suspension of covered services by either HMO or a utilization
            review agent contracted to perform utilization review by HMO, HMO
            must inform Members they have the right to access the TDH Fair
            Hearing process at any time in lieu of the internal complaint system
            provided by HMO. HMO is required to comply with the notice
            requirements contained in 25 TAC Chapter 36, relating to notice and
            Fair Hearings in the Medicaid program, whenever an action is taken
            to deny, delay, reduce, terminate or suspend a covered service.

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

8.6.12      The provisions of Article 21.58A, Texas Insurance Code, relating to
            a Member's right to appeal an adverse determination made by HMO or a
            utilization review agent by an independent review organization, do
            not apply to a Medicaid recipient. Federal fair hearing regulations
            (Social Security Actss.1902a(3), codified at 42 C.F.R. 431.200 et.
            seq.) require the agency to make a final decision after a Fair
            Hearing,

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            which conflicts with the State requirement that the IRO make a final
            decision. Therefore, the State requirement is pre-empted by the
            federal requirement.

8.6.13      HMO will cooperate with the Enrollment Broker and TDH to resolve all
            Member complaints. Such cooperation may include, but is not limited
            to, participation by HMO or Enrollment Broker and/or TDH internal
            complaint committees.

8.6.14      HMO must have policies and procedures in place outlining the role of
            HMO's Medical Director in the Member Complaint System. The Medical
            Director must have a significant role in monitoring, investigating
            and hearing complaints.

8.6.15      HMO must provide Member Advocates to assist Members in understanding
            and using HMO's complaint system.

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

8.6.17      Member Advocates must file a Member Advocate Report of their review
            and participation in the complaint procedure for each complaint
            brought by a Member and a summary of each complaint resolution. A
            copy of the Member Advocate Report must be included in HMO's
            quarterly report (see Article 12.6).

8.7         MEMBER NOTICE, APPEALS AND FAIR HEARINGS
            ----------------------------------------

8.7.1       HMO must send Members the notice required by 25 TAC, Chapter 36,
            whenever HMO takes an action to deny, delay, reduce or terminate
            covered services to a Member. The notice must be mailed to the
            Member no less than 10 days before HMO intends to take an action. If
            an emergency exists, or if the time within which the service must be
            provided makes giving 10 days notice impractical or impossible,
            notice must be provided by the most expedient means reasonably
            calculated to provide actual notice to the Member, including by
            phone or through the provider's office.

8.7.2       The notice must contain the following information:

8.7.2.1     Member's right to immediately access TDH's Fair Hearing process;

8.7.2.2     a statement of the action HMO will take;

8.7.2.3     an explanation of the reasons HMO will take the action;

8.7.2.4     a reference to the state and/or federal regulations which support
            HMO's action;

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8.7.2.5     an address where written requests may be sent and a toll-free number
            Member can call to: request the assistance of a Member
            representative, or file a complaint, or request a Fair Hearing;

8.7.2.6     a procedure by which Member may appeal HMO's action through either
            HMO's complaint process or TDH's Fair Hearing process;

8.7.2.7     an explanation that Members may represent themselves, or be
            represented by HMO's representative, a friend, a relative, legal
            counsel or another spokesperson;

8.7.2.8     an explanation of whether, and under what circumstances, services
            may be continued if a complaint is filed or a Fair Hearing
            requested;

8.7.2.9     a statement that if the Member wants a TDH Fair Hearing on the
            action, Member must make the request for a Fair Hearing within 90
            days of the date on the notice;

8.7.2.10    an explanation that the Member may request that resolution through
            HMO complaint process or TDH Fair Hearing be conducted based on
            written information without the necessity of taking oral testimony;
            and

8.7.2.11    a statement explaining that HMO must make a decision, or a final
            decision must be made by TDH, within 90 days from the date the
            complaint is filed or a Fair Hearing requested.

8.8         MEMBER ADVOCATES
            ----------------

8.8.1       HMO must provide Member Advocates to assist Members. Member
            Advocates must be physically located within the service area. Member
            Advocates must inform Members of their rights and responsibilities,
            the complaint process, the health education and the services
            available to them, including preventive services.

8.8.2       Member Advocates must assist Members in writing complaints and are
            responsible for monitoring the complaint through HMO's complaint
            process until the Member's issues are resolved or a TDH Fair Hearing
            requested (see Articles 8.6.15, 8.6.16, and 8.6.17).

8.8.3       Member Advocates are responsible for making recommendations to
            management on any changes needed to improve either the care provided
            or the way care is delivered. Member Advocates are also responsible
            for helping or referring Members to community resources available to
            meet Member needs that are not available from HMO as Medicaid
            covered services.

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8.8.4       Member Advocates must provide outreach to Members and participate in
            TDH-sponsored enrollment activities and participate in the Group
            Needs Assessment process.

8.8.5       HMO must designate an individual to act as the tribal liaison with
            the Tigua Indians. This individual must be qualified to represent
            the interests of the Tigua Indian tribe. HMO-designated individual
            must attend cultural competency training as provided by the tribe. A
            Member Advocate of HMO could serve this function.

8.9         MEMBER CULTURAL AND LINGUISTIC SERVICES
            ---------------------------------------

8.9.1       Linguistic Services and Cultural Competency Plan. HMO must have a
            comprehensive written Linguistic Services and Cultural Competency
            Plan describing how HMO will meet the linguistic and cultural needs
            of Members. The Plan must describe how the individuals and systems
            within HMO will effectively provide services to people of all
            cultures, races, ethnic backgrounds, and religions in a manner that
            recognizes, values, affirms, and respects the worth of the
            individuals and protects and preserves the dignity of each. HMO must
            submit a written plan to TDH not later than 90 days prior to the
            Implementation Date. The Plan must also be made available to HMO's
            network of providers.

8.9.2       HMO must develop and implement written policies and procedures for
            the provision of linguistic services following Title VI of the Civil
            Rights Act guidelines and must monitor the performance of the
            individuals who provide linguistic services. HMO must disseminate
            these policies and procedures to ensure that both Staff and
            Subcontractors are aware of their responsibilities under Title VI.

8.9.3       The Linguistic Services and Cultural Competency Plan must include
            but no be limited to the following:

8.9.3.1     A description of how HMO will educate its staff on linguistic and
            cultural needs and the characteristics of its Members:

8.9.3.2     A description of how HMO will implement the plan in its
            organization, including the designation of staff responsible for
            carrying out all portions of the Linguistic Services and Cultural
            Competency Plan;

8.9.3.3     A description of how HMO will develop standards and performance
            requirements for the delivery of linguistic services and culturally
            competent care, and monitor adherence with those standards and
            requirements;

8.9.3.4     A description of how HMO will assist Members in writing/filing a
            complaint and monitoring the complaint through the Contractor's
            complaint process until the issue is resolved;

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8.9.3.5     Recommendations to HMO management on any changes needed to improve
            either the care provided or the way care is delivered;

8.9.3.6     A description of how HMO will provide outreach to Members and
            participate in TDH-sponsored enrollment activities;

8.9.3.7     A description of how HMO will help Members access community health
            or social services resources that are not covered under the contract
            with TDH; and

8.9.3.8     A description of how HMO will participate in the Group Needs
            Assessment process.

8.9.4       HMO must provide the following types of linguistic services;
            interpreters, translated signage, and referrals to culturally and
            linguistically appropriate community services programs.

8.9.5       HMO must forward all approved English versions of materials to DHS
            for DHS to translate into Spanish. DHS must provide the written and
            approved translation into Spanish to HMO within 15 days from receipt
            of the English version. HMO must incorporate the approved
            translations into all materials distributed to Members. TDH reserves
            the right to require revisions to materials if inaccuracies are
            discovered, or if changes are required by changes in policy or law.

8.9.6       Interpreter Services. HMO must provide trained, professional
            interpreters when technical, medical, or treatment information is to
            be discussed.

8.9.6.1     HMO must adhere to and provide to Members the Member Bill of Rights
            and Responsibilities as adopted by the Texas Health and Human
            Services Commission and contained at 1 Texas Administrative Code
            (TAC) ss.ss.353.202-353.203. The Member Bill of Rights and
            Responsibilities assures Members to the right "to have interpreters,
            if needed, during appointments with [their] providers and when
            talking to [their] health plan. Interpreters include people who can
            speak in [their] native language, assist with a disability, or help
            [them] understand the information."

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

8.9.6.3     A current copy of the list of interpreters must be provided to each
            provider in HMO's provider network and updated as necessary. This
            list must be available to Members and TDH or its agent(s) upon
            request. A competent interpreter is defined a someone who is:

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8.9.6.3.1   proficient in both English and the other language;

8.9.6.3.2   has had orientation or training in the ethics of interpreting; and

8.9.6.3.3   has fundamental knowledge in both languages of any specialized
            medical terms and concepts.

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

8.9.6.5     Family Members, especially minor children, should not be used as
            interpreters in assessments, therapy or other medical situations in
            which impartiality and confidentiality are critical, unless
            specifically requested by the Member. However, a family member or
            friend may be used as an interpreter if they can be relied upon to
            provide a complete and accurate translation of the information being
            provided to the Member; the Member is advised that a free
            interpreter is available; and the Member expresses a preference to
            rely on the family member or friend.

8.9.7       All Member orientation presentations and education classes must be
            conducted in the languages of the major population groups, as
            specified by TDH, in the service area(s) as the identified need
            arises.

8.9.8       HMO must provide TDD access to Members who are deaf or hearing
            impaired.

ARTICLE IX         MARKETING AND PROHIBITED PRACTICES

9.1         MARKETING MATERIAL MEDIA AND DISTRIBUTION
            -----------------------------------------

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

9.2         MARKETING ORIENTATION AND TRAINING
            ----------------------------------

            HMO must require that all HMO staff having direct contact with
            Members as part of their job duties and their supervisors
            satisfactorily complete TDH's marketing orientation and training
            program prior to engaging in marketing activities on behalf of HMO.
            TDH will notify HMO of scheduled orientations.

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9.3         PROHIBITED MARKETING PRACTICES
            ------------------------------

9.3.1       HMO and its agents, Subcontractors and providers are prohibited from
            engaging in the following marketing practices:

9.3.1.1     conducting any direct-contact marketing to prospective Members
            except through TDH-sponsored enrollment events;

9.3.1.2     making any written or oral statement containing material
            misrepresentations of fact or law relating to HMO's plan or the STAR
            program;

9.3.1.3     making false, misleading or inaccurate statements relating to
            services or benefits of HMO or the STAR program;

9.3.1.4     offering prospective Members anything of material or financial value
            as an incentive to enroll with a particular PCP or HMO; and

9.3.1.5     discriminating against an eligible Member because of race, creed,
            age, color, sex, religion, national origin, ancestry, marital
            status, sexual orientation, physical or mental handicap, health
            status, or requirements for health care services.

9.3.2       HMO may offer nominal gifts with a retail value of no more than $10
            and/or free health screens to potential Members, as long as these
            gifts and free health screenings are offered whether or not the
            client enrolls in their HMO. Free health screenings cannot be used
            to discourage less healthy potential Members from joining the HMO.
            All gifts must be approved by TDH prior to distribution to Members.
            The results of free screenings must be shared with the Member's PCP
            if the Member enrolls with the HMO providing the screen.

9.3.3       Marketing representatives may not conduct or participate in
            marketing activities for more than one HMO.

9.4         NETWORK PROVIDER DIRECTORY
            --------------------------

9.4.1       HMO must submit a provider directory to TDH no later than 180 days
            prior to the Implementation Date. HMO must provide the provider
            directory to the Enrollment Broker for prospective members. The
            directory must contain all critical elements specified by TDH. See
            Appendix M, Required Critical Elements, for specific details
            regarding content requirements.

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

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9.4.3       Updates to the provider directory must be provided to the Enrollment
            Broker at the beginning of each State fiscal year quarter. This
            includes the months of September, December, March and June. HMO is
            responsible for submitting draft updates to TDH only if changes
            other than PCP information are incorporated. HMO is responsible for
            sending five final copies of the updated provider directory to TDH
            each quarter. TDH will forward two updated provider directories,
            along with its approval notice, to the Enrollment Broker to
            facilitate their distribution.

ARTICLE X          MIS SYSTEM REQUIREMENTS

10.1        MODEL MIS REQUIREMENTS
            ----------------------

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

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

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

10.1.4      HMO is required to submit and receive data as specified in this
            contract and HMO Encounter Data Submissions Manual. The MIS must
            provide complete encounter data for 100% of all capitated services
            within the scope of services of the contract between HMO and TDH.
            Encounter data must follow the format, data elements and method of
            transmission specified in the contract and HMO Encounter Data
            Submissions Manual. HMO must submit encounter data, including
            adjustments to encounter data, by the 10th day of each month. The
            Encounter transmission will include 100% of all encounter data and
            encounter data adjustments processed by HMO for the previous month.
            Data quality validation will incorporate assessment standards
            developed jointly by HMO and TDH. Original records will be made
            available for inspection by TDH for validation purposes. Data which
            do not meet quality standards must be corrected and returned within
            a time period specified by TDH.

10.1.5      HMO must use the procedure codes, diagnosis codes, and other codes
            used for reporting encounters and fee-for-service claims in the most
            recent edition of the Medicaid Provider Procedures Manual or as
            otherwise directed by TDH. Any

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            exceptions will be considered on a code-by-code basis after TDH
            receives written notice from HMO requesting an exception. HMO must
            also use the provider numbers as directed by TDH for both encounter
            and fee-for-service claims submissions.

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

10.1.7      HMO must provide an organizational chart and description of
            responsibilities of HMO's MIS department dedicated to or supporting
            this Contract by Phase I of Readiness Review. Any updates to the
            organizational chart and the description of responsibilities must be
            provided to TDH at least 30 days prior to the effective date of the
            change. Official points of contact must be provided to TDH on an
            on-going basis. An Internet E-mail address must be provided for each
            point of contact.

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

10.1.8.1    The Contractor's system must be able to meet all eight MIS Model
            Guidelines as listed below. The eight subsystems are used in the
            Model MIS Requirements to identify specific functions or features
            required by HMO's MIS. These subsystems focus on the individual
            systems functions or capabilities to support the following
            operational and administrative areas:

            (1)    Enrollment/Eligibility Subsystem

            (2)    Provider Subsystem

            (3)    Encounter/Claims Processing Subsystem

            (4)    Financial Subsystem

            (5)    Utilization/Quality Improvement Subsystem

            (6)    Reporting Subsystem

            (7)    Interface Subsystem

            (8)    TPR Subsystem

10.2        SYSTEM-WIDE FUNCTIONS
            ---------------------

            HMO MIS system must include functions and/or features which must
            apply across all subsystems as follows:

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            (1)    Ability to update and edit data.

            (2)    Maintain a history of changes and adjustments and audit
                   trails for current and retroactive data. Audit trails will
                   capture date, time, and reasons for the change, as well as
                   who made the change.

            (3)    Allow input mechanisms through manual and electronic
                   transmissions.

            (4)    Have procedures and processes for accumulating, archiving,
                   and restoring data in the event of a system or subsystem
                   failure.

            (5)    Maintain automated or manual linkages between and among all
                   MIS subsystems and interfaces.

            (6)    Ability to relate Member and provider data with utilization,
                   service, accounting data, and reporting functions.

            (7)    Ability to relate and extract data elements into summary and
                   reporting formats attached as Appendices to contract.

            (8)    Must have written process and procedures manuals which
                   document and describe all manual and automated system
                   procedures and processes for all the above functions and
                   features, and the various subsystem components.

            (9)    Maintain and cross-reference all Member-related information
                   with the most current Medicaid number.

10.3        ENROLLMENT/ELIGIBILITY SUBSYSTEM
            --------------------------------

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

            (1)    Identify other health coverage available or third party
                   liability (TPL), including type of coverage and effective
                   dates.

            (2)    Maintain historical data (files) as required by TDH.

            (3)    Maintain data on enrollments/disenrollments and complaint
                   activities. The data must include reason or type of
                   disenrollment, complaint, and resolution - by incident.

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            (4)    Receive, translate, edit and update files in accordance with
                   TDH requirements prior to inclusion in HMO's MIS. Updates
                   will be received from TDH's agent and processed within two
                   working days after receipt.

            (5)    Provide error reports and a reconciliation process between
                   new data and data existing in MIS.

            (6)    Identify enrollee changes in primary care provider and the
                   reason(s) for those changes and effective dates.

            (7)    Monitor PCP capacity and limitations prior to connecting the
                   enrollee to PCP in the system, and provide a kick-out report
                   when capacity and limitations are exceeded.

            (8)    Verify enrollee eligibility for medical services rendered or
                   for other enrollee inquiries.

            (9)    Generate and track referrals, e.g., Hospitals/Specialists.

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

            (11)   Send PCP assignment updates to TDH in the format as specified
                   by TDH.

10.4        PROVIDER SUBSYSTEM
            ------------------

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

            Functions and Features:

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

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

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

            (4)    Support HMO credentialing, recredentialing, and credential
                   tracking processes; incorporates or links information to
                   provider record.

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

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

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

            (8)    Provide provider network files 90 days prior to
                   implementation and updates monthly. Format will be provided
                   by TDH to contracted entities.

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

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

10.5        ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
            -------------------------------------

            The encounter/claims processing subsystem must collect, process, and
            store data on 100% of all health services delivered for which HMO is
            responsible. The functions of these subsystems are claims/encounter
            processing and capturing health service utilization data. The
            subsystem must capture all health-related services, including
            medical supplies, using standard codes (e.g., CPT-4, HCPCS, ICD9-CM,
            UB92 Revenue Codes), rendered by health-care providers to an
            eligible enrollee regardless of payment arrangement (e.g. capitation
            or fee-for-service). It approves, prepares for payment, or may
            return or deny claims submitted. This subsystem may integrate manual
            and automated systems to validate and adjudicate claims and
            encounters. HMO must use encounter data validation methodologies
            prescribed by TDH.

            Functions and Features:

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

            (2)    Support entry and capture of a minimum of two diagnosis codes
                   for each individual service as defined by TDH.

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

            (4)    Interface with Member and provider subsystems.

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

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

            (7)    Submit data to TDH through electronic transmission using
                   specified formats.

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

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

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

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

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

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

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

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

            (16)   Receive and capture claim and encounter data from TDH.

            (17)   Receive and capture value-added services codes.

10.6        FINANCIAL SUBSYSTEM
            -------------------

            The financial subsystem must provide the necessary data for 100% of
            all accounting functions including cost accounting, inventory, fixed
            assets, payroll, general ledger, accounts receivable, accounts
            payable, financial statement presentation, and any additional data
            required by TDH. The financial subsystem must provide

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            management with information that can demonstrate that the proposed
            or existing HMO is meeting, exceeding, or falling short of fiscal
            goals. The information must also provide management with the
            necessary data to spot the early signs of fiscal distress, far
            enough in advance to allow management to take corrective action
            where appropriate.

            Functions and Features:

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

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

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

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

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

            (6)    Generate Remittance and Status Reports.

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

            (8)    Reduce/increase accounts payable/receivable based on
                   adjustments to claims or recoveries from third party
                   resources.

10.7        UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM
            -----------------------------------------

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

            The subsystem tracks utilization control function(s) and monitoring
            inpatient admissions, emergency room use, ancillary, and out-of-area
            services. It provides provider profiles, occurrence reporting,
            monitoring and evaluation studies, and

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            enrollee satisfaction survey compilations. The subsystem may
            integrate HMO's manual and automated processes or incorporate other
            software reporting and/or analysis programs.

            The subsystem incorporates and summarizes information from enrollee
            surveys, provider and enrollee complaints, and appeal processes.

            Functions and Features:

            (1)    Supports provider credentialing and recredentialing
                   activities.

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

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

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

            (5)    Supports quality-of-care Focused Studies.

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

            (7)    Monitors primary care provider referral patterns.

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

            (9)    Stores and reports patient satisfaction data through use of
                   enrollee surveys.

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

            (11)   Meets minimum report/data collection/analysis functions of
                   Article XI and Appendix A - Standards For Quality Improvement
                   Programs.

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

10.8        REPORT SUBSYSTEM
            ----------------

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

            Functions and Capabilities:

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

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

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

            (4)    Generate an alphabetic Member listing.

            (5)    Generate a numeric Member listing.

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

            (7)    Report on PCP change by reason code.

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

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

            (10)   Generate or produce an aged outstanding liability report.

            (11)   Produce a Member ID Card.

            (12)   Produce client/provider mailing labels.

10.9        DATA INTERFACE SUBSYSTEM
            ------------------------

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

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

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10.9.3      Provider Network File. The provider file shall supply Network
            Provider data between an HMO and TDH. This process shall accomplish
            the following:

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

            (2)    Maintain history on provider enrollment/disenrollment.

            (3)    Identify PCP capacity.

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

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

10.9.4      Eligibility/Enrollment Interface. The enrollment interface must
            provide eligibility data between TDH and HMOs.

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

            (2)    Provides PCP assignments.

            (3)    Provides Member eligibility status data.

            (4)    Provides Member demographics data.

            (5)    Provides HMOs with cross-reference data to identify duplicate
                   Members.

10.9.5      Encounter/Claim Data Interface. The encounter/claim interface must
            transfer paid fee-for-service claims data to HMOs and capitated
            services/encounters from HMO, including adjustments. This file will
            include all service types, such as inpatient, outpatient, and
            medical services. TDH's agent will process claims for non-capitated
            services.

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

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

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10.9.8      TDH will provide a diagnosis file which will give the code and
            description of each diagnosis permitted by TDH.

10.9.9      TDH will provide a procedure file which contains the procedures
            which must be used on all claims and encounters. This file contains
            HCPCS, revenue, and ICD9-CM surgical procedure codes.

10.9.10     TDH will provide a provider file that contains the Medicaid provider
            numbers, and the provider's names and addresses. The provider number
            authorized by TDH must be submitted on all claims, encounters, and
            network provider submissions.

10.10       TPR SUBSYSTEM
            -------------

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

            (1)    Identify, store, and use other health coverage available to
                   eligible Members or third party liability (TPL) including
                   type of coverage and effective dates.

            (2)    Provide changes in information to TDH as specified by TDH.

            (3)    Receive TPL data from TDH to be used in claim and encounter
                   processing.

10.11       YEAR 2000 (Y2K COMPLIANCE)
            --------------------------

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

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

ARTICLE XI         QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

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<PAGE>

11.1        QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM
            ----------------------------------------

            HMO must develop, maintain, and operate a Quality Improvement
            Program (QIP) system which complies with federal regulations
            relating to Quality Assurance systems, found at 42 C.F.R. ss.434.34.
            The system must meet the Standards for Quality Improvement Programs
            contained in Appendix A.

11.2        WRITTEN QIP PLAN
            ----------------

            HMO must have an approved plan describing its Quality Improvement
            Plan (QIP), including how HMO will accomplish the activities
            pertaining to each Standard (I-XVI) in Appendix A on file with TDH.

11.3        QIP SUBCONTRACTING
            ------------------

            If HMO subcontracts any of the essential functions or reporting
            requirements of QIP to another entity, HMO must submit a list - 60
            days prior to the Implementation Date - of the Subcontractors and a
            description of how the Subcontractors will meet the standards and
            reporting requirements of this contract. HMO must notify TDH no
            later than 90 days prior to terminating any subcontract affecting a
            major performance function of this contract (see Article 3.2.1.1).

11.4        ACCREDITATION

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

            If HMO is accredited by an external accrediting agency,
            documentation of accreditation must be provided to TDH. HMO must
            provide TDH with their accreditation status upon request.

11.5        BEHAVIORAL HEALTH INTEGRATION INTO QIP
            --------------------------------------

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

11.6        QIP REPORTING REQUIREMENTS
            --------------------------

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

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ARTICLE XII        REPORTING REQUIREMENTS

12.1        FINANCIAL REPORTS
            -----------------

12.1.1      Monthly MCFS Report. HMO must submit the Managed Care
            Financial-Statistical Report (MCFS) included in Appendix I as may be
            modified or amended by TDH. The report must be submitted to TDH 30
            days after the end of each state fiscal year quarter and must
            include complete financial and statistical information for each
            month. The MCFS Report must be submitted for each claims processing
            Subcontractor in accordance with this Article. HMO must incorporate
            financial and statistical data received by its provider networks
            (IPAs, ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.2      For any given month in which an HMO has a net loss of $200,000 or
            more for the contract period to date, HMO must submit an MCFS Report
            for that month by the 30th day after the end of the reporting month.
            The MCFS Report must be completed in accordance with the
            Instructions for Completion of the Managed Care
            Financial-Statistical Report developed by TDH.

12.1.3      An HMO must submit monthly reports for each of the first 6 months
            following the Implementation Date of the contract between TDH and
            HMO. If the cumulative net loss for the contract period to date
            after the 6th month is less than $200,000, HMO may submit quarterly
            reports in accordance with the above provisions unless the condition
            in Article 12.1.2 exists, in which case monthly reports must be
            submitted.

12.1.4      Annual MCFS Report. HMO must file two annual Managed Care
            Financial-Statistical Reports. The first annual report must reflect
            expenses incurred through the 90th day after the end of the contract
            year. The first annual report must be filed on or before the 120th
            day after the end of the contract year. The second annual report
            must reflect data completed through the 334th day after the end of
            the contract year and must be filed on or before the 365th day
            following the end of the contract year.

12.1.5      Administrative expenses reported in the monthly and annual MCFS
            Reports must be reported in accordance with Appendix L, Cost
            Principles for Administrative Expenses. Indirect administrative
            expenses must be based on an allocation methodology for Medicaid
            managed care activities and services that is developed or approved
            by TDH.

12.1.6      Affiliated Related Parties Report. HMO must submit an Affiliated
            Related Parties Report to TDH not later than 90 days prior to the
            Implementation Date. The report must contain the following
            information:

12.1.6.1    A listing of all Affiliates/Related parties; and

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12.1.6.2    A schedule of all transactions with Affiliates which, under the
            provisions of this Contract, will be allowable as expenses in either
            Line 4 or Line 5 of Part I of the MCFS Report for services provided
            to HMO by the Affiliates for the prior approval of TDH. Include
            financial terms, a detailed description of the services to be
            provided, and an estimated amount which will be incurred by HMO for
            such services during the Contract period.

12.1.7      Annual Audited Financial Report. On or before June 30th of each
            year, HMO must submit to TDH a copy of the annual audited financial
            report filed with TDI.

12.1.8      Form HCFA-1513. HMO must file an updated Form HCFA-1513 regarding
            control, ownership, or affiliation of HMO 30 days prior to the end
            of the contract year. An updated Form HCFA-1513 must also be filed
            within 30 days of any change in control, ownership, or affiliation
            of HMO. Forms may be obtained from TDH.

12.1.9      Section 1318 Financial Disclosure Report. HMO must file an updated
            HCFA Public Health Service (PHS) "Section 1318 Financial Disclosure
            Report" within 30 days from the end of the contract year and within
            30 days of entering into, renewing, or terminating a relationship
            with an affiliated party. These forms may be obtained from TDH.

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

12.1.11     IBNR Plan. HMO must furnish a written IBNR Plan to manage
            incurred-but-not-reported (IBNR) expenses, and a description of the
            method of insuring against insolvency, including information on all
            existing or proposed insurance policies. The Plan must include the
            methodology for estimating IBNR. The plan and description must be
            submitted to TDH not later than 60 days prior to the Implementation
            Date.

12.1.12     Third Party Recovery (TPR) Reports. HMO must file quarterly Third
            Party Recovery (TPR) Reports in accordance with the format developed
            by TDH. TPR reports must include total dollars recovered from third
            party payers for services to HMO's Members for each month and the
            total dollars recovered through coordination of benefits,
            subrogation, and worker's compensation.

12.1.13     Pre-implementation Expenses. Pre-implementation expenses (i.e.,
            expenses incurred between the effective date of the contract and the
            Implementation Date) will be allowable expenses as determined by
            TDH. Such expenses must be reported for each month in which the
            expenses were incurred. Such expenses shall be counted toward the
            calculation of total expenses for the first contract year for
            purposes of calculating the net income before taxes. Such expenses
            shall not be allocated or amortized beyond the first contract year.

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<PAGE>

12.1.14     Each report required under this Article must be mailed to: Bureau of
            Managed Care; Texas Dept. of Health; 1100 West 49th Street; Austin,
            TX 78756-3168. HMO must also mail a copy of the reports, except for
            items in Article 12.1.7 and Article 12.1.10 to Texas Department of
            Insurance, Mail Code 106-3A, HMO Division, Attention: HMO Division
            Director, P.O. Box 149104, Austin, TX 78714-9104.

12.2        STATISTICAL REPORTS
            -------------------

12.2.1      HMO must electronically file the following monthly reports: (1)
            encounter; (2) encounter detail; (3) institutional; (4)
            institutional detail; and (5) claims detail for cost-reimbursed
            services filed, if any, with HMO. Monthly reports must be submitted
            by the 10th day following the end of the reporting month. Encounter
            data must include the data elements, follow the format, and use the
            transmission method specified by TDH.

12.2.2      Monthly reports must include current month encounter data and
            encounter data adjustments to the previous month's data.

12.2.3      Data quality standards will be developed jointly by HMO and TDH.
            Encounter data must meet or exceed data quality standards. Data that
            does not meet quality standards must be corrected and returned
            within the period specified by TDH. Original records must be made
            available to validate all encounter data.

12.2.4      HMO must require providers to submit claims and encounter data to
            HMO no later than 95 days after the date services are provided.

12.2.5      HMO must use the procedure codes, diagnosis codes and other codes
            contained in the most recent edition of the Texas Medicaid Provider
            Procedures Manual and as otherwise provided by TDH. Exceptions or
            additional codes must be submitted for approval before HMO uses the
            codes.

12.2.6      HMO must use Medicaid provider numbers on all encounter and
            fee-for-service claim submissions. Any exceptions must be approved
            by TDH.

12.2.7      HMO must validate all encounter data using the encounter data
            validation methodology prescribed by TDH prior to submission of
            encounter data to TDH.

12.2.8      Claims Aging and Summary Report. HMO must submit the monthly Claims
            Aging and Summary Reports identified in the Texas Managed Care
            Claims Manual by the third Monday of the month following the
            reporting period. The reports must be submitted to TDH in a format
            using the instructions specified by TDH.

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<PAGE>

12.2.9      Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must
            file preliminary and final Medicaid Disproportionate Share Hospital
            (DSH) reports, required by TDH to identify and reimburse hospitals
            that qualify for Medicaid DSH funds. The preliminary and final DSH
            reports must include the data elements and be submitted in the form
            and format specified by TDH. The preliminary DSH reports are due on
            or before June 1 of the year following the state fiscal year for
            which data is being reported. The final DSH reports are due on or
            before August 15 of the year following the state fiscal year for
            which data is being reported.

12.3        ARBITRATION/LITIGATION CLAIMS REPORT
            ------------------------------------

            HMO must submit a monthly Arbitration/Litigation Claims Report in a
            form developed by TDH identifying all provider complaints that are
            in arbitration or litigation. The report is to be submitted by the
            last working day of the month following the reporting month.

12.4        SUMMARY REPORT OF PROVIDER COMPLAINTS
            -------------------------------------

            HMO must submit a Summary Report of Provider Complaints. The report
            must include a copy of any complaints submitted to either HMO or an
            arbitrator, or both. The report must also include a copy of the
            provider complaint log. HMO must also report complaints submitted to
            its subcontracted risk groups (e.g., IPAs). The report must be
            submitted on or before the fifteenth of the month following the end
            of the state fiscal quarter using a form specified by TDH.

12.5        PROVIDER NETWORK REPORTS
            ------------------------

12.5.1      Provider Network Change Reports. HMO must submit a monthly report
            summarizing changes in HMO's provider network. The report must be
            submitted to TDH in the format specified by TDH. HMO will submit the
            report thirty (30) days following the end of the reporting month.
            The report must identify provider additions and deletions and the
            impact to the following:

            (1)    geographic access for the Members;

            (2)    cultural and linguistic services;

            (3)    the ethnic composition of providers;

            (4)    the number of Members assigned to PCPs;

            (5)    the change in the ration of providers with pediatric
                   experience to the number of Members under age 21; and

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<PAGE>

            (6)    number of specialists serving as PCPs.

12.5.1.1    Provider Termination Report. HMO must also include in the Provider
            Network Change Report information identifying any providers who
            cease to participate in HMO's provider network, either voluntarily
            or involuntarily. The information must include the provider's name,
            Medicaid number, the reason for the provider's termination, and
            whether the termination was voluntary or involuntary.

12.5.2      PCP Network and Capacity Report. HMO must submit electronically to
            Enrollment Broker a weekly report that shows changes to the PCP
            network and PCP capacity.

12.6        MEMBER COMPLAINTS
            -----------------

            HMO must submit a quarterly summary report of Member complaints. The
            report must show the date upon which each complaint was filed, a
            summary of the facts surrounding the complaint, the date of the
            resolution of the complaint, an explanation of the procedure
            followed, and the outcome of the complaint process. It should also
            include the Member Advocate Report (see Article 8.6.17). The
            complaint report format must be approved by TDH and submitted in
            hard copy and diskette. HMO must also report complaints submitted to
            its subcontracted risk groups (e.g., IPAs).

12.7        FRAUDULENT PRACTICES
            --------------------

            HMO must report all fraud and abuse enforcement actions or
            investigations taken against HMO and/or any of its Subcontractors or
            providers by any state or federal agency for fraud or abuse under
            Title XVIII or Title XIX of the Social Security Act or any State law
            or regulation and any basis upon which an action for fraud or abuse
            may be brought by a State or federal agency as soon as such
            information comes to the attention of HMO.

12.8        UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
            --------------------------------------------------

            Several behavioral health (BH) utilization management reports are
            required on a quarterly basis and are due 120 days following the end
            of the State fiscal quarter and are to be provided in hard copy and
            in a format specified by TDH. Refer to Appendix H for the
            standardized reporting format for each report and detailed
            instructions for obtaining the specific data required in the report.
            The BH utilization report instructions may periodically be updated
            by TDH to include new codes and to facilitate clear communication to
            the health plan.

12.9        UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
            ------------------------------------------------

            Physical health (PH) utilization management reports are required on
            a quarterly basis and are due no later than 120 days after the end
            of the State Fiscal Quarter and are

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<PAGE>

            to be provided in hard copy and in a format specified by TDH. Refer
            to Appendix J for the standardized reporting format for each report
            and detailed instructions for obtaining specific data required in
            the report. The PH Utilization Management Report instructions may
            periodically be updated by TDH to include new codes and to
            facilitate clear communication to the health plan.

12.10       QUALITY IMPROVEMENT REPORTS
            ---------------------------

12.10.1     HMO must conduct health Focused Studies in pregnancy and prenatal
            care, THSteps, asthma (or another chronic disease as required by
            TDH). HMO will be required to conduct no more than two Focused
            Studies, as instructed by TDH. These studies shall be conducted and
            data collected using criteria and methods developed by TDH. The
            following format shall be utilized:

            (1)    Executive Summary.

            (2)    Definition of the population and health areas of concern.

            (3)    Clinical guidelines/standards, quality indicators, and audit
                   tools.

            (4)    Sources of information and data collection methodology.

            (5)    Data analysis and information/results.

            (6)    Corrective actions if any, implementation, and follow-up
                   plans including monitoring, assessment of effectiveness, and
                   methods for provider feedback.

12.10.2     Annual Focused Studies. Focused Studies on well child, asthma, and
            Attention Deficit Hyperactivity Disorder (ADHD) must be submitted to
            TDH no later than March 1, 2001. Focused Studies on pregnancy and
            substance abuse in pregnancy must be submitted no later than June 1,
            2001.

12.10.3     Annual QIP Summary Report. An annual QIP summary report must be
            conducted yearly based on the state fiscal year. The annual QIP
            summary report must be submitted by March 31 of each year. This
            report must provide summary information on HMO's QIP system and
            include the following:

            (1)    Executive summary of QIP - include results of all QI reports
                   and interventions.

            (2)    Activities pertaining to each standard (I through XVI) in
                   Appendix A. Report must list each standard.

            (3)    Methodologies for collecting, assessing data and measuring
                   outcomes.

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            (4)    Tracking and monitoring quality of care.

            (5)    Role of health professionals in QIP review.

            (6)    Methodology for collection data and providing feedback to
                   provider and staff.

            (7)    Outcomes and/or action plan.

12.10.4     Provider Medical Record Audit and Report. HMO must submit
            semi-annual provider medical record audits that conform to the
            medical record requirements fond in Standard XII in Appendix A. The
            audits are alternated between PCPs and behavioral health providers.

12.10.4.1   HMO must submit a written plan for correcting the noncompliance
            (<80% compliance rate) and a time line for achieving compliance if
            audits reveal non-compliance with TDH medical records standards.

12.10.5     HMO must submit to TDH semi-annual reports on its subspecialty
            network in a format provided by TDH.

12.11       HUB REPORTS
            -----------

            HMO must submit quarterly reports documenting HMO's HUB program
            efforts and accomplishments. The report must include a narrative
            description of HMO's program efforts and a financial report
            reflecting payments made to HUB. HMO must use the format included in
            Appendix B for HUB quarterly reports.

12.12       THSTEPS REPORTS
            ---------------

            Minimum reporting requirements. HMO must submit, at a minimum, 80%
            of all THSteps checkups on HCFA 1500 claim forms as part of the
            encounter file submission to the TDH Claims Administrator no later
            than 120 days after the date of service. Failure to comply with
            these minimum reporting requirements will result in Article XVIII
            sanctions and money damages.

12.13       REPORTING REQUIREMENTS DUE DATES
            --------------------------------

            TDH will provide HMO with a matrix of all contract deliverables,
            with due dates. The due dates for deliverables may be changed by
            TDH. TDH will provide HMO with 30 days notice of a change in a
            deliverable due date.

ARTICLE XIII       PAYMENT PROVISIONS

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<PAGE>

13.1        CAPITATION AMOUNTS
            ------------------

13.1.1      TDH will pay HMO monthly premiums calculated by multiplying the
            number of Member months by Member risk group times the monthly
            capitation amount by Member risk group. HMO and network providers
            are prohibited from billing or collecting any amount from a Member
            for health care services covered by this contract, in which case the
            Member must be informed of such costs prior to providing non-covered
            services.

13.1.2      Delivery Supplemental Payment (DSP). DSP is a payment process to HMO
            is which the costs of delivery were extracted from the Standard
            Capitation Payment Methodology of other risk groups and included in
            a one-time payment for each delivery. TDH has submitted the DSP
            methodology to HCFA for approval. The monthly capitation amounts
            established for each risk group in the El Paso Service Area using
            the DSP methodology will apply only if the methodology is approved
            by HCFA, and the methodology is implemented for all HMOs in all
            existing service areas by contract. The rates for December 1, 1999,
            through August 31, 2000, and related contract provisions will be
            provided upon approval by HCFA and will supersede the Standard
            Methodology of Article 13.1.3.

13.1.3      Standard Methodology. If the DSP methodology is not approved by
            HCFA, the monthly capitation amounts established for each risk group
            in the El Paso Service Area using the methodology set forth in
            Article 13.1.1, without the DSP, are as follows:

            -------------------------------------------------------------
            Risk Group                      December 1, 1999 - August 31,
                                            2000

            -------------------------------------------------------------
            TANF Adults                                $150.27
            -------------------------------------------------------------
            TANF Children                              $ 66.93
            -------------------------------------------------------------
            Expansion Children                         $ 83.66
            -------------------------------------------------------------
            Newborns                                   $317.14
            -------------------------------------------------------------
            Federal Mandate Children                   $ 43.21
            -------------------------------------------------------------
            CHIP                                       $ 85.35
            -------------------------------------------------------------
            Pregnant Women                             $531.65
            -------------------------------------------------------------
            Disabled/Blind                             $ 14.00
            Administration
            -------------------------------------------------------------

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<PAGE>

13.1.4      The monthly capitation amounts for each risk group for state fiscal
            year 2001 will be provided to HMO by September 1, 2000, based on the
            most recent available traditional Medicaid cost data for the
            contracted risk groups, trended forward and discounted.

13.1.5      The monthly premium payment to HMO is based on monthly enrollments
            adjusted to reflect money damages set out in Article 18.8 and
            adjustments to premiums in Article 13.5.

13.1.6      The monthly premium payments will be made to HMO no later than the
            10th working day of the month for which premiums are paid. HMO must
            accept payment for premiums by direct deposit into an HMO account.

13.1.7      Payment of monthly capitation amounts is subject to availability of
            appropriations. If appropriations are not available to pay the full
            monthly capitation amounts, TDH will equitably adjust capitation
            amounts for all participating HMOs, and reduce scope of service
            requirements as appropriate.

13.2        EXPERIENCE REBATE TO STATE
            --------------------------

13.2.1      HMO must pay to TDH an experience rebate equal to fifty percent
            (50%) of the excess of allowable HMO STAR revenues over allowable
            HMO STAR expenses as measured by any positive amount on Line 7 of
            "Part 1: Financial Summary, All Coverage Groups Combined" of the
            annual Managed Care Financial-Statistical Report set forth in
            Appendix I, as audited and confirmed by TDH.

13.2.2      There will be two settlements for payment of the experience rebate.
            The first settlement shall equal 100 percent of the experience
            rebate as derived from Line 7 of Part I (Net Income Before Taxes) of
            the annual Managed Care Financial-Statistical (MCFS) Report. The
            second settlement shall be an adjustment to the first settlement and
            shall be paid to TDH if the adjustment is a payment from HMO to TDH.
            TDH or its agent may audit or review the MCFS reports. If TDH
            determines that corrections to the MCFS reports are required, based
            on a TDH audit/review or other documentation acceptable to TDH, to
            determine an adjustment to the amount of the second settlement, then
            final adjustment shall be made within two years from the date that
            HMO submits the second annual MCFS report. HMO must pay the first
            and second settlements on the due dates for the first and second
            MCFS reports respectively as identified in Article 12.1.4. TDH may
            adjust the experience rebate if TDH determines HMO has paid
            affiliates amounts for goods or services that are higher than the
            fair market value of the goods and services in the service area.
            Fair market value may be based on the amount HMO pays a
            non-affiliate(s) or the amount

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<PAGE>

            another HMO pays for the same or similar service in the service
            area. TDH will have final authority in assessing the amount of the
            experience rebate.

13.3        PERFORMANCE OBJECTIVES
            ----------------------

13.3.1      Preventive Health Performance Objectives are contained in this
            contract at Appendix K. HMO must accomplish the performance
            objectives or a designated percentage in order to be eligible for
            payment of financial incentives. Performance objectives are subject
            to change. TDH will consult with HMO prior to revising performance
            objectives.

13.3.2      HMO will receive credit for accomplishing a performance objective
            upon receipt of accurate encounter data required under Articles 10.5
            and 12.2 of this contract and/or a Detailed Data Element Report from
            HMO with report format as determined by TDH and aggregate data
            reported by HMO in accordance with a report format as determined by
            TDH (Performance Objectives Report). Accuracy and completeness of
            the detailed data element report and the aggregate data Performance
            Objectives Report will be determined by TDH through a TDH audit of
            HMO claims processing system. If TDH determines that the Detailed
            Data Element Report and Performance Objectives Report are
            sufficiently supported by the results of the TDH audit, the payment
            of financial incentives will be made to HMO. Conversely, if the
            audit results do not support the reports as determined by TDH, HMO
            will not receive payment of the financial incentive. TDH may conduct
            provider chart reviews to validate the accuracy of the claims data
            related to HMO accomplishment of performance objectives. If the
            results of the chart review do not support HMO claims system data or
            HMO Detailed Data Element Report and the Performance Objectives
            Report, TDH may recoup payments made to HMO for performance
            objectives incentives.

13.3.3      HMO will also receive credit for performance objectives performed by
            other organizations if a network primary care provider or HMO
            retains documentation from the performing organization which
            satisfies the requirements contained in Appendix K of this contract.

13.3.4      HMO will receive performance objective bonuses for accomplishing the
            following percentages of performance objectives:

            -------------------------------------------------------------------
            Percent of Each Performance        Percent of Performance Objective
            Objective Accomplished             Allocations Paid to HMO
            -------------------------------------------------------------------
                    60% to 65%                                20%
            -------------------------------------------------------------------
                    65% to 70%                                30%
            -------------------------------------------------------------------

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<PAGE>

            -------------------------------------------------------------------
                    70% to 75%                                40%
            -------------------------------------------------------------------
                    75% to 80%                                50%
            -------------------------------------------------------------------
                    80% to 85%                                60%
            -------------------------------------------------------------------
                    85% to 90%                                70%
            -------------------------------------------------------------------
                    90% to 95%                                80%
            -------------------------------------------------------------------
                    95% to 100%                               90%
            -------------------------------------------------------------------
                       100%                                  100%
            -------------------------------------------------------------------

13.3.5      HMO must submit the Detailed Data Element Report and the Performance
            Objectives Report regardless of whether or not HMO intends to claim
            payment of performance objective bonuses.

13.4        PAYMENT OF PERFORMANCE OBJECTIVE BONUSES
            ----------------------------------------

13.4.1      Payment of performance objective bonuses is contingent upon
            availability of appropriations. If appropriations are not available
            to pay performance objective bonuses as set out below, TDH will
            equitably distribute all available funds to each HMO that has
            accomplished the performance objectives.

13.4.2      In addition to the capitation amounts set forth in Article 13.1.2, a
            performance premium of two dollars ($2.00) per Member month will be
            allocated by TDH for the accomplishment of performance objectives.

13.4.3      HMO must submit the Performance Objectives Report and the Detailed
            Data Element Report as referenced in Article 13.3.2, no later than
            150 days after the end of each State fiscal year. Performance
            premiums will be paid to HMO no later than 120 days after the State
            receives and validates the data contained in each required
            Performance Objectives Report.

13.4.4      The performance objective allocation for HMO shall be assigned to
            each performance objective, described in Appendix K, in accordance
            with the following percentages:

            --------------------------------------------------------
                 EPSDT SCREENS              Percent of Performance
                                           Objective Incentive Fund

            --------------------------------------------------------
            1.   <12 months                           7%
            --------------------------------------------------------
            2.   12 to 24 months                      7%
            --------------------------------------------------------

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            --------------------------------------------------------
            3.   25 months - 20 years                19%
            --------------------------------------------------------
            4.   <12 months = 3.8 screens            21%
            --------------------------------------------------------
            5.   12 to 24 months = 2.8               14%
                               screens

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

            --------------------------------------------------------
                    IMMUNIZATIONS           Percent of Performance
                                           Objective Incentive Fund

            --------------------------------------------------------
            6.   <12 months                           6%
            --------------------------------------------------------
            7.   12 to 24 months                      3%
            --------------------------------------------------------

            --------------------------------------------------------
               ADULT ANNUAL VISITS          Percent of Performance
                                           Objective Incentive Fund

            --------------------------------------------------------
            8.   Adult Annual Visits                  2%
            --------------------------------------------------------

            --------------------------------------------------------
                   PREGNANCY VISITS         Percent of Performance
                                           Objective Incentive Fund

            --------------------------------------------------------
            9.   Initial Prenatal Exam                6%
            --------------------------------------------------------
            10.  Visits by Gestational Age           10%
            --------------------------------------------------------
            11.  Postpartum Visit                     5%
            --------------------------------------------------------

13.5        ADJUSTMENTS TO PREMIUM
            ----------------------

13.5.1      TDH may recoup premiums paid to HMO in error. Error may be either
            human or machine error on the part of TDH or an agent or contractor
            of TDH. TDH may recoup premiums paid to HMO if a Member is enrolled
            into HMO in error, and HMO provided no covered services to Member
            for the period of time for which premium was paid. If services were
            provided to Member as a result of the error, recoupment will not be
            made.

13.5.2      TDH may recoup premium paid to HMO if a Member for whom premium is
            paid moves outside the United States, and HMO has not provided
            covered services to the Member for the period of time for which
            premium has been paid. TDH will not recoup premium if HMO has
            provided covered services to the Member during the period of time
            for which premium has been paid.

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<PAGE>

13.5.3      TDH may recoup premium paid to HMO if a Member for whom premium is
            paid dies before the first day of the month for which premium is
            paid.

13.5.4      TDH may recoup or adjust premium paid to HMO for a Member if the
            Member's eligibility status or program type is changed, corrected as
            a result of error, or is retroactively adjusted.

13.5.5      Recoupment or adjustment or premium under Articles 13.5.1 through
            13.5.4 may be appealed using the TDH dispute resolution process.

13.5.6      TDH may adjust premiums for all Members within an eligibility status
            or program type if adjustment is required by reductions in
            appropriations and/or if a benefit or category of benefits is
            excluded or included as a covered service. Adjustment must be made
            by amendment as required by Article 15.2. Adjustment to premium
            under this subsection may not be appealed using the TDH dispute
            resolution process.

ARTICLE XIV        ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1        ELIGIBILITY DETERMINATION
            -------------------------

14.1.1      TDH will identify Medicaid recipients who are eligible for
            participation in the STAR program using the eligibility status
            described below.

14.1.2      Individuals in the following categories who reside in any part of
            the Service Area must enroll in one of the health plans providing
            services in the Service Areas:

14.1.2.1    TANF ADULTS - Individuals age 21 and over who are eligible for the
            TANF program. This category may also include some pregnant women.

14.1.2.2    TANF CHILDREN - Individuals under age 21 who are eligible for the
            TANF program. This category may also include some pregnant women and
            some children less than one year of age.

14.1.2.3    PREGNANT WOMEN receiving Medical Assistance Only (MAO) - Pregnant
            women whose families' income is below 185% of the Federal Poverty
            Level (FPL).

14.1.2.4    NEWBORN (MAO) - Children under age one born to Medicaid-eligible
            mothers.

14.1.2.5    EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for
            TANF because of the applied income of their stepparents or
            grandparents.

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<PAGE>

14.1.2.6    EXPANSION CHILDREN (MAO) - Children under age 1 whose families'
            income is below 185% FPL.

14.1.2.7    EXPANSION CHILDREN MAO - Children age 1-5 whose families' income is
            at or below 133% of FPL.

14.1.2.8    FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born before
            October 10, 1983, whose families' income is below the TANF income
            limit.

14.1.2.9    CHIP PHASE I - Children's Health Insurance Program Phase I (Federal
            Mandate Acceleration) Children under age nineteen (19) born before
            October 1, 1983, with family income below 100% Federal Poverty
            Income Level.

14.1.3      The following individuals are eligible for the STAR Program and are
            not required to enroll in a health plan but have the option to
            enroll in a plan. HMO will be required to accept enrollment of those
            recipients from this group who elect to enroll in HMO.

14.1.3.1    DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients with
            Supplemental Security Income (SSI) benefits who are not eligible for
            Medicare may elect to participate in the STAR program on a voluntary
            basis.

14.1.3.2    Certain blind or disabled individuals who lose SSI eligibility
            because of Title II income and who are not eligible for Medicare.

14.1.3.3    Non-institutionalized blind and disabled people enrolled in 1915(c)
            waivers whose income is above SSI limits, whose eligibility was
            determined using the institutional cap (300%), and who are not
            Medicare eligible. (TDH will be phasing out this population during
            FY 99.)

14.1.3.4    Members of the Tigua Indian tribe.

14.1.4      During the period after which the Medicaid eligibility determination
            has been made but prior to enrollment in HMO, Members will be
            enrolled under the traditional Medicaid program. All Medicaid
            eligible recipients will remain in the fee-for-service Medicaid
            program until enrolled in or assigned to an HMO.

14.2        ENROLLMENT

            ----------

14.2.1      TDH has the right and responsibility to enroll and disenroll
            eligible individuals into the STAR program. TDH will conduct
            continuous open enrollment for Medicaid recipients and HMO must
            accept all persons who chose to enroll as Members in HMO or who are
            assigned as Members in HMO by TDH, without regard to the Member's
            health status or any other factor.

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<PAGE>

14.2.2      All enrollments are subject to the accessibility and availability
            limitations and restrictions contained in the ss.1915(b) waiver
            obtained by TDH. TDH has the authority to limit enrollment into HMO
            if the number and distance limitations are exceeded.

14.2.3      TDH makes no guarantees or representations to HMO regarding the
            number of eligible Medicaid recipients who will ultimately be
            enrolled as STAR Members of HMO.

14.2.4      HMO must cooperate and participate in all TDH sponsored and
            announced enrollment activities. HMO must have a representative at
            all TDH enrollment activities unless an exception is given by TDH.
            The representative must comply with HMO's cultural and linguistic
            competency plan (see Cultural and Linguistic requirements in Article
            8.9). HMO must provide marketing materials, HMO pamphlets, Member
            Handbooks, a list of network providers, HMO's linguistic and
            cultural capabilities and other information requested or required by
            TDH or its Enrollment Broker to assist potential Members in making
            informed choices.

14.2.5      TDH will provide HMO with at least 10 days written notice of all TDH
            planned activities. Failure to participate in, or send a
            representative to a TDH sponsored enrollment activity is a default
            of the terms of the contract. Default may be excused if HMO can show
            that TDH failed to provide the required notice, or if HMO's absence
            is excused by TDH.

14.3        DISENROLLMENT

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

14.3.1      HMO has a limited right to request a Member be disenrolled from HMO
            without the Member's consent. TDH must approve any HMO request for
            disenrollment of a Member for cause. Disenrollment of a Member may
            be permitted under the following circumstances:

14.3.1.1    Member misuses or loans Member's HMO membership card to another
            person to obtain services.

14.3.1.2    Member is disruptive, unruly, threatening or uncooperative to the
            extent that Member's membership seriously impairs HMO's or
            provider's ability to provide services to Member or to obtain new
            Members, and Member's behavior is not caused by a physical or
            behavioral health condition.

14.3.1.3    Member steadfastly refuses to comply with managed care restrictions
            (e.g., repeatedly using emergency room in combination with refusing
            to allow HMO to treat the underlying medical condition).

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<PAGE>

14.3.2      HMO must take reasonable measures to correct Member behavior prior
            to requesting disenrollment. Reasonable measures may include
            providing education and counseling regarding the offensive acts or
            behaviors.

14.3.3      HMO must notify the Member of HMO's decision to disenroll the Member
            if all reasonable measures have failed to remedy the problem.

14.3.4      If the Member disagrees with the decision to disenroll the Member
            from HMO, HMO must notify the Member of the availability of the
            complaint procedure and TDH's Fair Hearing process.

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

14.4        AUTOMATIC RE-ENROLLMENT
            -----------------------

14.4.1      Members who are disenrolled because they are temporarily ineligible
            for Medicaid will be automatically re-enrolled into the same health
            plan. Temporary loss of eligibility is defined as a period of 3
            months or less.

14.4.2      HMO must inform its Members of the automatic re-enrollment
            procedure. Automatic re-enrollment must be included in the Member
            Handbook (see Article 8.2.1).

14.5        ENROLLMENT REPORTS
            ------------------

14.5.1      TDH will provide HMO enrollment reports listing all STAR Members who
            have enrolled in or were assigned to HMO during the initial
            enrollment period.

14.5.2      TDH will provide monthly HMO Enrollment Reports to HMO on or before
            the first of the month.

14.5.3      TDH will provide Member verification to HMO and network providers
            through telephone verification or TexMedNet.

ARTICLE XV         GENERAL PROVISIONS

15.1        INDEPENDENT CONTRACTOR
            ----------------------

            HMO, its agents, employees, network providers, and Subcontractors
            are independent contractors and do not perform services under this
            contract as employees or agents

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<PAGE>

            of TDH. HMO is given express, limited authority to exercise the
            State's right of recovery as provided in Article 4.9.

15.2        AMENDMENT

            ---------

15.2.1      This contract must be amended by TDH if amendment is required to
            comply with changes in state or federal laws, rules, or regulations.

15.2.2      TDH and HMO may amend this contract if reductions in funding or
            appropriations make full performance by either party impracticable
            or impossible, and amendment could provide a reasonable alternative
            to termination. If HMO does not agree to the amendment, contract may
            be terminated under Article XVIII.

15.2.3      This contract must be amended if either party discovers a material
            omission of a negotiated or required term, which is essential to the
            successful performance or maintaining compliance with the terms of
            the contract. The party discovering the omission must notify the
            other party of the omission in writing as soon as possible after
            discovery. If there is a disagreement regarding whether the omission
            was intended to be a term of the contract, the parties must submit
            the dispute to dispute resolution under Article 15.8.

15.2.4      This contract may be amended by mutual agreement at any time.

15.2.5      All amendments to this contract must be in writing and signed by
            both parties.

15.2.6      No agreement shall be used to amend this contract unless it is made
            a part of this contract by specific reference, and is numbered
            sequentially by order of its adoption.

15.3        LAW, JURISDICTION AND VENUE
            ---------------------------

            Venue and jurisdiction shall be in the state and federal district
            courts of Travis County, Texas. The laws of the State of Texas shall
            be applied in all matters of state law.

15.4        NON-WAIVER
            ----------

            Failure to enforce any provision or breach shall not be taken by
            either party as a waiver of the right to enforce the provision or
            breach in the future.

15.5        SEVERABILITY

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

            Any part of this contract which is found to be unenforceable,
            invalid, void, or illegal shall be severed from the contract. The
            remainder of the contract shall be effective.

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<PAGE>

15.6        ASSIGNMENT

            ----------

            This contract was awarded to HMO based on HMO's qualifications to
            perform personal and professional services. HMO cannot assign this
            contract without the written consent of TDI and TDH. This provision
            does not prevent HMO from subcontracting duties and responsibilities
            to qualified Subcontractors.

15.7        NON-EXCLUSIVE
            -------------

            This contract is a non-exclusive agreement. Either party may
            contract with other entities for similar services in the same
            service area.

15.8        DISPUTE RESOLUTION
            ------------------

            All dispute arising under this contract shall be resolved through
            TDH's dispute resolution procedures, except where a remedy is
            provided for through TDH's administrative rules or processes. All
            administrative remedies must be exhausted prior to other methods of
            dispute resolution.

15.9        DOCUMENTS CONSTITUTING CONTRACT
            -------------------------------

            This contract includes this document and all amendments and
            appendices to this document, the Request for Application, the
            Application submitted in response to the Request for Application,
            the Texas Medicaid Provider Procedures Manual and Texas Medicaid
            Bulletins addressed to HMOs, contract interpretation memoranda
            issued by TDH for this contract, and the federal waiver granting TDH
            authority to contract with HMO. If any conflict in provisions
            between these documents occurs, the terms of this contract and any
            amendments shall prevail. The documents listed above constitute the
            entire contract between the parties.

15.10       FORCE MAJEURE
            -------------

            TDH and HMO are excused from performing the duties and obligations
            under this contract for any period that they are prevented from
            performing their services as a result of a catastrophic occurrence,
            or natural disaster, clearly beyond the control of either party,
            including but not limited to an act of war, but excluding labor
            disputes.

15.11       NOTICES

            -------

            Notice may be given by any means which provides for verification of
            receipt. All notices to TDH shall be addressed to Bureau Chief,
            Texas Department of Health, Bureau of Managed Care, 1100 W. 49th
            Street, Austin, TX 78756-3168, with a copy to the Contract
            Administrator. Notices to HMO shall be addressed to CEO/President,

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<PAGE>

15.12       SURVIVAL

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

            The provisions of this contract which relate to the obligations of
            HMO to maintain records and reports shall survive the expiration or
            earlier termination of this contract for a period not to exceed six
            (6) years unless another period may be required by record retention
            policies of the State of Texas or HCFA.

ARTICLE XVI        DEFAULT

16.1        FAILURE TO PROVIDE COVERED SERVICES
            -----------------------------------

            If a member requests a Fair Hearing before TDH because HMO has
            failed to provide a covered service, the Bureau of Managed Care may
            recommend to the hearing officer that a determination be made to
            impose sanctions upon HMO, in addition to any remedy entered for an
            on behalf of the Member. The recommendation to impose sanctions must
            include an amount of recommended sanctions. The amount of the
            sanction may be in any amount of not less than $1,000 or more than
            $25,000 depending upon the nature of the denial and the hardship or
            health threat that the denial placed upon the Member.

16.2        FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
            ---------------------------------------------

            Failure of HMO to perform an administrative function is a default
            under this contract. Administrative functions are any requirements
            under this contract which are not direct delivery of health or
            health-related services, including claims payments, encounter data
            submissions, filing any reports when due, providing or producing
            records upon request or failing to enter into contracts or
            implementing procedures necessary to carry out contract obligations.

16.3        HMO CERTIFICATE OF AUTHORITY
            ----------------------------

            Termination or suspension of HMO's TDI Certificate of Authority or
            any adverse action taken by TDI which TDH determines will affect the
            ability of HMO to provide health care services to Members is a
            default under this contract.

16.4        INSOLVENCY

            ----------

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<PAGE>

            Failure of HMO to maintain protection against fiscal insolvency as
            required under State or federal law or incapacity of HMO to meet its
            financial obligations as they come due is a default under this
            contract.

16.5        FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
            ---------------------------------------------------

            Failure of HMO to comply with the federal requirements for Medicare
            or Medicaid standards, requirements, or prohibitions, is a default
            under this contract.

16.6        EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
            ----------------------------------------------------

16.6.1      Exclusion of HMO or any of the managing employees or persons with an
            ownership interest whose disclosure is required by ss. 1124(a) of
            the Social Security Act (the Act), under the provisions of
            ss. 1128(a) and/or (b) of the Act, is a default of this contract.

16.6.2      Exclusion of any provider or Subcontractor or any of the managing
            employees or persons with an ownership interest of the provider or
            Subcontractor whose disclosure is required by ss. 1124(a) of the
            Act, under the provisions of ss. 1128(a) and/or (b) of the Act, is a
            default of this contract if the exclusion will materially affect
            HMO's performance under this contract.

16.7        MISREPRESENTATION, FRAUD OR ABUSE
            ---------------------------------

            Misrepresentation or fraud under the provisions of Article 4.8 of
            this contract is a default under this contract.

            Misrepresentation or fraud and abuse under any state or federal law,
            regulation or rule or under the common law of the State of Texas, is
            a default under this contract.

16.8        FAILURE TO MAKE CAPITATION PAYMENTS
            -----------------------------------

            Failure by TDH to make capitation payments when due is a default
            under this contract.

16.9        FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS
            ----------------------------------------------------------------

            Failure to make timely and appropriate payments to network providers
            and Subcontractors is a default under this contract. Withholding or
            recouping capitation payments as allowed or required under other
            Articles of this contract is not a default under this contract.

16.10       FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS
            ----------------------------------------------------------------

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<PAGE>

            Failure to pass any of the mandatory system or delivery function
            requirements of Readiness Review outlined in Article I is a default
            under the contract.

16.11       FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
            ----------------------------------------------------------------
            NETWORK PROVIDERS
            -----------------

16.11.1     Failure of HMO to audit, monitor, supervise, or enforce functions
            delegated by contract to another entity which results in a default
            under this contract or constitutes a violation of state or federal
            laws, rules, or regulations is a default under this contract.

16.11.2     Failure of HMO to properly credential, conduct reasonable
            utilization review, and quality monitoring is a default under this
            contract.

16.11.3     Failure of HMO to require providers and contractors to provide
            timely and accurate encounter, financial, statistical and
            utilization data is a default under this contract.

ARTICLE XVII       NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1        TDH will provide HMO with written notice of default under this
            contract. The written notice must contain the following information:

17.1.1      A clear and concise statement of the circumstances or conditions
            which constitute a default under this contract;

17.1.2      The contract provision(s) under which default is being declared;

17.1.3      A clear and concise statement of how and/or whether the default may
            be cured;

17.1.4      A clear and concise statement of the time period HMO will be allowed
            to cure the default;

17.1.5      The amount of damages or the types of sanctions which are being or
            will be imposed pending cure, and the date they began or will begin;

17.1.6      Whether any part of the damages or sanctions may be recouped from or
            passed through to an individual or entity who is or may be
            responsible for the act or omission for which default is declared;
            and

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<PAGE>

17.1.7      Whether failure to cure within the given time period will result in
            additional damages or sanctions and/or referral for investigation or
            action by another agency, and/or termination of the contract.

17.2        Sanctions and damages for acts or omissions which are events of
            default under Article XVI will be imposed from the date of
            occurrence until cured, unless otherwise stated in the notice of
            default.

ARTICLE XVIII      REMEDIES AND SANCTIONS

18.1        TERMINATION BY TDH
            ------------------

18.1.1      TDH may terminate this contract if:

18.1.1.1    HMO repeatedly fails or refuses to provide services and perform
            administrative functions under this contract after notice and
            opportunity to cure;

18.1.1.2    HMO materially defaults under any of the provisions of Article XVI;

18.1.1.3    Federal or state funds for the Medicaid program are no longer
            available; or

18.1.1.4    TDH has a reasonable belief that HMO has placed the health or
            welfare of Members in jeopardy.

18.1.2      TDH must give HMO 30 days written notice of intent to terminate this
            contract if termination is a result of HMO's failure to cure a
            default under Article XVIII. If termination is a result of Article
            18.1.1.3, TDH will provide HMO with reasonable notice under the
            circumstances. If termination is a result of Article 18.1.1.4, TDH
            will give the notice required under the provisions of TDH's formal
            hearing procedures in 25 Texas Administrative Code ss. 1.2.1.
            Notice may be given by any means that gives verification of receipt.
            The termination date will be calculated as 30 days following the
            date that HMO receives the notice of intent to terminate.

18.1.3      HMO must continue to perform services until the last day of the
            month following 30 days from the date of receipt of notice if the
            termination is a result of Articles 18.1.1.1, 18.1.1.2, or 18.1.1.3.
            TDH may prohibit HMO's further performance of services under the
            contract if the reason for termination is Article 18.1.1.4.

18.1.4      HMO may appeal the termination of this contract under the provisions
            of the Texas Human Resources Code,ss.32.034.

18.1.5      The remedies available to TDH set forth above are in addition to all
            other remedies available to TDH by law or in equity, are joint and
            several, and may be exercised

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<PAGE>

            concurrently or consecutively. Exercise of any remedy in whole or in
            part shall not limit TDH in exercising all or part of any remaining
            remedies.

18.2        TERMINATION BY HMO
            ------------------

18.2.1      HMO may terminate this contract if TDH fails to pay HMO as required
            under Article XIII or otherwise materially defaults in its duties
            and responsibilities under this contract. Retaining premium,
            recoupment, sanctions, or penalties which are allowed under this
            contract or which result from HMO's failure to perform or a default
            under the terms of the contract are not cause for termination.

18.2.2      HMO must give TDH 60 days written notice of intent to terminate this
            contract. Notice may be given by any means that gives verification
            of receipt. The termination date will be calculated as the last day
            of the month following 60 days from the date the notice of intent to
            termination is received by TDH.

18.2.3      TDH must be given 30 days to pay all amounts due. If TDH pays all
            amounts then due, HMO cannot terminate the contract under this
            Article.

18.3        TERMINATION BY MUTUAL CONSENT
            -----------------------------

            This contract may be terminated at any time by mutual consent of
            both HMO and TDH.

18.4        DUTIES UPON TERMINATION OF CONTRACTING PARTIES
            ----------------------------------------------

            When termination of the contract occurs, TDH and HMO must meet the
            following obligations:

18.4.1      If the contract is terminated unilaterally by TDH, because of
            failure of HMO to perform duties and obligations required by the
            contract or by mutual consent with termination initiated by HMO:

18.4.1.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services; and

18.4.1.2    HMO is responsible for all expenses related to giving notice to
            Members.

18.4.2      If the contract is terminated for any reason other than those
            included in Article 18.4.1:

18.4.2.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services; and

18.4.2.2    TDH is responsible for all expenses related to giving notice to
            Members.

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<PAGE>

18.5        STATE AND FEDERAL DAMAGES, PENALTIES AND SANCTIONS
            --------------------------------------------------

18.5.1      TDH may recommend to HCFA that sanctions be taken against HMO for
            violations of 42 C.F.R. 434.67(a), relating to sanctions against
            HMOs with risk comprehensive contracts. These violations are also
            defaults of Article XVI of this contract. If HCFA determines that
            HMO has violated one or more of these provisions of the regulations
            and determines that federal payments will be withheld, TDH will deny
            and withhold payments for new enrollees of HMO.

18.5.1.1    HMO must be given notice and opportunity to appeal a decision of TDH
            and HCFA as required in 42 C.F.R. 434.67(c) and (d).

18.5.1.2    HMO may be subject to civil money penalties under the provisions of
            42 C.F.R. 1003 in addition to or in place of withholding payments
            under Article 18.5.1.

18.5.2      HMO may be subject to damages and penalties under the Human
            Resources Code, ss.32.039, relating to damages and penalties for
            events of default under this contract and violations of the
            provisions of ss.32.039.

18.5.2.1    HMO will be given notice of the default or violation upon which
            damages or penalties are based and an opportunity to appeal under
            the provision of ss.32.039.

18.6        SUSPENSION OF NEW ENROLLMENT
            ----------------------------

18.6.1      TDH may suspend new enrollment into HMO for any default under this
            contract.

18.6.2      TDH must give HMO 30 days written notice of intent to suspend new
            enrollment other than for defaults which are imposed as a result of
            fraud and abuse or imminent danger to the health or safety of
            Members. Notice may be given by any means which gives verification
            of receipt. The suspension date will be calculated as 30 days
            following the date that HMO receives the notice of intent to suspend
            new enrollment. During the 30-day notice period, HMO will be given
            an opportunity to cure the defaults, if a cure is possible.

18.6.3      TDH may immediately suspend new enrollment into HMO for a default
            declared as a result of fraud and abuse or imminent danger to the
            health and safety of Members or investigation, prosecution, or
            suspension by an agency charged with the duty of investigation of
            state and federal laws.

18.6.4      The suspension of new enrollment may be for any duration, up to the
            termination date of the contract. TDH will impose a duration of
            suspension based upon the type and severity of the default and HMO's
            ability to cure the default.

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<PAGE>

18.7        TDH INITIATED DISENROLLMENT
            ---------------------------

18.7.1      TDH may initiate disenrollment of a Member or reduce the total
            number of Members enrolled in HMO through disenrollment if HMO fails
            to provide covered services to a Member or if TDH determines that
            HMO has a pattern or practice of failing to provide covered services
            to Members.

18.7.2      TDH must give HMO 30 days written notice of intent to initiate
            disenrollment of a Member. Notice may be given by any means which
            gives verification of receipt. The TDH initiated disenrollment date
            will be calculated as 30 days following the date that HMO receives
            the notice of intent to disenroll. HMO will not be given an
            opportunity to cure the default unless the right to cure is
            expressly authorized in the notice letter.

18.7.3      TDH may continue to reduce the number of Members enrolled in HMO
            until HMO demonstrates that it can and/or will provide covered
            services as required under this contract.

18.8        LIQUIDATED MONEY DAMAGES - WITHHOLDING PAYMENTS
            -----------------------------------------------

18.8.1      TDH may impose liquidated money damages in addition to other
            remedies and sanctions provided under this contract. If money
            damages are imposed, TDH may either reduce the amount of any monthly
            premium payments otherwise due to HMO by the amount of the damages
            or require direct payment. Money damages, which are withheld, are
            forfeited and will not be subsequently paid to HMO upon compliance
            or cure of default, unless a determination is made after appeal that
            the damages should not have been imposed.

18.8.2      Failure to perform or comply with an administrative function. TDH
            may impose and withhold the following money damages for each event
            of default:

18.8.2.1    Failure to file or filing incomplete or inaccurate annual or
            quarterly reports will result in money damages of not less than
            $3,000.00 or more than $11,000.00 for every month from the month the
            report is due until submitted in the form and format required by
            TDH. These money damages apply separately to each report.

18.8.2.2    Failure to produce or provide records and information requested by
            TDH, or an entity acting on behalf of TDH, or an agency authorized
            by statute or law to require production of records at the time and
            place the records were required or requested, will result in money
            damages of not less than $1,000.00 per day for each day the records
            are not produced as required by the requesting entity or agency if
            the requesting entity or agency is conducting an investigation or
            audit relating to fraud or abuse, and $500.00 per day for each day
            records are not produced if the requesting entity or agency is
            conducting routine audits or monitoring activities.

                                               El Paso Service Area HMO Contract

                                                                         5/14/99

<PAGE>

18.8.2.3    Failure to file or filing incomplete or inaccurate encounter data
            will result in money damages of not less than $10,000 nor more than
            $25,000 for each month HMO fails to submit encounter data in the
            form and format required by TDH. These damages are in addition to
            the damages contained in Article 18.8.2.1. TDH will use the
            encounter data validation methodology established by TDH to
            determine the numbers of encounter data and the number of days for
            which damages will be assessed.

18.8.2.4    Failing or refusing to cooperate with TDH, an entity acting on
            behalf of TDH, or an agency authorized by statute or law to require
            the cooperation of HMO, in carrying out an administrative,
            investigative, or prosecutorial function of the Medicaid program,
            will result in money damages of not less than $ 1,000.00 per day for
            each day HMO fails to cooperate.

18.8.3      Failure to provide or pay for covered services. TDH will impose and
            withhold the following money damages for each event of default:

18.8.3.1    Failure to provide mandatory and/or benchmarked services. If HMO
            fails to deliver services or to report encounter data documenting
            the delivery of services which are mandated by federal law or for
            which a benchmark is established under this contract, TDH will
            impose money damages. Damages imposed will be not less than $10,000
            nor more than $25,000 for each month that HMO substantially fails to
            deliver the services and/or report the encounter data documenting
            the delivery of the services, or fails to meet the established
            benchmark. These damages are in addition to failure to document or
            submit encounter data and reports required elsewhere in this
            contract.

18.8.3.2    Failure to provide a covered service requested or required by a
            Member. If a Member requests a Fair Hearing before TDH because HMO
            has substantially failed to provide a covered service, the Bureau of
            Managed Care may make a recommendation to the hearing officer
            conducting the Fair Hearing to impose sanctions upon HMO. The
            recommendation of the Bureau of Managed Care to impose sanctions
            must include an amount of recommended sanctions, and the
            justification for entering a finding that HMO has substantially
            failed to deliver the requested service. The amount of the sanction
            may be in any amount of not less than $ 1,000.00 nor more than
            $25,000.00 depending upon the nature of the denial and the hardship
            or health threat that the denial placed upon the Member.

18.8.3.3    If TDH has provided or paid for a service requested by a Member
            pending a decision after a Fair Hearing and the decision is adverse
            to HMO, TDH will withhold the entire amount TDH paid for the service
            in addition to the damages under Article 18.8.3.

18.8.3.4    Failure to enter into a required or mandatory contract or failure to
            contract for or arrange to have all services required under this
            contract provided will result in money

                                               El Paso Service Area HMO Contract

                                                                         5/14/99

<PAGE>

            damages of $1,000.00 per day that HMO either fails to negotiate in
            good faith to enter into the required contract or fails to arrange
            to have required services delivered.

18.8.3.5    Failing to pay providers claims for covered services. TDH will
            impose and withhold the following money damages for each event of
            default. These money damages are in addition to the interest HMO is
            required to pay to providers under the provisions of Article
            7.2.7.10.

18.8.3.6    If TDH determines that HMO has failed to pay a provider for a claim
            or claims for which provider should have been paid, TDH will impose
            money damages of $2 per day for each day the claim is not paid from
            the date the claim should have been paid (calculated as 30 days from
            the date a clean claim was received by HMO) until the claim is paid
            by HMO.

18.8.3.7    If TDH determines that HMO has failed to pay a capitation amount to
            a provider who has contracted with IB40 to provide services on a
            capitated basis, TDH will impose money damages of $10 per day, per
            Member for whom the capitation is not paid, from the date on which
            the payment was due until the capitation amount is paid.

18.8.4      TDH must provide HMO with 7 days written notice of intent to
            withhold capitation amounts under this Article 18.8. The notice will
            include the reason for the withhold, the amount that TDH intends to
            withhold, and the facts and detail sufficient for HMO to determine
            the accuracy of the proposed withhold. Notice may be given by any
            means that gives verification of receipt.

18.8.5      HMO may appeal the decision of TDH to withhold capitation amounts by
            filing a written response to the notice clearly stating the reason
            that HMO disputes the withhold and include any supporting
            documentation with the response. HMO must file the appeal within 15
            days from HMO's receipt of the notice. Filing an appeal will not
            pend or suspend the withhold.

18.8.6      HMO and TDH must attempt to informally resolve the dispute. If HMO
            and TDH are unable to informally resolve the dispute, HMO must
            notify the Bureau Chief of Managed Care that they are unable to come
            to an agreement. The Bureau Chief will refer the dispute to the
            Associate Commissioner for Health Care Financing who will appoint a
            committee to review the dispute under TDH's dispute resolution
            procedures. The decision of the dispute resolution committee will be
            the final administrative decision by TDH.

18.9        FORFEITURE OF TDI PERFORMANCE BOND
            ----------------------------------

            TDH may require forfeiture of all or a portion of the face amount of
            the TDI performance bond if TDH determines that an event of default
            has occurred. Partial payment of the face amount shall reduce the
            total bond amount available pro rata.

                                               El Paso Service Area HMO Contract

                                                                         5/14/99

<PAGE>

ARTICLE XIX        TERM

19.1        The effective date of this contract is _________________________,
            1999. This contract will terminate on August 31, 2001, unless
            terminated earlier as provided elsewhere in this contract.

19.2        The contract will not automatically renew beyond the initial term.
            TDH will notify HMO not less than 60 days before the end of the
            contract term of its intent not to renew the contract.

19.3        If HMO does not intend to renew beyond the initial term of the
            contract, HMO must submit a written Notice of Intent Not to Renew,
            along with a transition plan for its existing Members, not less than
            90 days before the end of the contract term in Article 19.1. HMO
            will be responsible for paying all costs of providing notice to
            Members and any additional costs incurred by TDH to ensure that
            Members are reassigned to other plans without interruption of
            services.

19.4        HMO may enter into a new contract to continue to provide managed
            care services under the following terms and conditions:

19.4.1      HMO submits a written Request to Continue Operations Without
            Interruption not less than 90 days before the end of the contract
            term in Article 19.1;

19.4.2      HMO submits to a Readiness Review by TDH under the provisions of
            Gov. Code ss.533.107;

19.4.3      HMO cures any past defaults or deficiencies or submits a written
            plan documenting how past defaults or deficiencies will be avoided
            under a future contract, and the written plan is approved by TDH;
            and

19.4.4      HMO submits all reports and encounter data currently due or past due
            under this contract before the termination date of this contract.

19.4.5      If HMO submits a Request to Continue Operations Without Interruption
            but either fails to meet the requirements of this Article or decides
            prior to execution of a renewal contract not to continue operations,
            HMO will be responsible for paying all costs of providing notice to
            Members and any additional costs incurred by TDH to ensure that
            Members are reassigned to other plans without interruption of
            services. HMO must continue to provide services to Members for 60
            days or until all Members have been reassigned to other plans.

                                               El Paso Service Area HMO Contract

                                                                         5/14/99

<PAGE>

19.5        This contract may be extended on a temporary basis if the
            requirements of this section have been initiated but the
            requirements of Article 19.3 have not been completed and/or
            evaluated by TDH before the termination date.

19.6        Non-renewal of this contract is not a contract termination for
            purposes of appeal rights under the Human Resources Code ss.32.034.

SIGNED   twenty-second               day of   July                       , 1999.
       -----------------------------        -----------------------------

TEXAS DEPARTMENT OF HEALTH                     Name of HMO

BY: /s/ WILLIAM R. ARCHER, III                 BY: /s/ Michael McKinney
------------------------------                     -----------------------------
William R. Archer III, M.D.          Printed Name: Michael D. McKinney M.D.
Commissioner of Health                             -----------------------------
                                            Title: President/CEO
                                                   -----------------------------

Approved as to Form: /s/ Illegible

Office of General Counsel

                                               El Paso Service Area HMO Contract

                                                                         5/14/99

Appendices
----------
Copies of the Appendices will be available upon request.

<PAGE>

                                                TDH Doc. No. 7427705425*2001-01A

                                 AMENDMENT NO. 1
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. I is entered into between the Texas Department of Health and
Superior Health Plan, Inc., to amend the Contract for Services between the Texas
Department of Health and HMO in the El Paso Service Area, dated July 22, 1999.
The effective date of this amendment is January 1, 2000. All other contract
provisions remain in full force and effect.

The Parties agree to amend the Contract as follows:

1.       Article XIII is amended by deleting the stricken language and adding
         the bold and italicized language to Article 13.1.2 as follows:

         13.1.2     Delivery Supplemental Payment (DSP). DSP is a payment
                    process to HMO in which the costs of delivery were extracted
                    from the Standard Capitation Payment Methodology of other
                    risk groups and included in a one-time payment for each
                    delivery. TDH has submitted the delivery supplemental
                    payment methodology to HCFA for approval. The monthly
                    capitation amounts established for each risk group in the El
                    Paso Service Area using the DSP methodology will apply only
                    if the methodology is approved by HCFA, and the methodology
                    is implemented for all HMOs in all existing service areas by
                    contract. [DELETED] The monthly capitation amounts for
                    January 1, 2000, through August 31, 2000, using the DSP
                    methodology, and the DSP amounts are listed below. These
                    amounts are effective January 1, 2000. The monthly
                    capitation amounts established for each risk group in the El
                    Paso Service Area using the Standard methodology (listed in
                    Article 13.1.3) will apply if the DSP methodology is not
                    approved by HCFA.

                                                                     El Paso SDA

                                        1

<PAGE>

       -----------------------------------------------------------------
       Risk Group                            Monthly Capitation Amounts
                                             January 1, 2000 August 31,
                                             2000

       -----------------------------------------------------------------
       TANF Adults                                     $123.17
       -----------------------------------------------------------------
       TANF Children > 12                              $ 60.59
       Months of Age
       -----------------------------------------------------------------
       Expansion Children > 12                         $ 83.90
       Months of Age
       -----------------------------------------------------------------
       Newborns < 12 Months of                         $299.20
       Age
       -----------------------------------------------------------------
       TANF Children < 12                              $299.20
       Months of Age
       -----------------------------------------------------------------
       Expansion Children < 12                         $299.20
       Months of Age
       -----------------------------------------------------------------
       Federal Mandate Children                        $ 46.44
       -----------------------------------------------------------------
       CHIP Phase I                                    $ 68.70
       -----------------------------------------------------------------
       Pregnant Women                                  $206.20
       -----------------------------------------------------------------
       Disabled/Blind                                  $ 14.00
       Administration
       -----------------------------------------------------------------

                    Delivery Supplemental Payment: A one-time per pregnancy
                    supplemental payment for each delivery shall be paid to HMO
                    as provided below in the following amount: $2,885.39.

         13.1.2.1   HMO will receive a DSP for each live or still birth. The
                    one-time payment is made regardless of whether there is a
                    single or multiple births at time of delivery. A delivery is
                    the birth of a liveborn infant, regardless of the duration
                    of the pregnancy, or a stillborn (fetal death) infant of 20
                    weeks or more gestation. A delivery does not include a
                    spontaneous or induced abortion, regardless of the duration
                    of the pregnancy.

         13.1.2.2   For an HMO Member who is classified in the Pregnant Women,
                    TANF Adults, TANF Children > 12 months, Expansion Children >
                    12 months, Federal Mandate Children, or CHIP risk group, HMO
                    will be paid the monthly capitation amount identified in
                    Article 13.1.2 for each month of classification, plus the
                    DSP amount identified in Article 13.1.2.

         13.1.2.3   HMO must submit a monthly DSP Report (report) that includes
                    the data elements specified by TDH. TDH will consult with
                    contracted

                                                                     El Paso SDA

                                        2

<PAGE>

                    HMOs prior to revising the report data elements and
                    requirements. The reports must be submitted to TDH in the
                    format and time specified by TDH. The report must include
                    only unduplicated deliveries. The report must include only
                    deliveries for which HMO has made a payment for the
                    delivery, to either a hospital or other provider. No DSP
                    will be made for deliveries which are not reported by HMO to
                    TDH within 210 days after the date of delivery, or within 30
                    days from the date of discharge from the hospital for the
                    stay related to the delivery, whichever is later.

         13.1.2.4   HMO must maintain complete claims and adjudication
                    disposition documentation, including paid and denied amounts
                    for each delivery. HMO must submit the documentation to TDH
                    within five (5) days from the date of a TDH request for
                    documents.

         13.1.2.5   The DSP will be made by TDH to HMO within twenty (20) state
                    working days after receiving an accurate report from HMO.

         13.1.2.6   All infants of age equal to or less than twelve months
                    (Newborns) in the TANF Children, Expansion Children, and
                    Newborns risk groups will be capitated at the Newborns
                    classification capitation amount in Article 13.1.2.

AGREED AND SIGNED by an authorized representative of the parties on 1/3/2000.

TEXAS DEPARTMENT OF HEALTH              Superior Health Plan, Inc.

By: /s/ WILLIAM R. ARCHER, III          By: /s/ MICHAEL D. MCKINNEY
    ------------------------------          ------------------------------
    William R. Archer, III., M.D.           Michael D. McKinney, M.D.
    Commissioner of Health                  CEO

Approved as to Form:

/s/ L. WIEGMAN          1-3-2000
--------------------------------
Office of General Counsel

TDH Doc. No. 7427705425*2001-01A                                     El Paso SDA

                                        3

<PAGE>

                                                                      DR# 026906
                                                        DOC# 7427705425*2001 O1B

                                 AMENDMENT NO 3
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 3 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO). to amend the Contract for Services
between the Texas Department of Health and HMO in the El Paso Service Area.
dated September 1, 1999. The effective date of this Amendment is the date TDH
Signs this Amendment. All other contract provisions remain in full force and
effect.

1.  Article II is amended by adding the bold and italicized language

DEFINITIONS

Call coverage means arrangements made by a facility or an attending physician
with all appropriate level of health care provider who agrees to be available
oil all as-needed basis to provide medically appropriate services for
routine/high risk/or emergency medical conditions or emergency Behavioral Health
condition that present without being scheduled at the facility or when the
attending physician is unavailable.

[DELETED] Enrollment report/enrollment file means the daily or monthly list of
Medicaid recipients who are enrolled with an HMO as Members oil the day or for
the month the report is issued.

2.  Article VI is amended by adding the bold and italicized language and
deleting the stricken language.

6.9         PERINATAL SERVICES
            ------------------

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

6.9.3       HMO must have a process to expedite scheduling a prenatal
            appointment for all obstetrical exam for a TP40 Member no later than
            two weeks after receiving the daily enrollment file verifying
            enrollment of the Member into the HMO.

6.9.3.4     HM0 must have procedures in place to contact and assist a
            pregnant/delivering Member in selecting a PCP for her baby either
            before the birth or as soon as the

<PAGE>

            baby is born. [DELETED]

6.9.4.5     HMO must provide inpatient care and professional services related to
            labor and delivery for its pregnant/delivering Members and neonatal
            care for its newborn Members (see Article 14.3.1) at the time of
            delivery and for up to 48 hours following an uncomplicated vaginal
            delivery and 96 hours following an uncomplicated Caesarian delivery.
            [DELETED]

6.9.5.1     HMO must reimburse in-network providers, out-of-network providers,
            and specialty physicians who are providing call coverage, routine,
            and/or specialty consultation services for the period of time
            covered in Article 6.9.5.

6.9.5.1.1   HMO must adjudicate provider claims for services provided to a
            newborn Member in accordance with TDH's claims processing
            requirements using the proxy ID number or State-issued Medicaid ID
            number (see Article 4.10). HMO cannot deny claims based on provider
            non-use of State-issued Medicaid ID number for a newborn Member.
            HMO must accept provider claims for newborn services based on
            mother's name and/or Medicaid ID number with accommodations for
            multiple births. as specified by the HMO.

6.9.5.2     HMO cannot require prior authorization or PCP assignment to
            adjudicate newborn claims for the period of time covered by 6.9.5

            [DELETED]

6.9.6       [DELETED] HMO may require prior authorization requests for hospital
            or professional services provided beyond the time limits in Article
            6.9.5. HMO must respond to these prior authorization within the
            requirements of 28 TAC ss.19.1710 - 19.1712

<PAGE>

            and Article 21.58a of the Texas Insurance Code.

6.9.6.1     HMO must notify providers involved in the care of
            pregnant/delivering women and newborns (including out-of-network
            providers and hospitals) regarding the HMO's prior authorization
            requirements.

6.9.6.2     HMO cannot require a prior authorization for services provided to a
            pregnant/delivering Member or newborn Member for a medical condition
            which requires emergency services, regardless of when the emergency
            condition arises (see Article 6.5.6).

3.  Article VIII is amended by adding the bold and italicized language and
deleting the stricken language

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

4.  Article XII is amended by adding the bold and italicized language and
deleting the stricken language.

12.2        STATISTICAL REPORTS
            -------------------

12.2.4      HMO cannot submit newborn encounters to TDH until the State-issued
            Medicaid ID number is received for a newborn. HMO must match the
            proxy ID number issued by the HMO with the State-issued Medicaid ID
            number prior to submission of encounters to TDH and submit the
            encounter in accordance to the HMO Encounter Data Submission Manual.
            The encounter must include the State issued Medicaid ID number.
            Exceptions to the 45-day deadline will be granted in cases in which
            the Medicaid ID number is not available for a newborn Member.

12.2.5      HMO must require providers to submit claims and encounter data to
            HMO no later than 95 days after the date services are provided.

<PAGE>

12.2.6      HMO must use the procedure codes. diagnosis codes and other codes
            contained in the most recent edition of the Texas Medicaid Provider
            Procedures Manual and as otherwise provided by TDH. Exceptions or
            additional codes must be submitted for approval before HMO uses the
            codes.

12.2.7      HMO Must Use its TDH-specified identification numbers on all
            encounter data Submissions. Please refer to the TDH Encounter Data
            Submission Manual for further specifications.

12.2.8      HMO must validate all encounter data using the encounter data
            validation methodology prescribed by TDH prior to submission of
            encounter data to TDH.

12.2.9      All Claims Summary Report. HMO must submit the "All Claims Summary
            Report" identified in the Texas Managed Care Claims Manual as a
            contract year-to-date report. The report must be submitted quarterly
            by the last day of the month following the reporting period. The
            reports must be submitted to TDH in a format specified by TDH.

12.2.10     Medicaid Disproportionate Share Hospital (DSH) Report HMO must file
            preliminarv and final Medicaid Disproportionate Share Hospital (DSH)
            reports. required by TDH to identify and reimburse hospitals that
            qualify for Medicaid DSH funds. The preliminary and final DSH
            reports must include the data elements and be submitted in the form
            and format specified b TDH. The preliminary DSH reports are due on
            or before June 1 of the year following the state fiscal year for
            which data is being reported. The final DSH reports are due on or
            before August 15 of the year following the state fiscal year for
            which data is being reported.

5.  Article XIII is amended by adding the bold and italicized language.

13.5        NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS
            ---------------------------------------------

13.5.1      Newborns born to Medicaid eligible mothers who are enrolled in HMO
            are enrolled into HMO for 90 days following the date of birth.

13.5.1.1    The mother of the newborn Member may change her newborn to another
            HMO during the first 90 days following the date of birth, but may
            only do so through TDH Customer Services.

13.5.2      MAXIMUS will provide HMO with a daily enrollment file which will
            list all newborns who have received State-issued Medicaid ID
            numbers. This file will include the Medicaid eligible mother's
            Medicaid ID number to allow the HMO to link the newborn's
            State-issued Medicaid ID numbers with the proxy ID number. TDH will
            guarantee capitation payments to HMO for all newborns who appear on
            the MAXIMUS daily enrollment file as HMO Members for each month the
            newborn is enrolled in the HMO.

<PAGE>

13.5.3      All non-TP45 newborns whose mothers are HMO Members at the time of
            the birth of the newborn will be retroactively enrolled into the HMO
            through a manual process by DHS Data Control.

13.5.4      Newborns who do not appear on the MAXIMUS daily enrollment file
            before the end of the sixth month following the date of birth will
            not be retroactively enrolled into the HMO TDH will manually
            reconcile payment to the HMO for services provided from the date of
            birth for TP45 and all other eligibility categories of newborns.
            Payment will cover services rendered from the effective date of the
            proxy ID number when first issued by the HMO regardless of plan
            assignment at the time the State-issued Medicaid ID number is
            received.

13.5.5      MAXIMUS will provide HMO with a daily enrollment file which will
            list all TP40. Members who have received State-issued Medicaid ID
            numbers. TDH will guarantee capitation payments to HMO for all TP40
            Members who appear on the MAXIMUS daily enrollment file as HMO
            Members for each month the TP40 Member enrollment is effective.

6.  Article XIV is amended by adding the bold and italicized language.

14.3        NEWBORN ENROLLMENT
            ------------------

            The HMO is responsible for newborns who are born to mothers who are
            enrolled in HMO on the date of birth as follows:

14.3.1      Newborns are presumed Medicaid eligible and enrolled in the mother's
            HMO for at least 90 days from the date of birth.

14.3.1.1    A mother of a newborn Member may change plans for her newborn during
            the first 90 days by contacting TDH Customer Services. TDH will
            notify HMO of newborn plan changes made by a mother when the change
            is made by TDH Customer Services.

14.3.2      HMO must establish and implement written policies and procedures to
            require professional and facility providers to notify HMOs of a
            birth of a newborn to a Member at the time of delivery.

14.3.2.1    HMO must create a proxy ID number in the HMO's
            Enrollment/Eligibility and claims processing systems. HMO proxy ID
            number effective date is equal to the date of birth of the newborn.

14.3.2.2    HMO must match the proxy ID number and the State-issued Medicaid ID
            number once the State-issued Medicaid ID number is received.

14.3.2.3    HMO must submit a Form 7484A to DHS Data Control requesting DHS Data

<PAGE>

            Control to research DHS's files for a Medicaid ID number if HMO has
            not received a State-issued Medicaid ID number for a newborn within
            30 days froM the date of birth. If DHS finds that no Medicaid ID
            number has been issued to the newborn. DHS Data Control will issue
            the Medicaid ID number using the information provided on the Form
            7484A.

14.3.3      Newborns certified Medicaid eligible after the end of the sixth
            month following the date of birth will not be retroactively enrolled
            to an HMO, but will be enrolled in Medicaid fee-for-service TDH will
            manually reconcile payment to the HMO for services provided from
            the date of birth for all Medicaid eligible newborns as described in
            Article 13.5.4.

14.4        DISENROLLMENT

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

14.4.1      HMO has a limited right to request a Member be disenrolled from HMO
            without the Member's consent. TDH must approve any HMO request for
            disenrollment of a Member for cause. Disenrollment of a Member may
            be permitted under the following circumstances:

14.4.1.1    Member misuses or loans Member's HMO membership card to another
            person to obtain services.

14.4.1.2    Member is disruptive, unruly, threatening or uncooperative to the
            extent that Member's membership seriously impairs HMO's or
            provider's ability to provide services to Member or to obtain new
            Members, and Member's behavior is not caused by a physical or
            behavioral health condition.

14.4.1.3    Member steadfastly refuses to comply with managed care restrictions
            (e.g. repeatedly using emergency room in combination with refusing
            to allow HMO to treat the underlying medical condition).

14.4.2.1    HMO must take reasonable measures to correct Member behavior prior
            to requesting disenrollment. Reasonable measures may include
            providing education and counseling regarding the offensive acts or
            behaviors.

14.4.3      HMO must notify the Member of HMO's decision to disenroll the Member
            if all reasonable measures have failed to remedy the problem.

14.4.4      If the Member disagrees with the decision to disenroll the Member
            from HMO, HMO

<PAGE>

            must notify the Member of the availability of the complaint
            procedure and TDH's Fair Hearing process.

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

14.5        AUTOMATIC RE-ENROLLMENT
            -----------------------

14.5.1      Members who are disenrolled because they are temporarily ineligible
            for Medicaid will be automatically re-enrolled Into the same health
            plan. Temporary loss of eligibility is defined as a period of 6
            months or less.

14.5.2      HMO must inform its Members of the automatic re-enrollment
            procedure. Automatic re-enrollment must be included in the Member
            Handbook (see Article 8.2.1).

14.6        ENROLLMENT REPORTS
            ------------------

14.6.1      TDH will provide HMO enrollment reports listing all STAR Members who
            have enrolled in or were assigned to HMO during the initial
            enrollment period.

14.6.2      TDH will provide monthly HMO Enrollment Reports to HMO on or before
            the first or the month.

14.6.3      TDH will provide Member verification to HMO and network providers
            through telephone verification or TexMedNet.

<PAGE>

AGREED AND SIGNED by an authorized representative of the parties on
_______________ 2000.

TEXAS DEPARTMENT OF HEALTH             Superior Health Plan, Inc.

By: /s/ WILLIAM R. ARCHER, III         By: /s/ MICHAEL D. MCKINNEY
    -----------------------------          ------------------------------
    William R. Archer, III, M.D.           Michael D. McKinney,
    Commissioner of Health                 President and CEO

Approved as to Form:

------------------------------
Office of General Counsel

<PAGE>

                                                 TDH Doc. # 7427705425* 2001-01G

                                 AMENDMENT NO. 4
                                     TO THE

                         1999 and CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 4 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO) in El Paso Service Area, to amend the
1999 Contract for Services between the Texas Department of Health and HMO. The
effective date of this Amendment is the date TDH signs this Amendment. All other
contract provisions remain in full force and effect. The parties agree to amend
the Contract as follows:

1.          The previous amendment to this contract identified as Amendment No.
            3 to the 1999 TDH/HMO contract should be Amendment No. 2, and the
            previous amendment to this contract identified as Amendment No. 5
            should be Amendment No. 3. This mistake is corrected by this
            amendment and Amendment No. 3 will be renumbered as Amendment No. 2,
            and Amendment No. 5 will be renumbered as Amendment No. 3 from this
            point forward.

Article XII is amended to read as follows:

12.8        UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
            --------------------------------------------------

            Behavioral health (BH) utilization management reports are required
            on a semi-annual basis. Refer to Appendix H for the standardized
            reporting format for each report and detailed instructions for
            obtaining the specific data required in the report.

12.8.1      In addition, data files are due to TDH or its designee no later than
            the fifth working day following the end of each month. See
            Utilization Data Transfer Encounter Submission Manual for submission
            instructions. The BH utilization report and data file submission
            instructions may periodically be updated by TDH to facilitate clear
            communication to the health plans.

12.9        UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
            ------------------------------------------------

            Physical health (PH) utilization management reports are required on
            a semi-annual basis. Refer to Appendix J for the standardized
            reporting format for each report and detailed instructions for
            obtaining the specific data required in the report.

<PAGE>

12.9.1      In addition, data files are due to TDH or its designee no later than
            the fifth working day following the end of each month. See
            Utilization Data Transfer Encounter Submission Manual for submission
            instructions. The PH utilization report and data file submission
            instructions may periodically be updated by TDH to facilitate clear
            communication to the health plans.

AGREED AND SIGNED by an authorized representative of the parties on August 2,
2001.

TEXAS DEPARTMENT OF HEALTH                  Superior Health Plan, Inc.

By: /s/ CHARLES E. BELL, M.D.               By: /s/ MICHAEL D. MCKINNEY
    ------------------------------              ------------------------------
    Charles E. Bell M.D.                        Michael D. McKinney, M.D.
    Executive Deputy Commissioner of Health     President

    Approved as to Form:

    /s/ MARY ANN GLAVIN
    ------------------------------
    Office of General Counsel

TDH Doc. # 7427705425* 2001-01G

<PAGE>

                                                 TDH Doc. # 7427705425* 2001-01F

                                 AMENDMENT No. 5

                                   TO THE 1999
                              CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 5 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO), to amend the 1999 Contract for
services between the Texas Department of Health and HMO. The effective date of
this Amendment is the date TDH signs this Amendment. All other contract
provisions remain in full force and effect. The Parties agree to amend the
Contract as follows:

1.          Article I

ARTICLE I       PARTIES AND AUTHORITY TO CONTRACT

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

2.          Article II

ARTICLE II      DEFINITIONS

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

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

Auxiliary aids and services includes qualified interpreters or other effective
methods of making aurally delivered materials understood by persons with hearing
impairments; and, taped texts, large print, Braille, or other effective methods
to ensure visually delivered materials are available to individuals with visual
impairments. Auxiliary aids and services also includes effective methods to
ensure that materials (delivered both aurally and visually) are available to
those with cognitive or other disabilities affecting communication.

1                                                                   May 31, 2001

<PAGE>

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

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

Community Resource Coordination Groups (CRCGs) means a statewide system of local
interagency groups, including both public and private providers, which
coordinate services for "multi-need" children and youth. CRCGs develop
individual service plans for children and adolescents whose needs can be met
only through interagency cooperation. CRCGs address complex needs in a model
that promotes local decision-making and ensures that children receive the
integrated combination of social, medical and other services needed to address
their individual problems.

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

Comprehensive Care Program: See definition for Texas Health Steps.

Covered Service means health care services HMO must arrange to provide Members,
including all services required by this contract and state and federal law, and
all value-added services described by HMO in its response to the Request For
Application (RFA) for this contract.

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

Disability-related access means that facilities are readily accessible to and
usable by individuals with disabilities, and that auxiliary aids and services
are provided to ensure effective communication, in compliance with Title III of
the Americans with Disabilities Act.

Effective date means the date on which TDH signs the contract following
signature of the contract by HMO.

2                                                                   May 31, 2001

<PAGE>

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

Experience Rebate means the state's share of excess of allowable HMO STAR
revenues over allowable HMO STAR expenses.

Fair Hearings means the process adopted and implemented by the Texas Department
of Health, 25 TAC Chapter 1, in compliance with federal regulations and state
rules relating to Medicaid Fair Hearings Part 431, found at 42 CFR Subpart E,
and 1 TAC, Chapter 357.

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

Linguistic access means translation and interpreter services, for written and
spoken language to ensure effective communication. Linguistic access includes
sign language interpretation and the provision of other auxiliary aids and
services to persons with disabilities.

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

         (a)      reasonable and necessary to prevent illnesses or medical
                  conditions, or provide early screening, interventions, and/or
                  treatments for conditions that cause suffering or pain, cause
                  physical deformity or limitations in function, threaten to
                  cause or worsen a handicap, cause illness or infirmity of a
                  Member, or endanger life;

         (b)      provided at appropriate facilities and at the appropriate
                  levels of care for the treatment of a Member's health
                  conditions;

         (c)      consistent with health care practice guidelines and standards
                  that are endorsed by professionally recognized health care
                  organizations or governmental agencies:.

         (d)      consistent with the diagnoses of the conditions; and

         (e)      No more intrusive or restrictive than necessary to provide a
                  proper balance of safety, effectiveness, and efficiency.

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

3                                                                   May 31, 2001

<PAGE>

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

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

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

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

3.          Article III is amended by adding the following bolded and italicized
            language and deleting the following stricken language:

ARTICLE III     PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

3.2         NON-PROVIDER SUBCONTRACTS
            -------------------------

3.2.1       HMO must enter into written contracts with all Subcontractors and
            maintain copies of the subcontracts in HMO's administrative office.
            HMO must submit two copies of all non-provider subcontracts relating
            to the delivery or payment of covered health services to TDH for
            approval no later that 120 days prior to Implementation Date.
            Subcontracts entered into after the Implementation Date of this
            contract must be submitted no later than 10 days after the date of
            execution of the subcontract. On an on-going basis, HMO must make
            non-provider subcontracts available to TDH upon request, at the time
            and location requested by TDH.

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

3.2.1.2     HMO must notify TDH no later than 90 days prior to terminating any
            subcontract affecting a major performance function of this contract.
            All major subcontractor terminations or substitutions require TDH
            approval (see Article 15.7). TDH may require HMO to provide a
            transition plan describing how the subcontracted function

4                                                                   May 31, 2001

<PAGE>

            will continue to be provided. All subcontracts are subject to the
            terms and conditions of this contract and must contain the
            provisions of Article V, Statutory and Regulatory Compliance, and
            the provisions contained in article 3.2.4.

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

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

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

3.4         PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS
            -------------------------------------------------

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

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

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

5                                                                   May 31, 2001

<PAGE>

            An exception to the 15 working day timeframe may be requested in
            writing by HMO for written provider materials that require a quick
            turn-around time (e.g., letters). Materials requiring a quick
            turn-around time will be reviewed by TDH within 5 working days.

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

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

3.4.6       HMO must provide TDH with at least three paper copies and one
            electronic copy of HMO's Member Handbook, Provider Manual and Member
            Provider Directory. If an electronic format is not available, five
            paper copies are required.

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

3.5         RECORDS REQUIREMENTS AND RECORDS RETENTION
            ------------------------------------------

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

6                                                                   May 31, 2001

<PAGE>

3.6         HMO REVIEW OF TDH MATERIALS
            ---------------------------

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

3.7         HMO TELEPHONE ACCESS REQUIREMENTS
            ---------------------------------

3.7.1       For all HMO telephone access (including Behavioral Health telephone
            services), HMO must ensure adequately-staffed telephone lines.
            Telephone personnel must receive customer service telephone
            training. HMO must ensure that telephone staffing is adequate to
            fulfill the standards of promptness and quality listed below:

            1.    80% of all telephone calls must be answered within an average
                  of 30 seconds;
            2.    The lost (abandonment) rate must not exceed 10%;
            3.    HMO cannot impose maximum call duration limits but must allow
                  calls to be of sufficient length to ensure adequate
                  information is provided to the Member or Provider.
            4.    Telephone services must meet cultural competency requirements
                  (see Article 8.9) and provide "linguistic access" to all
                  members as defined in Article II. This would include the
                  provision of interpretive services required for effective
                  communication for Members and providers.

3.7.2       Member Helpline: The HMO must furnish a toll free phone line which
            members may call 24 hours a day, 7 days a week. An answering service
            or other similar mechanism, which allows callers to obtain
            information from a live person, may be used for after-hours and
            weekend coverage.

3.7.2.1     HMO must provide coverage for the following services at least during
            HMO's regular business hours, (a minimum of 9 hours a day, between 8
            a.m. and 6 p.m.), Monday through Friday:

            1.    Member ID information
            2.    PCP Change
            3.    Benefit understanding
            4.    PCP verification
            5.    Access issues (including referrals to specialists)
            6.    Unavailability of PCP
            7.    Member eligibility
            8.    Complaints
            9.    Service area issues (including when member is temporarily
                  out-of-service area)
            10.   Other services covered by member services.

7                                                                   May 31, 2001

<PAGE>

3.7.2.2     HMO must provide TDH with policies and procedures indicating how the
            HMO will meet the needs of members who are unable to contact HMO
            during regular business hours.

3.7.3       HMO must ensure that PCPs are available 24 hours a day, 7 days a
            week (see Article 7.8). This includes PCP telephone coverage (see 28
            TAC 11.2001 (a)1A).

3.7.4       Behavioral Health Hotline Services. HMO must have emergency and
            crisis Behavioral Health hotline services available 24 hours a day,
            7 days a week, toll-free throughout the service area. Crisis hotline
            staff must include or have access to qualified behavioral health
            professionals to assess behavioral health emergencies. Emergency and
            crisis behavioral health services may be arranged through mobile
            crisis teams. It is not acceptable for an emergency intake line to
            be answered by an answering machine. Hotline services must meet the
            requirements described in Article 3.7.1

4.          Article IV

ARTICLE IV      FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

4.1         FISCAL SOLVENCY
            ---------------

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

4.2         MINIMUM NET WORTH
            -----------------

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

4.6         AUDIT
            -----

8                                                                   May 31, 2001

<PAGE>

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

5.          Article V

ARTICLE V       STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

5.3         FRAUD AND ABUSE COMPLIANCE PLAN
            -------------------------------

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

5.3.2       Compliance Plan. HMO must submit to TDH for approval a written fraud
            and abuse compliance plan which is based on the Model Compliance
            Plan issued by the U.S. Department of Health and Human Services, the
            Office of Inspector General (OIG), at least 120 days prior to the
            Implementation Date. HMO must designate an officer or director in
            its organization who has the responsibility and authority for
            carrying out the provisions of its compliance plan. HMO must submit
            any updates or modifications in its compliance plan to TDH for
            approval at least 30 days prior to the modifications going into
            effect. HMO's fraud and abuse compliance plan must:

5.3.3       Training. HMO must designate executive and essential personnel to
            attend mandatory training in fraud and abuse detection, prevention
            and reporting. The training will be conducted by the Office of
            Investigations and Enforcement, Health and Human Services
            Commission, and will be provided free of charge. Training must be
            scheduled not later than 150 days before the Implementation Date and
            be completed by all designated personnel not later than 60 days
            before the Implementation Date. HMO must schedule and complete
            training no later than 90 days after the effective date of any
            updates or modifications of its written compliance plan.

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

9                                                                   May 31, 2001

<PAGE>

5.3.3.2     If HMO's executive and essential personnel change or if HMO employs
            additional executive and essential personnel, the new or additional
            personnel must attend OIE training within 90 days of employment by
            HMO.

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

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

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

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

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

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

5.4         SAFEGUARDING INFORMATION
            ------------------------

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

10                                                                  May 31, 2001

<PAGE>

5.5         NON-DISCRIMINATION
            ------------------

5.5.4       HMO must not discriminate with respect to participation,
            reimbursement, or indemnification as to any provider who is acting
            within the scope of the provider's license or certification under
            applicable State law, solely on the basis of the provider's license
            or certification. This requirement shall not be construed to
            prohibit HMO from including providers only to the extent necessary
            to meet the needs of HMO's Members or from establishing any measure
            designed to maintain quality and control costs consistent with HMO's
            responsibilities.

5.9         REQUESTS FOR PUBLIC INFORMATION
            -------------------------------

5.9.3       If HMO believes that the requested information qualifies as a trade
            secret or as commercial or financial information, HMO must notify
            TDH -- within three (3) working days after TDH gives notice that a
            request has been made for public information -- and request TDH to
            submit the request for public information to the Attorney General
            for an Open Records Opinion. The HMO will be responsible for
            presenting all exceptions to public disclosure to the Attorney
            General if an opinion is requested.

6.          Article VI

ARTICLE VI      SCOPE OF SERVICES

6.1         SCOPE OF SERVICES
            -----------------

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

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

6.1.2       TDH must pay for or reimburse for all covered services provided to
            SSI voluntary Members who enroll with HMO on a voluntary basis. It
            is at HMO's discretion whether to provide value-added services to
            SSI voluntary Members.

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

11                                                                  May 31, 2001

<PAGE>

            subsequent editions of the Provider Procedures Manual published
            during the contract period.

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

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

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

6.1.6.1     The approval request for value-added services must include:

6.1.6.1.1   A detailed description of the service to be offered;

6.1.6.1.2   Identification of the category or group of Members eligible to
            receive the service if it is a type of service that is not
            appropriate for all Members. (HMO has the discretion to determine if
            voluntary Members are eligible for the value-added services);

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

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

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

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

12                                                                  May 31, 2001

<PAGE>

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

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

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

            THSteps Dental (including Orthodontia)

            Early Childhood Intervention Case Management/Service Coordination
            MHMR Targeted Case Management

            Mental Health Rehabilitation

            Pregnant Women and Infants Case Management

            THSteps Medical Case Management

            Texas School Health and Related Services

            Texas Commission for the Blind Case Management

            Tuberculosis Services Provided by TDH-approved providers (Directly
            Observed Therapy and Contact Investigation)

            Vendor Drugs (out-of-office drugs)

            Medical Transportation

            TDHS Hospice Services

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

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

6.1.8.1     HMO is responsible for informing providers that all non-capitated
            services must be submitted to TDH's Claims Administrator for payment
            or reimbursement.

6.3         SPAN OF ELIGIBILITY
            -------------------

            The following outlines HMO's responsibilities for payment of
            hospital and freestanding psychiatric facility (facility)
            admissions:

6.3.1       Inpatient Admission Prior to Enrollment in HMO. HMO is responsible
            for payment of physician and non-hospital/facility charges for the
            period for which HMO is paid

13                                                                  May 31, 2001

<PAGE>

            a capitation payment for a Member. HMO is not responsible for
            hospital/facility charges for Members admitted prior to the date of
            enrollment in HMO.

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

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

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

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

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

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

6.4         CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
            -----------------------------------------------

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

14                                                                  May 31, 2001

<PAGE>

6.4.5       HMO must provide assistance to providers requiring PCP verification
            24 hours a day 7 days a week.

6.4.5.1     HMO must provide TDH with policies and procedures indicating how the
            HMO will provide PCP verification as indicated in Article 6.4.5.
            HMOs providing PCP verification via a telephone must meet the
            requirements of 3.7.1.

6.5         EMERGENCY SERVICES
            ------------------

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

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

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

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

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

15                                                                  May 31, 2001

<PAGE>

6.5.6       Post-stabilization Services. Post-stabilization services are
            services subsequent to an emergency that a treating physician views
            as medically necessary after an emergency medical condition has been
            stabilized. They are not "emergency services" and are subject to
            HMO's prior authorization process. HMO must be available to
            authorize or deny post-stabilization services within one hour after
            being contacted by the treating physician.

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

6.6         BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
            -------------------------------------------------------

6.6.1       HMO must provide or arrange to have provided to Members all
            behavioral health care services included as covered services. These
            services are described in detail in the Texas Medicaid Provider
            Procedures Manual (Provider Procedures Manual) and the Texas
            Medicaid Bulletin, which is the bi-monthly update to the Provider
            Procedures Manual. Clinical information regarding covered services
            is published by the Texas Medicaid program in the Texas Medicaid
            Service Delivery Guide (See Article 6.1).

6.6.2       HMO must maintain a behavioral health provider network that includes
            psychiatrists, psychologists and other behavioral health providers.
            HMO must provide or arrange to have provided behavioral health
            benefits described as covered services (see Article 6. 1). The
            network must include providers with experience in serving children
            and adolescents to ensure accessibility and availability of
            qualified providers to all eligible children and adolescents in the
            service area. The list of providers including names, addresses and
            phone numbers must be available to TDH upon request.

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

6.7         FAMILY PLANNING - SPECIFIC REQUIREMENTS
            ---------------------------------------

6.7.1       Counseling and Education. HMO must require, through contract
            provisions, that Members requesting contraceptive services or family
            planning services are also provided counseling and education about
            family planning and family planning services are available to
            Members. HMO must develop outreach programs to increase

16                                                                  May 31, 2001

<PAGE>

            community support for family planning and encourage Members to use
            available family planning services. HMO is encouraged to include a
            representative cross-section of Members and family planning
            providers who practice in the community in developing, planning and
            implementing family planning outreach programs.

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

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

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

6.8         TEXAS HEALTH STEPS (EPSDT)
            --------------------------

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

6.8.3       Provider Education and Training. HMO must provide appropriate
            training to all network providers and provider staff in the
            providers' area of practice regarding the scope of benefits
            available and the THSteps program. Training must include THSteps
            benefits, the periodicity schedule for THSteps checkups and
            immunizations, and Comprehensive Care Program (CCP) services
            available under the THSteps program to Members under age 21 years.
            Providers must also be educated and

17                                                                  May 31, 2001

<PAGE>

            trained regarding the requirements imposed upon TDH and contracting
            HMOs under the Consent Decree entered in Frew v. McKinney, et. al.,
            Civil Action No. 3:93CV65, in the United States District Court for
            the Eastern District of Texas, Paris Division. Providers should be
            educated and trained to treat each THSteps visit as an opportunity
            for a comprehensive assessment of the Member.

6.8.4       Member Outreach. HMO must provide an outreach-unit that works with
            Members to ensure they receive prompt services and are effectively
            informed about available THSteps services. Each month HMO must
            retrieve from the Enrollment Broker BBS a list of Members who are
            due and overdue THSteps services. Using these lists and their own
            internally generated lists, HMOs will contact Members and encourage
            Members who are periodically due or overdue a THSteps service to
            obtain the service as soon as possible. HMO outreach staff must
            coordinate with TDH THSteps outreach staff to ensure that Members
            have access to the Medical Transportation Program, and that any
            coordination with other agencies is maintained.

6.8.7       Newborn Checkups. HMO must have mechanisms in place to ensure that
            all newborn Members have an initial newborn checkup before discharge
            from the hospital and again within two weeks from the time of birth.
            HMO must require providers to send all THSteps newborn screens to
            the TDH Bureau of Laboratories or a TDH certified laboratory.
            Providers must include detailed identifying information for all
            screened newborn Members and the Member's mother to allow TDH to
            link the screens performed at the hospital with screens performed at
            the two week follow-up.

6.8.7.1     Laboratory Tests: All laboratory specimens collected as a required
            component of a THSteps checkup (see Medicaid Provider Procedures
            Manual for age-specific requirements) must be submitted to the TDH
            Laboratory for analysis. HMO must educate providers about THSteps
            program requirements for submitting laboratory tests to the TDH
            Bureau of Laboratories.

6.8.9       Immunizations. HMO must educate providers on the Immunization
            Standard Requirements set forth in Chapter 161, Health and Safety
            Code; the standards in the ACIP Immunization Schedule; and AAP
            Periodicity Schedule.

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

6.8.11      Compliance with THSteps Performance Benchmark. TDH will establish
            performance benchmarks against which HMO's full compliance with the
            THSteps periodicity schedule will be measured. The performance
            benchmarks will establish

18                                                                  May 31, 2001

<PAGE>

            minimum compliance measures which will increase over time. HMO must
            meet all performance benchmarks required for THSteps services.

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

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

6.12        TUBERCULOSIS (TB)
            -----------------

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

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

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

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<PAGE>

6.13        PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS
            ---------------------------------------------------------

6.13.1      HMO shall provide the following services to persons with
            disabilities or chronic or complex conditions. These services are in
            addition to the covered services described in detail in Article 6.1
            Scope of Services.

6.13.3      HMO must require that the PCP for all persons with disabilities or
            chronic or complex conditions develops a plan of care to meet the
            needs of the Member. The plan of care must be based on health needs,
            specialist(s) recommendations, and periodic reassessment of the
            Member's developmental and functional status and service delivery
            needs. HMO must require providers to maintain record keeping systems
            to ensure that each Member who has been identified with a disability
            or chronic or complex condition has an initial plan of care in the
            primary care provider's medical records, Member agrees to that plan
            of care, and that the plan is updated as often as the Member's needs
            change, but at least annually.

6.13.5      HMO must have in its network PCPs and specialty care providers that
            have documented experience in treating people with disabilities or
            chronic or complex conditions, including children. For services to
            children with disabilities or chronic or complex conditions, HMO
            must have in its network PCPs and specialty care providers that have
            demonstrated experience with children with disabilities or chronic
            or complex conditions in pediatric specialty centers such as
            children's hospitals, medical schools, teaching hospitals, and
            tertiary center levels.

6.13.11     HMO must assist, through information and referral, eligible Members
            in accessing providers of non-capitated Medicaid services listed in
            Article 6.1.8, as applicable.

6.13.12     HMO must ensure that Members who require routine or regular
            laboratory and ancillary medical tests or procedures to monitor
            disabilities or chronic or complex conditions are allowed by HMO to
            receive the services from the provider in the provider's office or
            at a contracted lab located at or near the provider's office.

6.14        HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS
            --------------------------------------------------

6.14.3      Health Education Plan. HMO must develop, implement and submit to TDH
            a Health Education plan describing how it will provide health
            education to Members. The health education plan must tell Members
            how HMO system operates, how to obtain services, including emergency
            care and out-of-plan services. The plan must emphasize the value of
            screening and preventive care and must contain disease specific
            information and education materials. The final Health Education Plan
            is due to TDH 30 days after the Group Needs Assessment Report has
            been completed and filed with TDH.

20                                                                  May 31, 2001

<PAGE>

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

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

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

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

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

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

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

6.16        BLIND AND DISABLED MEMBERS
            --------------------------

6.16.2.7    Coordination to link Blind and Disabled Members with applicable
            community resources and targeted case management programs (see
            Non-Capitated Services in Article 6.1.8).

7.          Article VII

ARTICLE VII     PROVIDER NETWORK REQUIREMENTS

7.1         PROVIDER ACCESSIBILITY
            ----------------------

7.1.3.4     HMO must establish policies and procedures to ensure that THSteps
            checkups be provided within 90 days of new enrollment, except
            newborns Members should be seen within 2 weeks of enrollment, and in
            all cases for all Members be consistent with the American Academy of
            Pediatrics and THSteps periodicity schedule which

21                                                                  May 31, 2001

<PAGE>

            is based on the American Academy of Pediatrics schedule and
            delineated in the Texas Medicaid Provider Procedures Manual and the
            bi-monthly Medicaid Bulletin (see also Article 6. 1, Scope of
            Services). If the Member does not request a checkup, HMO must
            establish a procedure for contacting the Member to schedule the
            checkup.

7.2         PROVIDER CONTRACTS
            ------------------

7.2.1       All providers must have a written contract, either with an
            intermediary entity or an HMO, to participate in the Medicaid
            program (provider contract). HMO must make all contracts available
            to TDH upon request, at the time and location requested by TDH. All
            standard formats of provider contracts must be submitted to TDH for
            approval no later than 120 days prior to the Implementation Date.
            Standard formats of provider contracts to be executed later than 120
            days prior to the Implementation Date must be submitted to TDH prior
            to use of the standard format. HMO must submit 1 paper copy and 1
            electronic copy in a form specified by TDH. Any substantive change
            to the standard format must be submitted to TDH for approval no
            later than 30 days prior to the implementation of the new standard
            format. All provider contracts are subject to the terms and
            conditions of this contract and must contain the provisions of
            Article V, Statutory and Regulatory Compliance, and the provisions
            contained in Article 3.2.4.

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

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

7.2.8       HMO, all IPAs, and other intermediary entities must include contract
            language which substantially complies with the following standard
            contract provisions in each Medicaid provider contract. This
            language must be included in each contract with

22                                                                  May 31, 2001

<PAGE>

            an actual provider of services, whether through a direct contract or
            through intermediary provider contracts:

7.2.8.1     [Provider] is being contracted to deliver Medicaid managed care
            under the TDH STAR program. HMO must provide copies of the TDH/HMO
            Contract to the [Provider) upon request. [Provider) understands that
            services provided under this contract are funded by State and
            federal funds under the Medicaid program. [Provider) is subject to
            all state and federal laws, rules and regulations that apply to all
            persons or entities receiving state and federal funds. [Provider]
            understands that any violation by a provider of a State or federal
            law relating to the delivery of services by the provider under this
            HMO/Provider contract, or any violation of the TDH/HMO contract
            could result in liability for money damages, and/or civil or
            criminal penalties and sanctions under state and/or federal law.

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

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

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

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

23                                                                  May 31, 2001

<PAGE>

            and abuse committed by HMO or a Medicaid recipient to TDH for
            referral to THHSC.

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

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

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

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

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

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

7.2.9       HMO must comply with the provisions of Chapter 20A ss. 18A of HMO
            Act relating to Physician and Provider contracts, except Subpart
            (e), which relates to capitation payments.

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

24                                                                  May 31, 2001

<PAGE>

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

7.3         PHYSICIAN INCENTIVE PLANS
            -------------------------

7.3.4       HMO must submit the information required in Article 7.3.2.6 one year
            after the effective date of initial contract or effective date of
            renewal contract, and annually each subsequent year under the
            contract. HMO's who put physicians or physician groups at
            substantial financial risk, as defined in 42 C.F.R. ss.417.479, must
            conduct a survey of all Members who have voluntarily disenrolled in
            the previous year. A list of voluntary disenrollees may be obtained
            from the Enrollment Broker.

7.4         PROVIDER MANUAL AND PROVIDER TRAINING
            -------------------------------------

7.4.1       HMO must prepare and issue a Provider Manual(s), including any
            necessary specialty manuals (e.g. behavioral health) to the
            providers in HMO network and to newly contracted providers in HMO
            network within five (5) working days from inclusion of the provider
            into the network. The Provider Manual must contain sections relating
            to special requirements of the STAR Program as required under this
            contract. See Appendix D, Required Critical Elements, for specific
            details regarding content requirements. HMO must submit a Provider
            Manual to TDH for approval 120 days prior to the Implementation Date
            (see Article 3.4.1 regarding the process for plan materials review).
            Any revisions must be approved by TDH prior to publication and
            distribution to providers.

7.4.2.1     HMO training for all providers must be completed no later than 30
            days after placing a newly contracted provider on active status. HMO
            must provide on-going training to new and existing providers as
            required by HMO or TDH to comply with this contract.

7.5         MEMBER PANEL REPORTS
            --------------------

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

7.6         PROVIDER COMPLAINT AND APPEAL PROCEDURES
            ----------------------------------------

25                                                                  May 31, 2001

<PAGE>

7.6.1       HMO must develop, implement and maintain a provider complaint
            system. HMO must submit the written complaint and appeal procedure
            to TDH by Phase II of Readiness Review. The complaint and appeals
            procedures must be in compliance with all applicable state and
            federal law or regulations. All Member complaints and/or appeals of
            an adverse determination requested by a physician or provider acting
            on behalf of the enrollee must comply with the provisions of this
            Article. Modifications and amendments to the complaint system must
            be submitted to TDH no later than 30 days prior to the
            implementation of the modification or amendment.

7.6.3       HMO's complaint and appeal process cannot contain provisions
            requiring a Provider to submit a complaint or appeal to TDH for
            resolution in lieu of the HMO's process.

7.8         PRIMARY CARE PROVIDERS
            ----------------------

7.8.5       HMO must have in its provider network physicians with board
            eligibility/certification in pediatrics available for referral for
            Members under the age of 21.

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

7.8.7       HMO's primary care provider network may include providers from any
            of the following practice areas: General Practitioners; Family
            Practitioners; Internists; Pediatricians;
            Obstetricians/Gynecologists (OB/GYN); Advanced Practice Nurses
            (APNs) and Certified Nurse Midwives (CNMs) practicing under the
            supervision of a physician; Physician Assistants (PAs) practicing
            under the supervision of a physician specializing in Family
            Practice, Internal Medicine, Pediatrics or Obstetrics/Gynecology who
            also qualifies as a PCP under this contract; or Federally Qualified
            Health Centers (FQHCs), Rural Health Clinics (RHCs) and similar
            community clinics; and specialists who are willing to provide
            medical homes to selected Members with special needs and conditions
            (see Article 7.8.8).

7.8.12      PCP Selection and Changes. All Medicaid recipients who are eligible
            for participation in the STAR program have the right to select their
            PCP and HMO. Medicaid recipients who are mandatory STAR participants
            who do not select a PCP and/or HMO during the time period allowed
            will be assigned to a PCP and/or HMO using the TDH default process.
            Members may change PCPs at any time, but these changes are limited
            to four (4) times per year. If a PCP or OB/GYN who has been selected
            by or assigned to a Member is no longer in HMO's provider network,
            HMO

26                                                                  May 31, 2001

<PAGE>

            must contact the Member and provide them an opportunity to reselect.
            If the Member does not want to change the PCP or OB/GYN to another
            provider in HMO network, the Member must be directed to the
            Enrollment Broker for resolution or reselection. If a PCP or OB/GYN
            who has been selected by or assigned to a Member is no longer in an
            IPA's provider network but continues to participate in HMO network,
            HMO or IPA may not change the Member's PCP or OB/GYN.

7.8.12.1    Voluntary SSI Members. PCP changes cannot be performed retroactively
            for voluntary SSI Members. If an SSI Member requests a PCP change on
            or before the 15th of the month, the change will be effective the
            first day of the next month, if an SSI Member requests a PCP change
            after the 15th of the month, the change will be effective the first
            day of the second month that follows. Exceptions to this policy will
            be allowed for reasons of medical necessity or other extenuating
            circumstances.

7.8.12.2    Mandatory Members. Retroactive changes to a Member's PCP should only
            be made if it is medically necessary or there are other
            circumstances which necessitate a retroactive change. HMO must pay
            claim's for services provided by the original PCP. If the original
            PCP is paid on a capitated basis and services were provided during
            the period for which capitation was paid, HMO cannot recoup the
            capitation.

7.9         OBSTETRICAL/GYNECOLOGICAL (OB/GYN) PROVIDERS
            --------------------------------------------

            HMO must allow a female Member to select an OB/GYN within its
            provider network or within a limited provider network in addition to
            a PCP, to provide health care services within the scope of the
            professional specialty practice of a properly credentialed OB/GYN.
            See Article 21.53D of the Texas Insurance Code and 28 TAC Sections
            11.506, 11.1600 and 11. 1608. A Member who selects an OB/GYN must be
            allowed direct access to the health care services of the OB/GYN
            without a referral by the woman's PCP or a prior authorization or
            precertification from HMO. HMO must allow Members to change OB/GYNs
            up to four times per year. Health care services must include, but
            not be limited to:

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

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

7.12        BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)
            --------------------------------------------------------

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<PAGE>

7.12.1      Assessment to determine eligibility for rehabilitative and targeted
            MHMR case management services is a function of the LMHA. HMO must
            provide or arrange to have provided all covered services described
            in detail in Article 6.1 Scope of Services. Covered services must be
            provided to Members with severe and persistent mental illness (SPMI)
            and severe emotional disturbance (SED), when medically necessary,
            whether or not they are also receiving targeted case management or
            rehabilitation services through the LMHA.

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

7.12.3.1    Describe the behavioral health covered services indicated in detail
            in Article 6.1 Scope of Services. Also include the amount, duration,
            and scope of basic and value-added services, and HMO's
            responsibility to provide these services;

7.13        SIGNIFICANT TRADITIONAL PROVIDERS (STPS)
            ----------------------------------------

            HMO must demonstrate a good faith effort to include STPs in its
            provider network. HMO must seek participation in its provider
            network from:

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

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

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

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

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

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

28                                                                  May 31, 2001

<PAGE>

7.13.5.2    STP must meet the credentialing requirements of HMO. HMO must not
            require STPs to meet a different or higher credentialing standard
            than is required of other providers providing the same or similar
            services. HMO must not require STP's to contract with a
            Subcontractor which requires a different or higher credentialing
            standard than the HMO's if the application of the higher standard
            results in a disproportionate number of STPs being excluded from the
            Subcontractor.

7.13.6      Failure to demonstrate a good faith effort to meet TDH's compliance
            objectives to include STPs in HMO's provider network, is a defaults
            under this contract and may result in any or all of the sanctions
            and remedies included in Article XVIII of this contract. HMO's
            fulfillment of TDH's compliance objectives for STP participation
            will be monitored by TDH based on HMOs electronic file submission to
            the Enrollment Broker as required in Article 12.5.1

7.14        RURAL HEALTH PROVIDERS
            ----------------------

7.14.4      HMO must reimburse physicians who practice in rural counties with
            fewer than 50,000 persons at a rate using the current Medicaid fee
            schedule.

7.16        COORDINATION WITH PUBLIC HEALTH

7.16.1      Reimbursed Arrangements. HMO must make a good faith effort to enter
            into a subcontract for the covered health care services as specified
            below with TDH Public Health Regions, city and/or county health
            departments or districts in each county of the service area that
            will be providing these services to the Members (Public Health
            Entities), who will be paid for services by HMO, including any or
            all of the following services or any covered service which the
            public health department and HMO have agreed to provide:

7.16.1.1    Sexually Transmitted Diseases (STDs) Services (see Article 6.15);

7.16.1.2    Confidential HIV Testing (see Article 6.15);

7.16.1.3    Immunizations

7.16.1.4    Tuberculosis (TB) Care (see Article 6.12).

7.16.1.5    Family Planning Services (see Article 6.7);

7.16.1.6    THSteps checkups (see Article 6.8); and

7.16.1.7    Prenatal services.

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<PAGE>

7.16.2      HMO must make a good faith effort to enter into subcontracts with
            public health entities in the service area at least 90 days prior to
            the Implementation Date. The subcontracts must be available for
            review by TDH or its designated agent(s) on the same basis as all
            other subcontracts. If any changes are made to the contract, it must
            be resubmitted to TDH. If an HMO is unable to enter into a contract
            with public health entities, HMO must document current and past
            efforts to TDH. Documentation must be submitted no later than 120
            days after the execution of this amendment. Public health
            subcontracts must include the following areas:

7.16.2.1    General Relationship Between HMO and the Public Health Entity. The
            subcontracts must specify the scope and responsibilities of both
            parties, the methodology and agreements regarding billing and
            reimbursements, reporting responsibilities, Member and provider
            educational responsibilities, and the methodology and agreements
            regarding sharing of confidential medical record information between
            the public health entity and the PCP.

7.16.2.2    Public Health Entity Responsibilities:

            (1)   Public health providers must inform Members that confidential
                  health care information will be provided to the PCP.

            (2)   Public health providers must refer Members back to PCP for any
                  follow-up diagnostic, treatment, or referral services.

            (3)   Public health providers must educate Members about the
                  importance of having a PCP and assessing PCP services during
                  office hours rather than seeking care from Emergency
                  Departments, Public Health Clinics, or other Primary Care
                  Providers or Specialists.

            (4)   Public health entities must identify a staff person to act as
                  liaison to HMO to coordinate Member needs, Member referral,
                  Member and provider education, and the transfer of
                  confidential medical record information.

7.16.2.3    HMO Responsibilities:

            (1)   HMO must identify care coordinators who will be available to
                  assist public health providers and PCPs in getting efficient
                  referrals of Members to the public health providers,
                  specialists, and health-related service providers either
                  within or outside HMO's network.

            (2)   HMO must inform Members that confidential healthcare
                  information will be provided to the PCP.

            (3)   HMO must educate Members on how to better utilize their PCPs,
                  public health providers, emergency departments, specialists,
                  and health-related service providers.

7.16.3      Non-Reimbursed Arrangements with Public Health Entities

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<PAGE>

7.16.3.1    Coordination with Public Health Entities. HMOs must make a good
            faith effort to enter into a Memorandum of Understanding (MOU) with
            Public Health Entities in the service area regarding the provision
            of services for essential public health care services. These MOUs
            must be entered into at least 90 days before the Implementation Date
            in the service area and are subject to TDH approval. If any changes
            are made to the MOU, it must be resubmitted to TDH. If HMO is unable
            to enter into an MOU with a public entity, HMO must submit
            documentation substantiating reasonable efforts to enter into such
            an agreement to TDH. Documentation must be submitted no later than
            120 days after the Implementation Date. MOUs must contain the roles
            and responsibilities of HMO and the public health department for the
            following services:

            (1)   Public health reporting requirements regarding communicable
                  diseases and/or diseases which are preventable by immunization
                  as defined by state law;

            (2)   Notification of and referral to the local Public Health
                  Entity, as defined by state law, of communicable disease
                  outbreaks involving Members;

            (3)   Referral to the local Public Health Entity for TB contact
                  investigation and evaluation and preventive treatment of
                  persons whom the Member has come into contact;

            (4)   Referral to the local Public Health Entity for STD/HIV contact
                  investigation and evaluation and preventive treatment of
                  persons whom the Member has come into contact; and,

            (5)   Referral for WIC services and information sharing;
            (6)   Coordination and follow-up of suspected or confirmed cases of
                  childhood lead exposure.

7.16.3.2    Coordination with Other TDH Programs. HMOs must make a good faith
            effort to enter into a Memorandum of Understanding (MOU) with other
            TDH programs regarding the provision of services for essential
            public health care services. These MOUs must be entered into at
            least 90 days before the Implementation Date in the service area and
            are subject to TDH approval. If any changes are made to the MOU, it
            must be resubmitted to TDH. If an HMO is unable to enter into an MOU
            with other TDH programs, HMO must submit documentation
            substantiating reasonable efforts to enter into such an agreement to
            TDH. Documentation must be submitted no later than 120 days after
            the Implementation Date. MOUs must delineate the roles and
            responsibilities of HMO and the TDH programs for the following
            services:

            (1)   Use of the TDH laboratory for THSteps newborn screens; lead
                  testing; and hemoglobin/hematocrit tests;
            (2)   Availability of vaccines through the Vaccines for Children
                  Program;
            (3)   Reporting of immunizations provided to the statewide ImmTrac
                  Registry including parental consent to share data;
            (4)   Referral for WIC services and information sharing;

31                                                                  May 31, 2001

<PAGE>

            (5)   Pregnant Women and Infant (PWI) Targeted Case Management;
            (6)   THSteps outreach, informing and Medical Case Management;
            (7)   Participation in the community-based coalitions with the
                  Medicaid-funded case management programs in MHMR, ECI, TCB,
                  and TDH (PWI, CIDC and THSteps Medical Case Management);
            (8)   Referral to the TDH Medical Transportation Program;
            (9)   Cooperation with activities required of public health
                  authorities to conduct the annual population and community
                  based needs assessment; and
            (10)  Coordination and follow-up of suspected or confirmed cases of
                  childhood lead exposure.

7.16.4      All public health contracts must contain provider network
            requirements in Article VII, as applicable.

7.17        COORDINATION WITH THE TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
            -------------------------------------------------------------------
            SERVICES

            --------

7.17.3      HMO cannot deny, reduce, or controvert the medical necessity of any
            health or behavioral health care services included in an Order
            entered by a court. HMO may participate in the preparation of the
            medical and behavioral care plan prior to TDPRS submitting the
            health care plan to the Court. Any modification or termination of
            court ordered services must be presented and approved by the court
            with jurisdiction over the matter.

7.18        DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)
            --------------------------------------------------------------

7.18.1      All HMO contracts with any of the entities described in Texas
            Insurance Code Article 20A.02 (ee) or a group of providers who are
            licensed to provide the same health care services or an entity that
            is wholly-owned or controlled by one or more hospitals and
            physicians including a physician-hospital organization (delegated
            network contracts) must be submitted to TDH no later than 120 days
            prior to Implementation Date. All delegated network contracts must:

7.18.1.1    contain the mandatory contract provisions for all subcontractors in
            Article 3.2 of this contract;

7.18.1.2    comply with the requirements, duties and responsibilities of this
            contract;

7.18.1.3    not create a barrier for full participation to significant
            traditional providers;

7.18.1.4    not interfere with TDH's oversight and audit responsibilities
            including collection and validation of encounter data; or

32                                                                  May 31, 2001

<PAGE>

7.18.1.5    be consistent with the federal requirement for simplicity in the
            administration of the Medicaid program.

7.18.2      In addition to the mandatory provisions for all subcontracts under
            Articles 3.2 and 7.2, all HMO delegated network contracts must
            include the following mandatory standard provisions:

7.18.2.1    HMO is required to include subcontract provisions in its delegated
            network contracts which require the UM protocol used by a delegated
            network to produce substantially similar outcomes, as approved by
            TDH, as the UM protocol employed by the contracting HMO. The
            responsibilities of an HMO in delegating UM functions to a delegated
            network will be governed by Article 16.3.12 of this contract.

7.18.2.2    Delegated networks that have been delegated claims payment
            responsibilities by HMO must also have the responsibility to submit
            encounter, utilization, quality, and financial data to HMO. HMO
            remains responsible for integrating all delegated network data
            reports into HMO's reports required under this contract. If HMO is
            not able to collect and report all delegated network data for HMO
            reports required by this contract, HMO must not delegate claims
            processing to the delegated network.

7.18.2.3    The delegated network must comply with the same records retention
            and production requirements, including Open Records requirements, as
            the HMO under this contract.

7.18.2.4    The delegated network is subject to the same marketing restrictions
            and requirements as the HMO under this contract.

7.18.2.5    HMO is responsible for ensuring that delegated network contracts
            comply with the requirements and provisions of the TDH/HMO contract.
            TDH will impose appropriate sanctions and remedies upon HMO for any
            default under the TDH/HMO contract which is caused directly or
            indirectly by the acts or omissions of the delegated network.

7.18.3      HMO cannot enter into contracts with delegated networks to provide
            services under this contract which require the delegated network to
            enter into exclusive contracts with HMO as a condition for
            participation with HMO.

7.18.3.1    Article 7.18.3 does not apply to providers who are employees or
            participants in limited or closed panel provider networks.

7.18.4      All delegated networks that limit Member access to those providers
            contracted with the delegated network (closed or limited panel
            networks) with whom HMO contracts must either independently meet the
            access provisions of 28 Texas Administrative Code ss. 11.1607,
            relating to access requirements for those Members enrolled or

33                                                                  May 31, 2001

<PAGE>

            assigned to the delegated network, or HA40 must provide for access
            through other network providers outside the closed panel delegated
            network.

7.18.5      HMO cannot delegate to delegated network the enrollment,
            re-enrollment, assignment or reassignment of a Member.

7.18.6      In addition to the above provision HMO and Approved Non-Profit
            Health Corporations (ANHCs) must comply with all of the requirements
            contained in 28 TAC ss. 11.1604, relating to Requirements of
            Certain Contracts between Primary HMOs and ANHCs and Primary HMOs
            and Provider HMOs.

7.18.7      HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES
            AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
            RESPONSIBILITY OR SERVICE IS CONTRACTED OR DELEGATED TO ANOTHER. HMO
            MUST PROVIDE A COPY OF THE CONTRACT PROVISIONS THAT SET OUT HMO'S
            DUTIES, RESPONSIBILITIES, AND SERVICES TO ANY PROVIDER NETWORK OR
            GROUP WITH WHOM HMO CONTRACTS TO ANY PROVIDER NETWORK OR GROUP WITH
            WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE SERVICES ON A RISK SHARING
            OR CAPITATED BASIS OR TO PROVIDE HEALTH CARE SERVICES.

8.          Article VIII

ARTICLE VIII    MEMBER SERVICES REQUIREMENTS

8.2         MEMBER HANDBOOK
            ---------------

8.2.1       HMO must mail each newly enrolled Member a Member Handbook no later
            than five (5) days after. HMO receives the Enrollment File. If the
            5th day falls on a weekend or state holiday, the Member Handbook
            must be mailed by the following working day. The Member Handbook
            must be written at a 4th - 6th grade reading comprehension level.
            The Member Handbook must contain all critical elements specified by
            TDH. See Appendix D, Required Critical Elements, for specific
            details regarding content requirements. HMO must submit a Member
            Handbook to TDH for approval not later than 90 days before the
            Implementation Date (see Article 3.4.1 regarding the process for
            plan materials review).

8.2.2       Member Handbook Updates. HMO must provide updates to the Handbook to
            all Members as changes are made to the Required Critical Elements in
            Appendix D. HMO must make the Member Handbook available in the
            languages of the major

34                                                                  May 31, 2001

<PAGE>

            population groups and in a format accessible to the visually
            impaired served by HMO.

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

8.3         ADVANCE DIRECTIVES
            ------------------

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

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

8.3.1.2     the Advance Directives Act, Chapter 166, Texas Health and Safety
            Code, which includes:

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

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

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

8.3.1.3     the declaration for Mental Health Treatment, Chapter 137, Texas
            Civil Practices and Remedies Code, which includes: a Member's right
            to execute a declaration for mental health treatment in a document
            making a declaration of preferences or instructions regarding mental
            health treatment.

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<PAGE>

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

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

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

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

8.3.2.1.3   a description of the medical and mental health conditions or
            procedures affected by the conscience objection.

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

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

8.3.5       HMO's policies and procedures must require HMO and subcontractor to
            comply with the requirements of state and federal law relating to
            advance directives. HMO must provide education and training to
            employees, Members, and the community on issues concerning advance
            directives. HMO must submit a copy of its policies and procedures
            for TDH review and approval during Phase I of Readiness Review.

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

8.3.7       HMO must notify Members of any changes in state or federal laws
            relating to advance directives within 90 days from the effective
            date of the change, unless the law or regulation contains a specific
            time requirement for notification.

8.4         MEMBER ID CARDS
            ---------------

36                                                                  May 31, 2001

<PAGE>

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

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

8.5         MEMBER COMPLAINT PROCESS
            ------------------------

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

8.5.2       HMO must have written policies and procedures for receiving,
            tracking, reviewing, and reporting and resolving Member complaints.
            The procedures must be reviewed and approved in writing by TDH
            before Phase I of Readiness Renewal Review. Any changes or
            modifications to the procedures must be submitted to TDH for
            approval thirty (30) days prior to the effective date of the
            amendment.

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

37                                                                  May 31, 2001

<PAGE>

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

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

8.5         MEMBER COMPLAINT PROCESS
            ------------------------

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

8.5.2       HMO must have written policies and procedures for receiving,
            tracking, reviewing, and reporting and resolving Member complaints.
            The procedures must be reviewed and approved in writing by TDH
            before Phase I of Readiness Renewal Review. Any changes or
            modifications to the procedures must be submitted to TDH for
            approval thirty (30) days prior to the effective date of the
            amendment.

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

37                                                                  May 31, 2001

<PAGE>

8.5.4       HMO must have a routine process to detect patterns of complaints and
            disenrollments and involve management and supervisory staff to
            develop policy and procedural improvements to address the
            complaints. HMO must cooperate with TDH and TDH's Enrollment Broker
            in Member complaints relating to enrollment and disenrollment.

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

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

8.5.7       HMO's process must include a requirement that the Governing Body of
            HMO reviews the written records (logs) for complaints and appeals.

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

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

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

38                                                                  May 31, 2001

<PAGE>

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

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

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

8.5.14      HMO will cooperate with the Enrollment Broker and TDH to resolve all
            Member complaints. Such cooperation may include, but is not limited
            to, participation by HMO or Enrollment Broker and/or TDH internal
            complaint committees.

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

8.5.16      HMO must provide Member Advocates to assist Members in understanding
            and using HMO's complaint system and appeal of an adverse
            determination.

39                                                                  May 31, 2001

<PAGE>

8.5.17      HMO's Member Advocates must assist Members in writing or filing a
            complaint or appeal of an adverse determination and monitoring the
            complaint or appeal through the Contractor's complaint or appeal of
            an adverse determination process until the issue is resolved.

8.6         MEMBER NOTICE, APPEAL AND FAIR HEARING
            --------------------------------------

8.6.1       HMO must send Members the notice required by 1 Texas Administrative
            Code ss.357.5, whenever HMO takes an action to deny, delay, reduce
            or terminate covered services to a Member. The notice must be mailed
            to the Member no less than 10 days before HMO intends to take an
            action. If an emergency exists, or if the time within which the
            service must be provided makes giving 10 days notice impractical or
            impossible, notice must be provided by the most expedient means
            reasonably calculated to provide actual notice to the Member,
            including by phone, direct contact with the Member, or through the
            provider's office.

8.6.2       The notice must contain the following information:

8.6.2.1     Member's right to immediately access TDH's Fair Hearing process;

8.6.2.2     a statement of the action HMO will take;

8.6.2.3     the date the action will be taken;

8.6.2.4     an explanation of the reasons HMO will take the action;

8.6.2.5     a reference to the state and/or federal regulations which support
            HMO's action;

8.6.2.6     an address where written requests may be sent and a toll-free number
            Member can call to: request the assistance of a Member
            representative, or file a complaint, or request a Fair Hearing;

8.6.2.7     a procedure by which Member may appeal HMO's action through either
            HMO's complaint process or TDH's Fair Hearings process;

8.6.2.8     an explanation that Members may represent themselves, or be
            represented by HMO's representative, a friend, a relative, legal
            counsel or another spokesperson;

40                                                                  May 31, 2001

<PAGE>

8.6.2.9     an explanation of whether, and under what circumstances, services
            may be continued if a complaint is filed or a Fair Hearing
            requested;

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

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

8.6.2.12    a statement explaining that a final decision must be made by TDH
            within 90 days from the date a Fair Hearing is requested.

8.7         MEMBER ADVOCATES
            ----------------

8.7.1       HMO must provide Member Advocates to assist Members. Member
            Advocates must be physically located within the service area. Member
            Advocates must inform Members of their rights and responsibilities,
            the complaint process, the health education and the services
            available to them, including preventive services.

8.7.2       Member Advocates must assist Members in writing complaints and are
            responsible for monitoring the complaint through HMO's complaint
            process until the Member's issues are resolved or a TDH Fair Hearing
            requested (see Articles 8.6.15, 8.6.16, and 8.6.17).

8.7.3       Member Advocates are responsible for making recommendations to
            management on any changes needed to improve either the care provided
            or the way care is delivered. Member Advocates are also responsible
            for helping or referring Members to community resources available to
            meet Member needs that are not available from HMO as Medicaid
            covered services.

8.7.4       Member Advocates must provide outreach to Members and participate in
            TDH-sponsored enrollment activities.

8.8         MEMBER CULTURAL AND LINGUISTIC SERVICES
            ---------------------------------------

8.8.1       Cultural Competency Plan. HMO must have a comprehensive written
            Cultural Competency Plan describing how HMO will ensure culturally
            competent services, and provide linguistic and disability related
            access. The Plan must describe how the individuals and systems
            within HMO will effectively provide services to people of

41                                                                  May 31, 2001

<PAGE>

            all cultures, races, ethnic backgrounds, and religions, as well as
            those with disabilities, in a manner that recognizes, values,
            affirms, and respects the worth of the individuals and protects and
            preserves the dignity of each. HMO must submit a written plan to TDH
            no later than 90 days prior to the Implementation Date.
            Modifications and amendments to the written plan must be submitted
            to TDH no less than 30 days prior to implementation of the
            modification or amendment. The Plan must also be made available to
            HMO's network of providers.

8.8.2       The and Cultural Competency Plan must include the following:

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

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

8.8.2.3     A description of how HMO will implement the plan in its
            organization, identifying a person in the organization who will
            serve as the contact with TDH on the Cultural Competency Plan;

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

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

8.8.2.6     A description of how HMO will help Members access culturally and
            linguistically appropriate community health or social service
            resources;

8.8.3       Linguistic, Interpreter Services, and Provision of Auxiliary Aids
            and Services. HMO must provide experienced, professional
            interpreters when technical, medical or

42                                                                  May 31, 2001

<PAGE>

            treatment information is to be discussed. See Title VI of the Civil
            Rights Act of 1964, 42 U.S.C. ss.ss.2000d, et seq. HMO must ensure
            the provision of auxiliary aids and services necessary for effective
            communication, as per the Americans with Disabilities Act, Title
            III, Department of Justice Regulations 36.303.

8.8.3.1     HMO must adhere to and provide to Members the Member Bill of Rights
            and Responsibilities as adopted by the Texas Health and Human
            Services Commission and contained at 1 Texas Administrative Code
            (TAC) ss.ss.353.202-353.203. The Member Bill of Rights and
            Responsibilities assures Members the right "to have interpreters, if
            needed, during appointments with [their] providers and when talking
            to [their] health plan. Interpreters include people who can speak in
            [their] native language, assist with a disability, or help [them]
            understand the information."

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

8.8.3.3     A competent interpreter is defined as someone who is:

8.8.3.4     proficient in both English and the other language;

8.8.3.5     has had orientation or training in the ethics of interpreting; and

8.8.3.6     has the ability to interpret accurately and impartially.

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

8.8.3.8     Family Members, especially minor children, should not be used as
            interpreters in assessments, therapy or other medical situations in
            which impartiality and confidentiality are critical, unless
            specifically requested by the Member. However, a family member or
            friend may be used as an interpreter if they can be relied upon to
            provide a complete and accurate translation of the information being
            provided to the Member; the Member is advised that a free
            interpreter is available; and the Member expresses a preference to
            rely on the family member or friend.

8.8.4       All Member orientation presentations, education classes and
            materials must be presented in the languages of the major population
            groups making up 10% or more

43                                                                  May 31, 2001

<PAGE>

            of the Medicaid population in the service area, as specified by TDH.
            HMO must provide auxiliary aids and services, as needed, including
            materials in alternative formats (i.e., large print, tape or
            Braille), and interpreters or real-time captioning to accommodate
            the needs of persons with disabilities that affect communication.

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

8.9         CERTIFICATION DATE
            ------------------

8.9.1       On the date of the new Member's enrollment, TDH will provide HMOs
            with the Member's Medicaid certification date.

9.          Article IX is amended by adding the following bolded and italicized
            language and deleting the following stricken language:

ARTICLE IX      MARKETING AND PROHIBITED PRACTICES

9.4         NETWORK PROVIDER DIRECTORY
            --------------------------

9.4.1       HMO must submit a provider directory to TDH no later than 180 days
            prior to the Implementation Date. Any revisions must be approved by
            TDH prior to publication and distribution to prospective Members
            (see Article 3.4.1 regarding the process for plan materials review).
            The directory must contain all critical elements specified by TDH.
            See Appendix, Required Critical Elements, for specific details
            regarding content requirements.

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

10.         Article X is amended by adding the following bolded and italicized
            language and deleting the following stricken language:

ARTICLE X       MANAGEMENT INFORMATION SYSTEM (MIS) REQUIREMENTS

44                                                                  May 31, 2001

<PAGE>

10.1        MODEL MIS REQUIREMENTS
            ----------------------

10.1.4      HMO is required to submit and receive data as specified in this
            contract and HMO Encounter Data Submission Manual. HMO must provide
            complete encounter data of all capitated services within the scope
            of services of the contract between HMO and TDH. Encounter data must
            follow the format, data elements and methods of transmission
            specified in the contract and HMO Encounter Data Submission Manual.
            HMO must submit encounter data, including adjustments to encounter
            data. The Encounter transmission will include all encounter data and
            encounter data adjustments processed by HMO for the previous month.
            Data quality validation will incorporate assessment standards
            developed jointly by HMO and TDH. Original records will be made
            available for inspection by TDH for validation purposes. Data which
            do not meet quality standards must be corrected and returned within
            a time period specified by TDH.

10.5        ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
            -------------------------------------

            The encounter/claims processing subsystem must collect, process, and
            store data on all health care services delivered for which HMO is
            responsible. The functions of these subsystems are claims/encounter
            processing and capturing health service utilization data. The
            subsystem must capture all health-care services, including medical
            supplies, using standard codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92
            Revenue Codes), rendered by health-care providers to an eligible
            enrollee regardless of payment arrangement (e.g. capitation or
            fee-for-service). It approves, prepares for payment, or may return,
            reject or deny claims submitted. This subsystem may integrate manual
            and automated systems to validate and adjudicate claims and
            encounters. HMO must use encounter data validation methodologies
            prescribed by TDH.

            Functions and Features:

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

            (2)   Support entry and capture of a minimum of all required data
                  elements specified in the Encounter Data Submissions manual
                  and the Texas Medicaid Managed Care Claims Manual.

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

            (4)   Interface with Member and provider subsystems.

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

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

            (7)   Submit data to TDH through electronic transmission using
                  specified formats.

45                                                                  May 31, 2001

<PAGE>

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

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

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

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

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

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

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

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

            (16)  Receive and capture claim and encounter data from TDH.

            (17)  Receive and capture value-added services codes.

            (18)  Capability of identifying adjustments and linking them to the
                  original claims/encounters.

10.7        UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM
            -----------------------------------------

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

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

            The subsystem incorporates and summarizes information from enrollee
            surveys, provider and enrollee complaints, and appeal processes.

            Functions and Features:

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<PAGE>

            (1)   Supports provider credentialing and recredentialing
                  activities.

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

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

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

            (5)   Supports quality-of-care Focused Studies.

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

            (7)   Monitors primary care provider referral patterns.

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

            (9)   Stores and reports patient satisfaction data through use of
                  enrollee surveys.

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

            (11)  Meets minimum report/data collection/analysis functions of
                  Article XI and Appendix A - Standards For Quality Improvement
                  Programs.

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

11.         Article XI is amended by adding the following bolded and italicized
            language and deleting the following stricken language:

ARTICLE XI      QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.2        WRITTEN QIP PLAN
            ----------------

            HMO must have on file with TDH an approved plan describing its
            Quality Improvement Plan (QIP), including how HMO will accomplish
            the activities pertaining to each Standard (I-XVI) in Appendix A.
            Modifications and amendments must be submitted to TDH upon review
            and approval of the QI Committee and Board of Director's of HMO.

11.3        QIP SUBCONTRACTING
            ------------------

            If HMO subcontracts any of the essential functions or reporting
            requirements of QIP to another entity, HMO must maintain a file of
            the subcontractors. The file must be available for review by TDH or
            its designee upon request. HMO must notify

47                                                                  May 31, 2001

<PAGE>

            TDH no later than 90 days prior to terminating any subcontract
            affecting a major performance function of this contract (see Article
            3.2.1.2).

12.         Article XII is amended by adding the following bolded and italicized
            language and deleting the following stricken language:

ARTICLE XII     REPORTING REQUIREMENTS

12.1        FINANCIAL REPORTS
            -----------------

12.1.1      MCFS Report. HMO must submit the Managed Care Financial Statistical
            Report (MCFS) included in Appendix I. The report must be submitted
            to TDH no later than 30 days after the end of each state fiscal year
            quarter (i.e., Dec. 30, March 30, June 30, Sept. 30) and must
            include complete financial and statistical information for each
            month. The MCFS Report must be submitted for each claims processing
            subcontractor in accordance with this Article. HMO must incorporate
            financial and statistical data received by its delegated networks
            (IPAs, ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.3      An HMO must submit monthly reports for each of the first 6 months
            following the Implementation Date. If the cumulative net loss for
            the contract period to date after the 6th month is less than
            $200,000, HMO may submit quarterly reports in accordance with the
            above provisions unless the condition in Article 12.1.2 exists, in
            which case monthly reports must be submitted.

12.1.4      Final MCFS Reports. HMO must file two Final Managed Care Financial
            Statistical Reports. The first final report must reflect expenses
            incurred through the 90th day after the end of the contract. The
            first final report must be filed on or before the 120th day after
            the end of the contract. The second final report must reflect data
            completed through the 334th day after the end of the contract and
            must be filed on or before the 365th day following the end of the
            contract.

12.1.5      Administrative expenses reported in the monthly and Final MCFS
            Reports must be reported in accordance with Appendix L, Cost
            Principles for Administrative Expenses. Indirect administrative
            expenses must be based on an allocation methodology for Medicaid
            managed care activities and services that is developed or approved
            by TDH.

12.1.6      Affiliate Report. HMO must submit an Affiliates Report to TDH no
            later than 90 days prior to the Implementation Date. The report must
            contain the following information:

48                                                                  May 31, 2001

<PAGE>

12.1.6.1    A listing of all Affiliates; and

12.1.6.2    A schedule of all transactions with Affiliates which, under the
            provisions of this Contract, will be allowable as expenses in either
            Line 4 or Line 5 of Part 1 of the MCFS Report for services provided
            to HMO by the Affiliates for the prior approval of TDH. Include
            financial terms, a detailed description of the services to be
            provided, and an estimated amount which will be incurred by HMO for
            such services during the Contract period.

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

12.1.14     Each report required under this Article must be mailed to: Bureau of
            Managed Care; Texas Dept. Of Health; 1100 West 49th Street; Austin,
            TX 78756-3168 (exceptions: The MCFS Report may be submitted to TDH
            via E-mail). HMO must also mail a copy of the reports, except for
            items in Article 12.1.7 and Article 12.1.10 to Texas Department of
            Insurance, Mail Code 106-3A, HMO Division, Attention: HMO Division
            Director, PO Box 149104, Austin, TX 78714-9104.

12.2        STATISTICAL REPORTS
            -------------------

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

12.2.6      HMO must use its TDH-specified identification numbers on all
            encounter data submissions. Please refer to the TDH Encounter Data
            Submission Manual for further specifications.

12.2.8      All Claims Summary Report. HMO must submit the "All Claims Summary
            Report" identified in the Texas Managed Care Claims Manual as a
            contract year-to-date report. The report must be submitted quarterly
            by the last day of the month following the reporting period. The
            reports must be submitted to TDH in a format specified by TDH.

49                                                                  May 31, 2001

<PAGE>

12.2.9      Medicaid Disproportionate Share Hospital (DHS) Reports. HMO must
            file preliminary and final Medicaid Disproportionate Share Hospital
            (DSH) reports, required by TDH to identify and reimburse hospitals
            that qualify for Medicaid SDH funds. The preliminary and final DSH
            reports must include the data element and be submitted in the form
            and format specified by TDH. The preliminary DSH reports are due on
            or before June of the year following the state fiscal year for which
            data is being reported. The final DSH reports re due no later than
            July 15 of the year following the state fiscal year for which data
            is being reported.

12.3        ARBITRATION/LITIGATION CLAIMS REPORT
            ------------------------------------

            HMO must submit an Arbitration/Litigation Claims Report in a format
            provided by TDH (see Appendix M) identifying all provider or HMO
            requests for arbitration or matters in litigation. The report must
            be submitted within 30 days from the date the matter is referred to
            arbitration or suit is filed, or whenever there is a change of
            status in a matter referred to arbitration or litigation.

12.4        SUMMARY REPORT OF PROVIDER COMPLAINTS
            -------------------------------------

            HMO must submit a Summary Report of Provider Complaints. HMO must
            also report complaints submitted to its subcontracted risk groups
            (e.g., IPAs). The complaint report must be submitted in two paper
            copies and one electronic copy no later than 45 days after the end
            of the state fiscal quarter using a form specified by TDH.

12.5        PROVIDER NETWORK REPORTS
            ------------------------

12.5.1      Provider Network Reports. HMO must submit to the Enrollment Broker
            an electronic file summarizing changes in HMO's provider network
            including PCPs, specialists, ancillary providers and hospitals. The
            file must indicate if the PCPs and specialists participate in a
            closed network and the name of the delegated network. The electronic
            file must be submitted in the format specified by TDH and can be
            submitted as often as daily, but must be submitted at least weekly.

12.5.1.1    Provider Termination Report. HMO must submit a monthly report which
            identifies any providers who cease to participate in HMO's provider
            network, either voluntarily or involuntarily. The report must be
            submitted to TDH in the format specified by TDH. HMO will submit the
            report no later than thirty (30) days after the end of the reporting
            month. The information must include the provider's name, Medicaid
            number, the reason for the provider's termination, and whether the
            termination was voluntary or involuntary.

50                                                                  May 31, 2001

<PAGE>

12.6        MEMBER COMPLAINTS
            -----------------

            HMO must submit a quarterly summary report of Member complaints. HMO
            must also report complaints submitted to its delegated networks
            (e.g., IPAs). The complaint report format must be submitted to TDH
            as two paper copies and one electronic copy on or before 45 days
            following the end of the state fiscal quarter using a form specified
            by TDH.

12.10       QUALITY IMPROVEMENT REPORTS
            ---------------------------

12.10.2     Annual Focused Studies. Focused Studies on well child, pregnancy,
            and a study chosen by the plan must be submitted to TDH according to
            due dates established by TDH.

12.10.4     Provider Medical Record Audit and Report. HMO is required to conform
            to commonly accepted medical record standards such as those used by
            NCQA, JCAHO, or those used for credentialing review such as the
            Texas Environment of Care Assessment Program (TECAP), and have
            documentation on file at HMO for review by TDH or its designee
            during an on-site review.

12.11       HUB Reports

            -----------

            HMO must submit quarterly reports documenting HMO's HUB program
            efforts and accomplishments. The report must include a narrative
            description of HMO's program efforts and a financial report
            reflecting payments made to HUB. HMO must use the format included in
            Appendix B for HUB Quarterly reports. For HUB Certified Entities:
            HMO must include the General Service Commission (GSC) Vendor Number
            and the ethnicity/gender under which a contracting entity is
            registered with GSC. For HUB Qualified (but not certified) Entities:
            HMO must include the ethnicity /gender of the major owner(s) (51 %)
            of the entity. Any entities for which HMO cannot provide this
            information cannot be included in the HUB report. For both types of
            entities, an entity will not be included in the HUB Report if HMO
            does not list ethnicity/gender information.

12.12       THSTEPS REPORTS
            ---------------

            Minimum reporting requirements. HMO must submit, at a minimum, 80%
            of all THSteps checkups on HCFA 1500 claim forms as part of the
            encounter file submission to the TDH Claims Administrator no later
            than thirty (30) days after the date of final adjudication
            (finalization) of the claims. Failure to comply with these minimum
            reporting requirements will result in Article XVIII sanctions and
            money damages.

51                                                                  May 31, 2001

<PAGE>

13.         Article XIII is amended by adding the following bolded and
            italicized language and striking the following stricken language:

ARTICLE XIII    PAYMENT PROVISIONS

13.1        CAPITATION AMOUNTS
            ------------------

13.2        EXPERIENCE REBATE TO STATE
            --------------------------

13.2.1      For the contract period, HMO must pay to TDH an experience rebate
            calculated in accordance with the tiered rebate method listed below
            based on the excess of allowable HMO STAR revenues over allowable
            HMO STAR expenses as measured by any positive amount on Line 7 of
            "Part 1: Financial Summary, All Coverage Groups Combined" of the
            Final Managed Care Financial-Statistical Report set forth in
            Appendix I, as reviewed and confirmed by TDH. TDH reserves the right
            to have an independent audit performed to verify the information
            provided by HMO.

            -----------------------------------------------------------
            Graduated Rebate Method

            -----------------------------------------------------------
            Experience Rebate as a         HMO Share        State Share
                Percentage of
                   Revenues

            -----------------------------------------------------------
                     0%-3%                    100%               0%
            -----------------------------------------------------------
                 Over 3% - 7%                  75%              25%
            -----------------------------------------------------------
                 Over 7% - 10%                 50%              50%
            -----------------------------------------------------------
                 Over 10% - 15%                25%              75%
            -----------------------------------------------------------
                    Over 15%                    0%             100%
            -----------------------------------------------------------

13.2.2      Carry Forward of Prior Contract Period Losses: Losses incurred for
            one contract period can only be carried forward to the next contract
            period.

13.2.2.1    Carry Forward of Loss from one Service Delivery Area to Another: If
            HMO operates in multiple Service Delivery Areas (SDAs), losses in
            one SDA cannot be used to offset net income before taxes in another
            SDA.

13.2.3      Experience rebate will be based on a pre-tax basis.

52                                                                  May 31, 2001

<PAGE>

13.2.4      Population-Based Initiatives (PBIs) and Experience Rebates: HMO may
            subtract from an experience rebate owed to the State, expenses for
            population-based health initiatives that have been approved by TDH.
            A population-based initiative (PBI) is a project or program designed
            to improve some aspect of quality of care, quality of life, or
            health care knowledge for the community as a whole. Value-added
            service does not constitute a PBI. Contractually required services
            and activities do not constitute a PBI.

13.2.5      There will be two settlements for payment(s) of the experience
            rebate. The first settlement shall equal 100 percent of the
            experience rebate as derived from Line 7 of Part 1 (Net Income
            Before Taxes) of the first Final Managed Care Financial Statistical
            (MCFS) Report and shall be paid on the same day the first annual
            MCFS Report is submitted to TDH. The second settlement shall be an
            adjustment to the first settlement and shall be paid to TDH on the
            same day that the second Final MCFS Report is submitted to TDH if
            the adjustment is a payment from HMO to TDH. TDH or its agent may
            audit or review the MCFS reports. If TDH determines that corrections
            to the MCFS reports are required, based on a TDH audit/review or
            other documentation acceptable to TDH, to determine an adjustment to
            the amount of the second settlement, then final adjustment shall be
            made within two years from the date that HMO submits the second
            Final MCFS report. HMO must pay the first and second settlements on
            the due dates for the first and second Final MCFS reports
            respectively as identified in Article 12.1.4. TDH may adjust the
            experience rebate if TDH determines HMO has paid affiliates amounts
            for goods or services that are higher than the fair market value of
            the goods and services in the service area. Fair market value may be
            based on the amount HMO pays a non-affiliate(s) or the amount
            another HMO pays for the same or similar service in the service
            area. TDH has final authority in auditing and determining the amount
            of the experience rebate.

13.4        PAYMENT OF PERFORMANCE OBJECTIVE BONUSES
            ----------------------------------------

13.4.3      The HMO must submit the Performance Objectives Report and the
            Detailed Data Element Report as referenced in Article 13.3.2, within
            150 days from the end of each State fiscal year. Performance
            premiums will be paid to HMO within 120 days after the State
            receives and validates the data contained in each required
            Performance Objectives Report.

13.4.4      The performance objective allocation for HMO shall be assigned to
            each performance objective, described in Appendix K, in accordance
            with the following percentages:

53                                                                  May 31, 2001

<PAGE>

                 ---------------------------------------------------------------
                      EPSDT SCREENS                      Percent of Performance
                                                        Objective Incentive Fund

                 ---------------------------------------------------------------
                 1.  <12 months                                    12%
                 ---------------------------------------------------------------
                 2.  12 to 24 months                               12%
                 ---------------------------------------------------------------
                 3.  25 months - 20 years                          20%
                 ---------------------------------------------------------------

                 ---------------------------------------------------------------
                 IMMUNIZATIONS                           Percent of Performance
                                                        Objective Incentive Fund

                 ---------------------------------------------------------------
                 4.  <12 months                                     7%
                 ---------------------------------------------------------------
                 5.  12 to 24 months                                5%
                 ---------------------------------------------------------------

                 ---------------------------------------------------------------
                 ADULT ANNUAL VISITS                     Percent of Performance
                                                        Objective Incentive Fund

                 ---------------------------------------------------------------
                 6.  Adult Annual Visits                            3%
                 ---------------------------------------------------------------

                 ---------------------------------------------------------------
                 PREGNANCY VISITS                        Percent of Performance
                                                        Objective Incentive Fund

                 ---------------------------------------------------------------
                 7.  Initial Prenatal Exam                         15%
                 ---------------------------------------------------------------
                 8.  Visits by Gestational Age                     14%
                 ---------------------------------------------------------------
                 9.  Postpartum Visit                              12%
                 ---------------------------------------------------------------

14.         Article XIV is amended by adding the following bolded and italicized
            language and deleting the following stricken language:

14.1        ELIGIBILITY DETERMINATION
            -------------------------

14.1.3.3    Members of the Tigua Indian tribe.

14.4        AUTOMATIC RE-ENROLLMENT
            -----------------------

14.4.1      Members who are disenrolled because they are temporarily ineligible
            for Medicaid will be automatically re-enrolled in the same health
            plan. Temporary loss of eligibility is defined as a period of 6
            months or less.

54                                                                  May 31, 2001

<PAGE>

15.         Article XV is amended by adding the following bolded and italicized
            language and deleting the following stricken language:

15.6        ASSIGNMENT

            ----------

            This contract was awarded to HMO based on HMO's qualifications to
            perform personal and professional services. HMO cannot assign this
            contract without the written consent of TDI and TDH. This provision
            does not prevent HMO from subcontracting duties and responsibilities
            to qualified subcontractors. If TDI and TDH consent to an assignment
            of this contract, a transition period of 90 days will run from the
            date the assignment is approved by TDI and TDH so that Members'
            services are not interrupted and, if necessary, the notice provided
            for in Article 15.7 can be sent to Members. The assigning HMO must
            also submit a transition plan, as set out in Article 18.2.1, subject
            to TDH's approval.

15.7        MAJOR CHANGE IN CONTRACTING
            ---------------------------

            TDH may send notice to Members when a major change affecting HMO
            occurs. A "major change" includes, but is not limited to, a
            substantial change of subcontractors and assignment of this
            contract. TDH will provide HMO with an advanced copy of such letter
            prior to its printing and distribution. The notice letter to Members
            may permit the Members to re-select their plan and PCP. TDH will
            bear the cost of preparing and sending the notice letter in the
            event of an approved assignment of the contract. For any other major
            change in contracting, HMO will prepare the notice letter and submit
            it to TDH for review and approval. After TDH has approved the letter
            for distribution to Members, HMO will bear the cost of sending the
            notice letter.

15.8        NON-EXCLUSIVE
            -------------

            This contract is a non-exclusive agreement. Either party may
            contract with other entities for similar services in the same
            service area.

15.9        DISPUTE RESOLUTION
            ------------------

            The dispute resolution process adopted by TDH in accordance with
            Chapter 2260, Texas Government Code, will be used to attempt to
            resolve all disputes arising under this contract. All disputes
            arising under this contract shall be resolved through TDH's dispute
            resolution procedures, except where a remedy is provided for through

55                                                                  May 31, 2001

<PAGE>

            TDH's administrative rules or processes. All administrative remedies
            must be exhausted prior to other methods of dispute resolution.

15.10       DOCUMENTS CONSTITUTING CONTRACT
            -------------------------------

            This contract includes this document and all amendments and
            appendices to this document, the Request for Application, the
            Application submitted in response to the Request for Application,
            the Texas Medicaid Provider Procedures Manual and Texas Medicaid
            Bulletins addressed to HMOs, contract interpretation memoranda
            issued by TDH for this contract, and the federal waiver granting TDH
            authority to contract with HMO. If any conflict in provisions
            between these documents occurs, the terms of this contract and any
            amendments shall prevail. The documents listed above constitute the
            entire contract between the parties.

15.11       FORCE MAJEURE
            -------------

            TDH and HMO are excused from performing the duties and obligations
            under this contract for any period that they are prevented from
            performing their services as a result of a catastrophic occurrence,
            or natural disaster, clearly beyond the control of either party,
            including but not limited to an act of war, but excluding labor
            disputes.

15.12       NOTICES

            -------

            Notice may be given by any means which provides for verification of
            receipt. All notices to TDH shall be addressed to Bureau Chief,
            Texas Department of Health, Bureau of Managed Care, 1100 W. 49th
            Street, Austin, TX 78756-3168, with a copy to the Contract
            Administrator. Notices to HMO shall be addressed to CEO/President,

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

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

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

15.13       SURVIVAL

            --------

            The provisions of this contract which relate to the obligations of
            HMO to maintain records and reports shall survive the expiration or
            earlier termination of this contract for a period not to exceed six
            (6) years unless another period may be required by record retention
            policies of the State of Texas or HCFA.

56                                                                  May 31, 2001

<PAGE>

16.         Article XVI is amended by adding the bolded and italicized language
            and deleting the following stricken language:

ARTICLE XVI     DEFAULT AND REMEDIES

16.1        DEFAULT BY TDH
            --------------

16.1.11     FAILURE TO MAKE CAPITATION PAYMENTS
            -----------------------------------

            Failure by TDH to make capitation payments when due is a default
            under this contract.

16.1.2      FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES
            ----------------------------------------------

            Failure by TDH to perform a material duty or responsibility as set
            out in this contract is a default under this contract.

16.2        REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT
            -------------------------------------------

            HMO may terminate this contract as set out in Article 18.1.5 of this
            contract if TDH commits either of the events of default set out in
            Article 16.1.

16.3        DEFAULT BY HMO
            --------------

16.3.1      FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
            ---------------------------------------------

            Failure of HMO to perform an administrative function is a default
            under this contract. Administrative functions are any requirements
            under this contract that are not direct delivery of health care
            services, including claims payments, encounter data submission,
            filing any reports when due, cooperating in good faith with TDH, an
            entity acting on behalf of TDH, or an agency authorized by statute
            or law to require the cooperation of HMO in carrying out an
            administrative, investigative, or prosecutorial function of the
            Medicaid program, providing or producing records upon request, or
            entering into contracts or implementing procedures necessary to
            carry out contract obligations.

16.3.1.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

57                                                                  May 31, 2001

<PAGE>

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to perform an administrative function under this
            contract, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3;
            o Assess liquidated money damages as set out in Article 18.4; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.2      ADVERSE ACTION AGAINST HMO BY TDI
            ---------------------------------

            Termination or suspension of HMO's TDI Certificate of Authority or
            any adverse action taken by TDI that TDH determines will affect the
            ability of HMO to provide health care services to Members is a
            default under this contract.

16.3.2.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For an adverse action against HMO by TDI, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.3      INSOLVENCY

            ----------

            Failure of HMO to comply with state and federal solvency standards
            or incapacity of HMO to meet its financial obligations as they come
            due is a default under this contract.

58                                                                  May 31, 2001

<PAGE>

16.3.3.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's insolvency, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.4      FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
            ---------------------------------------------------

            Failure of HMO to comply with the federal requirements for Medicaid,
            including, but not limited to, federal law regarding
            misrepresentation, fraud, or abuse; and, by incorporation, Medicare
            standards, requirements, or prohibitions, is a default under this
            contract.

            The following events are defaults under this contract pursuant to 42
            U.S.C. ss.ss.1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1    HMO's substantial failure to provide medically necessary items and
            services that are required under this contract to be provided to
            Members;

16.3.4.2    HMO's imposition of premiums or charges on Members in excess of the
            premiums or charges permitted by federal law;

16.3.4.3    HMO's acting to discriminate among Members on the basis of their
            health status or requirements for health care services, including
            expulsion or refusal to enroll an individual, except as permitted by
            federal law, or engaging in any practice that would reasonably be
            expected to have the effect of denying or discouraging enrollment
            with HMO by eligible individuals whose medical condition or history
            indicates a need for substantial future medical services;

16.3.4.4    HMO's misrepresentation or falsification of information that is
            furnished to HCFA, TDH, a Member, a potential Member, or a health
            care provider;

59                                                                  May 31, 2001

<PAGE>

16.3.4.5    HMO's failure to comply with the physician incentive requirements
            under 42 U.S.C. ss.1396b(m)(2)(A)(x); or

16.3.4.6    HMO's distribution, either directly or through any agent or
            independent contractor, of marketing materials that contain false or
            misleading information, excluding materials prior approved by TDH.

16.3.5      REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. If HMO repeatedly fails
            to meet the requirements of Articles 16.3.4.1 through and including
            16.3.4.6, TDH must, regardless of what other sanctions are provided,
            appoint temporary management and permit Members to disenroll without
            cause. Exercise of any remedy in whole or in part does not limit TDH
            in exercising all or part of any remaining remedies.

            For HMO's failure to comply with federal laws and regulations, TDH
            may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3;
            o Appoint temporary management as set out in Article 18.5;
            o Initiate disenrollment of a Member or Members without cause as set
              out in Article 18.6;
            o Suspend or default all enrollment of individuals;
            o Suspend payment to HMO;
            o Recommend to HCFA that sanctions be taken against HMO as set out
              in Article 18.7;
            o Assess civil monetary penalties as set out in Article 18.8; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.6      FAILURE TO COMPLY WITH APPLICABLE STATE LAW
            -------------------------------------------

            HMO's failure to comply with Texas law applicable to Medicaid,
            including, but not limited to, Article 32.039 of the Texas Human
            Resources Code and state law regarding misrepresentation, fraud, or
            abuse, is a default under this contract.

16.3.6.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or

60                                                                  May 31, 2001

<PAGE>

            consecutively. Exercise of any remedy in whole or in part does not
            limit TDH in exercising all or part of any remaining remedies.

            For HMO's failure to comply with applicable state law, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3;
            o Assess administrative penalties as set out in Article 32.039,
              Government Code, with the opportunity for notice and appeal as
              required by Article 32.039; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.7      MISREPRESENTATION, FRAUD UNDER ARTICLE 4.8
            ------------------------------------------

            HMO's misrepresentation or fraud under Article 4.8 of this contract
            is a default under this contract.

16.3.7.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's misrepresentation or fraud under Article 4.8, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.8      EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
            ----------------------------------------------------

16.3.8.1    Exclusion of HMO or any of the managing employees or persons with an
            ownership interest whose disclosure is required by ss. 1124(a) of
            the Social Security Act (the Act) from the Medicaid or Medicare
            program under the provisions of ss. 1128(a) and/or (b) of the Act is
            a default under this contract.

61                                                                  May 31, 2001

<PAGE>

16.3.8.2    Exclusion of any provider or subcontractor or any of the managing
            employees or persons with an ownership interest of the provider or
            subcontractor whose disclosure is required by ss. 1124(a) of the
            Social Security Act (the Act) from the Medicaid or Medicare program
            from the Medicaid or Medicare program under the provisions of ss.
            1128(a) and/or (b) of the Act is a default under this contract if
            the exclusion will materially affect HMO's performance under this
            contract.

16.3.8.3    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's exclusion from Medicare or Medicaid, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.9      FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS
            ----------------------------------------------------------------

            HMO's failure to make timely and appropriate payments to network
            providers and Subcontractors is a default under this contract.
            Withholding or recouping capitation payments as allowed or required
            under other articles of this contract is not a default under this
            contract.

16.3.9.1    REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to make timely and appropriate payments to network
            providers and subcontractors, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

62                                                                  May 31, 2001

<PAGE>

            o Suspend new enrollment as set out in Article 18.3;
            o Assess liquidated money damages as set out in Article 18.4; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.10     FAILURE TO TIMELY ADJUDICATE CLAIMS
            -----------------------------------

            Failure of HMO to adjudicate (paid, denied, or external pended) at
            least ninety (90%) of all claims within thirty (30) days of receipt
            and ninety-nine percent (99%) of all claims within ninety days of
            receipt for the contract year is a default under this contract.

16.3.10.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consequently. Exercise of any remedy in
            whole or in part does not limit TDH in exercising all or part of any
            remaining remedies.

            For HMO's failure to timely adjudicate claims, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.11     FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS
            ----------------------------------------------------------------

            Failure to pass any of the mandatory system or delivery functions of
            the Readiness Review required in Article I of this contract is a
            default under the contract.

16.3.11.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to demonstrate the ability to perform contract
            functions, TDH may:

63                                                                  May 31, 2001

<PAGE>

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.12     FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
            ----------------------------------------------------------------
            NETWORK PROVIDERS
            -----------------

16.3.12.1   Failure of HMO to audit, monitor, supervise, or enforce functions
            delegated by contract to another entity that results in a default
            under this contract or constitutes a violation of state or federal
            laws, rules, or regulations is a default under this contract.

16.3.12.2   Failure of HMO to properly credential its providers, conduct
            reasonable utilization review, or conduct quality monitoring is a
            default under this contract.

16.3.12.3   Failure of HMO to require providers and contractors to provide
            timely and accurate encounter, financial, statistical, and
            utilization data is a default under this contract.

16.3.12.4   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to monitor and/or supervise activities of
            contractors or network providers, TDH may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.13     PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY
            ----------------------------------------------------

            HMO's placing the health and safety of the Members in jeopardy is a
            default under this contract.

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<PAGE>

16.3.13.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's placing the health and safety of Members in jeopardy, TDH
            may:

            o Terminate the contract if the applicable conditions set out in
              Article 18. 1.1 are met;
            o Suspend new enrollment as set out in Article 18.3; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.14     FAILURE TO MEET ESTABLISHED BENCHMARK
            -------------------------------------

            Failure of HMO to meet any benchmark established by TDH under this
            contract is a default under this contract.

16.3.14.1   REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
            ----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to TDH by law or in equity, are joint and several, and may
            be exercised concurrently or consecutively. Exercise of any remedy
            in whole or in part does not limit TDH in exercising all or part of
            any remaining remedies.

            For HMO's failure to meet any benchmark established by TDH under
            this contract, TDH may:

            o Remove the THSteps component from the capitation paid to HMO if
              the benchmark(s) missed is for THSteps;
            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3;
            o Assess liquidated money damages as set out in Article 18.4; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

17.         Article XVII is amended by adding bolded and italicized language and
            deleting the following stricken language:

ARTICLE XVII    NOTICE OF DEFAULT AND CURE OF DEFAULT

65                                                                  May 31, 2001

<PAGE>

17.1        TDH will provide HMO with written notice of default (Notice of
            Default) under this contract. The Notice of Default may be given by
            any means that provides verification of receipt. The notice of
            default must contain the following information:

17.1.4      A clear and concise statement of the time period during which HMO
            may cure the default if HMO is allowed to cure;

17.1.5      The remedy or remedies TDH is electing to pursue and when the remedy
            or remedies will take effect;

17.1.6      If TDH is electing to impose money damages and/or civil monetary
            penalties, the amount that TDH intends to withhold or impose and the
            factual basis on which TDH is imposing the chosen remedy or
            remedies;

17.1.7      Whether any part of money damages or civil monetary penalties, if
            TDH elects to pursue one or both of those remedies, may be passed
            through to an individual or entity who is or may be responsible for
            the act or omission for which default is declared;

17.1.8      Whether failure to cure the default within the given time period, if
            any, will result in TDH pursuing an additional remedy or remedies,
            including, but not limited to, additional damages or sanctions,
            referral for investigation or action by another agency, and/or
            termination of the contract.

18.         Article XVIII is amended by deleting existing Article XVIII and
            replacing it with new Article XVIII as follows:

ARTICLE XVIII   EXPLANATION OF REMEDIES

18.1        TERMINATION

            -----------

18.1.1      TERMINATION BY TDH
            ------------------

            TDH may terminate this contract if:

18.1.1.1    HMO substantially fails or refuses to provide medically necessary
            services and items that are required under this contract to be
            provided to Members after notice and opportunity to cure;

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<PAGE>

18.1.1.2    HMO substantially fails or refuses to perform administrative
            functions under this contract after notice and opportunity to cure;

18.1.1.3    HMO materially defaults under any of the provisions of Article XVI;

18.1.1.4    Federal or state funds for the Medicaid program are no longer
            available; or

18.1.1.5    TDH has a reasonable belief that HMO has placed the health or
            welfare of Members in jeopardy.

18.1.2      TDH must give HMO 90 days written notice of intent to terminate this
            contract if termination is the result of HMO's substantial failure
            or refusal to perform administrative functions or a material default
            under any of the provisions of Article XVI. TDH must give HMO
            reasonable notice under the circumstances if termination is the
            result of federal or state funds for the Medicaid program no longer
            being available. TDH must give the notice required under TDH's
            formal hearing procedures set out in Section 1.2.1 in Title 25 of
            the Texas Administrative Code if termination is the result of HMO's
            substantial failure or refusal to provide medically necessary
            services and items that are required under the contract to be
            provided to Members or TDH's reasonable belief that HMO has placed
            the health or welfare of Members in jeopardy.

18.1.2.1    Notice may be given by any means that gives verification of receipt.

18.1.2.2    Unless termination is the result of HMO's substantial failure or
            refusal to provide medically necessary services and items that are
            required under this contract to be provided to Members or is the
            result of TDH's reasonable belief that HMO has placed the health or
            welfare of Members in jeopardy, the termination date is 90 days
            following the date that HMO receives the notice of intent to
            terminate. For HMO's substantial failure or refusal to provide
            services and items, HMO is entitled to request a pre-termination
            hearing under TDH's formal hearing procedures set out in Section
            1.2.1 of Title 25, Texas Administrative Code.

18.1.3      TDH may, for termination for HMO's substantial failure or refusal to
            provide medically necessary services and items, notify HMO's Members
            of any hearing requested by HMO and permit Members to disenroll
            immediately without cause. Additionally, if TDH terminates for this
            reason, TDH may enroll HMO's Members with another HMO or permit
            HMO's Members to receive Medicaid-covered services other than from
            an HMO.

18.1.4      HMO must continue to perform services under the transition plan
            described in Article 18.2.1 until the last day of the month
            following 90 days from the date of receipt of

67                                                                  May 31, 2001

<PAGE>

            notice if the termination is for any reason other than TDH's
            reasonable belief that HMO is placing the health and safety of the
            Members in jeopardy. If termination is due to this reason, TDH may
            prohibit HMO's further performance of services under the contract.

18.1.5      If TDH terminates this contract, HMO may appeal the termination
            under ss.32.034, Texas Human Resources Code.

18.1.6      TERMINATION BY HMO
            ------------------

            HMO may terminate this contract if TDH fails to pay HMO as required
            under Article XIII of this contract or otherwise materially defaults
            in its duties and responsibilities under this contract, or by giving
            notice no later than 30 days after receiving the capitation rates
            for the second contract year. Retaining premium, recoupment,
            sanctions, or penalties that are allowed under this contract or that
            result from HMO's failure to perform or HMO's default under the
            terms of this contract is not cause for termination.

18.1.7      HMO must give TDH 90 days written notice of intent to terminate this
            contract. Notice may be given by any means that gives verification
            of receipt. The termination date will be calculated as the last day
            of the month following 90 days from the date the notice of intent to
            terminate is received by TDH.

18.1.8      TDH must be given 30 days from the date TDH receives HMO's written
            notice of intent to terminate for failure to pay HMO to pay all
            amounts due. If TDH pays all amounts then due within this 30-day
            period, HMO cannot terminate the contract under this article for
            that reason.

18.1.9      TERMINATION BY MUTUAL CONSENT
            -----------------------------

            This contract may be terminated at any time by mutual consent of
            both HMO and TDH.

18.2        DUTIES OF CONTRACTING PARTIES UPON TERMINATION
            ----------------------------------------------

            When termination of the contract occurs, TDH and HMO must meet the
            following obligations:

18.2.1      TDH and HMO must prepare a transition plan, which is acceptable to
            and approved by TDH, to ensure that Members are reassigned to other
            plans without interruption of services. That transition plan will be
            implemented during the 90-day period between receipt of notice and
            the termination date unless termination is the result of

68                                                                  May 31, 2001

<PAGE>

            TDH's reasonable belief that HMO is placing the health or welfare of
            Members in jeopardy.

18.2.2      If the contract is terminated by TDH for any reason other than
            federal or state funds for the Medicaid program no longer being
            available or if HMO terminates the contract based on lower
            capitation rates for the second contract year as set out in Article
            13.1.4.1:

18.2.2.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services;

18.2.2.2    HMO is responsible for all expenses related to giving notice to
            Members; and

18.2.2.3    HMO is responsible for all expenses incurred by TDH in implementing
            the transition plan.

18.2.3      If the contract is terminated by HMO for any reason other than based
            on lower capitation rates for the second contract year as set out in
            Article 13.1.4.1:

18.2.3.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services;

18.2.3.2    TDH is responsible for all expenses related to giving notice to
            Members; and.

18.2.3.3    TDH is responsible for all expenses it incurs in implementing the
            transition plan.

18.2.4      If the contract is terminated by mutual consent:

18.2.4.1    TDH is responsible for notifying all Members of the date of
            termination and how Members can continue to receive contract
            services

18.2.4.2    HMO is responsible for all expenses related to giving notice to
            Members; and

18.2.4.3    TDH is responsible for all expenses it incurs in implementing the
            transition plan.

18.3        SUSPENSION OF NEW ENROLLMENT
            ----------------------------

18.3.1      TDH must give HMO 30 days notice of intent to suspend new enrollment
            in the Notice of Default other than for default for fraud and abuse
            or imminent danger to the health or safety of Members. The
            suspension date will be calculated as 30 days following the date
            that HMO receives the Notice of Default.

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<PAGE>

18.3.2      TDH may immediately suspend new enrollment into HMO for a default
            declared as a result of fraud and abuse or imminent danger to the
            health and safety of Members.

18.3.3      The suspension of new enrollment may be for any duration, up to the
            termination date of the contract. TDH will base the duration of the
            suspension upon the type and severity of the default and HMO's
            ability, if any, to cure the default.

18.4        LIQUIDATED MONEY DAMAGES
            ------------------------

18.4.1      The measure of damages in the event that HMO fails to perform its
            obligations under this contract may be difficult or impossible to
            calculate or quantify. Therefore, should HMO fail to perform in
            accordance with the terms and conditions of this contract, TDH may
            require HMO to pay sums as specified below as liquidated damages.
            The liquidated damages set out in this Article are not intended to
            be in the nature of a penalty but are intended to be reasonable
            estimates of TDH's financial loss and damage resulting from HMO's
            non-performance.

18.4.2      If TDH imposes money damages, TDH may collect those damages by
            reducing the amount of any monthly premium payments otherwise due to
            HMO by the amount of the damages. Money damages that are withheld
            from monthly premium payments are forfeited and will not be
            subsequently paid to HMO upon compliance or cure of default unless a
            determination is made after appeal that the damages should not have
            been imposed.

18.4.3      Failure to file or filing incomplete or inaccurate annual,
            semi-annual or quarterly reports may result in money damages of not
            more than $11,000.00 for every month from the month the report is
            due until submitted in the form and format required by TDH. These
            money damages apply separately to each report.

18.4.4      Failure to produce or provide records and information requested by
            TDH, an entity acting on behalf of TDH, or an agency authorized by
            statute or law to require production of records at the time and
            place the records were required or requested may result in money
            damages of not more than $5,000.00 per day for each day the records
            are not produced as required by the requesting entity or agency if
            the requesting entity or agency is conducting an investigation or
            audit relating to fraud or abuse, and not more than $1,000.00 per
            day for each day records are not produced if the requesting entity
            or agency is conducting routine audits or monitoring activities.

18.4.5      Failure to file or filing incomplete or inaccurate encounter data
            may result in money damages of not more than $25,000 for each month
            HMO fails to submit encounter data in the form and format required
            by TDH. TDH will use the encounter data

70                                                                  May 31, 2001

<PAGE>

            validation methodology established by TDH to determine the number of
            encounter data and the number of months for which damages will be
            assessed.

18.4.6      Failing or refusing to cooperate with TDH, an entity acting on
            behalf of TDH, or an agency authorized by statute or law to require
            the cooperation of HMO in carrying out an administrative,
            investigative, or prosecutorial function of the Medicaid program may
            result in money damages of not more than $8,000.00 per day for each
            day HMO fails to cooperate.

18.4.7      Failure to enter into a required or mandatory contract or failure to
            contract for or arrange to have all services required under this
            contract provided may result in money damages of not more than
            $1,000.00 per day that HMO either fails to negotiate in good faith
            to enter into the required contract or fails to arrange to have
            required services delivered.

18.4.8      Failure to meet the benchmark for benchmarked services under this
            contract may result in money damages of not more than $25,000 for
            each month that HMO fails to meet the established benchmark.

18.4.9      TDH may also impose money damages for a default under Article
            16.3.9, Failure to Make Payments to Network Providers and
            subcontractors, of this contract. These money damages are in
            addition to the interest HMO is required to pay to providers under
            the provisions of Articles 4.10.4 and 7.2.8.10 of this contract.

18.4.9.1    If TDH determines that HMO has failed to pay a provider for a claim
            or claims for which the provider should have been paid, TDH may
            impose money damages of $2 per day for each day the claim is not
            paid from the date the claim should have been paid (calculated as 30
            days from the date a clean claim was received by HMO) until the
            claim is paid by HMO.

18.4.9.2    If TDH determines that HMO has failed to pay a capitation amount to
            a provider who has contracted with HMO to provide services on a
            capitated basis, TDH may impose money damages of $10 per day, per
            Member for whom the capitation is not paid, from the date on which
            the payment was due until the capitation amount is paid.

18.5        APPOINTMENT OF TEMPORARY MANAGEMENT
            -----------------------------------

18.5.1      TDH may appoint temporary management to oversee the operation of HMO
            upon a finding that there is continued egregious behavior by HMO or
            there is a substantial risk to the health of the Members.

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<PAGE>

18.5.2      TDH may appoint temporary management to assure the health of HMO's
            Members if there is a need for temporary management while:

18.5.2.1    there is an orderly termination or reorganization of HMO; or

18.5.2.2    improvements are made to remedy violations found under Article
            16.3.4.

18.5.3      Temporary management will not be terminated until TDH has determined
            that HMO has the capability to ensure that the violations that
            triggered appointment of temporary management will not recur.

18.5.4      TDH is not required to appoint temporary management before
            terminating this contract.

18.5.5      No pre-termination hearing is required before appointing temporary
            management.

18.5.6      As with any other remedy provided under this contract, TDH will
            provide notice of default as is set out in Article XVII to HMO.
            Additionally, as with any other remedy provided under this contract,
            under Article 18.1 of this contract, HMO may dispute the imposition
            of this remedy and seek review of the proposed remedy.

18.6        TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE
            ----------------------------------------------------------------

            TDH must give HMO 30 days notice of intent to initiate disenrollment
            of a Member of Members in the Notice of Default. The TDH-initiated
            disenrollment date will be calculated as 30 days following the date
            that HMO receives the Notice of Default.

18.7        RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO
            ----------------------------------------------------------

18.7.1      If HCFA determines that HMO has violated federal law or regulations
            and that federal payments will be withheld, TDH will deny and
            withhold payments for new enrollees of HMO.

18.7.2      HMO must be given notice and opportunity to appeal a decision of TDH
            and HCFA pursuant to 42 CFR ss.434.67.

18.8        CIVIL MONETARY PENALTIES
            ------------------------

18.8.1      For a default under Article 16.3.4.1, TDH may assess not more than
            $25,000 for each default;

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<PAGE>

18.8.2      For a default under Article 16.3.4.2, TDH may assess double the
            excess amount charged in violation of the federal requirements for
            each default. The excess amount shall be deducted from the penalty
            and returned to the Member concerned.

18.8.3      For a default under Article 16.3.4.3, TDH may assess not more than $
            100,000 for each default, including $15,000 for each individual not
            enrolled as a result of the practice described in Article 16.3.4.3.

18.8.4      For a default under Article 16.3.4.4, TDH may assess not more than
            $100,000 for each default if the material was provided to HCFA or
            TDH and not more than $25,000 for each default if the material was
            provided to a Member, a potential Member, or a health care provider.

18.8.5      For a default under Article 16.3.4.5, TDH may assess not more than
            $25,000 for each default.

18.8.6      For a default under Article 16.3.4.6, TDH may assess not more than
            $25,000 for each default.

18.8.7      HMO may be subject to civil money penalties under the provisions of
            42 CFR 1003 in addition to or in place of withholding payments for a
            default under Article 16.3.4.

18.9        FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
            -------------------------------------------------------

            TDH may require forfeiture of all or a portion of the face amount of
            the TDI performance bond if TDH determines that an event of default
            has occurred. Partial payment of the face amount shall reduce the
            total bond amount available pro rata.

18.10       REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED
            ------------------------------------------

18.10.1     HMO may dispute the imposition of any sanction under this contract.
            HMO notifies TDH of its dispute by filing a written response to the
            Notice of Default, clearly stating the reason HMO disputes the
            proposed sanction. With the written response, HMO must submit to TDH
            any documentation that supports HMO's position. HMO must file the
            review within 15 days from HMO's receipt of the Notice of Default.
            Filing a dispute in a written response to the Notice of Default
            suspends imposition of the proposed sanction.

18.10.2     HMO and TDH must attempt to informally resolve the dispute. If HMO
            and TDH are unable to informally resolve the dispute, HMO must
            notify the Bureau Chief of Managed Care that HMO and TDH cannot
            agree. The Bureau Chief will refer the dispute to the Associate
            Commissioner for Health Care Financing who will appoint

73                                                                  May 31, 2001

<PAGE>

            a committee to review the dispute under TDH's dispute resolution
            procedures. The decision of the dispute resolution committee will be
            TDH's final administrative decision.

19.         Article XIX is amended by adding the following bold and italicized
            language and deleting the stricken language as follows:

ARTICLE XIX     TERM

19.2        This contract may be renewed for an additional one-year period by
            written amendment to the contract executed by the parties prior to
            the termination date of the present contract. TDH will notify HMO no
            later than 90 days before the end of the contract period of its
            intent not to renew the contract.

19.3        If either party does not intend to renew the contract beyond its
            contract period, the party intending not to renew must submit a
            written notice of its intent not to renew to the other party no
            later than 90 days before the termination date set out in Article
            19.1.

19.4        If either party does not intend to renew the contract beyond its
            contract period and sends the notice required in Article 19.3, a
            transition period of 90 days will run from the date the notice of
            intent not to renew is received by the other party. By signing this
            contract, the parties agree that the terms of this contract shall
            automatically continue during any transition period.

19.5        The party that does not intend to renew the contract beyond its
            contract period and sends the notice required by Article 19.3 is
            responsible for sending notices to all Members on how the Member can
            continue to receive covered services. The expense of sending the
            notices will be paid by the non-renewing party. If TDH does not
            intend to renew and sends the required notice, TDH is responsible
            for any costs it incurs in ensuring that Members are reassigned to
            other plans without interruption of services. If HMO does not intend
            to renew and sends the required notice, HMO is responsible for any
            costs TDH incurs in ensuring that Members are reassigned to other
            plans without interruption of services. If both parties do not
            intend to renew the contract beyond its contract period, TDH will
            send the notices to Members and the parties will share equally in
            the cost of sending the notices and of implementing the transition
            plan.

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<PAGE>

20.         The Appendices are amended by deleting existing Appendix A,
            "Standards for Quality Improvement Programs" and replacing it with
            new Appendix A "Standards for Quality Improvement Programs", as
            attached.

21.         The Appendices are amended by deleting from Appendix B "HUB Progress
            Assessment Reports" the reporting sheet entitled "Progress
            Assessment Report By Non-Historically Utilized Business of Work
            Sub-Contracted (Non-HUB-PAR)" and replacing it with new reporting
            sheet in Appendix B, as attached.

22.         The Appendices are amended by deleting the current Appendix C,
            "Scope of Services" and replacing it with new Appendix C
            "Value-added Services", as attached.

23.         The Appendices are amended by deleting current Appendix D, "Family
            Planning Providers" and replacing it with new Appendix D "Required
            Critical Elements", which was formerly Appendix M and has been
            redesignated.

24.         The Appendices are amended by deleting existing Appendix E,
            "Transplant Facilities" and replacing it with new Appendix E
            "Transplant Facilities", as attached.

25.         The Appendices are amended by deleting existing Appendix F, "Trauma
            Facilities" and replacing it with new Appendix F "Trauma
            Facilities", as attached.

26.         The Appendices are amended by deleting existing Appendix G,
            "Hemophilia Treatment Centers and Programs" and replacing it with
            new Appendix G, "Hemophilia Treatment Centers and Programs", as
            attached.

27.         The Appendices are amended by deleting existing Appendix H,
            "Utilization Management Report - Behavioral Health" and replacing it
            with new Appendix H, "Utilization Management Report - Behavioral
            Health", as attached.

28.         The Appendices are amended by deleting existing Appendix I, "Managed
            Care Financial-Statistical Report" and replacing it with new
            Appendix I, "Managed Care Financial-Statistical Report", as
            attached.

29.         The Appendices are amended by deleting existing Appendix J,
            "Utilization Management Report - Physical Health" and replacing it
            with new Appendix J, "Utilization Management Report - Physical
            Health", as attached.

30.         The Appendices are amended by deleting existing Appendix K,
            "Preventive Performance Objectives" and replacing it with new
            Appendix K, "Preventive Performance Objectives", as attached.

75                                                                  May 31, 2001

<PAGE>

31.         The current Appendix M, "Required Critical Elements" is replaced by
            new Appendix M, "Arbitration/Litigation Report", as attached.

AGREED AND SIGNED by an authorized representative of the parties on Aug. 2,
2001.

TEXAS DEPARTMENT OF HEALTH                  Superior Health Plan, Inc.

By: /s/ C. E. BELL, M.D.                    By: /s/ MICHAEL D MCKINNEY, M.D.
    ------------------------------              ------------------------------
    Charles E. Bell, M.D.                       Michael D. McKinney, M.D.
    Executive Deputy Commissioner               President and CEO
    of Health

Approved as to Form:

/s/ MAS
------------------------------
Office of General Counsel

TDH Doc. # 7427705425* 2001-01F

76                                                                  May 31, 2001

<PAGE>

                                 AMENDMENT NO. 6
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN
                  HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 6 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the El
Paso Service Area. The effective date of this amendment is September 1, 2001.
The Parties agree to amend the Contract as follows:

1.   HHSC and HMO acknowledge the transfer of responsibility and the assignment
     of the original Contract for Services from TDH to HHSC on September 1,
     2001. Where the original Contract for Services and any Amendment to the
     original Contract for Services assigns a right, duty, or responsibility to
     TDH, that right, duty, or responsibility may be exercised by HHSC or its
     designee.

2.   Articles II, III, VI, VII, VIII, IX, X, XII, XIII, XV, XVI, XVIII and XIX
     are amended to read as follows:

2.0         DEFINITIONS

            -----------

            Chemical Dependency Treatment Facility means a facility licensed by
            the Texas Commission on Alcohol and Drug Abuse (TCADA) under Sec.
            464.002 of the Health and Safety Code to provide chemical dependency
            treatment.

            Chemical Dependency Treatment means treatment provided for a
            chemical dependency condition by a Chemical Dependency Treatment
            Facility, Chemical Dependency Counselor or Hospital.

            Chemical Dependency Condition means a condition which meets at least
            three of the diagnostic criteria for psychoactive substance
            dependence in the American Psychiatric Association's Diagnostic and
            Statistical Manual of Mental Disorders (DSM IV).

            Chemical Dependency Counselor means an individual licensed by TCADA
            under Sec. 504 of the Occupations Code to provide chemical
            dependency treatment or a master's level therapist (LMSW-ACP, LMFT
            or LPC) or a master's level therapist (LMSW-ACP, LMFT or LPC) with a
            minimum of two years of post licensure experience in chemical
            dependency treatment.

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            Experience rebate means the portion of the HMO's net income before
            taxes (financial Statistical Report, Part 1, Line 7) that is
            returned to the state in accordance with Article 13.2.1.

            Joint Interface Plan (JIP) means a document used to communicate
            basic system interface information of the Texas Medicaid
            Administrative System (TMAS) among and across State TMAS Contractors
            and Partners so that all entities are aware of the interfaces that
            affect their business. This information includes: file structure,
            data elements, frequency, media, type of file, receiver and sender
            of the file, and file I.D. The JIP must include each of the HMO's
            interfaces required to conduct State TMAS business. The JIP must
            address the coordination with each of the Contractor's interface
            partners to ensure the development and maintenance of the interface;
            and the timely transfer of required data elements between
            contractors and partners.

3.5         RECORDS REQUIREMENTS AND RECORDS RETENTION
            ------------------------------------------

3.5.8       The use of Medicaid funds for abortion is prohibited unless the
            pregnancy is the result of a rape, incest, or continuation of the
            pregnancy endangers the life of the woman. A physician must certify
            in writing that based on his/her professional judgment, the life of
            the mother would be endangered if the fetus were carried to term.
            HMO must maintain a copy of the certification for at least three
            years.

6.6         BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
            -------------------------------------------------------

6.6.13      Chemical dependency treatment must conform to the standards set
            forth in the Texas Administrative Code, Title 28, Part 1, Chapter 3,
            Subchapter HH.

6.8         TEXAS HEALTH STEPS (EPSDT)
            --------------------------

6.8.3       Provider Education and Training. HMO must provide appropriate
            training to all network providers and provider staff in the
            providers' area of practice regarding the scope of benefits
            available and the THSteps program. Training must include THSteps
            benefits, the periodicity schedule for THSteps checkups, and
            immunizations, the required elements of a THSteps medical screen,
            providing or arranging for all required lab screening tests
            (including lead screening), and Comprehensive Care Program (CCP)
            services available under the THSteps program to Members under age 21
            years. Providers must also be educated and trained regarding the
            requirements imposed upon the department and contracting HMOs under
            the Consent Decree entered in Frew vs. McKinney, et al., Civil
            Action No. 3:93CV65, in the United States District Court for the
            Eastern District of Texas, Paris Division. Providers should be
            educated and trained to treat each THSteps visit as an opportunity
            for a comprehensive assessment of the Member.

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            HMO must report provider education and training regarding THSteps in
            accordance with Article 7.4.4.

7.2         PROVIDER CONTRACTS
            ------------------

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

7.5         MEMBER PANEL REPORTS
            --------------------

7.5         HMO must furnish each PCP with a current list of enrolled Members
            enrolled or assigned to that Provider no later than 5 working days
            after HMO receives the Enrollment File from the Enrollment Broker
            each month.

7.7         PROVIDER QUALIFICATIONS - GENERAL
            ---------------------------------

            The providers in HMO network must meet the following qualifications:

--------------------------------------------------------------------------------
FQHC                A Federally Qualified Health Center meets the standards
                    established by federal rules and procedures. The FQHC must
                    also be an eligible provider enrolled in the Medicaid.

--------------------------------------------------------------------------------
Physician           An individual who is licensed to practice medicine as an MD
                    or a DO in the State of Texas either as a primary care
                    provider or in the area of specialization under which they
                    will provide medical services under contract with HMO; who
                    is a provider enrolled in the Medicaid; who has a valid Drug
                    Enforcement Agency registration number, and a Texas
                    Controlled Substance Certificate, if either is required in
                    their practice.
--------------------------------------------------------------------------------
Hospital            An institution licensed as a general or special hospital by
                    the State of Texas under Chapter 241 of the Health and
                    Safety Code which is enrolled as a provider in the Texas
                    Medicaid Program. HMO will require that all facilities in
                    the network used for acute inpatient specialty care for
                    people under age 21 with disabilities or chronic or complex
                    conditions will have a designated pediatric unit; 24 hour
                    laboratory and blood bank availability; pediatric
                    radiological capability; meet JCAHO standards; and have
                    discharge planning and social service units.

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--------------------------------------------------------------------------------
Non-Physician       An individual holding a license issued by the applicable
Practitioner        licensing agency of the State of Texas who is enrolled in
Provider            the Texas Medicaid Program.

--------------------------------------------------------------------------------
Clinical            An entity having a current certificate issued under the
Laboratory          Federal Clinical Laboratory Improvement Act (CLIA), and
                    is enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health        An institution which meets all of the criteria for
Clinic (RHC)        designation as a rural health clinic and is enrolled in the
                    Texas Medicaid Program.
--------------------------------------------------------------------------------
Local Health        A local health department established pursuant to Health and
Department          Safety Code, Title 2, Local Public Health Reorganization
                    Act ss.121.031ff.
--------------------------------------------------------------------------------
Non-Hospital        A provider of health care services which is licensed and
Facility Provider   credentialed to provide services and is enrolled in the
                    Texas Medicaid Program.
--------------------------------------------------------------------------------
School-Based        Clinics located at school campuses that provide on site
Health Clinic       primary and preventive care to children and adolescents.
(SBHC)
--------------------------------------------------------------------------------
Chemical            A facility licensed by the Texas Commission on Alcohol and
Dependency          Drug Abuse (TCADA) under Sec. 464.002 of the Health and
Treatment           Safety Code to provide chemical dependency treatment.
Facility

--------------------------------------------------------------------------------
Chemical            An individual licensed by TCADA under Sec. 504 of the
Dependency          Occupations Code to provide chemical dependency treatment or
Counselor           a master's level therapist (LMSW-ACP, LMFT or LPC) with a
                    minimum of two years of post-licensure experience in
                    chemical dependency treatment.
--------------------------------------------------------------------------------

7.10        SPECIALTY CARE PROVIDERS
            ------------------------

7.10.1      HMO must maintain specialty providers, actively serving within that
            specialty, including pediatric specialty providers and chemical
            dependency specialty providers, within the network in sufficient
            numbers and areas of practice to meet the needs of all Members
            requiring specialty care services.

7.11        SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
            -----------------------------------------------

7.11.1      HMO must include all medically necessary specialty services through
            its network specialists, sub-specialists and specialty care
            facilities (e.g., children's hospitals, licensed chemical dependency
            treatment facilities and tertiary care hospitals).

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8.2         MEMBER HANDBOOK
            ---------------

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

8.4         MEMBER ID CARDS
            ---------------

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

9.2         MARKETING ORIENTATION AND TRAINING
            ----------------------------------

9.2.1       HMO must require that all HMO staff having direct marketing contact
            with Members as part of their job duties and their supervisors
            satisfactorily complete HHSC's marketing orientation and training
            program, conducted by HHSC or health plan staff trained by HHSC,
            prior to engaging in marketing activities on behalf of HMO. HHSC
            will notify HMO of scheduled orientations.

9.2.2       Marketing Policies and Procedures. HMO must adhere to the Marketing
            Policies and Procedures as set forth by the Health and Human
            Services Commission.

10.1        MODEL MIS REQUIREMENTS
            ----------------------

10.1.3      HMO must have a system that can be adapted to the change in Business
            Practices/Policies within the timeframe negotiated between HHSC and
            the HMO.

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<PAGE>

10.1.3.1    HMO must notify and advise BIR of major systems changes and
            implementations. HMO is required to provide an implementation plan
            and schedule of proposed system change at the time of this
            notification.

10.1.3.2    BIR conducts a Systems Readiness test to validate the contractor's
            ability to meet the MMIS requirements. This is done through systems
            demonstration and performance of specific MMIS and subsystem
            functions. The System Readiness test may include a desk review
            and/or an onsite review and is conducted for the following events:

            o A new plan is brought into the program

            o An existing plan begins business in a new SDA

            o An existing plan changes location

            o An existing plan changes their processing system

10.1.3.3    Desk Review. HMO must complete and pass systems desk review prior to
            onsite systems testing conducted by HHSC.

10.1.3.4    Onsite Review. HMO is required to provide a detailed and
            comprehensive Disaster and Recovery Plan, and complete and pass an
            onsite Systems Facility Review during the State's onsite systems
            testing.

10.1.3.5    HMO is required to provide a Corrective Action Plan in response to
            HHSC Systems Readiness Testing Deficiencies no later than 10 working
            days after notification of deficiencies by HHSC.

10.1.3.6    HMO is required to provide representation to attend and participate
            in the HHSC Systems Workgroup as a part of the weekly Systems Scan
            Call.

10.1.9      HMO must submit a joint interface plan (JIP) in a format specified
            by HHSC. The JIP will include required information on all contractor
            interfaces that support the Medicaid Information Systems. The
            submission of the JIP will be in coordination with other TMAS
            contractors and is due no later than 10 working days after the end
            of each state fiscal year calendar.

10.3        ENROLLMENT ELIGIBILITY SUBSYSTEM
            --------------------------------

(11)        Send PCP assignment updates to HHSC or its designee, in the format
            specified by HHSC or its designee. Updates can be sent as often as
            daily but must be sent at least weekly.

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<PAGE>

12.1        FINANCIAL REPORTS
            -----------------

12.1.1      MCFS Report. HMO must submit the Managed Care Financial Statistical
            Report (MCFS) included in Appendix I. The report must be submitted
            to HHSC no later than 30 days after the end of each state fiscal
            year quarter (i.e., Dec. 30, March 30, June 30, Sept. 30) and must
            include complete and updated financial and statistical information
            for each month of the state fiscal year-to-date reporting period.
            The MCFS Report must be submitted for each claims processing
            subcontractor in accordance with this Article. HMO must incorporate
            financial and statistical data received by its delegated networks
            (IPAs, ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.4      Final MCFS Reports. HMO must file two Final Managed Care
            Financial-Statistical Reports after the end of the second year of
            the contract for the first two year portion of the contract and
            again after the third year of the contract for the third year
            (second portion) of the contract. The first final report must
            reflect expenses incurred through the 90th day after the end of the
            first two-year portion of the contract and again after the end of
            the third year of the contract for the third year (second portion)
            of the contract. The first final report must be filed on or before
            the 120th day after the end of each portion of the contract. The
            second final report must reflect data completed through the 334th
            day after the end of the second year of the contract for the first
            two year portion of the contract and again after the end of the
            third year of the contract for the third year (second portion) of
            the contract and must be filed on or before the 365th day following
            the end of each portion of the contract year.

12.5        PROVIDER NETWORK REPORTS
            ------------------------

12.5.3      PCP Error Report. HMO must submit to the Enrollment Broker an
            electronic file summarizing changes in PCP assignments. The file
            must be submitted in a format specified by HHSC and can be submitted
            as often as daily but must be submitted at least weekly. When HMO
            receives a PCP assignment Error Report /File, HMO must send
            corrections to HHSC or its designee within five working days.

12.13       EXPEDITED PRENATAL OUTREACH REPORT
            ----------------------------------

12.13       HMO must submit the Expedited Prenatal Outreach Report for each
            monthly reporting period in accordance with a format developed by
            HHSC in consultation with the HMOs. The report must include elements
            that demonstrate the level of effort and the outcomes of the HMO in
            outreaching to pregnant women for the purpose of scheduling and/or
            completing the initial obstetrical examination prior to 14 days
            after the receipt of the daily enrollment file by the HMO. Each
            monthly report is due by the last day of the month following each
            monthly reporting period.

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<PAGE>

13.1        CAPITATION AMOUNTS
            ------------------

13.1.2      Delivery Supplemental Payment (DSP). The monthly capatation amounts
            and the DSP amount are listed below.

                 --------------------------------------------------------
                 Risk Group                    Monthly Capatation Amounts

                 --------------------------------------------------------
                 TANF Adults                            $178.01
                 --------------------------------------------------------
                 TANF Children greater than 12          $ 83.96
                 Months of Age
                 --------------------------------------------------------
                 Expansion Children greater than 12     $ 72.32
                 Months of Age
                 --------------------------------------------------------
                 Newborns less than/= 12 Months of      $362.28
                 Age
                 --------------------------------------------------------
                 TANF Children less than/= 12           $362.28
                 Months of Age
                 --------------------------------------------------------
                 Expansion Children less than/= 12      $362.28
                 Months of Age
                 --------------------------------------------------------
                 Federal Mandate Children               $ 47.77
                 --------------------------------------------------------
                 CHIP Phase 1                           $ 61.85
                 --------------------------------------------------------
                 Pregnant Women                         $213.88
                 --------------------------------------------------------
                 Disabled/Blind                         $ 14.00
                 Administration
                 --------------------------------------------------------

            Delivery Supplemental Payment: A one-time per pregnancy supplemental
            payment for each delivery shall be paid to HMO as provided below in
            the following amount: $2,992.02.

13.1.3.1    Once HMO has received its capitation rates established by HHSC for
            the second or third year of this contract, HMO may terminate this
            contract as provided in Article 18.1.6.

13.1.7      HMO renewal rates reflect program increases appropriated by the 76th
            and 77th legislature for physician (to include THSteps providers)
            and outpatient facility services. HMO must report to HHSC any change
            in rates for participating physicians (to include THSteps providers)
            and outpatient facilities resulting from this increase. The report
            must be submitted to HHSC at the end of the first quarter of the
            FY2000, FY2001 and FY2002 contract years according to the
            deliverables matrix schedule set for HMO.

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13.2        EXPERIENCE REBATE TO THE STATE
            ------------------------------

13.2.1      For the contract period, HMO must pay to TDH an experience rebate
            calculated in accordance with the tiered rebate method listed below
            based on the excess of allowable HMO STAR revenues over allowable
            HMO STAR expenses as measured by any positive amount on Line 7 of
            "Part 1: Financial Summary, All Coverage Groups Combined" of the
            annual Managed Care Financial-Statistical Report set forth in
            Appendix I, as reviewed and confirmed by TDH. TDH reserves the right
            to have an independent audit performed to verify the information
            provided by HMO.

            -----------------------------------------------------------
                             Graduated Rebate Method

            -----------------------------------------------------------
              Net income before          HMO Share          State Share
            taxes as a Percentage
                 of Revenues

            -----------------------------------------------------------
                 0% -3%                     100%                 0%
            -----------------------------------------------------------
                 Over 3% - 7%                75%                25%
            -----------------------------------------------------------
                 Over 7% - 10%               50%                50%
            -----------------------------------------------------------
                 Over 10% - 15%              25%                75%
            -----------------------------------------------------------
                 Over 15%                     0%               100%
            -----------------------------------------------------------

13.2.2.1    The experience rebate for the HMO shall be calculated by applying
            the experience rebate formula in Article 13.2.1 to the sum of the
            net income before taxes (Financial Statistical Report, Part 1, Line
            7) for all STAR Medicaid service areas contracted between the State
            and HMO.

13.2.4      Population-Based Initiatives (PBIs) and Experience Rebates: HMO may
            subtract from an experience rebate owed to the State, expenses for
            population-based health initiatives that have been approved by HHSC.
            A population-based initiative (PBI) is a project or program designed
            to improve some aspect of quality of care, quality of life, or
            health care knowledge for the Medicaid population that may also
            benefit the community as a whole. Value-added service does not
            constitute a PBI. Contractually required services and activities do
            not constitute a PBI.

13.2.5      There will be two settlements for payment(s) of the experience
            rebate for FY 2000-2001 and two settlements for payment(s) for the
            experience rebate for FY 2002. The first settlement for the
            specified time period shall equal 100 percent

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<PAGE>

            of the experience rebate as derived from Line 7 of Part 1 (Net
            Income Before Taxes) of the first final Managed Care Financial
            Statistical (MCFS) Report and shall be paid on the same day the
            first final MCFS Repot is submitted to HHSC for the specified time
            period. The second settlement shall be an adjustment to the first
            settlement and shall be paid to HHSC on the same day that the second
            final MCFS Report is submitted to HHSC for that specified time
            period if the adjustment is a payment from HMO to HHSC. If the
            adjustment is a payment from HHSC to HMO, HHSC shall pay such
            adjustment to HMO within thirty (30) days of receipt of the second
            final MCFS Report. HHSC or its agent may audit or review the MCFS
            report. If HHSC determines that corrections to the MCFS reports are
            required, based on a HHSC audit/review of other documentation
            acceptable to HHSC, to determine an adjustment to the amount of the
            second settlement, then final adjustment shall be made within two
            years from the date that HMO submits the second final MCFS report.
            HMO must pay the first and second settlements on the due dates for
            the first and second final MCFS reports respectively as identified
            in Article 12.1.4. HHSC may adjust the experience rebate if HHSC
            determines HMO has paid affiliates amounts for goods or services
            that are higher than the fair market value of the goods and services
            in the service area. Fair market value may be based on the amount
            HMO pays a non-affiliate(s) or the amount another HMO pays for the
            same or similar service in the service area. HHSC has final
            authority in auditing and determining the amount of the experience
            rebate.

13.3        PERFORMANCE OBJECTIVES INCENTIVES
            ---------------------------------

13.3.1      Preventive Health Performance Objectives. Preventive Health
            Performance Objectives are contained in this contract at Appendix K.
            HMO must accomplish the performance objectives or a designated
            percentage in order to be eligible for payment of financial
            incentives. Performance objectives are subject to change. HHSC will
            consult with HMO prior to revising performance objectives.

13.3.2      HMO will receive credit for accomplishing a performance objective
            upon receipt of accurate encounter data required under Article 10.5
            and 12.2 of this contract and/or a Detailed Data Element Report from
            HMO with report format as determined by HHSC and aggregate data
            report by HMO in accordance with a report format as determined by
            HHSC (Performance Objective Report). Accuracy and completeness of
            the Detailed Data Element Report and the Aggregate Data Performance
            Objective Report will be determined by HHSC through an HHSC audit of
            the HMO claims processing system. If HHSC determines that the
            Detailed Data Element Report and Performance Objectives Report are
            sufficiently supported by the results of the HHSC audit, the payment
            of financial incentives will be made to HMO. Conversely, if the
            audit results do not support the reports as determined by HHSC, HMO
            will not receive payment

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<PAGE>

            of the financial incentive. HHSC may conduct provider chart reviews
            to validate the accuracy of the claims data related to HMO
            accomplishment of performance objectives. If the results of the
            chart review do not support the HMO claims system data or the HMO
            Detailed Data Element Report and the Performance Objectives Report,
            HHSC may recoup payment made to the HMO for performance objectives
            incentives.

13.3.3      HMO will also receive credit for performance objectives performed by
            other organizations if a network primary care provider or the HMO
            retains documentation from the performing organization which
            satisfies the requirements contained in Appendix K of this contract.

13.3.4      HMO will receive performance objective bonuses for accomplishing the
            following percentages of performance objectives:

            --------------------------------------------------------------------
            Percent of Each Performance         Percent of Performance Objective
              Objective Accomplished            Allocations Paid to HMO
            --------------------------------------------------------------------
                    60% to 65%                                20%
            --------------------------------------------------------------------
                    65% to 70%                                30%
            --------------------------------------------------------------------
                    70% to 75%                                40%
            --------------------------------------------------------------------
                    75% to 80%                                50%
            --------------------------------------------------------------------
                    80% to 85%                                60%
            --------------------------------------------------------------------
                    85% to 90%                                70%
            --------------------------------------------------------------------
                    90% to 95%                                80%
            --------------------------------------------------------------------
                    95% to 100%                               90%
            --------------------------------------------------------------------
                       100%                                  100%
            --------------------------------------------------------------------

13.3.5      HMO must submit the Detailed Data Element Report and the Performance
            Objectives Report regardless of whether or not the HMO intends to
            claim payment of performance objective bonuses.

13.3.6      Payment of performance objective bonus is contingent upon
            availability of appropriations. If appropriations are not available
            to pay performance objective bonuses as set out below, HHSC will
            equitably distribute all available funds to each HMO that has
            accomplished performance objectives.

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13.3.7      In addition to the capitation amounts set forth in Article 13.1.2, a
            performance premium of two dollars ($2.00) per Member month will be
            allocated by HHSC for the accomplishment of performance objectives.

13.3.8      The HMO must submit the Performance Objectives Report and the
            Detailed Data Element Report as referenced in Article 13.3.2, within
            150 days from the end of each State fiscal year. Performance
            premiums will be paid to HMO within 120 days after the State
            receives and validates the data contained in each required
            Performance Objectives Report.

13.3.9      The performance objective allocation for HMO shall be assigned to
            each performance objective, described in Appendix K, in accordance
            with the following percentages:

            --------------------------------------------------------------------
                    EPSDT SCREENS               Percent of Performance Objective
                                                         Incentive Fund
            --------------------------------------------------------------------
            1.  < 12 months                                    12%
            --------------------------------------------------------------------
            2.  12 to 24 months                                12%
            --------------------------------------------------------------------
            3.  25 months - 20 years                           20%
            --------------------------------------------------------------------

            --------------------------------------------------------------------
                 IMMUNIZATIONS                  Percent of Performance Objective
                                                         Incentive Fund
            --------------------------------------------------------------------
            4.  < 12 months                                     7%
            --------------------------------------------------------------------
            5.  12 to 24 months                                 5%
            --------------------------------------------------------------------

            --------------------------------------------------------------------
                 ADULT ANNUAL VISITS            Percent of Performance Objective
                                                         Incentive Fund
            --------------------------------------------------------------------
            6.  Adult Annual Visits                             3%
            --------------------------------------------------------------------

            --------------------------------------------------------------------
                  PREGNANCY VISITS              Percent of Performance Objective
                                                         Incentive Fund

            --------------------------------------------------------------------
            7.  Initial prenatal exam                          15%
            --------------------------------------------------------------------
            8.  Visits by Gestational Age                      14%
            --------------------------------------------------------------------
            9.  Postpartum visit                               12%
            --------------------------------------------------------------------

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13.3.10     Compass 21 Encounter Data Conversion Performance Incentive. A
            Compass 21 encounter data conversion performance incentive payment
            will be paid by the State to each HMO that achieves the identified
            conversion performance standard for at least one month in the first
            quarter of SFY 2002 as demonstration of successful conversion to the
            C21 system. The encounter data conversion performance standard is as
            follows:

            --------------------------------------------------------------------
                   Performance Objective               Encounter Data Conversion
                                                         Performance Incentive

            --------------------------------------------------------------------
            Percentage of encounters submitted                    65%
            that are successfully accepted into
            C21

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

13.3.10.1   The amount of the incentive will be based on the total amount
            identified by the state for the encounter data conversion
            performance incentive pool ("Pool"). The pool will be equally
            distributed between all the HMOs that achieve the performance
            objective within the first quarter of SFY 2002. HMOs with multiple
            contracts with HHSC are eligible to receive only one allocation from
            the Pool. Required HMO performance for the identified objectives
            will be verified by HHSC for accuracy and completeness. The
            incentive will be paid only after HHSC has verified that HMO
            performance has met the required performance standard. Payments will
            be made in the second quarter of the fiscal year.

13.5.4      NEWBORN AND PREGNANT WOMAN PAYMENT PROVISIONS
            ---------------------------------------------

13.5.4      Newborns who appear on the MAXIMUS daily enrollment file but do not
            appear on the MAXIMUS monthly enrollment or adjustment file before
            the end of the sixth month following the date of birth will not be
            retroactively enrolled into the HMO. HHSC will manually reconcile
            payment to the HMO for services provided from the date of birth for
            TP45 and all other eligibility categories of newborns. Payment will
            cover services rendered from the effective date of the proxy ID
            number when first issued by the HMO regardless of plan assignment at
            the time the State-issued Medicaid ID number is received.

15.6        ASSIGNMENT

            ----------

15.6        This contract was awarded to HMO based on HMO's qualifications to
            perform personal and professional services. HMO cannot assign this
            contract without the written consent of HHSC. This provision does
            not prevent HMO from

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            subcontracting duties and responsibilities to qualified
            subcontractors. If HHSC consents to an assignment of this contract,
            a transition period of 90 days will run from the date the assignment
            is approved by HHSC so that Members' services are not interrupted
            and, if necessary, the notice provided for in Article 15.7 can be
            sent to Members. The assigning HMO must also submit a transition
            plan, as set out in Article 18.2.1, subject to HHSC 's approval.

16.3        DEFAULT BY HMO
            --------------

16.3.14.1   REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
            -----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to HHSC by law or in equity, are joint and several, and
            may be exercised concurrently or consecutively. Exercise of any
            remedy in whole or in part does not limit HHSC in exercising all or
            part of any remaining remedies.

            For HMO's failure to meet any benchmark established by HHSC under
            this contract, or for failure to meet improvement targets, as
            identified by HHSC, HHSC may:

            o Remove all or part of the THSteps component from the capitation
              paid to HMO
            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3;
            o Assess liquidated money damages as set out in Article 18.4; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.15     FAILURE TO PERFORM A MATERIAL DUTY OR RESPONSIBILITY
            ----------------------------------------------------

            Failure of HMO to perform a material duty or responsibility as set
            out in this Contract is a default under this contract and HHSC may
            impose one or more of the remedies contained within its provisions
            and all other remedies available to HHSC by law or in equity.

16.3.15.1   REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
            -----------------------------------------------

            All of the listed remedies are in addition to all other remedies
            available to HHSC by law or in equity, are joint and several, and
            may be exercised concurrently or consecutively. Exercise of any
            remedy in whole or in part does not limit HHSC in exercising all or
            part of any remaining remedies.

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            For HMO's failure to perform an administrative function under this
            Contract, HHSC may:

            o Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
            o Suspend new enrollment as set out in Article 18.3;
            o Assess liquidated money damages as set out in Article 18.4; and/or
            o Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

18.1.6      TERMINATION BY HMO
            ------------------

18.1.6      HMO may terminate this contract if HHSC fails to pay HMO as required
            under Article XIII of this contract or otherwise materially defaults
            in its duties and responsibilities under this contract, or by giving
            notice no later than 30 days after receiving the capitation rates
            for the second or third contract years. Retaining premium,
            recoupment, sanctions, or penalties that are allowed under this
            contract or that result from HMO's failure to perform or HMO's
            default under the terms of this contract is not cause for
            termination.

18.2        DUTIES OF CONTRACTING PARTIES UPON TERMINATION
            ----------------------------------------------

18.2.2      If the contract is terminated by HHSC for any reason other than
            federal or state funds for the Medicaid program no longer being
            available or if HMO terminates the contract based on lower
            capitation rates for the second or third contract years as set out
            in Article 13.1.3.1:

18.2.3      If the contract is terminated by HMO for any reason other than based
            on lower capitation rates for the second or third contract years as
            set out in Article 13.1.3.1:

Article XIX     TERM

                ----

19.1        The effective date of this contract is August 30, 1999. This
            contract will terminate on August 31, 2002, unless terminated
            earlier as provided for elsewhere in the contract.

3.   The Appendices are amended by replacing page 10 of Appendix A "Standards
     for Quality Improvement Programs" to incorporate a change in item F, number
     1 on recredentialing.

4.   The Appendices are amended by deleting Appendix D, "Required Critical
     Elements," and replacing it with new Appendix D, "Required Critical
     Elements", as attached.

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AGREED AND SIGNED by an authorized representative of the parties on
August 24 2001.
---------
Health and Human Services Commission        Superior Health Plan, Inc.

By: /s/ DON A. GILBERT                      By:/s/ MICHAEL D. MCKINNEY, M.D.
    ------------------------------             ------------------------------
    Don A. Gilbert                             Michael D. McKinney, M.D.
                                               President & CEO

Approved as to Form:

/s/ ILLEGIBLE
------------------------------
Office of General Counsel

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