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                                                                   EXHIBIT 10.20

                                                                       PSC 02-05

                               STATE OF NEW MEXICO
                            HUMAN SERVICES DEPARTMENT
                    MEDICAID MANAGED CARE SERVICES AGREEMENT

This agreement ("Agreement") between the New Mexico Human Services Department
("HSD") and Lovelace Community Health Plan of Albuquerque, New Mexico,
("CONTRACTOR"), specifies the terms and conditions under which the CONTRACTOR
shall provide Medicaid managed care services for HSD's Medical Assistance
Division ("MAD").

The term of this Agreement shall be from July 1, 2001 and shall expire June 30,
2003, unless amended, or terminated pursuant to its terms. Pursuant to the
Request for Proposals ("RFP"), HSD and the CONTRACTOR mutually may extend this
Agreement for two additional one-year terms, or a single additional two-year
term. In no circumstance shall the Agreement exceed a total of four years in
duration. This Agreement shall not become effective until approved in writing by
the Department of Finance and Administration and the United States Department of
Health and Human Services' Health Care Financing Administration ("HCFA"). The
New Mexico Attorney General's Office must also review this agreement for legal
form and sufficiency.

The term day(s) refers to calendar days, unless otherwise specified. The first
day is excluded and the last day is included. Timelines or due dates falling on
a weekend or state or federal holiday shall be extended to the first business
day after the weekend or holiday.

The terms "contract" and "agreement" are used interchangeably throughout this
document.

                              ARTICLE 1 - RECITALS

1.1      All services provided pursuant to this Agreement are subject to the
         Procurement Code and 1 NMAC 5.2 unless specifically provided otherwise
         herein.

1.2      All services purchased under this Agreement shall be subject to the
         following provisions for administration of the Medicaid program, which
         are incorporated herein by reference:

         (1)      The MAD program eligibility and provider policy manuals,
                  including all updates, revisions, substitutions and
                  replacements;

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         (2)      Title XIX and Title XXI of the Social Security Act and Code of
                  Federal Regulations Title 42 Parts 430 to end, as revised from
                  time to time;

         (3)      The RFP; all RFP Amendments; CONTRACTOR Questions and HSD's
                  Answers; and HSD written Clarifications;

         (4)      The CONTRACTOR'S Best and Final Offer;

         (5)      The CONTRACTOR'S Proposal (including any and all written
                  materials presented in the orals portion of the procurement)
                  where not inconsistent with this Agreement and subsequent
                  amendments to this Agreement;

         (6)      All applicable statutes, regulations and rules implemented by
                  the Federal Government, the State of New Mexico ("State"), and
                  HSD, concerning Medicaid services, managed care organizations,
                  health maintenance organizations, fiscal and fiduciary
                  responsibilities applicable under the Insurance Code of New
                  Mexico, NMSA 1978 Sections 59A-1-1 et. seq., and any other
                  applicable laws; to this effect, the CONTRACTOR is put on
                  notice that regulations have been promulgated by the federal
                  government implementing the Balanced Budget Act. The effective
                  date of these regulations has been delayed until June 18,
                  2001, with the possibility of another extension. However, the
                  CONTRACTOR and its subcontractors shall comply with these
                  regulations, if not repealed, as of their effective date.

         (7)      The HSD's MAD Policy Manual, including all updates and
                  revisions thereto, or substitutions and replacements thereof,
                  duly adopted in accordance with applicable law. All defined
                  terms used within the Agreement shall have the meanings given
                  them in the Policy Manual; and

         (8)      All applicable statutes, regulations and rules implemented by
                  the Federal Government, the State of New Mexico, and HSD
                  concerning State Children's Health Insurance Program
                  ("SCHIP").

1.3      HSD is responsible for administering New Mexico's Medicaid program. Due
         to increasing budgetary constraints, HSD shall require that most
         Medicaid recipients enroll with managed care organizations ("MCOs").
         HSD plans to execute agreements with managed care organizations which
         meet the requirements specified under the terms of this Agreement and
         the RFP.

1.4      HSD shall award risk-based contracts to the CONTRACTORS with statutory
         authority to enter into capitated agreements, assume risk and that meet
         applicable requirements and/or standards delineated under state and
         federal law.

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1.5      The CONTRACTOR possesses the required authorization and expertise to
         meet the terms of this Agreement.

1.6      The CONTRACTOR shall be National Committee for Quality Assurance
         ("NCQA") accredited, or in active pursuit of accreditation by July 1,
         2001. "Active pursuit" is defined as having applied for accreditation.

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

                            ARTICLE 2 - SCOPE OF WORK

The CONTRACTOR shall perform professional services including, but not
necessarily limited to, the following:

2.1      PROGRAM ADMINISTRATION

         (1)      Member Services

                  HSD shall implement procedures governing the following
                  activities by the CONTRACTOR or entities acting on behalf of
                  the CONTRACTOR: Development of information and educational
                  media; Provision of materials explaining the enrollment
                  options and process to potential members; and provision of
                  informational presentations to eligible members, members,
                  member advocates and other interested parties.

                  The CONTRACTOR shall have a member services function that
                  coordinates communication with members and acts as a member
                  advocate. There should be sufficient staff to allow members to
                  resolve problems or inquiries.

                  A.       Policies and Procedures:

                           The CONTRACTOR shall have and comply with written
                           policies and procedures regarding the treatment of
                           minors; those adults who are in the custody of the
                           State; those children and adolescents who are under
                           the jurisdiction of the Children, Youth, and Families
                           Department (CYFD); and any individual who is unable
                           to exercise rational judgment or give informed
                           consent, under applicable federal and state laws and
                           New Mexico Medicaid Regulations.

                           i.       The CONTRACTOR shall have and comply with
                                    written policies

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                                    and procedures that describe a process to
                                    detect, measure, and eliminate operational
                                    bias or discrimination against enrolled
                                    Medicaid members by the CONTRACTOR or its
                                    providers.

                           ii.      The CONTRACTOR shall maintain and comply
                                    with written policies and procedures to
                                    ensure that its providers and their
                                    facilities are in compliance with the
                                    Americans with Disabilities Act ("ADA").

                           iii.     The CONTRACTOR shall maintain and comply
                                    with written policies and procedures
                                    regarding members' and/or legal guardians'
                                    right to select a primary care provider.

                           iv.      The CONTRACTOR shall perform an initial
                                    assessment of member's health care needs
                                    within 90 days of the date of a member's
                                    enrollment. A member is considered to be
                                    enrolled for the purpose of this sub-section
                                    at the time the member is considered locked
                                    in the CONTRACTOR'S MCO. The initial
                                    assessment shall, at a minimum, include the
                                    distribution of an appropriate form to
                                    members and the clinical review of any form
                                    returned by members. The form, if mailed to
                                    a member, shall include a pre-addressed
                                    return postage paid envelope.

                           v.       The CONTRACTOR shall provide potential and
                                    enrolled members with a directory to include
                                    MCO addresses and telephone numbers, (and
                                    primary care and specialty provider lists
                                    and relevant phone numbers) and the
                                    identity, location, phone number and
                                    qualifications to include area of specialty,
                                    board certification and any areas of special
                                    expertise that would be helpful to
                                    individuals deciding to enroll with the
                                    CONTRACTOR, for each primary care and
                                    specialty provider. At the option of the
                                    CONTRACTOR, the directory may be limited to
                                    primary care and self-refer providers.

                           vi.      The CONTRACTOR shall provide potential and
                                    enrolled members a list of all items and
                                    services that are available to members
                                    covered either directly or through a method
                                    of referral and/or prior authorization.

                           vii.     The CONTRACTOR'S written policies and
                                    procedures shall be made available upon
                                    request to members and their representatives
                                    for review during normal business hours.

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                  B.       Member Education

                           Medicaid recipients shall be educated about their
                           rights, responsibilities, service availability, and
                           administrative roles under the managed care system.
                           Member education is initiated when they become
                           eligible for Medicaid and is augmented by information
                           provided by HSD and the CONTRACTOR.

                  C.       Initial Information

                           The education of the member is initiated when the
                           member becomes eligible for Medicaid. HSD distributes
                           information about Medicaid managed care and the
                           enrollment process.

                  D.       MCO Enrollment Information

                           Once a member is determined to be an MCO mandatory
                           member, HSD provides specific information about
                           services included in the benefit packages, MCOs from
                           which the member can choose, and enrollment of the
                           member(s).

                  E.       Member Handbook

                           i.       The CONTRACTOR shall maintain written
                                    policies and procedures governing the
                                    development and distribution of marketing
                                    materials for members.

                           ii.      The CONTRACTOR is responsible for providing
                                    members with a member handbook. The
                                    CONTRACTOR shall provide periodic updates to
                                    the handbook as needed explaining changes in
                                    all policies and procedures that affect the
                                    member.

                           iii.     The CONTRACTOR shall send a provider
                                    directory and member handbook to enrollees
                                    or potential enrollees requesting a copy and
                                    as requested by HSD. The CONTRACTOR shall
                                    direct a person requesting a member handbook
                                    or a provider directory to an internet site.
                                    However, a specific request for a printed
                                    document shall be met. The CONTRCTOR shall
                                    provide a one page, two-sided summary of its
                                    benefits which may be distributed by HSD at
                                    its discretion.

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                           iv.      Member handbooks shall be made available in
                                    formats other than written English, (e.g.
                                    Braille), if in the CONTRACTOR'S or HSD's
                                    determination five percent of the
                                    CONTRACTOR'S Salud! members are conversant
                                    only in those other languages or formats. In
                                    addition, such language used shall be
                                    prepared in a manner which is clear and
                                    understandable to an individual who has
                                    completed no more than the sixth grade. The
                                    handbook shall include:

                                    a)       Limitations to the receipt of care
                                             from non-participating providers;

                                    b)       Coordination of care by PCPs;

                                    c)       The CONTRACTOR demographic
                                             information including the
                                             organization's toll-free member
                                             phone number;

                                    d)       Services for which prior
                                             authorization or a referral is
                                             required, and the method of
                                             obtaining both;

                                    e)       The provider list, including phone
                                             numbers, addresses and type of
                                             service designations which need not
                                             physically be a part of the
                                             handbook;

                                    f)       Notice to members on both the
                                             internal and HSD grievance and
                                             appeal processes;

                                    g)       Information on how to obtain
                                             services;

                                    h)       The members' rights and
                                             responsibilities;

                                    i)       Information on obtaining care in
                                             emergency or urgent conditions;

                                    (j)      The CONTRACTOR'S operating rules as
                                             required by NCQA;

                                    (k)      Information on accessing behavioral
                                             health or other specialty services,
                                             including but not limited to EPSDT,
                                             and family planning services,
                                             including a discussion of member's
                                             rights to self refer to in-plan and
                                             out-of-plan

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                                             family planning providers;

                                    (l)      Information on the member's right
                                             to terminate enrollment and the
                                             process for voluntarily
                                             disenrolling from the plan; and

                                    (m)      Other information determined by the
                                             State to be essential during the
                                             member's initial contact with the
                                             CONTRACTOR.

                  F.       Second Opinions

                           i.       The CONTRACTOR shall provide members with
                                    the option of receiving a second opinion
                                    from another provider participating with the
                                    CONTRACTOR when members need additional
                                    information regarding recommended treatment
                                    or when requested care has been denied by
                                    the provider.

                           ii.      The CONTRACTOR may select the provider
                                    giving the second opinion, in accordance
                                    with a method established by the CONTRACTOR
                                    to equitably distribute these duties,
                                    provided that the provider selected
                                    practices in an area that provides expertise
                                    appropriate to the member's specific
                                    treatment or condition.

                  G.       Maintenance of Toll-Free Line

                           The CONTRACTOR shall maintain one or more toll-free
                           telephone line(s) which is accessible twenty-four
                           (24) hours a day, seven (7) days a week, to
                           facilitate member access to qualified clinical staff.
                           MCO Members may also leave a voice mail message to
                           obtain the CONTRACTOR'S policy information, and /or
                           to register grievances with the CONTRACTOR. The phone
                           call shall be returned the next business day by an
                           appropriate CONTRACTOR staff person.

                  H.       Member Notification

                           i.       The CONTRACTOR shall adopt written policies
                                    and procedures to require prompt
                                    notification of abnormal results of
                                    diagnostic laboratory, diagnostic imaging,
                                    and other testing and, if clinically
                                    indicated, to notify the member of a
                                    scheduled follow-up visit. This shall be
                                    documented in the member's record.

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                           ii.      At the request of a member, the CONTRACTOR
                                    shall provide information to the member on
                                    options for private health insurance when
                                    the member's enrollment is terminated due to
                                    loss of Medicaid eligibility. This shall be
                                    documented in the member's records
                                    maintained by the CONTRACTOR.

                  I.       Benefit Information

                           i.       The CONTRACTOR shall provide in English and
                                    Spanish each member and/or legal guardian
                                    with written information about benefits,
                                    including:

                                    a)       Benefits and services, including
                                             preventive services, included in,
                                             and excluded from, coverage;

                                    b)       Any special benefit provisions that
                                             may apply to services obtained
                                             outside the CONTRACTOR'S system;

                                    c)       Any restrictions on benefits that
                                             apply to services obtained outside
                                             the CONTRACTOR'S service area; and

                                    d)       The following information regarding
                                             the member's rights of access to,
                                             and coverage of, emergency
                                             services, both inside and outside
                                             of the CONTRACTOR'S network:

                                             1.       That both in-network and
                                                      out-of-network emergency
                                                      services are a covered
                                                      benefit;

                                             2.       That emergency services
                                                      are defined as covered
                                                      inpatient and outpatient
                                                      services furnished by a
                                                      qualified Medicaid
                                                      provider that are
                                                      necessary to evaluate or
                                                      stabilize an emergency
                                                      condition;

                                             3.       That an emergency
                                                      condition is a medical
                                                      condition manifesting
                                                      itself by acute symptoms
                                                      of sufficient severity
                                                      (including severe pain)
                                                      such that a prudent
                                                      layperson, who possesses
                                                      an average knowledge of
                                                      health and medicine, could
                                                      reasonably expect the
                                                      absence of immediate
                                                      medical attention to
                                                      result in placing the
                                                      individual's health (or
                                                      with respect to a pregnant
                                                      woman, the health of the
                                                      woman or her unborn child)
                                                      in serious jeopardy,
                                                      serious impairment to body
                                                      function or serious
                                                      dysfunction of any bodily
                                                      organ or part;

                                             4.       That the CONTRACTOR shall
                                                      not retroactively deny a
                                                      claim for an emergency
                                                      screening examination
                                                      because the condition,
                                                      which appeared to be an
                                                      emergency medical
                                                      condition under the

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                                                      prudent layperson standard
                                                      (defined in (3) above),
                                                      turned out to be
                                                      non-emergency in nature;
                                                      and

                                             5.       That the CONTRACTOR does
                                                      not require prior
                                                      authorization for
                                                      emergency services
                                                      rendered in or out of
                                                      network with all emergency
                                                      services reimbursed at the
                                                      in network rate.

                           ii.      The CONTRACTOR shall provide each member
                                    with written information in English or
                                    Spanish, as appropriate, that instructs
                                    members about how to obtain primary and
                                    specialty care, including:

                                    a)       A list of providers, by provider
                                             type and specialty, available
                                             through the CONTRACTOR and how to
                                             access them; such list, at the
                                             option of the CONTRACTOR, may be
                                             limited to primary care providers
                                             and those providers to whom members
                                             may self-refer, including, but not
                                             limited to, family planning
                                             providers, point-of-entry
                                             behavioral health providers, urgent
                                             and emergency care providers, IHS
                                             and other Native American
                                             providers, and pharmacies. Upon
                                             request, the CONTRACTOR shall
                                             provide information on the
                                             participation status of any
                                             provider;

                                    b)       The means for obtaining more
                                             information about providers who
                                             participate in the MCO;

                                    c)       The means for obtaining primary
                                             care services;

                                    d)       The means for obtaining specialty
                                             care, behavioral health services
                                             and hospital services;

                                    e)       The means for obtaining care after
                                             normal office hours;

                                    f)       The means for obtaining emergency
                                             care, including the CONTRACTOR'S
                                             policy on when to directly access
                                             emergency care or use 911 services;

                                    g)       The means for obtaining care and
                                             coverage when out of the
                                             CONTRACTOR'S service area;

                                    h)       The means by which the CONTRACTOR
                                             shall notify members affected by
                                             the termination or change in any
                                             benefit, service or service
                                             delivery office/site.

                           iii.     The CONTRACTOR shall provide each member
                                    and/or legal guardian with written policies
                                    and procedures in English and Spanish and
                                    procedures concerning:

                                    a)       Its policy on freedom of provider
                                             choice;

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                                    b)       Changing assigned providers, if
                                             applicable;

                                    c)       Accessing the toll-free phone
                                             lines;

                                    d)       Filing a grievance and/or appeal;

                                    e)       The procedure for appealing a
                                             decision that adversely affects the
                                             member's coverage, benefits, or
                                             other relationship with the
                                             CONTRACTOR; and

                                    f)       All other policies and procedures
                                             regarding member rights and
                                             responsibilities.

                           iv.      The CONTRACTOR shall provide affected
                                    members and/or legal guardians with updated
                                    information within 30 days of any material
                                    change.

                  J.       Member Identification Card

                           The CONTRACTOR shall issue a member identification
                           card within thirty (30) days of enrollment to each
                           member. The card shall be substantially the same as
                           the card issued to commercial enrollees. The card may
                           not contain information which identifies the member
                           as a Medicaid recipient, other than designations
                           which are commonly used by the CONTRACTOR to identify
                           for providers the members' benefits, or copayments,
                           such as group or plan numbers.

                  K.       Members' Patient Bill of Rights and Responsibilities

                           The CONTRACTOR shall be required to comply with the
                           MAD regulation on Patient Bill of Rights. The
                           CONTRACTOR shall provide each member with written
                           information, in English or Spanish, as appropriate,
                           found in the MAD patient Bill of Rights pursuant to
                           MAD 606.7.6 and 606.1.2.3.

                           i.       Members and/or legal guardians have a right
                                    to obtain equitable treatment, with respect
                                    and recognition of the member's dignity and
                                    need for privacy.

                           ii.      Members have a right to receive health care
                                    services in a non-discriminatory fashion.

                                    a)       Members and, as appropriate, their
                                             families and/or legal guardians
                                             have a right to participate with
                                             practitioners in decision making
                                             regarding all aspects of their
                                             health care, including development
                                             of the treatment plan. The policy

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                                             shall contain procedures for
                                             obtaining informed consent.

                                    b)       The policy shall ensure that
                                             legally determined surrogate
                                             decision makers shall be involved,
                                             as appropriate, to facilitate care
                                             decisions.

                           iii.     Members and/or legal guardians have a right
                                    and the means to voice complaints or file
                                    grievances and appeals about the care
                                    provided by the CONTRACTOR.

                           iv.      Members and/or legal guardians have a right
                                    and the means to be able to choose from
                                    among the available providers within the
                                    limits of the plan network and its referral
                                    and prior authorization requirements.

                           v.       Members have a right to formulate advance
                                    directives consistent with Federal and State
                                    laws and regulations.

                           vi.      Members have a right to have access to their
                                    medical records in accordance with the
                                    applicable Federal and State laws and
                                    regulations.

                           vii.     Members and/or legal guardians, to the
                                    extent possible, have a responsibility to
                                    provide information that the CONTRACTOR, its
                                    practitioners, and providers need in order
                                    to care for them.

                           viii.    Members and/or legal guardians, to the
                                    degree possible, have a responsibility to
                                    participate in understanding their health
                                    problems and developing mutually agreed upon
                                    treatment goals.

                           ix.      Members and/or legal guardians have a
                                    responsibility to follow the plans and
                                    instructions for care that they have agreed
                                    upon with their practitioners.

                           x.       Members and/or legal guardians have a
                                    responsibility to keep, reschedule, or
                                    cancel a scheduled appointment rather than
                                    to simply fail to keep it.

                  L.       Consumer Advisory Board

                           i.       The CONTRACTOR shall establish a Consumer
                                    Advisory Board representing both physical
                                    and behavioral health members. The

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                                    board shall include regional representation,
                                    including members, advocates and providers.

                           ii.      The Consumer Advisory Board shall serve to
                                    advise the CONTRACTOR on issues concerning
                                    service delivery and quality, member rights
                                    and responsibilities, the process for
                                    resolving member grievances, and the needs
                                    of the groups they represent as they pertain
                                    to Medicaid managed care. The Board shall
                                    meet on at least a quarterly basis in the
                                    state's regions. The CONTRACTOR is
                                    responsible for keeping a written record of
                                    the board meetings.

                           iii.     The CONTRACTOR'S Consumer Advisory Board
                                    shall maintain documentation of all attempts
                                    to invite and include its members in its
                                    meetings. The Board roster and minutes shall
                                    be made available to HSD upon request.

                           iv.      The Consumer Advisory Board shall advise HSD
                                    in writing ten (10) days in advance of all
                                    meetings to be held. HSD reserves the right
                                    to attend and observe the meetings of the
                                    Board at its discretion.

                           v.       The Consumer Advisory Board shall consist of
                                    a fair representation of the CONTRACTOR'S
                                    members in terms of race, gender and New
                                    Mexico geographic areas.

                           vi.      The CONTRACTOR shall send the CONTRACTOR'S
                                    representatives to attend at least two
                                    statewide consumer meetings to help ensure
                                    that member issues are being heard and
                                    addressed.

                  M.       Standards for Utilization Management (UM)

                           i.       The CONTRACTOR'S Utilization Management (UM)
                                    Program shall properly manage the use of
                                    limited resources, maximize the
                                    effectiveness of care by evaluating clinical
                                    appropriateness, and authorize the type and
                                    volume of services through fair, consistent
                                    and culturally competent decision making to
                                    assure equitable access to care and to a
                                    successful link between care and outcomes;

                           ii.      The CONTRACTOR shall define in writing the
                                    UM program structure and accountability
                                    mechanisms;

                           iii.     The CONTRACTOR senior management and the
                                    CONTRACTOR Medical Director or the
                                    CONTRACTOR'S Internal Quality

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                                    Management and Improvement ("QI") program
                                    shall annually evaluate and approve or
                                    revise the UM program;

                           iv.      The CONTRACTOR shall define all services
                                    which require prior authorization;

                           v.       The CONTRACTOR shall develop and implement
                                    written policies and procedures for review
                                    of utilization decisions to ensure their
                                    basis in sound clinical evidence and that
                                    conform to medical necessity criteria;

                           vi.      The CONTRACTOR shall ensure the involvement
                                    of appropriate, practicing practitioners in
                                    the development of UM procedures;

                           vii.     The CONTRACTOR shall comply with NCQA
                                    Standards for Utilization Management and
                                    follow NCQA timeliness standards for
                                    routine, urgent and emergent situations. The
                                    decision-making timeframes should
                                    accommodate the clinical urgency of the
                                    situation and not delay the provision of
                                    services to members for lengthy periods of
                                    time;

                           viii.    The CONTRACTOR shall approve or deny
                                    services for routine/nonurgent, urgent care
                                    requests within the timeframes stated in
                                    regulation. These required timeframes are
                                    not to be affected by "pend" decision;

                           ix.      The CONTRACTOR shall evaluate member and
                                    provider satisfaction with the utilization
                                    process;

                           x.       The CONTRACTOR shall ensure that UM
                                    functions are appropriately implemented,
                                    monitored and professionally managed;

                           xi.      The CONTRACTOR shall submit quarterly to HSD
                                    in a format to be determined by HSD after
                                    consultation with the CONTRACTOR, a job
                                    description and the qualifications of each
                                    individual behavioral health UM staff who
                                    makes behavioral health determinations; and

                           xii.     The CONTRACTOR shall provide to HSD ad hoc
                                    reports about service utilization upon
                                    request by HSD.

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                  N.       Denials

                           i.       The CONTRACTOR shall clearly document in
                                    English or Spanish, as appropriate, on a
                                    form agreed to by HSD, and communicate in
                                    writing the reasons for each denial. A
                                    "denial" is defined as a refusal by the
                                    CONTRACTOR to authorize a service requested
                                    or recommended by the member's health care
                                    provider.

                           ii.      The CONTRACTOR shall provide in writing the
                                    reason for a denial of service coverage to
                                    the requesting practitioner and the affected
                                    member. There shall be established and well
                                    publicized internal and accessible grievance
                                    and appeals mechanism for both providers and
                                    members; the notification of a denial shall
                                    include a description of how to file a
                                    grievance and notice of appeal.

                           iii.     The CONTRACTOR shall recognize that a
                                    utilization review decision resulting from a
                                    Fair Hearing conducted by the designated HSD
                                    official is final and shall be honored by
                                    the CONTRACTOR, unless the CONTRACTOR
                                    successfully appeals the Fair Hearing
                                    decision in a court of competent
                                    jurisdiction.

                           iv.      The CONTRACTOR shall evaluate member and
                                    provider satisfaction with the UM process as
                                    a part of its member satisfaction survey
                                    while maintaining the federal and state
                                    confidentiality requirements of surveyed
                                    participants.

                           v.       The CONTRACTOR shall forward survey results
                                    to HSD. HSD shall have access to the
                                    CONTRACTOR'S UM review documentation.

         (2)      Standards for Internal Quality Management and Improvement

                  A.       The CONTRACTOR shall have Quality Improvement (QI)
                           Programs based on a model of continuous quality
                           improvement. The QI programs shall encompass
                           physical, mental and behavioral health. The ultimate
                           responsibility for QI is with the CONTRACTOR and
                           shall not be delegated to subcontractors. The QI
                           structures and procedures shall be clearly defined
                           with responsibilities appropriately assigned.

                  B.       The CONTRACTOR shall produce and deliver to HSD and
                           the CONTRACTOR'S members, upon request, an annually
                           evaluated and updated program description. The QI
                           program description shall contain a

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                           work plan, or schedule of activities to be reviewed
                           quarterly and to include:

                           i.       Objectives, scope, and planned projects or
                                    activities for the year;

                           ii.      Planned monitoring of previously identified
                                    issues, including tracking of issues over
                                    time; and

                           iii.     Planned evaluation of the QI program.

                  C.       The CONTRACTOR shall designate a physician and a
                           behavioral health care practitioner with primary
                           responsibility for the implementation of the QI
                           program.

                  D.       The CONTRACTOR shall establish a committee to oversee
                           and implement QI requirements and such requirements
                           shall address:

                           i.       QI Program and Policy;

                           ii.      QI Committee and Policy;

                           iii.     Annual QI Workplan and Evaluation;

                           iv.      Confidentiality Policy and Procedures;

                           v.       Medical Records Documentation Policy and
                                    Procedures;

                           vi.      Policy and Procedures for working with high
                                    need members;

                           vii.     Member Satisfaction Surveys;

                           viii.    Disease Management Protocols and Procedures;
                                    and

                           ix.      Policy and Procedures for Continuity and
                                    Coordination of Care.

                  E.       The CONTRACTOR shall every two years, appropriately
                           update and disseminate evidence-based practice
                           guidelines for providing services for acute and/or
                           chronic conditions, both physical and behavioral,
                           relevant to enrolled membership. The QI program shall
                           be approved by HSD prior to implementation.

                  F.       Quality Management/Quality Improvement Program
                           (QM/QI)

                                     - 15 -
<PAGE>

                           i.       The CONTRACTOR shall have a QM/QI program,
                                    including goals; objectives; structure;
                                    policies; and authorities that shall result
                                    in continuous quality improvement in the
                                    physical, mental and behavioral health care;

                           ii.      The CONTRACTOR shall have a QI work plan
                                    that includes immediate objectives for each
                                    contract period and long term objectives for
                                    the entire contract period. This work plan
                                    shall contain the scope of the objectives,
                                    activities planned; timeframe and other
                                    relevant information;

                           iii.     The CONTRACTOR shall evaluate the overall
                                    effectiveness of its QI program and
                                    demonstrate improvements in the quality of
                                    clinical care and the quality of service to
                                    its members;

                           iv.      The CONTRACTOR shall have a process for
                                    exchanging information throughout the
                                    CONTRACTOR'S organization;

                           v.       The CONTRACTOR shall have written policies
                                    and procedures for medical records
                                    documentation;

                           vi.      The CONTRACTOR shall have disease management
                                    protocols and procedures;

                           vii.     The CONTRACTOR shall have policies and
                                    procedures for working with high need
                                    members;

                           viii.    The CONTRACTOR shall have written policies
                                    and procedures for conducting member and
                                    provider surveys;

                           ix.      The CONTRACTOR shall have written policies
                                    and procedures for continuity and
                                    coordination of care; and

                           x.       The CONTRACTOR shall have written policies
                                    and procedures on confidentiality, including
                                    a provision that all materials concerning
                                    the care and treatment of members shall be
                                    made available to HSD.

                  G.       QI Projects and Reviews

                           The CONTRACTOR shall:

                                     - 16 -
<PAGE>

                           i.       Be responsible to demonstrate to HSD that
                                    the results of QI projects and reviews are
                                    used to improve the quality of service
                                    coverage and delivery with appropriate
                                    individual practitioners and institutional
                                    providers. When the CONTRACTOR determines
                                    that there are provider performance
                                    problems, the CONTRACTOR is responsible to
                                    take and document appropriate action.

                           ii.      Ensure that the QI program is applied to the
                                    entire range of health services provided
                                    through the CONTRACTOR by assuring that all
                                    major population groups, care settings, and
                                    service types are included in the scope of
                                    the review. A major population group is one
                                    which represents at least ten percent of a
                                    CONTRACTOR'S enrollment.

                  H.       Continuous Quality Improvement

                           The CONTRACTOR shall ensure that management is based
                           on principles of Continuous Quality Improvement/Total
                           Quality Management (CQI/TQM), including, the
                           recognition that opportunities for improvement are
                           unlimited that the QI process shall be data driven,
                           requiring continual measurement of clinical and
                           non-clinical effectiveness and programmatic
                           improvements of clinical and non-clinical processes
                           driven by such measurements; requiring re-measurement
                           of effectiveness and continuing development and
                           implementation of improvements as appropriate; and
                           shall rely on customer input.

                  I.       QI Program Effectiveness Evaluation

                           The CONTRACTOR shall annually evaluate the overall
                           effectiveness of its QI program and demonstrate
                           improvements in the quality of clinical care and the
                           quality of service to its members. The CONTRACTOR
                           shall submit its written evaluation of the QI program
                           to HSD. This evaluation shall include at least the
                           following:

                           i.       A description of completed and ongoing QI
                                    activities;

                           ii.      Trending of measures to assess performance
                                    in quality of clinical care and quality of
                                    service;

                           iii.     An analysis of whether there have been
                                    demonstrated improvements in the quality of
                                    clinical care and quality of service; and

                                     - 17 -
<PAGE>

                           iv.      An evaluation of the overall effectiveness
                                    of the QI program.

                  J.       Delegation

                           HSD reserves the right to approve and disapprove any
                           delegated subcontract templates.

                           The CONTRACTOR shall:

                           i.       Have a written document (Agreement), signed
                                    by both parties, that describes the
                                    responsibilities of the CONTRACTOR and the
                                    delegate; the delegated activities; the
                                    frequency of reporting (if applicable) to
                                    the CONTRACTOR ; the process by which the
                                    CONTRACTOR evaluates the delegate; and the
                                    remedies, including revocation of the
                                    delegation, available to the CONTRACTOR if
                                    the delegate does not fulfill its
                                    obligation;

                           ii.      Have written policies and procedures to
                                    ensure that the delegated agency meets all
                                    standards of performance mandated by HSD for
                                    the SALUD! program;

                           iii.     Have written policies and procedures for the
                                    oversight of the delegated agency's
                                    performance of the delegated functions;

                           iv.      Have written policies and procedures to
                                    ensure consistent statewide application of
                                    all utilization management criteria when
                                    utilization management is delegated;

                           v.       Include in its agreement with the delegate
                                    whether the CONTRACTOR or the delegate shall
                                    oversee the performance of the subdelegate
                                    to ensure that there is a mutually agreed
                                    document in place for any subdelegated
                                    functions;

                           vi.      Be ultimately accountable for all delegated
                                    activities and may not under any
                                    circumstances abrogate any responsibility
                                    for decisions made by a delegate regarding
                                    delegated functions;

                           vii.     Provide a list of all delegates to HSD;

                           viii.    Ensure that it notifies HSD of any proposed
                                    new agreement for delegation at least thirty
                                    (30) calendar days prior to the proposed

                                     - 18 -
<PAGE>

                                    beginning date of the Agreement or any
                                    material changes to existing Agreements; and

                           ix.      Not delegate quality oversight, utilization
                                    management, prevention, education, outreach,
                                    grievance, internal hearings, appeals, data
                                    collection, or claims payment for behavioral
                                    health services.

                  K.       Clinical Performance

                           The CONTRACTOR shall identify and monitor on an
                           on-going basis indicators of clinical performance;
                           and, implement activities designed to improve the
                           process of providing a clinical service;

                  L.       Member Satisfaction Survey

                           As part of its QI Program, the CONTRACTOR shall
                           conduct at least one annual survey of member
                           satisfaction with the CONTRACTOR, which shall be
                           designed by the CONTRACTOR with input from the
                           Consumer Advisory Board and which shall assess member
                           satisfaction with the quality, availability, and
                           accessibility of care. The survey shall provide a
                           statistically valid sample of all CONTRACTOR members,
                           including members who have requested to change
                           his/her primary care provider (PCP) and all members
                           who have voluntarily disenrolled from the CONTRACTOR.
                           The member survey shall address member receipt of
                           educational materials, and use and usability of the
                           provided education materials. The CONTRACTOR'S survey
                           shall address the satisfaction of members with
                           serious/chronic care conditions. The CONTRACTOR shall
                           follow all federal and state confidentiality
                           requirements in conducting this survey with members.

                           The CONTRACTOR shall:

                           i.       Use the CAHPS 2.0H Adult and Child survey
                                    Instruments (most current version) to assess
                                    member satisfaction as part of the HEDIS
                                    requirements and report the results of the
                                    CAHPS survey to HSD.

                           ii.      Disseminate results of the member
                                    satisfaction survey to practitioners,
                                    providers, HSD and members.

                           iii.     Participate in the design of a separate
                                    annual member satisfaction survey to be
                                    conducted by an independent entity
                                    determined by HSD. The survey itself shall
                                    not be the financial responsibility of

                                     - 19 -
<PAGE>

                                    the CONTRACTOR.

                           iv.      Follow NCQA guidelines for the conduct of
                                    Provider Satisfaction surveys; cooperate
                                    with HSD in conducting provider satisfaction
                                    survey, including making available a
                                    current, unduplicated provider file(s)
                                    available to HSD or its EQRO upon request;
                                    conduct a provider satisfaction survey, at
                                    least annually, of all in-network providers;
                                    and report information from this survey to
                                    HSD annually; and, include the results in
                                    the QI/QM Effectiveness Evaluation into the
                                    QI/QM plan for the upcoming contract year.
                                    (HSD will work towards reducing the
                                    administrative burden of this requirement on
                                    providers by combining surveys or conducting
                                    one survey. However, until such is
                                    accomplished, the CONTRACTOR must comply
                                    with this requirement as stated.)

                  M.       External Quality Review

                           i.       HSD shall retain the services of an external
                                    quality review organization in accordance
                                    with the Social Security Act, Section 1902
                                    (a) (30) [C], and the CONTRACTOR shall
                                    cooperate fully with that organization and
                                    prove to that organization the CONTRACTOR'S
                                    adherence to HSD's quality standards as set
                                    forth in MAD Policy Section 606.7. HSD shall
                                    also contract with an external review
                                    organization to audit a statistically valid
                                    sample of the CONTRACTOR behavioral health
                                    UM decisions including authorizations,
                                    reductions, terminations and denials. This
                                    audit is intended to determine if authorized
                                    service levels are appropriate with respect
                                    to accepted standards of clinical care. The
                                    CONTRACTOR shall cooperate fully with that
                                    organization.

                           ii.      The CONTRACTOR shall participate in various
                                    other tasks identified by HSD that shall
                                    enable HSD to gauge performance in a variety
                                    of areas, i.e., care coordination, treatment
                                    of special populations and behavioral health
                                    care delivery.

                           iii.     The CONTRACTOR shall utilize technical
                                    assistance and guidelines offered by the
                                    EQRO, unless otherwise agreed upon by HSD
                                    and the CONTRACTOR.

                           iv.      The external quality review organization
                                    retained by HSD shall not be a competitor of
                                    the CONTRACTOR.

                                     - 20 -
<PAGE>

                  N.       Publication

                           At its discretion, HSD shall release all aggregate
                           results of the QI/audit functions to the public and
                           to the Federal Government.

         (3)      Performance Indicators

                  A.       Performance Improvement Projects (PIPs) are one of
                           the tools that HSD has chosen to use to measure a
                           CONTRACTOR'S ability to identify problematic areas
                           within its operations and take actions which shall
                           improve its performance in those focus areas.
                           Examples of these include but, are not limited to,
                           administrative functions (telephone response rates),
                           utilization management (timeliness of Prior
                           Authorizations), access to care, preventive care
                           (improvement of EPSDT screening rates), and care
                           coordination.

                  B.       The CONTRACTOR shall:

                           i.       Participate in six (6) PIPs per year chosen
                                    by HSD in consultation with the CONTRACTOR.
                                    Three (3) PIPs shall relate to behavioral
                                    health;

                           ii.      Adhere to timely and accurate collection of
                                    baseline project indicator data (physical
                                    health, behavioral health, administrative),
                                    which shall show the CONTRACTOR'S
                                    performance rate for those indicators
                                    identified for improvement by HSD;

                           iii.     Identify specific interventions that the
                                    CONTRACTOR intends to use to improve
                                    performance in a given area;

                           iv.      Demonstrate improvement in each quality
                                    indicator within each calendar year of the
                                    contract; and

                           v.       Perform subsequent measurement and written
                                    assessment of the ongoing effectiveness of
                                    named interventions.

                  C.       Critical Indicators Report

                           The CONTRACTOR shall:

                           i.       Track, analyze, and report to HSD monthly,
                                    certain indicators identified specific to
                                    behavioral or physical health that shall
                                    enable

                                     - 21 -
<PAGE>

                                    HSD to determine potential problems areas
                                    within quality of care, access, or service
                                    delivery;

                           ii.      Collect the requested data monthly, perform
                                    analysis on the data for the purpose of
                                    determining completeness and validity, and
                                    report results to HSD monthly;

                           iii.     Analyze the data, including the
                                    identification of any significant trends;
                                    and

                           iv.      Address all negative trends in the analysis
                                    and develop appropriate CQI initiatives.
                                    Examples of negative trends may include
                                    involuntary hospitalizations, decrease in
                                    EPSDT screens, high infant mortality or an
                                    increase in suicides or suicide attempts.

         (4)      Standards for Access

                  A.       The CONTRACTOR shall ensure the Salud! member
                           caseload of any PCP does not exceed fifteen hundred
                           (1,500) enrollees.

                  B.       The CONTRACTOR shall provide to members and providers
                           clear instructions on how to access services,
                           including those that require prior approval or
                           referral.

                  C.       The CONTRACTOR shall meet time and distance standards
                           for PCPs and pharmacies as determined by HSD or as
                           described in MAD Policy 606.7.9.3. The CONTRACTOR
                           shall have systems to track and report this data and
                           such data shall be available to HSD upon request.

                  D.       The CONTRACTOR shall meet provider appointment and
                           pharmacy in-person prescription fill time standards
                           as described in MAD Policy 606.7.9.4; shall approve
                           or deny requests for DME within seven (7) working
                           days of the initial request. Members shall be able to
                           obtain prescribed medical supplies and
                           non-specialized DME within 24 hours, when needed on
                           an urgent basis. All new, customized, made-to-measure
                           equipment shall be delivered within 150 days of the
                           request date. All repairs or modifications shall be
                           delivered within 60 days of the request date.

                  E.       The CONTRACTOR shall provide Geo-Access or equivalent
                           reports quarterly to HSD on the CONTRACTOR'S network
                           capacity of behavioral health providers and
                           facilities.

                                     - 22 -
<PAGE>

                           i.       Routine and non-specialized supplies

                                    The CONTRACTOR shall:

                                    a)       Ensure supplies are delivered
                                             consistent with clinical need;

                                    b)       Have an emergency response plan for
                                             medical equipment or supplies
                                             needed on an emergent basis;

                                    c)       Ensure that members and/or their
                                             family receive adequate instruction
                                             on use of the supplies or
                                             equipment;

                                    d)       Be able to deliver the
                                             transportation benefit statewide;

                                    e)       Have a sufficient transportation
                                             network available to meet the
                                             transportation needs of members.
                                             This includes requiring an
                                             appropriate number of handivans for
                                             members who are wheelchair or
                                             ventilator-dependent or have other
                                             equipment needs;

                                    f)       Require that all transportation
                                             vehicles be equipped with a
                                             communication device for use in
                                             case of an emergency;

                                    g)       Allow the member to self refer for
                                             behavioral health and substance
                                             abuse services, family planning,
                                             vision and dental services without
                                             approval from a PCP; and

                                    h)       Allow a newly enrolled woman in her
                                             third trimester of pregnancy to
                                             continue to see her established
                                             obstetrical provider.

                                    i)       Have CPR certified drivers to
                                             transport members whose clinical
                                             needs dictate.

                  F.       Emergency Conditions

                           The CONTRACTOR shall:

                           i.       Provide services for emergency and urgent
                                    conditions, including emergency
                                    transportation anywhere within the United
                                    States;

                           ii.      Ensure that there is no clinically
                                    significant delay caused by the CONTRACTOR
                                    utilization control measures; and

                           iii.     Ensure that members have access to the
                                    nearest appropriately designated Trauma
                                    Center according to established emergency
                                    Medical Services triage and transportation
                                    protocols.

                                     - 23 -
<PAGE>

                  G.       Non-Emergency Access Standards

                           The CONTRACTOR shall comply with the following
                           non-emergency access standards for outpatient
                           appointments:

                           i.       For routine, symptomatic,
                                    recipient-initiated, outpatient appointments
                                    for primary preventive medical care the
                                    request-to-appointment time shall be no
                                    greater than 30 days, unless the member
                                    requests a later time.

                           ii.      For routine, symptomatic,
                                    recipient-initiated, outpatient appointments
                                    for non-urgent primary medical care, the
                                    request-to-appointment time shall be no
                                    greater than 14 days, unless the member
                                    requests a later time.

                           iii.     For non-urgent behavioral health care, the
                                    request-to-appointment time shall be no
                                    greater than 14 days, unless the member
                                    requests a later time.

                           iv.      Primary medical, including behavioral
                                    health, and dental care outpatient
                                    appointments for urgent conditions shall be
                                    available within 24 hours.

                           v.       For specialty outpatient referral and/or
                                    consultation appointments, including
                                    behavioral health, the
                                    request-to-appointment time shall be
                                    consistent with the clinical urgency but no
                                    greater than 21 days, unless the member
                                    requests a later time.

                           vi.      For outpatient scheduled appointments the
                                    time the member is seen shall not be more
                                    than 30 minutes after the scheduled time
                                    unless the member is late.

                           vii.     For routine outpatient diagnostic
                                    laboratory, diagnostic imaging, and other
                                    testing appointments, the
                                    request-to-appointment time shall be
                                    consistent with the clinical urgency but no
                                    greater than 14 days unless the member
                                    requests a later time.

                           viii.    For urgent outpatient diagnostic laboratory,
                                    diagnostic imaging, and other testing,
                                    appointments availability shall be
                                    consistent with the clinical urgency but no
                                    greater than 48 hours.

                           ix.      The timing of scheduled follow-up outpatient
                                    visits with

                                     - 24 -
<PAGE>

                                    practitioners shall be consistent with the
                                    clinical need.

                  H.       The CONTRACTOR shall ensure that PCP and pharmacy
                           availability meet specified geographic access
                           standards based on the county of residence: 90% of
                           members residing in urban counties shall travel no
                           longer than 30 miles to receive pharmacy and PCP
                           availability; 90% of members residing in rural
                           counties shall travel no longer than 45 miles to
                           receive pharmacy and PCP availability; and 90% of
                           members residing in frontier counties shall travel no
                           longer than 60 miles to receive pharmacy and PCP
                           availability. The CONTRACTOR shall ensure that
                           members have access to pharmacy availability within
                           24 hours of discharge from a hospital, urgent care
                           facility or emergency room.

         (5)      Referral and Coordination

                  The CONTRACTOR shall have and comply with written policies and
                  procedures for the coordination of care. The CONTRACTOR'S
                  policies and procedures shall ensure that referrals including
                  referrals to the following providers: other specialists,
                  out-of-network providers, and all publicly supported providers
                  for medically necessary services are available to members. The
                  CONTRACTOR'S referral process shall be effective and efficient
                  and not present an impediment to timely receipt of services

         (6)      General Care Coordination Requirements

                  A.       The CONTRACTOR shall:

                           i.       Provide statewide care coordination, either
                                    directly or through subcontractors, for
                                    SALUD! Members with multiple and complex
                                    special physical, mental and behavioral
                                    health care needs.

                           ii.      Provide as part of their care coordination
                                    program, the six targeted case management
                                    programs included in the SALUD! Benefit
                                    package, on a statewide basis, and be held
                                    accountable for delivering these services
                                    according to MAD policy.

                           iii.     Develop and implement written policies and
                                    procedures, approved by HSD, which govern
                                    how members with multiple and complex
                                    special physical, mental and behavioral
                                    health care needs shall be identified.

                           iv.      Develop and implement written policies and
                                    procedures, approved

                                     - 25 -
<PAGE>

                                    by HSD, governing how care coordination
                                    shall be provided for members. These shall
                                    address the development of member's
                                    individual treatment plan, based on a
                                    comprehensive assessment of the goals,
                                    capacities and medical condition of the
                                    member, and the needs and goals of the
                                    family; and criteria for evaluating a
                                    member's response to care and revising the
                                    plan, as indicated. A member and family
                                    shall be involved in the development of the
                                    treatment plan, as appropriate. A member or
                                    family shall have a right to refuse care
                                    coordination or case management.

                           v.       Develop and implement policies and
                                    procedures which define care coordination,
                                    including the targeted case management
                                    programs, according to MAD policy on each;
                                    specify that care coordinators/case managers
                                    shall meet with members on a regular,
                                    face-to-face basis, as is indicated.
                                    Telephonic contacts alone do not meet the
                                    requirements of the six specific case
                                    management programs, or of care coordination
                                    services.

                           vi.      Specify how care coordination shall be
                                    supported by an internal information system.

                           vii.     Develop and implement policy and procedures
                                    to establish working relationships between
                                    care coordinators and providers.

                           viii.    Continue to work with the Medicaid in the
                                    Schools (MITS) program providers to identify
                                    and coordinate with the child's SALUD!
                                    primary care provider (PCP).

                  B.       Specific Coordination Requirements

                           i.       Initial Written Referral Report. A written
                                    report of the outcome of any referral,
                                    containing sufficient information to
                                    coordinate the member's care, shall be
                                    forwarded to the PCP by the behavioral
                                    health provider within seven (7) calendar
                                    days after the screening and evaluation
                                    visit.

                           ii.      Ongoing Reporting. While the member is
                                    receiving services from a behavioral health
                                    provider, the behavioral health provider
                                    shall keep the member's PCP informed of drug
                                    therapy; laboratory and radiology results;
                                    sentinel events such as hospitalization,
                                    emergencies, incarceration, discharge from a
                                    psychiatric hospital or from behavioral
                                    health services; and transitions in level of
                                    care.

                                     - 26 -
<PAGE>

                                    The PCP shall keep the behavioral health
                                    provider informed of drug therapy;
                                    laboratory and radiology results; medical
                                    consultations; and sentinel events such as
                                    hospitalization and emergencies.

                           iii.     Behavioral Health Referral Policies and
                                    Procedures. The CONTRACTOR shall develop and
                                    implement written policies and procedures
                                    that allow members access to behavioral
                                    health services without first going through
                                    the PCP. These policies and procedures shall
                                    accord timely access to behavioral health
                                    services. The CONTRACTOR shall notify
                                    members of their rights to access behavioral
                                    health services without a referral. The
                                    CONTRACTOR shall notify members of their
                                    rights to access behavioral health services
                                    without a referral.

                           iv.      Psychiatric Consultation. A psychiatrist
                                    shall be available to the PCP to assist with
                                    pharmacotherapy and diagnostic evaluations.

                           v.       Physical Health Consultation and Treatment.
                                    The CONTRACTOR shall have and comply with
                                    written policies and procedures governing
                                    referrals from behavior health providers for
                                    physical health consultation and treatment.

                           vi.      Coordination With Waiver Programs. The
                                    CONTRACTOR shall provide all covered
                                    benefits to members who are waiver
                                    participants. There are four Home and
                                    Community-Based Waiver programs: the
                                    Developmentally Disabled Waiver, the
                                    Disabled and Elderly Waiver, the Medically
                                    Fragile Waiver and the AIDS Waiver. An
                                    integral part of each waiver is the
                                    provision of case management. The CONTRACTOR
                                    shall coordinate closely with the Waiver
                                    case manager to ensure that case information
                                    is shared, necessary services are provided
                                    and are not duplicative. HSD shall monitor
                                    utilization to ensure that the CONTRACTOR
                                    provides to members who are waiver
                                    participants all benefits included in the
                                    CONTRACTOR benefit package.

                           vii.     Coordination of Services with Children,
                                    Youth and Families Department (CYFD). The
                                    CONTRACTOR shall have written policies and
                                    procedures requiring coordination with the
                                    CYFD Protective Services and Juvenile
                                    Justice Divisions to ensure that members
                                    receive medically necessary services
                                    regardless of the member's custody status.
                                    These policies and procedures shall

                                     - 27 -
<PAGE>

                                    specifically address compliance to the
                                    following sections of the New Mexico
                                    Children's Code: Section 32A-2-21
                                    (Disposition of a mentally disordered or
                                    developmentally disabled child in a
                                    delinquency proceeding); Section 32A-3A-5
                                    (Plan for family services/ family needs
                                    assessment and referral); Section 32A-3B-17
                                    (Disposition of developmentally disabled or
                                    mentally disordered child in a proceeding
                                    under the Family in Need of Services Act);
                                    Section 32A-4-3 (Duty to report child abuse
                                    and child neglect and penalty); Section
                                    32A-4-14 (Change in placement); Section
                                    32A-4-23 (Disposition of a mentally
                                    disordered or developmentally disabled child
                                    in a proceeding under the Abuse and Neglect
                                    Act.); and Article 6, Children's Mental
                                    Health and Developmental Disabilities. If
                                    Child Protective Services (CPS), Juvenile
                                    Justice or Adult Protective Services (APS)
                                    has an open case on a member, the CYFD
                                    social worker or Juvenile Probation Officer
                                    assigned to the case shall be involved in
                                    the assessment and treatment plan, including
                                    decisions regarding the provision of
                                    services for the member. The CONTRACTOR
                                    shall designate a single contact point for
                                    these cases.

                           viii.    Coordination of Services with Schools. The
                                    CONTRACTOR shall have and implement written
                                    policies and procedures regarding
                                    coordination with the schools for those
                                    members receiving services excluded from
                                    managed care as specified in the
                                    Individualized Education Program (IEP) or
                                    Individualized Family Service Program
                                    (IFSP). The CONTRACTOR shall provide the
                                    names of the members' PCPs to schools
                                    participating in the Medicaid in the Schools
                                    (MITS) program.

         (7)      Selection or Assignment to a Primary Care Provider (PCP)

                  The CONTRACTOR shall maintain and comply with written policies
                  and procedures governing the process of member selection of a
                  PCP and requests for change.

                  A.       Initial Enrollment. At the time of enrollment the
                           CONTRACTOR shall ensure that each member has the
                           freedom to choose a PCP within a reasonable distance
                           from the member's place of residence. The process
                           whereby a CONTRACTOR assigns members to PCPs shall
                           include at least the following features: The
                           CONTRACTOR shall provide the member with the means
                           for selecting a PCP within five (5) business days of
                           enrollment. The CONTRACTOR shall offer freedom of
                           choice to

                                     - 28 -
<PAGE>

                           members in making a PCP selection. If a member does
                           not select a PCP within a reasonable period of
                           enrollment, the CONTRACTOR shall make the assignment
                           and notify the member in writing of his/her PCP's
                           name, location, and office telephone number, while
                           providing the member with an opportunity to select a
                           different PCP if he/she is dissatisfied with the
                           assignment. The CONTRACTOR shall assign a PCP based
                           on factors such as patient age, residence, and if
                           known, current provider relationships.

                  B.       Subsequent Change in PCP Initiated by Member. Members
                           may initiate a PCP change at any time, for any
                           reason. The request can be made in writing or by
                           telephone. Any change in PCP shall be effective as of
                           the first of the month following the month in which
                           the request was received.

                  C.       Subsequent Change in PCP Initiated by the CONTRACTOR
                           The CONTRACTOR may initiate a PCP change for a member
                           under the following circumstances:

                           i.       The member and the CONTRACTOR agree that
                                    assignment to a different PCP in the
                                    CONTRACTOR'S provider network is in the
                                    member's best interest, based on the
                                    member's medical condition;

                           ii.      A member's PCP ceases to participate in the
                                    CONTRACTOR'S network;

                           iii.     A member's behavior toward the PCP is such
                                    that it is not feasible to safely or
                                    prudently provide medical care and the PCP
                                    has made all reasonable efforts to
                                    accommodate the member; or

                           iv.      A member has initiated legal actions against
                                    the PCP.

                  D.       In instances where a PCP has been terminated, the
                           CONTRACTOR shall allow affected members to select
                           another PCP or make an assignment within fifteen (15)
                           days of the termination effective date.

                  E.       PCP Lock In. HSD shall allow the CONTRACTOR to
                           require that a member see a certain PCP when
                           identification of utilization of unnecessary services
                           indicates a need to provide case continuity. Prior to
                           placing the member on PCP lock in, the CONTRACTOR
                           shall inform the member of the intent to lock in,
                           including the reasons for imposing the PCP lock in.
                           The CONTRACTOR'S grievance procedure shall be made
                           available to any member being designated for PCP lock
                           in. The

                                     - 29 -
<PAGE>

                           CONTRACTOR shall document review of the PCP.
                           The PCP lock in shall be reviewed and documented by
                           the CONTRACTOR and approved by HSD at least every six
                           months. The member shall be removed from PCP lock in
                           when the CONTRACTOR has determined that the
                           utilization problems have been solved and that
                           recurrence of the problems are judged to be
                           improbable. HSD shall be notified of all lock in
                           removals.

2.2      ENROLLMENT

         (1)      Maximum Medicaid Enrollment

                  HSD and the CONTRACTOR may mutually agree in writing to
                  establish a maximum Medicaid enrollment level for Medicaid
                  beneficiaries, which may vary throughout the terms of the
                  Agreement. The maximum Medicaid Enrollment also may be
                  established by HSD on a statewide or county-by- county basis
                  based on the capacity of the CONTRACTOR'S provider network, or
                  to ensure that the CONTRACTOR has capacity for statewide
                  Medicaid enrollment. Subsequent to the establishment of this
                  limit, if the CONTRACTOR wishes to change its maximum
                  enrollment level, the CONTRACTOR shall notify HSD in writing
                  ninety (90) days prior to the desired effective date of the
                  change. HSD shall approve all requests for changing maximum
                  enrollment levels before implementation. Should a maximum
                  enrollment level be reduced to below the actual enrollment
                  level, HSD may disenroll members to establish compliance with
                  the new limit.

         (2)      Enrollment Requirements

                  As required by 42 C.F.R. 434.25, the CONTRACTOR shall accept
                  eligible individuals, in the order in which they apply:

                  A.       Without restriction, unless authorized by the HCFA
                           Regional Administrator;

                  B.       Up to the limits established pursuant to the
                           Agreement;

                  C.       All enrollments shall be voluntary, and the
                           CONTRACTOR shall not discriminate against eligible
                           individuals on the basis of health status or need for
                           health services.

                  D.       The CONTRACTOR shall assume responsibility for all
                           covered medical conditions of each member inclusive
                           of pre-existing conditions as of the effective date
                           of enrollment.

                                     - 30 -
<PAGE>

         (3)      Eligibility

                  A.       HSD shall determine eligibility for enrollment in the
                           managed care program. All Medicaid eligible members
                           are required to participate in the Medicaid managed
                           care program except for the following:

                           i.       Members eligible for both Medicaid and
                                    Medicare, i.e. dual eligibles;

                           ii.      Institutionalized members i.e., those
                                    residing for greater than thirty (30) days
                                    in nursing facilities;

                           iii.     Members residing in intermediate care
                                    facilities for the mentally retarded;

                           iv.      Members participating in the Health
                                    Insurance Premium (HIPP) Program;

                           v.       Children and adolescents in out-of-state
                                    foster care or adoption placement; and

                           vi.      Native Americans who have the option to
                                    voluntarily enroll with the CONTRACTOR.

         (4)      HSD Exemptions

                  HSD shall grant exemptions to mandatory enrollment based upon
                  criteria established by HSD. A member or his or her
                  representative, parent, or legal guardian shall submit such
                  requests in writing to HSD, including a description of the
                  special circumstances justifying an exemption. Requests are
                  evaluated by HSD clinical staff and forwarded to the MAD
                  Medical Director or his/her designee for final determination.

         (5)      Special Situations

                  A.       Newborn Enrollment

                           Newborns are automatically eligible for a period of
                           one (1) year and are immediately enrolled with the
                           mother's MCO. If the child's mother is not a member
                           at the time of the birth, in a hospital or at home,
                           then the child is enrolled during the next applicable
                           enrollment cycle. The

                                     - 31 -
<PAGE>

                           CONTRACTOR is not responsible for care of a child
                           hospitalized during enrollment, until discharge
                           except for newborns born to enrolled mothers.

                  B.       Hospitalized Members.

                           A member who is hospitalized at the time he/she first
                           enrolls with the CONTRACTOR may enroll with the
                           CONTRACTOR. However, the CONTRACTOR shall not be
                           responsible for the costs of such hospitalization,
                           except newborns born to a member mother, until the
                           member is discharged from the hospital. Instead, HSD
                           shall pay the appropriate provider(s), on a
                           fee-for-service basis, all provider-submitted claims
                           related to a member who is hospitalized in a general
                           acute care, rehabilitation or freestanding
                           psychiatric hospital at the time such member enrolls
                           with the CONTRACTOR, until such time as the member is
                           discharged from the hospital.

                  C.       Members in Placement in Residential Treatment
                           Centers.

                           If a child or adolescent becomes Medicaid eligible
                           while residing in an accredited or non-accredited
                           residential treatment center, they shall be
                           immediately eligible for enrollment.

                  D.       Members in Treatment Foster Care Placements.

                           If a child or adolescent was residing in a treatment
                           foster care placement at the time managed care
                           enrollment began, they shall be exempt from enrolling
                           in an MCO until they are discharged from treatment
                           foster care.

                  E.       Native Americans

                           i.       Native Americans shall have the option to
                                    participate in managed care and be enrolled
                                    with the CONTRACTOR to receive medical care
                                    through Indian Health Services (IHS), tribal
                                    provider, and/or other non-Native American
                                    provider, or to not participate in managed
                                    care and continue to receive medical care.
                                    If a Native American member voluntarily
                                    chooses to enroll with the CONTRACTOR, the
                                    enrollment process is initiated.

                           ii.      The CONTRACTOR shall make good faith efforts
                                    to contract with the appropriate urban
                                    Indian clinics tribally owned health
                                    centers, and IHS facilities for the
                                    provision of medically necessary services.

                                     - 32 -
<PAGE>

                           iii.     The CONTRACTOR shall ensure that translation
                                    services are reasonably available when
                                    needed, both in providers' offices and in
                                    contacts with the CONTRACTOR.

                           iv.      The CONTRACTOR shall ensure adequate medical
                                    transportation for Native American members
                                    residing in rural and remote areas.

                           v.       The CONTRACTOR shall ensure that culturally
                                    appropriate materials are reasonably
                                    available to Native Americans.

                  F.       Members Placed in Nursing Facilities:

                           A member placed in a nursing facility for what is
                           expected to be a long term or permanent placement the
                           CONTRACTOR remains responsible for the member until
                           the member is disenrolled by HSD.

                  G.       Members Receiving Hospice Services

                           Members who have elected and are receiving hospice
                           services at the time of enrollment shall be exempt
                           from enrolling in an MCO unless they revoke their
                           hospice election.

         (6)      Enrollment Process for Members

                  Current members may request a change in MCOs during the first
                  eighty five (85) days of a twelve (12) month enrollment
                  period.

                  A.       Minimum Selection Period

                           A new member shall have at least fourteen (14)
                           calendar days from the date of eligibility to select
                           an MCO from the provided information. The new member
                           can select anytime during this selection period. If a
                           selection is not made during this selection period,
                           HSD shall assign the new member to an MCO.

                  B.       Begin Date of Enrollment

                           Enrollment generally shall begin the first day of the
                           first full month following selection or assignment.
                           If the selection or assignment is made after the 25th
                           day of the month and before the first full day of the
                           next month, the enrollment shall begin on the first
                           day of the second full month after the selection or
                           assignment.

                                     - 33 -
<PAGE>

                  C.       Member Switch

                           A current CONTRACTOR member has the opportunity to
                           change MCOs during the first eighty-five (85) days of
                           a twelve (12) month period. HSD shall notify the
                           CONTRACTOR members of their opportunity to select a
                           new CONTRACTOR provider. A member is limited to one
                           eighty-five day switch period per CONTRACTOR. After
                           exercising the switching rights, and returning to a
                           previously selected CONTRACTOR, the member shall
                           remain with the CONTRACTOR until his/her lock-in
                           period expires before being permitted to switch
                           CONTRACTORS.

                  D.       Mass Transfer Process

                           The mass transfer process is initiated when HSD
                           determines that the transfer of MCO members from one
                           MCO to another is appropriate.

                           i.       Triggering Mass Transfer Process. The mass
                                    transfer process may be triggered by two
                                    situations: maintenance change, i.e.,
                                    changes in CONTRACTOR identification number
                                    or CONTRACTOR name; and significant change
                                    in the CONTRACTOR contracting status
                                    including, but not limited to, loss of
                                    licensure, substandard care, fiscal
                                    insolvency or significant loss in network
                                    providers.

                           ii.      Effective Date of Mass Transfer. The change
                                    in enrollment initiated by the mass transfer
                                    begins with the first day of the month
                                    following the identification of the need to
                                    transfer the CONTRACTOR members.

                           iii.     Member Selection Period. Following a mass
                                    transfer, the CONTRACTOR members are given
                                    an opportunity to select a different
                                    CONTRACTOR.

                  E.       Transition of Care

                           i.       The CONTRACTOR shall develop a detailed plan
                                    that addresses the clinical transition
                                    issues and transfer of potentially large
                                    numbers of members into their organization.
                                    This plan shall include how the CONTRACTOR
                                    proposes to identify members currently
                                    receiving services;

                           ii.      The CONTRACTOR shall develop a detailed plan
                                    for the

                                     - 34 -
<PAGE>
                                    transition of an individual member, which
                                    includes member and provider education about
                                    the CONTRACTOR, and the CONTRACTOR process
                                    to assure any existing treatment plans are
                                    revised as necessary;

                           iii.     The member's current MCO shall be able to
                                    identify members and provide necessary data
                                    and information to the future MCO for
                                    members switching plans, either individually
                                    or in large numbers to avoid unnecessary
                                    delays in treatment that could be
                                    detrimental to the member;

                           iv.      The CONTRACTOR shall honor all prior
                                    approvals granted by HSD through its
                                    CONTRACTOR for the first thirty days of
                                    enrollment or until the CONTRACTOR has made
                                    other arrangements for the transition of
                                    services. Providers associated with these
                                    services shall be reimbursed by the
                                    CONTRACTOR;

                           v.       The CONRACTOR shall adhere to the New Mexico
                                    Children's Code NMSA 1978 Section 32A-3B-9
                                    relating to notification of the child's
                                    guardian ad litem, parent, guardian or legal
                                    custodian 10 days prior to a change in
                                    placement for members currently receiving
                                    behavioral health services requiring a level
                                    of care determination, unless an emergency
                                    situation requires moving the child prior to
                                    sending notice;

                           vi.      The current CONTRACTOR shall reimburse the
                                    providers and facilities approved by HSD, if
                                    a donor organ becomes available during the
                                    first thirty days of enrollment and
                                    transplant services have been prior approved
                                    by HSD;

                           vii.     The CONTRACTOR shall fill prescriptions for
                                    drug refills for the first thirty days or
                                    until the CONTRACTOR has made other
                                    arrangements, for newly enrolled managed
                                    care members;

                           viii.    The CONTRACTOR shall pay for DME costing
                                    $2000 or more, approved by the CONTRACTOR
                                    but delivered after disenrollment;

                           ix.      The CONTRACTOR shall be responsible for
                                    covered medical services provided to the
                                    member for any month they receive a
                                    capitation payment, even if the member has
                                    lost Medicaid eligibility;

                                     - 35 -
<PAGE>

                           x.       The CONTRACTOR is responsible for payment of
                                    all inpatient services until discharge from
                                    the hospital or transfer to a different
                                    level of care, if the member is hospitalized
                                    at the time of exemption or switch
                                    enrollment;

                           xi.      The CONTRACTOR is responsible for payment
                                    until disenrollment, if an enrollment member
                                    is placed in a nursing facility or
                                    intermediate care facility for the mentally
                                    retarded as a long term or permanent
                                    placement; and

                           xii.     The CONTRACTOR shall ensure the transition
                                    of care requirements outlined above can be
                                    met with both individual and mass enrollment
                                    into and out of their organization.

         (7)      Member Disenrollment

                  A.       CONTRACTOR Requests for Disenrollment

                           Member disenrollment shall only be considered in rare
                           circumstances. The CONTRACTOR may request that a
                           particular member be disenrolled. Disenrollment
                           requests shall be submitted in writing to HSD. The
                           request and supporting documentation shall meet
                           requirements specified by HSD. If the disenrollment
                           request is granted the CONTRACTOR retains
                           responsibility for the member's care until such time
                           as the member is enrolled with a new CONTRACTOR. If a
                           request for disenrollment is approved the member
                           shall not be re-enrolled with the CONTRACTOR for a
                           period of time to be determined by HSD. Conditions
                           that may permit lock-out or disenrollment are:

                           i.       The CONTRACTOR demonstrates that it has made
                                    a good faith effort to accommodate the
                                    member but such efforts have been
                                    unsuccessful;

                           ii.      The conduct of the member is such that it is
                                    not feasible safe or prudent to provide
                                    medical care subject to the terms of the
                                    contract;

                           iii.     The CONTRACTOR has offered to the member in
                                    writing the opportunity to utilize the
                                    grievance procedures;

                           iv.      The CONTRACTOR shall not terminate
                                    enrollment because of an

                                     - 36 -
<PAGE>

                                    adverse change in the member's health. The
                                    CONTRACTOR shall provide adequate
                                    documentation that terminations are proper
                                    and not due to an adverse change in the
                                    member's health; and

                           v.       The CONTRACTOR has received threats or
                                    attempts of intimidation from the member to
                                    the CONTRACTORS, providers or its own staff.

                  B.       Member Initiated Disenrollment

                           A Medicaid member who is required to participate in
                           managed care may request to be disenrolled from the
                           CONTRACTOR "for cause" at anytime, even during a
                           lock-in period. This request shall be submitted in
                           writing to HSD for review. HSD shall complete the
                           review and furnish a written decision to the member
                           and the CONTRACTOR in a timely manner. Members who
                           voluntarily enroll may choose to disenroll at any
                           time.

                  C.       HSD Initiated Disenrollment

                           HSD may initiate disenrollment in three
                           circumstances:

                           i.       If a member loses Medicaid eligibility;

                           ii.      If the member is re-categorized into a
                                    Medicaid coverage category not included in
                                    the managed care initiative; or

                           iii.     The CONTRACTOR'S enrollment maximum is
                                    reduced to below contract levels. After HSD
                                    becomes aware of, or is alerted to, the
                                    existence of one of the reasons listed
                                    above, HSD shall immediately notify the
                                    member or family and the CONTRACTOR and
                                    shall update the enrollment roster.

2.3      PROVIDERS

         The CONTRACTOR shall establish and maintain a comprehensive network of
         providers capable of serving all members who enroll in the MCO.
         Pursuant to Section 1932(b)(7) of the Social Security Act, the
         CONTRACTOR shall not discriminate against providers with respect to
         participation, reimbursement, or indemnification for any provider
         acting within the scope of that provider's license or certification
         under applicable state law solely on the basis of the provider's
         license or certification.

                                     - 37 -
<PAGE>

         (1)      Required Policies and Procedures

                  A.       The CONTRACTOR shall maintain written policies and
                           procedures on provider recruitment and termination of
                           provider participation with the CONTRACTOR. HSD shall
                           have the right to review these policies and
                           procedures upon demand. The recruitment policies and
                           procedures shall describe how a CONTRACTOR responds
                           to a change in the network that affects access and
                           its ability to deliver services in a timely manner.

                  B.       The CONTRACTOR shall require that each physician
                           providing services to Medicaid members has a unique
                           identifier in accordance with the provisions of
                           Section 1173(b) of the Social Security Act. The
                           CONTRACTOR shall annually develop and implement a
                           training plan to educate providers and their staff on
                           selected managed care or the CONTRACTOR processes and
                           procedures. The plan shall be submitted to HSD for
                           review and approval on or before July of each year.

         (2)      General Information Submitted to HSD

                  The CONTRACTOR shall maintain an accurate list of all active
                  PCPs, specialists, hospitals, and other providers
                  participating or affiliated with the CONTRACTOR. The
                  CONTRACTOR shall submit the list to HSD on a monthly basis and
                  include a clear delineation of all additions and terminations
                  that have occurred the prior month. The CONTRACTOR shall
                  report quarterly the capacity of each contracted behavioral
                  health provider to take new Medicaid clients and to serve
                  current clients. The CONTRACTOR'S contracts with providers
                  must include language stating that the MCO contractors will
                  report any changes in their capacity to take new Medicaid
                  clients or serve current clients.

         (3)      The Primary Care Provider (PCP)

                  The PCP shall be a medical provider participating with the
                  CONTRACTOR who has the responsibility for supervising,
                  coordinating, and providing primary health care to members,
                  initiating referrals for specialist care, and maintaining the
                  continuity of the member's care. The CONTRACTOR shall
                  distribute information to the network providers that explains
                  the Medicaid-specific policies and procedures relating to PCP
                  responsibilities. The CONTRACTOR is prohibited from excluding
                  providers as primary care providers based on the proportion of
                  high-risk patients in their caseloads.

         (4)      Primary Care Responsibilities

                                     - 38 -
<PAGE>

                  A.       The CONTRACTOR shall ensure that the following
                           primary care responsibilities are met by the PCP, or
                           in another manner. The CONTRACTOR shall provide
                           twenty-four (24) hour, seven (7) day a week access;
                           and ensure coordination and continuity of care with
                           providers who participate with the CONTRACTOR network
                           and with providers outside the CONTRACTOR network
                           according to the CONTRACTOR policy; and, ensuring
                           that the member receives appropriate prevention
                           services for their age group.

                  B.       The CONTRACTORS are prohibited from excluding
                           providers as primary care providers based on the
                           proportion of high-risk patients in their caseloads.

                  C.       The CONTRACTOR shall have a formal process for
                           provider education regarding SALUD!, the conditions
                           of participation in the network and the provider's
                           responsibilities to the CONTRACTOR and its members.
                           HSD shall be provided documentation upon request that
                           such provider education is being conducted.

         (5)      CONTRACTOR Responsibility for PCP Services

                  A.       The CONTRACTOR shall retain responsibility for
                           monitoring PCP activities to ensure compliance with
                           the CONTRACTOR and HSD policies. The CONTRACTOR shall
                           educate PCPs about special populations and their
                           service needs. The CONTRACTOR shall ensure that PCPs
                           successfully identify and refer patients to specialty
                           providers as medically necessary.

                  B.       The CONRACTOR shall have an internal provider appeals
                           process.

         (6)      Specialty Providers

                  The CONTRACTOR shall contract with a sufficient number of
                  specialists with the applicable range of expertise to ensure
                  that the needs of CONTRACTOR members shall be met within the
                  CONTRACTOR network of providers. The CONTRACTOR shall also
                  have a system to refer members to providers who are not
                  affiliated with the MCO network if providers with the
                  necessary qualifications or certifications do not participate
                  in the network.

         (7)      Provider to Member Ratios and Access Requirements

                                     - 39 -
<PAGE>

                  The CONTRACTOR shall ensure that member caseload of any PCP in
                  its network does not exceed fifteen hundred (1,500) of its
                  members. Exceptions to this limit may be made with the consent
                  of HSD. Reasons for exceeding the limit may include continuing
                  established care, assigning of a family unit or the
                  availability of mid-level clinicians in the practice which
                  expands the capacity of the PCP.

         (8)      Geographic Access Requirements

                  The minimum number of primary care providers from which to
                  choose and the distances to those providers shall vary by
                  county based on whether the county is urban, rural or frontier
                  as defined. Urban counties are: Bernalillo, Los Alamos, Santa
                  Fe, and Dona Ana. Frontier counties are: Catron, Harding,
                  DeBaca, Union, Guadalupe, Hidalgo, Socorro, Mora, Sierra,
                  Lincoln, Torrance, Colfax, Quay, San Miguel, and Cibola. Rural
                  counties are those which are not listed as urban or frontier.
                  The standards are as follows: 90 percent of urban residents
                  shall travel no longer than 30 miles to see a PCP; 90 percent
                  of rural residents shall travel no longer than 45 miles to see
                  a PCP; and 90 percent of frontier residents shall travel no
                  longer than 60 miles to see a PCP.

         (9)      Federally Qualified Health Centers ("FQHCs")

                  A.       Federally Qualified Health Centers (FQHCs) are
                           federally-funded Community Health Centers, Migrant
                           Health Centers and Health Care for the Homeless
                           Projects that receive grants under sections 329, 330
                           and 340 of the US Public Health Services Act. Current
                           federal regulations {SSA 1902(a)(13)(E)} specify that
                           states shall guarantee access to FQHCs and RHCs under
                           Medicaid managed care programs; therefore the
                           CONTRACTOR shall provide access to FQHCs and RHCs to
                           the extent that access is required under federal law.

                  B.       The CONTRACTOR shall contract with as many FQHCs and
                           RHCs as necessary to permit beneficiaries access to
                           participating FQHCs and RHCs without having to travel
                           a significant distance. At least one FQHC shall
                           specialize in provider health care for the homeless
                           in Bernalillo County. At least one FQHC shall be with
                           one urban Indian FQHC in Bernalillo County.

                  C.       The CONTRACTOR shall contract with FQHCs and RHCs in
                           accordance with the 30 minute travel time standards
                           for routinely used delivery sites. A CONTRACTOR with
                           an FQHC or RHC on its panel that has no capacity to
                           accept new patients shall not satisfy these
                           requirements unless

                                     - 40 -
<PAGE>

                           there exist no other FQHCs or RHCs in the area.

                  D.       The CONTRACTOR shall offer FQHCs and RHCs terms and
                           conditions, including reimbursement, that are at
                           least equal to those offered to other providers of
                           comparable services.

                  E.       If the CONTRACTOR cannot satisfy the standard for
                           FQHC and RHC access at any time while the CONTRACTOR
                           holds a Medicaid contract, the CONTRACTOR shall allow
                           its members to seek care from non-contracting FQHCs
                           and RHCs and shall reimburse these providers at the
                           Medicaid fee schedule.

         (10)     University of New Mexico Health Sciences Center

                  The CONTRACTOR shall contract with the University of New
                  Mexico Health Sciences Center for specialty services provided
                  by Carrie Tingley Hospital and the University of New Mexico
                  Hospital including transplants, neonatal, burn and trauma,
                  level I trauma center, and other specialized pediatric
                  services, not otherwise available, provided that in the event
                  the CONTRACTOR and University of New Mexico Health Sciences
                  Center cannot reach agreement as to reimbursement for services
                  that the CONTRACTOR shall agree to pay Medicaid
                  fee-for-service rates for the services in question.

         (11)     Local Department of Health Offices

                  A.       The CONTRACTOR shall contract with public health
                           providers for services as described in Section
                           MAD-606.A.6., BENEFITS PACKAGE, and those defined as
                           public health services under State law, NMSA 1978
                           Sections  24-1-1, et. seq.

                  B.       The CONTRACTOR shall contract with local and district
                           public health offices for family planning services.

                  C.       The CONTRACTOR may contract with local and district
                           health offices for other clinical preventive services
                           not otherwise available in the community such as
                           prenatal care or prenatal case management.

         (12)     Children's Medical Services (CMS)

                  The CONTRACTOR shall contract with CMS to administer outreach
                  clinics at sites throughout the State. The clinics offer
                  pediatric sub-specialty services in

                                     - 41 -
<PAGE>

                  local communities which include cleft palate, neurology,
                  endocrine, and asthma and pulmonary.

         (13)     Shared Responsibility between the CONTRACTOR and Public Health
                  Offices

                  A.       The CONTRACTOR shall coordinate with the public
                           health offices regarding the following services:

                           i.       Sexually transmitted disease services
                                    including screening, diagnosis, treatment,
                                    follow-up and contact investigations;

                           ii.      HIV prevention counseling, testing, and
                                    early intervention;

                           iii.     Tuberculosis screening, diagnosis, and
                                    treatment;

                           iv.      Disease outbreak prevention and management
                                    including reporting according to state law
                                    requirements, responding to epidemiology
                                    requests for information, and coordination
                                    with epidemiology investigations and
                                    studies;

                           v.       Referral and coordination to ensure maximum
                                    participation in the Supplemental Food
                                    Program for Women, Infants, and Children
                                    (WIC);

                           vi.      Health education services for individuals
                                    and families with a particular focus on
                                    injury prevention including car seat use,
                                    domestic violence, and lifestyle issues
                                    including tobacco use, exercise, nutrition,
                                    and substance use;

                           vii.     Development and support for family support
                                    programs such as home visiting programs for
                                    families of newborns and other at-risk
                                    families and parenting education; and

                           viii.    Participation and support for local health
                                    councils to create healthier and safer
                                    communities with a focus on coordination of
                                    efforts such as DWI councils, maternal and
                                    child health councils, tobacco coalitions,
                                    safety counsel, safe kids and others.

         (14)     School-Based Providers

                  The CONTRACTOR shall participate in the School Based Health
                  Clinic Project.

                                     - 42 -
<PAGE>

         (15)     Indian Health Services (IHS) & Tribal Health Centers

                  A.       The CONTRACTOR shall allow members who are Native
                           American to seek care from any IHS, Tribal Provider
                           or Urban Indian Program Provider defined in the
                           Indian Health Care Improvement Act (25 U.S.C. 1601 et
                           seq.) whether or not the provider participates in the
                           CONTRACTOR provider network.

                  B.       The CONTRACTOR shall not prevent members who are IHS
                           beneficiaries from seeking care from IHS, Tribal or
                           Urban Indian Providers, and network providers due to
                           their status as Native Americans.

                  C.       The CONTRACTOR shall track IHS expenditures by
                           members for those Native Americans who voluntarily
                           enroll in the MCO. The CONTRACTOR shall reimburse
                           these providers.

                  D.       The CONTRACTOR shall track reimbursement to these
                           providers by member.

         (16)     Family Planning Services and Providers

                  A.       Federal law prohibits restricting access to family
                           planning services for Medicaid recipients. The
                           CONTRACTOR shall implement written policies and
                           procedures defining how members are educated about
                           their right to family planning services, freedom of
                           choice, and methods of accessing such services.

                  B.       The CONTRACTOR shall give each member, including
                           adolescents, the opportunity to use his or her own
                           primary care provider or go to any family planning
                           center for family planning services without requiring
                           a referral. Clinics and providers, including those
                           funded by Title X of the Public Health Service Act,
                           shall be reimbursed by the CONTRACTOR for all family
                           planning services regardless of whether they are a
                           participating or non-participating provider. Unless
                           otherwise negotiated, the CONTRACTOR shall reimburse
                           providers of family planning services at the Medicaid
                           rate.

                  C.       Non-participating providers are responsible for
                           keeping family planning information confidential in
                           favor of the individual patient even if the patient
                           is a minor. The CONTRACTOR is not responsible for the
                           confidentiality of medical records maintained by
                           non-participating

                                     - 43 -
<PAGE>

                           providers.

                  D.       Family planning services are defined as the
                           following:

                           i.       Health Education and counseling necessary to
                                    make informed choices and understand
                                    contraceptive methods;

                           ii.      Limited history and physical examination;

                           iii.     Laboratory tests if medically indicated as
                                    part of decision making process for choice
                                    of contraceptive methods;

                           iv.      Diagnosis and treatment of sexually
                                    transmitted diseases (STDs) if medically
                                    indicated;

                           v.       Screening, testing and counseling of at-risk
                                    individuals for human immunodeficiency virus
                                    (HIV) and referral for treatment;

                           vi.      Follow-up care for complications associated
                                    with contraceptive methods issued by the
                                    family planning provider;

                           vii.     Provision of, but not payment for,
                                    contraceptive pills;

                           viii.    Provision of devises/supplies;

                           ix.      Tubal legations;

                           x.       Vasectomies; and

                           xi.      Pregnancy testing and counseling

                  E.       If a non-participating provider of family planning
                           services detects a problem outside of the scope of
                           services listed above, the provider should refer the
                           member back to the CONTRACTOR. The CONTRACTOR is not
                           under any HSD initiated obligation to reimburse
                           non-participating family planning providers for
                           non-emergent services outside the scope of these
                           defined services.

         (17)     Behavioral Health Care

                  A.       The CONTRACTOR shall:

                                     - 44 -
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                           i.       Deliver all behavioral health services
                                    through direct contracts with individual
                                    behavioral health provider groups. All
                                    administrative functions associated with
                                    behavioral health shall be retained and
                                    integrated within the CONTRACTOR;

                           ii.      Minimize the administrative costs associated
                                    with the delivery of behavioral health care;

                           iii.     Build a statewide behavioral health provider
                                    network that ensures access to all levels of
                                    behavioral health services, across a
                                    continuum from the most to the least
                                    restrictive setting. The network shall be
                                    sufficient to ensure that the standards in
                                    MAD Policy 606 for access to care providers
                                    who want to refer members for behavioral
                                    health care and vice versa;

                           iv.      Develop and implement written policies and
                                    procedures for members on how to access
                                    behavioral health services without a
                                    referral along with written policies and
                                    procedures for primary care and other
                                    specialty care providers who want to refer
                                    members for behavioral health care and vice
                                    versa;

                           v.       Develop and implement written policies and
                                    procedures for coordination of physical and
                                    behavioral health services, monitoring its
                                    implementation;

                           vi.      Develop and distribute a provider manual,
                                    which includes a specific section on
                                    behavioral health; and

                           vii.     Develop procedures for communicating
                                    regularly with behavioral health providers
                                    on issues related to provision of services.

                  B.       Behavioral Health Clinical Practice Guidelines and
                           Utilization Management

                           i.       The CONTRACTOR shall develop and implement
                                    written behavioral health clinical practice
                                    guidelines for major behavioral health
                                    diagnoses for children, youth and adult
                                    populations. These guidelines shall be based
                                    upon the MAD regulation definition of
                                    medical necessity, professionally accepted
                                    standards of practice, and national
                                    guidelines, and with input from the
                                    CONTRACTOR'S practitioners. Behavioral
                                    health clinical practice guidelines and
                                    utilization management criteria shall be

                                     - 45 -
<PAGE>

                                    applied consistently across the state.

                           ii.      The CONTRACTOR shall provide care
                                    coordination for members with multiple and
                                    complex special physical, mental,
                                    neurobiological, emotional and/or behavioral
                                    health care needs on an as needed basis,
                                    depending upon the clinical profile of the
                                    patient. The CONTRACTOR shall have written
                                    policies and procedures, approved by HSD,
                                    which govern how members with these multiple
                                    and complex needs will be identified and how
                                    these specific care coordination services
                                    will be provided.

                           iii.     The CONTRACTOR shall reevaluate the
                                    behavioral health clinical practice
                                    guidelines at least every two years, with
                                    input from the CONTRACTOR'S clinical
                                    providers. Any updates should be
                                    communicated to providers.

                           iv.      The CONTRACTOR shall ensure the continuity
                                    and coordination of a member's medical and
                                    behavioral health care among practitioners
                                    treating the same member.

                           v.       The CONTRACTOR shall affect a smooth
                                    transition in situations when a network
                                    provider leaves the network.

                           vi.      The CONTRACTOR shall collect and report
                                    longitudinal data, on a quarterly basis for
                                    two (2) years, for all Medicaid SALUD!
                                    children and youth to age 21 accessing
                                    treatment foster care (TCI I and II);
                                    residential treatment centers (RTCs) and
                                    inpatient psychiatric hospitalization. This
                                    data shall track individual members,
                                    including the child or adolescent's actual
                                    length of stay and disposition after
                                    discharge for data elements that are
                                    mutually agreed to in writing by HSD and the
                                    CONTRACTOR. The data shall be analyzed by
                                    the CONTRACTOR and used to evaluate the
                                    appropriateness of care and to identify any
                                    trends, including, but not limited to,
                                    premature discharges, as evidenced by
                                    readmissions to either TFC, RTC and/or
                                    inpatient psychiatric hospitalization.

                           vii.     The CONTRACTOR shall collect and report on a
                                    quarterly basis key variables of program
                                    performance related to behavioral health
                                    services. Key variables will be determined
                                    in consultation with the CONTRACTOR and
                                    stakeholders.

                  C.       Behavioral Health Care Coordination

                                     - 46 -
<PAGE>

                           The CONTRACTOR shall provide care coordination for
                           members with multiple and complex special physical,
                           mental, neurobiological, emotional and/or behavioral
                           health care needs on an as needed basis, depending
                           upon the clinical profile of the member. The
                           CONTRACTOR shall have written policies and
                           procedures, approved by HSD, which govern how members
                           with these multiple and complex needs shall be
                           identified and how these specific care coordination
                           services shall be provided.

         (18)     Standards For Provider Credentialing and Recredentialing

                  A.       Individual Providers

                           At the time of credentialing, the CONTRACTOR shall
                           comply with all requirements in the MAD Policy
                           Manual, which include the requirement to verify from
                           primary sources that at a minimum the provider has:

                           i.       A current valid license to practice;

                           ii.      Clinical privileges in good standing at the
                                    institution designated by the practitioner
                                    as the primary admitting facility, if
                                    applicable;

                           iii.     A valid DEA or CDS certificate, if
                                    applicable;

                           iv.      Graduation from an accredited professional
                                    school/program and/or highest training
                                    program applicable to the academic or
                                    professional degree, discipline, and
                                    licensure of the practitioner;

                           v.       Board certification if the practitioner
                                    states that he/she is board certified in a
                                    specialty on the application;

                           vi.      Current, adequate malpractice insurance, in
                                    accordance with the CONTRACTOR'S
                                    requirements, if applicable;

                           vii.     The absence of a prohibitive history of
                                    professional liability claims that resulted
                                    in settlements or judgments paid by or on
                                    behalf of the practitioner; and

                           viii.    Not been barred from participation based on
                                    existing Medicare or Medicaid sanctions.

         (19)     Organizational Providers

                                     - 47 -
<PAGE>

                  A.       The CONTRACTOR shall have written policies and
                           procedures for the initial and ongoing assessment of
                           all organizational providers with which it intends to
                           contract or with which it is contracted. Providers
                           include, but are not limited to hospitals; home
                           health agencies; nursing facilities; free-standing
                           surgical centers; ambulatory psychiatric and
                           addiction disorder residential treatment centers,
                           clinics, and other facilities; 24-hour programs
                           included in the continuum of behavioral care, such as
                           behavioral units of general hospitals; and
                           freestanding psychiatric hospitals.

                  B.       The CONTRACTOR shall confirm that the provider is in
                           good standing with State and Federal regulatory
                           bodies, including HSD;

                  C.       The CONTRACTOR shall confirm that the provider has
                           been reviewed and approved by an accrediting body
                           (Accredited Residential Treatment Centers shall be
                           accredited by the JCAHO, and other behavioral care
                           providers shall be accredited by the Council on
                           Accreditation of Rehabilitation Facilities (CARF) or
                           the Council on Accreditation (COA) for
                           child/adolescent providers); or

                  D.       The CONTRACTOR shall develop and implement standards
                           of participation that demonstrates the provider is in
                           compliance with provider participation requirements
                           under federal laws and regulations, if the provider
                           has not been approved by an accrediting body.

         (20)     Recredentialing

                  The CONTRACTOR shall formally recredential its network
                  providers at least every two years.

         (21)     Primary Source Verification

                  A.       HSD shall have the right to name a single primary
                           source verification entity to be used by the
                           CONTRACTOR and its subcontractors in its provider
                           credentialing process. All CONTRACTORS shall use one
                           standardized credentialing form except that at its
                           discretion the CONTRACTOR may use its own
                           credentialing system for credentialing of staff-model
                           providers. HSD shall have the right to mandate a
                           standard credentialing application to be used by the
                           CONTRACTOR and its subcontractors in its provider
                           credentialing process. The form shall meet NCQA
                           standards.

                                     - 48 -
<PAGE>

                  B.       The CONTRACTOR shall provide to HSD copies of all
                           Medicaid provider specific forms used in its health
                           system operations and credentialing/recredentialing
                           process for prior approval. The forms shall be user
                           friendly. The CONTRACTOR shall participate in a
                           workshop to consolidate and standardize forms across
                           all plans and for its credentialing/recredentialing
                           processes/applications.

                  C.       The CONTRACTOR shall maintain relatively low
                           administrative expenses and reduce administrative
                           burden and use current technology to minimize
                           administrative burdens for subcontracted and provider
                           staff.

2.4      BENEFITS/SERVICES

         The CONTRACTOR shall be required to provide a comprehensive coordinated
         and fully integrated system of health care services. The CONTRACTOR
         does not have the option of deleting benefits from the Medicaid defined
         benefit package. The following services are included in the covered
         benefit package of this Agreement:

         (1)      Inpatient Hospital Services

                  The benefit package includes hospital inpatient acute care,
                  procedures, and services asset forth in MAD Program Manual
                  section MAD-721, HOSPITAL SERIVCES. The CONTRACTOR shall
                  comply with the maternity length of stay in the Health
                  Insurance and Portability Act of 1996. Coverage for a hospital
                  stay following a normal vaginal delivery may generally not be
                  limited to less than 48 hours for both the mother and newborn
                  child. Health coverage for a hospital stay in connection with
                  childbirth following a cesarean section may generally not be
                  limited to less than 96 hours for both mother and newborn
                  child.

         (2)      Transplant Services

                  The benefit package includes transplantation services. The
                  following transplants are covered in the benefit package:
                  heart transplants, lung transplants, heart-lung transplants,
                  liver transplants, kidney transplants, autologous bone marrow
                  transplants, allegoric bone marrow transplants and corneal
                  transplants, as detailed in MAD Program Manual Section
                  MAD-764, TRANSPLANT SERVICES, Section MAD-765, EXPERIMENTAL OR
                  INVESTIGATIONAL PROCEDURES, TECHNOLOGIES, OR NON-DRUG
                  THERAPIES.

         (3)      Hospital Outpatient Service

                                     - 49 -
<PAGE>

                  The benefit package includes hospital outpatient services for
                  preventive, diagnostic, therapeutic, rehabilitative, or
                  palliative medical services as set forth in MAD Program Manual
                  Section MAD-721.61, OUTPATIENT COVERED SERVICES.

         (4)      Case Management Services

                  The benefit package includes case management services as set
                  forth in the MAD Program Manual Sections MAD 771-772, MAD 774-
                  775, and MAD-744, including, Case Management Services for
                  Adults With Developmental Disabilities as set forth in the MAD
                  Program Manual Section MAD-771, CASE MANAGEMENT SERVICES FOR
                  ADULTS WITH DEVELOPMENTAL DISABILITIES; Case Management
                  Services for Pregnant Women and Their Infants as set forth in
                  MAD Program Manual Section MAD-772, CASE MANAGEMENT SERVICES
                  FOR PREGNANT WOMEN AND THEIR INFANTS; Case Management Services
                  for Traumatically Brain Injured Adults set forth in the MAD
                  Program Manual Section MAD-774, CASE MANAGED SERVICES FOR
                  TRAUMATICALLY BRAIN INJURED ADULTS. Case management services
                  for children up to the age of three (3) as set forth in MAD
                  Program Manual Section MAD-775, CASE MANAGEMENT SERVICES FOR
                  CHILDREN UP TO AGE THREE; Case Management Services for The
                  Medically at Risk as set forth in MAD Program Manual Section
                  MAD-744, EPSDT CASE MANAGEMENT. The benefit package does not
                  include Case Management provided to DD children age 0 -3 who
                  are receiving early intervention services, or case management
                  provided by the Children, Youth and Families Department
                  defined as child protective services management.

         (5)      Emergency Services

                  A.       The benefit package includes services meeting the
                           definition of emergency services. Emergency Services
                           shall be provided in accordance with MAD-606.A.7.
                           QUALITY MANAGEMENT.

                  B.       Reimbursement for Emergency Services

                           i.       The CONTRACTOR shall ensure that acute
                                    general hospitals are reimbursed for
                                    emergency services which they are required
                                    to provide because of federal mandates such
                                    as the "anti-dumping" law in the Omnibus
                                    Budget Reconciliation Act of 1989. P.L.
                                    101-239 and 42 U.S.C. section 1395 dd (1867
                                    of the Social Security Act).

                                     - 50 -
<PAGE>

                           ii.      The CONTRACTOR shall pay for both the
                                    services involved in the screening
                                    examination and the services required to
                                    stabilize the patient, if the screening
                                    examination leads to a clinical
                                    determination by the examining physician
                                    that an actual emergency medical condition
                                    exists.

                           iii.     The CONTRACTOR is required to pay for all
                                    emergency services which are medically
                                    necessary until the clinical emergency is
                                    stabilized. This includes all treatment that
                                    may be necessary to assure, within
                                    reasonable medical probability, that no
                                    material deterioration of the patient's
                                    condition is likely to result from or occur
                                    during discharge of the patient or transfer
                                    of the patient to another facility.

                           iv.      If the screening examination leads to a
                                    clinical determination by the examining
                                    physician that an actual emergency medical
                                    condition does not exist, then the
                                    determining factor for payment liability is
                                    whether the member had acute symptoms of
                                    sufficient severity at the time of
                                    presentation. In these cases, the CONTRACTOR
                                    shall review the presenting symptoms of the
                                    member and shall pay for all services
                                    involved in the screening examination where
                                    the present symptoms (including severe pain)
                                    were of sufficient severity to have
                                    warranted emergency attention under the
                                    prudent layperson standard. If the member
                                    believes that a claim for emergency services
                                    has been inappropriately denied by the
                                    CONTRACTOR, the member may seek recourse
                                    through the CONTRACTOR or HSD appeal.

                           v.       When the member's primary care physician or
                                    other CONTRACTOR representative instructs
                                    the member to seek emergency care in network
                                    or out-of-network, the CONTRACTOR is
                                    responsible for payment, at the in network
                                    rate, for the medical screening examination
                                    and for other medically necessary emergency
                                    services intended to stabilize the patient
                                    without regard to whether the member meets
                                    the prudent layperson standard.

                           vi.      The CONTRACTOR must be in compliance with
                                    Medicare Part C regulations for coordinating
                                    post-stabilization care.

         (6)      Physical Health Services

                                     - 51 -
<PAGE>

                  The benefit package includes primary (including those provided
                  in school-based settings) and specialty physical health
                  services provided by a licensed practitioner performed within
                  the scope of practice as defined by State Law and set forth in
                  MAD Program Manual Section MAD-711, MEDICAL SERVICES
                  PROVIDERS; Section MAD-718.1, MIDWIFE SERVICES; Section
                  MAD-718.2, PODIATRY SERVICES; Section MAD-712, RURAL HEALTH
                  CLINIC SERVICES; and Section MAD-713, FEDERALLY QUALIFIED
                  HEALTH CENTER SERVICES.

         (7)      Laboratory Services

                  The benefit package includes all laboratory services provided
                  according to the applicable provisions of CLIA as set forth in
                  MAD Program Manual Section MAD-751, LABORATORY SERVICES.

         (8)      Diagnostic Imagining and Therapeutic Radiology Services

                  The benefit package includes medically necessary diagnostic
                  imaging and radiology services as set forth in MAD Program
                  Manual Section 752, DIAGNOSTIC IMAGINING AND THERAPEUTIC
                  RADIOLOGY SERVICES.

         (9)      Anesthesia Services

                  The benefit package includes anesthesia and monitoring
                  services necessary for performance of surgical or diagnostic
                  procedures as set forth in MAD Program Manual Section MAD-714,
                  ANESTHESIA SERVICES.

         (10)     Vision Services

                  The benefit package includes vision services as set forth in
                  MAD Program Manual Section MAD-715, VISION CARE SERVICES.

         (11)     Audiology Services

                  The benefit package includes audiology services as set forth
                  in MAD Program Manual Section MAD-755, HEARING AIDS AND
                  RELATED EVALUATION.

         (12)     Dental Services

                  The benefit package includes dental services as set forth in
                  MAD Program Manual Section MAD-716, DENTAL SERVICES.

                                     - 52 -
<PAGE>

         (13)     Dialysis Services

                  The benefit package includes medically necessary dialysis
                  services as set forth in MAD Program Manual Section MAD-761,
                  DIALYSIS SERVICES. Dialysis providers shall assist members in
                  applying for and pursuing final Medicare eligibility
                  determination.

         (14)     Pharmacy Services

                  A.       The benefit package includes all pharmacy and related
                           services, as set forth in MAD MAD-753 PHARMACY
                           SERVICES. The CONTRACTOR formulary shall use the
                           following guidelines: (i) There is at least one
                           representative drug for each of the categories in the
                           First Data Bank Blue Book; (ii) Generic substitution
                           shall be based on AB Rating and/or clinical need;
                           (iii) For a multiple source brand name product within
                           a therapeutic class, the CONTRACTOR may select a
                           representative drug; (iv) The formulary shall follow
                           the HCFA special guidelines relating to drugs used to
                           treat HIV infection; (v) The formulary shall include
                           coverage of certain OTC drugs when prescribed by a
                           licensed practitioner; and (vi) The CONTRACTOR shall
                           implement an appeals process for practitioners who
                           think that an exception to the formulary shall be
                           made for an individual member.

                  B.       Drug Utilization Review Program

                           The CONTRACTOR shall maintain written policies and
                           procedures governing its drug utilization review
                           (DUR) program, in compliance with any applicable
                           Federal Medicaid law.

         (15)     Durable Medical Equipment and Medical Supplies

                  The benefit package includes the purchase, delivery,
                  maintenance and repair of equipment, oxygen and oxygen
                  administration equipment, nutritional products, disposable
                  diapers, and disposable supplies essential for the use of the
                  equipment as set forth in MAD Program Manual Section MAD-754,
                  DURABLE MEDICAL EQUIPMENT AND MEDICAL SUPPLIES.

         (16)     EPSDT Services

                  The benefit package includes the delivery of the Federally
                  mandated Early and Periodic Screening, Diagnostic, and
                  Treatment (EPSDT) services as set in forth MAD Program Manual
                  Section MAD-740, EPSDT SERVICES.

                                     - 53 -
<PAGE>

                  A.       EPSDT Private Duty Nursing

                           The benefit package includes private duty nursing for
                           the EPSDT population as set forth in MAD Program
                           Manual Section MAD-746.3, EPSDT PRIVATE DUTY NURSING
                           SERVICE. The services shall either be delivered in
                           the member's home or the school setting.

                  B.       EPSDT Personal Care

                           The CONTRACTOR shall pay for medically necessary
                           personal care services furnished to eligible members
                           under twenty-one (21) years of age as part of EPSDT.
                           42 CFR Section 440.167, MAD 746.5.

                  C.       Tot-to-Teen Health Checks

                           The CONTRACTOR shall adhere to the periodicity
                           schedule and to ensure that eligible members receive
                           EPSDT screens (Tot-to-Teen Health Checks) including:
                           (i) Education of and outreach to members regarding
                           the importance of the health checks; (ii) Development
                           of a proactive approach to ensure that the services
                           are received by the members; (iii) Facilitation of
                           appropriate coordination with school-based providers;
                           (iv) Development of a systematic communication
                           process with CONTRACTOR'S participating providers
                           regarding screens and treatment coordination with
                           special emphasis on the behavioral health needs of
                           the members; (v) Processes to document, measure, and
                           assure compliance with the periodicity schedule; and
                           (vi) Development of a proactive process to ensure the
                           appropriate follow-up evaluation, referral, and/or
                           treatment, especially early intervention for mental
                           health conditions, vision and hearing screening and
                           current immunizations.

         (17)     Services Provided in Schools

                  The benefit package includes services provided in schools
                  excluding those specified in the Individual Education Plan
                  (IEP) or the Individualized Family Services Plan (IFSP) as set
                  forth in the MAD Program Manual Section MAD-747, SCHOOL-BASED
                  SERVICES FOR RECIPIENTS UNDER TWENTY-ONE YEARS OF AGE.

         (18)     Nutritional Services

                                     - 54 -
<PAGE>

                  The benefit package includes nutritional services furnished to
                  pregnant women and children as set forth in MAD Program Manual
                  Section MAD-758, NUTRITIONAL SERVICES.

         (19)     Home Health Services

                  The benefit package includes home health services as set forth
                  in MAD Program Manual Section MAD-768, HOME HEALTH SERVICES.
                  The CONTRACTOR shall coordinate Home Health and the Home and
                  Community-Based Waiver programs if a member is eligible for
                  both Home Health and Waiver Services.

         (20)     Hospice Services

                  The benefit package includes hospice services as set forth in
                  MAD Program Manual Section MAD- 763, HOSPICE CARE SERVICES.

         (21)     Ambulatory Surgical Services

                  The benefit package includes surgical services rendered in an
                  ambulatory surgical center setting as set forth in MAD Program
                  Manual Section MAD- 759, AMBULATORY SURGICAL CENTER SERVICES.

         (22)     Rehabilitation Services

                  The benefit package includes inpatient and outpatient hospital
                  and outpatient physical, occupational, and speech therapy
                  services as set forth in MAD Program Manual Section MAD-767,
                  REHABILITATION SERVICES and licensed speech and language
                  pathology services furnished under the EPSDT program as set
                  forth in MAD Program Manual Section MAD-746.4, LICENSED SPEECH
                  AND LANGUAGE PATHOLOGISTS. The CONTRACTOR shall coordinate
                  rehabilitation services and Home and Community-Based Waiver
                  programs if a member is eligible for both rehabilitation
                  services and Waiver Services.

         (23)     Reproductive Health Services

                  The benefit package includes reproductive health services as
                  set forth in MAD Program Manual Section MAD-762, REPRODUCTIVE
                  HEALTH SERVICES. The CONTRACTOR shall provide Medicaid members
                  with sufficient information to allow them to make informed
                  choices including: the types of family planning services
                  available; the member's right to access these services in a
                  timely and confidential manner; and the freedom to choose a
                  qualified family planning

                                     - 55 -
<PAGE>

                  provider who participates in the CONTRACTOR network or from a
                  provider who does not participate in the CONTRACTOR network.

         (24)     Pregnancy Termination Procedures

                  The benefit package includes services for the termination of
                  pregnancy and/or pre- or post-decision counseling or
                  psychological services as set forth in MAD Program Manual
                  Section MAD-766, PREGNANCY TERMINATION PROCEDURES.

         (25)     Transportation Services

                  The benefit package includes transportation service such as
                  ground ambulance, air ambulance, taxicab and/or handivan,
                  commercial bus, commercial air, meal, and lodging services as
                  indicated for medically necessary physical and behavioral
                  health services as set forth in MAD Program Manual Section
                  MAD-756, TRANSPORTATION SERVICES. Pursuant to NMSA 1978
                  Section 65-2-97.F and applicable rules and interpretations of
                  these laws by the State Public Regulation Commission, rates
                  paid by the CONTRACTOR to transportation providers are not
                  subject to and are exempt from New Mexico State Public
                  Regulation Commission approved tariffs.

         (26)     Prosthetics and Orthotics

                  The benefit package includes prosthetic and orthotic services
                  as set forth in the MAD Program Manual Section MAD-757,
                  PROSTHETICS AND ORTHOTICS.

         (27)     Behavioral Health Services Included in the Benefit Package for
                  Adults and Children

                  A.       Inpatient Hospital Services

                           The benefit package includes inpatient hospital
                           psychiatric services provided in general hospital
                           units and/or PPS-Exempt Units in a general hospital
                           as set forth in the MAD Program Manual Section
                           MAD-721, HOSPITAL SERVICES,

                  B.       Hospital Outpatient Services

                           The benefit package includes outpatient psychiatric
                           and partial hospitalization services provided in
                           PPS-exempt units of general hospitals as set forth in
                           the MAD Program Manual Section MAD-722,

                                     - 56 -
<PAGE>

                           OUTPATIENT PSYCHIATRIC SERVICES AND PARTIAL
                           HOSPITALIZATION.

                  C.       Outpatient Health Care Professional Services

                           The benefit package includes outpatient health care
                           services as set forth in the MAD Program Manual
                           Section MAD-717, PSYCHIATRIC AND PSYCHOLOGICAL
                           SERVICES and MAD-746.2 LICENSED MASTERS LEVEL
                           INDEPENDENT SOCIAL WORKER.

         (28)     Behavioral Health Services Included only in the Benefit
                  Package for Children

                  A.       The benefit package includes prevention, screening,
                           diagnostics, ameliorative services, and other
                           medically necessary behavioral health care and
                           substance abuse treatment or services for Medicaid
                           members under twenty-one (21) years of age whose need
                           for behavioral health services is identified during
                           an Early and Periodic Screening, Diagnosis, and
                           Treatment (EPSDT) screen.

                  B.       All behavioral health care services shall be provided
                           in accordance with the New Mexico Children's Code.
                           The services include:

                           i.       Inpatient Hospitalization in Free Standing
                                    Psychiatric Hospitals: The benefit package
                                    includes inpatient services in free standing
                                    psychiatric hospitals as set forth in the
                                    MAD Program Manual Section MAD-742.1,
                                    INPATIENT PSYCHIATRIC CARE IN FREESTANDING
                                    PSYCHIATRIC HOSPITALS.

                           ii.      Accredited Residential Treatment Center
                                    Services: The benefit package includes
                                    accredited residential treatment services as
                                    set forth in the MAD Program Manual Section
                                    MAD-742.2, ACCREDITED RESIDENTIAL TREATMENT
                                    CENTER SERVICES.

                           iii.     Non-Accredited Residential Treatment
                                    Centers: The benefit package includes
                                    residential treatment services as set forth
                                    in the MAD Program Manual Section MAD-742.3,
                                    NON-ACCREDITED RESIDENTIAL TREATMENT CENTERS
                                    AND GROUP HOMES.

                           iv.      Outpatient and Partial Hospitalization
                                    Services in Freestanding Psychiatric
                                    Hospital: The benefit package includes
                                    outpatient and

                                     - 57 -
<PAGE>

                                    partial hospitalization services provided in
                                    freestanding psychiatric hospitals as set
                                    forth in the MAD Program Manual Section
                                    MAD-742.4 OUTPATIENT AND PARTIAL
                                    HOSPITALIZATION SERVICES IN FREESTANDING
                                    PSYCHIATRIC HOSPITALS.

                           v.       Day Treatment Services: The benefit package
                                    includes day treatment services as set forth
                                    in the MAD Program Manual Section MAD-745.3,
                                    DAY TREATMENT SERVICES.

                           vi.      Behavior Management Skills Development
                                    Services (BMSDS): The benefit package
                                    includes behavior management services as set
                                    forth in the MAD Program Manual Section
                                    MAD-745.2, BEHAVIOR MANAGEMENT SKILLS
                                    DEVELOPMENT SERVICES.

                           vii.     School-Based Services: The benefit package
                                    includes counseling, evaluation, and therapy
                                    furnished in a school-based setting but not
                                    specified in the Individual Education Plan
                                    (IEP) or the Individualized Family Services
                                    Plan (IFSP) as set forth in the MAD Program
                                    Manual Section MAD-747, SCHOOL-BASED
                                    SERVICES FOR RECIPIENTS UNDER TWENTY-ONE
                                    YEARS OF AGE.

                           viii.    Case Management Services for The Medically
                                    at Risk: Case management services for
                                    individuals who are under twenty-one (21)
                                    who are medically at risk as set forth in
                                    MAD Program Manual Section MAD-744, EPSDT
                                    CASE MANAGEMENT.

                           ix.      Treatment Foster Care Services: Treatment
                                    Foster Care services as set forth in MAD
                                    Program Manual Section MAD-745.1, TREATMENT
                                    FOSTER CARE.

         (29)     Behavioral Health Services Included only in the Benefit
                  Package for Adults

                  A.       Psychosocial Rehabilitation

                           The benefit package includes psychosocial
                           rehabilitation services as set forth in the MAD
                           Program Manual Section MAD-737, MENTAL HEALTH
                           REHABILITATION.

                  B.       Case Management Services for the Chronically Mentally
                           Ill

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<PAGE>

                           The benefit package includes case management services
                           as set forth in the MAD Program Manual Section
                           MAD-773, CASE MANAGEMENT SERVICES FOR THE CHRONICALLY
                           MENTALLY ILL.

         (30)     Health Education and Preventive Care

                  A.       The CONTRACTOR shall provide a continuous program of
                           health education without cost to members. Such a
                           program may include publications (e.g., brochures,
                           newsletters), media (e.g., films, videotapes),
                           presentations (seminars, lunch-and-learn sessions)
                           and classroom instruction.

                  B.       The CONTRACTOR shall provide programs of wellness
                           education. Additional programs may be provided which
                           address the social and physical consequences of
                           high-risk behaviors.

                  C.       The CONTRACTOR shall make preventive services
                           available to members. The CONTRACTOR shall
                           periodically remind and encourage their members to
                           use benefits including physical examinations which
                           are available and designed to prevent illness (e.g.
                           HIV counseling and testing for pregnant women).

         (31)     Advance Directives

                  A.       The CONTRACTOR shall implement written policies and
                           procedures with respect to advance directives that
                           address the following requirements:

                           i.       The CONTRACTOR shall provide written
                                    information to adult members concerning
                                    their rights to accept or refuse medical or
                                    surgical treatment and to formulate advance
                                    directives, and the MCO's policies and
                                    procedures with respect to the
                                    implementation of such rights;

                           ii.      The CONTRACTOR shall document in the
                                    member's medical record whether or not the
                                    member has executed an advanced directive;

                           iii.     The CONTRACTOR shall prohibit discrimination
                                    in the provision of care or in any other
                                    manner discriminating against a member based
                                    on whether the member has executed an
                                    advance directive;

                           iv.      The CONTRACTOR shall ensure compliance with
                                    requirements of

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                                    Federal and State laws respecting advance
                                    directives; and

                           v.       The CONTRACTOR shall provide education for
                                    staff and the community on issues concerning
                                    advance directives.

         (32)     Experimental Technology

                  The CONTRACTOR shall not deem a technology or its application
                  experimental, investigational or unproven and deny coverage
                  unless that technology or its application fulfills the
                  definition of "experimental, investigational or unproven"
                  contained in the MAD Program Policy Manual, Section 765,
                  EXPERIMENTAL OR INVESTIGATIONAL PROCEDURES, TECHNOLOGIES OR
                  THERAPIES.

         (33)     Standards for Preventive Health Services

                  A.       Unless a member refuses offered services, and such
                           refusal is documented, the CONTRACTOR shall provide,
                           to the extent possible, the services described in
                           this section. Member refusal is defined to include
                           both failure to consent, and refusal to access care.

                  B.       Preventive health services shall include:

                           i.       Immunizations: The CONTRACTOR shall ensure
                                    that, within six months of enrollment,
                                    members are immunized and current according
                                    to the type and schedule provided by the
                                    most current version of the Recommendations
                                    of the Advisory Committee on Immunization
                                    Practices, Centers for Disease Control and
                                    Prevention, Public Health Service,
                                    Department of Health and Human Services.
                                    This may be done by providing the necessary
                                    immunizations or by verifying the
                                    immunization history by a method deemed
                                    acceptable by the ACIP. "Current" is defined
                                    as no more that four months overdue.

                           ii.      Screens: The CONTRACTOR shall ensure that,
                                    to the extent possible, within six months of
                                    enrollment or within six months of a charge
                                    in the standard, asymptomatic members
                                    receive and are current for at least the
                                    following preventative screening services.
                                    Current is defined as no more than four
                                    months overdue. The CONTRACTOR shall require
                                    its providers to perform the appropriate
                                    interventions based on the results of the
                                    screening.

                                    a)       Screening for Breast Cancer.
                                             Females aged 50-69 years

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<PAGE>

                                             who are not at high risk for breast
                                             cancer shall be screened annually
                                             with mammography and a clinical
                                             breast examination.

                                    b)       Screening for Cervical Cancer.
                                             Female members with a cervix shall
                                             receive Papanicolaou (Pap) testing
                                             starting at the onset of sexual
                                             activity, but at least by 18 years
                                             of age, and every three years
                                             thereafter until reaching 65 years
                                             of age if prior testing has been
                                             consistently normal and the member
                                             has been confirmed to be not at
                                             high risk. If the member is at high
                                             risk, the frequency shall be at
                                             least annual.

                                    c)       Screening for Colorectal Cancer.
                                             All members aged 50 years and older
                                             at normal risk for Colorectal
                                             cancer shall be screened with
                                             annual fecal occult blood testing
                                             or sigmoidoscopy at a periodicity
                                             determined by the CONTRACTOR.

                                    d)       Blood Pressure Measurement. Members
                                             of all ages shall receive a blood
                                             pressure measurement as medically
                                             indicated.

                                    e)       Serum Cholesterol Measurement. All
                                             enrolled men aged 35-65 years and
                                             women aged 45-65 years who are at
                                             normal risk for coronary heart
                                             disease shall receive serum
                                             cholesterol measurement every five
                                             years. Those members with multiple
                                             risk factors shall also receive
                                             HDL-C measurement.

                                    f)       Screening for Obesity. All members
                                             shall receive annual body weight
                                             and height measurements to be used
                                             in conjunction with a calculation
                                             of the Body Mass Index or reference
                                             to a table of recommended weights.

                                    g)       Screening for Elevated Lead Levels.
                                             All members aged 9-15 months
                                             (ideally 12 months) shall receive a
                                             blood lead measurement at least
                                             once.

                                    h)       Screening for Diabetes. All members
                                             shall receive a fasting or two-hour
                                             post-prandial serum glucose
                                             measurement at least once.

                                    i)       Screening for Tuberculosis. Members
                                             shall receive a tuberculin skin
                                             test based on the level of
                                             individual risk for development of
                                             the infection.

                                    j)       Screening for Rubella. All enrolled
                                             women of childbearing ages shall be
                                             screened for rubella susceptibility
                                             by history of vaccination or by
                                             serology at their first clinical
                                             encounter in an office setting.

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<PAGE>

                                    k)       Screening for Visual Impairment.
                                             All members aged 3-4 years shall be
                                             screened at least once for
                                             amblyopia and strabismus by
                                             physical examination and a stereo
                                             acuity test.

                                    l)       Screening for Hearing Impairment.
                                             All members aged 50 and beyond
                                             shall be routinely screened for
                                             hearing impairment by questioning
                                             them about their hearing.

                                    m)       Screening for Problem Drinking and
                                             Substance Abuse. All adolescent and
                                             adult members shall be screened at
                                             least once by a careful history of
                                             alcohol use and/or the use of a
                                             standardized screening
                                             questionnaire such as the Alcohol
                                             Use Disorders Identification Test
                                             (AUDIT) or the four question CAGE
                                             instrument and the Substance Abuse
                                             Screening and Severity Inventory
                                             (SASSI). The frequency of screening
                                             shall be determined by the results
                                             of the first screen and other
                                             clinical indications.

                                    n)       Prenatal Screening. All pregnant
                                             members shall be screened for
                                             preeclampsia, D (Rh)
                                             Incompatibility, Down syndrome,
                                             neural tube defects, and
                                             hemoglobinopathies, vaginal and
                                             rectal Group B Streptococcal
                                             infection, and counsel and offer
                                             testing for HIV.

                                    o)       Newborn Screening. At a minimum,
                                             all newborn members shall be
                                             screened for phenylketonuria,
                                             congenital hypothyroidism,
                                             galactosemia, and any other
                                             congenital disease or condition
                                             specified in accordance with the
                                             Department of Health regulation 7
                                             NMAC 30.6.

                                    p)       During an encounter with a primary
                                             care provider, a behavioral health
                                             screen shall occur.

                                    q)       The CONTRACTOR shall ensure that
                                             clinically appropriate follow-up
                                             and/or intervention is performed
                                             when indicated by the screening
                                             results and that this is done using
                                             the guidance provided in the Guide
                                             to Clinical Preventive Services,
                                             Report of the U.S. Preventive
                                             Services Task Force, Second
                                             Edition, Shalliams and Wilkins,
                                             1996.

                           iii.     Tot-to-Teen Health checks: The CONTRACTOR
                                    shall operate a Tot-to-Teen Health check
                                    Program for members up to 21 years of age to
                                    ensure the delivery of the Federally
                                    mandated Early and Periodic Screening,
                                    Diagnostic, and Treatment (EPSDT) services.
                                    Within six months of enrollment the
                                    CONTRACTOR shall endeavor to ensure that
                                    eligible members (up to age 21) are current
                                    according to screening schedule in EPSDT
                                    services MAD-740.

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<PAGE>

                           iv.      The CONTRACTOR shall provide to applicable
                                    asymptomatic members counseling on the
                                    following unless recipient refusal is
                                    documented: to prevent tobacco use, to
                                    promote physical activity, to promote a
                                    healthy diet, to prevent osteoporosis and
                                    heart disease in menopausal women citing the
                                    advantages and disadvantages of calcium and
                                    hormonal supplementation, to prevent motor
                                    vehicle injuries, to prevent household and
                                    recreational injuries, to prevent dental and
                                    periodontal disease, to prevent HIV
                                    infection and other sexually transmitted
                                    diseases, and to prevent unintended
                                    pregnancies.

                           v.       The CONTRACTOR shall provide a toll-free
                                    health advisor telephone hotline which shall
                                    provide at least the following:

                                    a)       General health information on
                                             topics appropriate to the various
                                             Medicaid populations, including
                                             those with severe and chronic
                                             conditions;

                                    b)       Clinical assessment and triage to
                                             evaluate the acuity and severity of
                                             the member's symptoms and make the
                                             clinically appropriate referral;
                                             and

                                    c)       Prediagnostic and post-treatment
                                             health care decision assistance
                                             based on symptoms.

                           vi.      The CONTRACTOR shall have a written family
                                    planning policy. This policy shall ensure
                                    that members of the appropriate age of both
                                    sexes who seek Family Planning services
                                    shall be provided with counseling pertaining
                                    to the following: methods of contraception;
                                    evaluation and treatment of infertility; HIV
                                    and other sexually transmitted diseases and
                                    risk reduction practices; options for
                                    pregnant members who do not wish to keep a
                                    child; and options for pregnant members who
                                    may wish to terminate the pregnancy.

                           vii.     The CONTRACTOR shall operate a proactive
                                    prenatal care program to promote early
                                    initiation and appropriate frequency of
                                    prenatal care consistent with the standards
                                    of the American College of Obstetrics and
                                    Gynecology. The program shall include at
                                    least the following:

                                    a)       Educational outreach to all members
                                             of child-bearing ages;

                                    b)       Prompt and easy access to
                                             obstetrical care including
                                             providing an office visit with a
                                             practitioner within three

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<PAGE>

                                             weeks of having a positive
                                             pregnancy test (laboratory or home)
                                             unless earlier care is clinically
                                             indicated;

                                    c)       Risk assessment of all pregnant
                                             members to identify high risk cases
                                             for special management;

                                    d)       Counseling which strongly advises
                                             voluntary testing for HIV;

                                    e)       Case management services to address
                                             the special needs of members who
                                             have a high risk pregnancy
                                             especially if risk is due to
                                             psychosocial factors such as
                                             substance abuse or teen pregnancy;

                                    f)       Screening for determination of need
                                             for a post-partum home visit; and

                                    g)       Coordination with other services in
                                             support of good prenatal care
                                             including transportation and other
                                             community services and referral to
                                             an agency which dispenses free or
                                             reduced price baby car seats.

2.5      CULTURALLY COMPETENT SERVICES

         (1)      The CONTRACTOR shall develop and implement a Cultural
                  Competency/Sensitivity Plan, through which the CONTRACTOR
                  shall ensure that it provides, both directly and through its
                  health care providers and subcontractors, culturally competent
                  services to its SALUD! members.

         (2)      The CONTRACTOR shall phase-in the cultural competency plan
                  over the first two years of the contract according to the
                  following process:

                  A.       Year 1, and no later than July 1, 2002

                           The CONTRACTOR shall:

                           i.       Develop a Cultural Competency Plan that
                                    describes how the CONTRACTOR shall ensure
                                    that services provided are culturally
                                    competent.

                           ii.      Develop written policies and procedures that
                                    implement the Cultural Competency Plan and
                                    ensure that culturally competent services
                                    are provided by the CONTRACTOR both directly
                                    and through its health care providers and
                                    subcontractors.

                           iii.     Target cultural competency training to
                                    primary care providers, care
                                    coordinators/case mangers, home health care
                                    staff and licensed

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<PAGE>

                                    masters and doctoral level mental health and
                                    substance abuse professionals.

                           iv.      Develop and implement a plan for
                                    interpretive services and written materials
                                    to meet the needs of consumers and their
                                    decision-makers whose primary language is
                                    not English, using qualified medical
                                    interpreters, if available.

                           v.       Identify community advocates and agencies
                                    that could assist non-English and
                                    limited-English speaking individuals and/or
                                    that provider other culturally appropriate
                                    and competent services, which include
                                    methods for outreach and referral.

                  B.       Year 2, and no later than July 1, 2003

                           The CONTRACTOR shall:

                           i.       Incorporate cultural competence into
                                    treatment planning, utilization management
                                    and quality improvement.

                           ii.      Identify resources and interventions for
                                    high risk health conditions found in certain
                                    cultural groups.

                           iii.     Develop and incorporate contract language
                                    specific to cultural competency requirements
                                    for inclusion in contracts between the
                                    CONTRACTOR and providers and subcontractors.

2.6      CHILDREN WITH SPECIAL HEALTH CARE NEEDS (CSHCN)

         (1)      General Requirements

                  CSHCN applies to individuals, under 21 years of age, who have
                  or are at an increased risk for a chronic physical ,
                  developmental, or behavioral or emotional condition, and who
                  also require health and related services of a type or amount
                  beyond that required by children generally. The guiding
                  principle for this definition is that the children shall be at
                  individual risk and have a functional need. The primary
                  purpose of the definition is to identify CSHCN so that the
                  CONTRACTOR can facilitate access to appropriate services. The
                  definition also allows for a flexible targeting of individuals
                  based on clinical justification and discharging them when
                  special services are no longer needed.

                  A.       CONTRACTOR Requirements:

                                     - 65 -
<PAGE>

                           i.       The CONTRACTOR shall include in its member
                                    services handbook a description of providers
                                    and programs available to children with
                                    special health care needs.

                           ii.      The CONTRACTOR shall identify from among its
                                    members children with special health care
                                    needs, using the proposed definition and
                                    criteria for identification.

                  B.       Criteria that the CONTRACTOR shall use in identifying
                           CSHCN, include:

                           i.       Children who are eligible for SSI as
                                    disabled under Title XVI;

                           ii.      Children identified in the DOH Title V
                                    Children's Medical Services program;

                           iii.     Children participating in the Home and
                                    Community Based Waivers;

                           iv.      Children receiving foster care or adoption
                                    assistance support through Title IV-E;

                           v.       Other children in foster care or out-of-home
                                    placement; and

                           vi.      Children who are described in the
                                    Individuals with Disabilities Education Act;
                                    and other children who, by merit of a
                                    clinical assessment, should be included.

                  C.       SALUD! Enrollment for CSHCN

                           The CONTRACTOR shall have written policies and
                           procedures to facilitate a smooth transition of a
                           member to another CONTRACTOR, when a member chooses
                           and is approved to switch to another CONTRACTOR.

         (2)      Parent/Child Information and Education

                  A.       The CONTRACTOR shall develop and distribute, as
                           appropriate, information and materials specific to
                           the needs of CSHCN members and their caregivers. This
                           includes information, such as a list of items and
                           services that are in SALUD! and those that are carved
                           out, how to plan for and arrange transportation, how
                           to access behavioral health care without

                                     - 66 -
<PAGE>

                           going through the PCP, how the parent or legal
                           guardian should present a child for care in an
                           emergency room unfamiliar with the child's special
                           health care needs, and the availability of a care
                           coordinator. This information could be included in a
                           special member handbook on CSHCN or in an insert to
                           the member handbook.

                  B.       The CONTRACTOR shall make available health education
                           programs to assist the child's caregiver(s) in
                           understanding CSHCN and how to cope with the
                           day-to-day stress of caring the child.

                  C.       The CONTRACTOR shall provide a list of key CONTRACTOR
                           CSHCN resource people and their phone numbers.

                  D.       The CONTRACTOR shall designate a single entity that a
                           parent or provider can call for information during
                           the enrollment process and after becoming a member.

         (3)      Choice of Specialist as Primary Care Provider (PCP)

                  The CONTRACTOR shall develop and implement written policies
                  and procedures governing the process for member selection of a
                  PCP, including the right to choose a specialist as a PCP, if
                  warranted and agreed upon by the specialist provider.

         (4)      Specialty Providers for CSHCN

                  The CONTRACTOR shall have enough specialty providers to ensure
                  timely access to necessary specialty care, consistent with
                  SALUD! access appointment standards for clinical urgency.

         (5)      Transportation

                  A.       The CONTRACTOR shall have written policies and
                           procedures in place to ensure that the appropriate
                           level of transportation is arranged based on the
                           member's clinical condition.

                  B.       The CONTRACTOR shall have past member and service
                           data available at the time services are requested to
                           expedite appropriate arrangements.

                  C.       The CONTRACTOR shall ensure that CPR-certified
                           drivers transport CSHCN whose clinical need dictates.

                                     - 67 -
<PAGE>

                  D.       The CONTRACTOR shall have written policies and
                           procedures to ensure that transportation type is
                           clinically appropriate, including access to
                           non-emergency ground ambulance carriers.

                  E.       The CONTRACTOR shall develop and implement written
                           policies and procedures to ensure that members can
                           access and receive authorization for needed
                           transportation services under certain unusual
                           circumstances without the usual advance notification.

                  F.       The CONTRACTOR shall develop and implement a written
                           policy regarding the transportation of minors if a
                           parent or legal guardian shall not be in attendance
                           to ensure the minor's safety.

                  G.       The CONTRACTOR shall distribute clear and detailed
                           written information to CSHCN and their families on
                           how to obtain transportation services and also make
                           this information available to network providers.

         (6)      Care Coordination for CSHCN

                  A.       The CONTRACTOR shall have written policies and
                           procedures for identifying CSHCN who could benefit
                           from care coordination and ensuring that those
                           children have access to care coordination.

                  B.       The CONTRACTOR shall have written policies and
                           procedures for accessing care coordination.

                  C.       The CONTRACTOR shall have written policies and
                           procedures for the development, implementation and
                           periodic evaluation of a child's treatment plan.
                           These policies and procedures shall address the
                           involvement of parent(s) and legal guardians, as well
                           as the child, in decisions about the child's care and
                           development and implementation of the treatment plan.
                           The caregivers of CSHCN and the children themselves,
                           where indicated, shall be full participants in
                           setting and achieving their own goals related to the
                           child's health.

                  D.       The CONTRACTOR shall have written policies and
                           procedures for educating parent(s), legal guardians
                           and children that care coordination is available and
                           when it may be appropriate to their needs.

                  E.       The CONTRACTOR shall have written policies and
                           procedures for educating providers about the
                           availability of care coordination, its value as a
                           resource in caring for the child, and how to access
                           it.

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<PAGE>

         (7)      Emergency, Inpatient and Outpatient Ambulatory Surgery
                  Hospital Requirements for CSHCN

                  A.       The CONTRACTOR shall develop and implement written
                           policies and procedures for educating caregivers of
                           CSHCN with complicated clinical histories on how to
                           utilize emergency room care, including what clinical
                           history to present when emergency care or inpatient
                           admission are needed for their child.

                  B.       The CONTRACTOR shall develop and implement written
                           policies and procedures governing how coordination
                           with the PCP and hospitalists shall occur when a
                           child with a special health care need is
                           hospitalized.

                  C.       The CONTRACTOR shall develop and implement written
                           policies and procedures to ensure that the ER
                           physician has access to the child's medical history.

                  D.       The CONTRACTOR shall develop and implement written
                           policies and procedures for obtaining any necessary
                           referrals from PCPs for hospitals that require
                           in-house staff to examine or treat members having
                           outpatient or ambulatory surgical procedures
                           performed.

         (8)      Rehabilitation Therapy Services (Physical, Occupational,
                  Speech Therapy) for CSHCN

                  A.       The CONTRACTOR shall develop and implement therapy
                           clinical practice guidelines specific to the chronic
                           or long term conditions of their CSHCN population,
                           including the use of a home therapy program and
                           involvement of a caretaker in the treatment plan, and
                           based on Medicaid managed care policy on medical
                           necessity.

                  B.       The CONTRACTOR shall be informed about and coordinate
                           with other therapy services being delivered by:
                           Special Rehabilitation Services, the Home and
                           Community Based Waiver programs or by the schools to
                           avoid unnecessary duplication.

                  C.       The CONTRACTOR shall involve families of members,
                           physicians and therapy providers to identify issues
                           that should be addressed in developing the new
                           criteria.

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<PAGE>

                  D.       The CONTRACTOR shall develop and implement
                           utilization prior approval and continued stay
                           criteria, including timeframes, that are appropriate
                           to the chronicity of the member's status and
                           anticipated development process.

         (9)      Durable Medical Equipment (DME) and Supplies

                  A.       Subject to any requirements to procure a physician's
                           order to provide supplies to members, the CONTRACTOR
                           shall develop and implement a process to permit
                           members utilizing supplies on an ongoing basis to
                           submit a list of supplies monthly. The CONTRACTOR
                           shall contact the member's legal guardian when
                           requested supplies cannot be delivered (require
                           back-ordering, etc.) and make other arrangements,
                           consistent with clinical need.

                  B.       The CONTRACTOR shall develop and implement a system
                           for monitoring compliance with standards for DME and
                           medical supplies, and instituting corrective action,
                           if the provider is out of compliance.

                  C.       The CONTRACTOR shall have an emergency response plan
                           for DME and medical supplies needed on an emergent
                           basis.

         (10)     Clinical Practice Guidelines for Provision of Care to CSHCN

                  The CONTRACTOR shall develop clinical practice guidelines,
                  practice parameters and/or other specific criteria that
                  consider the needs of CSHCN and provide guidance in the
                  provision of acute and chronic medical and behavioral health
                  care services to this population. The guidelines should be
                  professionally accepted standards of practice and national
                  guidelines.

         (11)     Utilization Management (UM) for Services to CSHCN

                  The CONTRACTOR shall develop written policies and procedures
                  to exclude from prior authorization any item or service
                  enumerated in the child's treatment plan, and/or extend the
                  authorization periodicity, for services provided for a chronic
                  condition. There should be a process for review and periodic
                  update of the treatment plan, as indicated.

         (12)     Consumer Surveys Specific to CSHCN

                  The CONTRACTOR shall add questions about children with special
                  health care needs to their HEDIS CAHPS 2.04 survey.

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<PAGE>

         (13)     CSHCN Performance Improvement Project

                  The CONTRACTOR shall perform a performance improvement project
                  specific to CSHCN.

2.7      SERVICES EXCLUDED FROM THE BENEFIT PACKAGE

         (1)      The following services are not included in the benefit
                  package. Reimbursement for these services shall be made by HSD
                  on a fee-for-service basis:

                  A.       Services provided in nursing facilities or hospital
                           swing beds to members residing over thirty (30)
                           continuous days or on a permanent basis as set forth
                           in MAD Program Manual Section MAD- 731, NURSING
                           FACILITIES, and MAD-723, SWING BED HOSPITAL SERVICES.

                  B.       Services provided in intermediate care facilities for
                           the mentally retarded as set forth in MAD Program
                           Manual Section MAD-732, INTERMEDIATE CARE FACILITY
                           FOR THE MENTALLY RETARDED;

                  C.       Services provided pursuant to the Home and
                           Community-Based Services Waiver programs as set forth
                           in MAD Program Manual Sections MAD-733, HOME AND
                           COMMUNITY-BASED SERVICES WAIVERS;

                  D.       Emergency services to undocumented aliens as set
                           forth in MAD Program Manual Section MAD-769,
                           EMERGENCY SERVICES FOR UNDOCUMENTED ALIENS;

                  E.       Experimental or investigational procedures,
                           technologies or non-drug therapies as set forth in
                           MAD Program Manual Section MAD-765, EXPERIMENTAL OR
                           INVESTIGATIONAL PROCEDURES, TECHNOLOGIES OR NON-DRUG
                           THERAPIES;

                  F.       Special Rehabilitation Services at set forth in MAD
                           Program Manual Section MAD-743, SPECIAL
                           REHABILITATION SERVICES;

                  G.       Case management provided by the Children Youth and
                           Families Department defined as child protective
                           services case management and as detailed in MAD
                           Program Manual section MAD-744, EPSDT CASE
                           MANAGEMENT;

                                     - 71 -
<PAGE>

                  H.       Case management provided by the Children Youth and
                           Families Department as detailed in the Medical
                           Assistance Manual Section MAD-776, ADULT PROTECTIVE
                           SERVICES CASE MANAGEMENT.

                  I.       Case management provided by Children, Youth and
                           Families Department as detailed in the Medical
                           Assistance Manual Section MAD-778, CASE MANAGEMENT
                           SERVICES FOR CHILDREN PROVIDED BY JUVENILE PROBATION
                           AND PAROLE OFFICERS.

                  J.       Services provided in the schools and specified in the
                           Individualized Education Program (IEP) or
                           Individualized Family Service Plan (IFSP), as
                           detailed in the medical assistance manual Section MAD
                           747, SCHOOL BASED SERVICES FOR RECIPIENTS UNDER
                           TWENTY-ONE YEARS OF AGE.

2.8      ENHANCED BENEFITS/SERVICES

         The CONTRACTOR shall provide a schedule for implementing enhanced
         services pursuant to the CONTRACTOR'S proposal. The schedule shall
         include identification of enhanced services that are already part of
         the benefit package. All enhancements shall be identifiable and
         measurable through the use of unique payment and/or processing codes,
         which shall be part of the encounter data submitted to HSD, unless the
         enhanced benefits offered by the CONTRACTOR do not generate claim or
         encounter data.

2.9      GRIEVANCE

         The member, guardian of the member for minors, or representative of the
         member has the right to file a grievance if he/she is dissatisfied with
         the services rendered by the CONTRACTOR. This includes but is not
         limited to dissatisfaction with direct service provider(s),
         appropriateness of services rendered, timeliness of services rendered,
         availability of services, delivery of services, prescription of
         services, denial, reduction, and/or termination of services,
         disenrollment, or any other performance that is considered
         unsatisfactory. A participating provider also has the right to file a
         grievance with the CONTRACTOR if the provider is dissatisfied with the
         CONTRACTOR'S decision to terminate, suspend, reduce, or not provide
         services to a member. The CONTRACTOR shall implement written policies
         and procedures describing how the member and provider register a
         grievance with the CONTRACTOR and how the CONTRACTOR resolves a given
         type of grievance.

         (1)      CONTRACTOR Grievance Hearing Policies and Procedures

                  A.       The CONTRACTOR shall establish and implement written
                           policies and

                                     - 72 -
<PAGE>

                           procedures for resolution of grievances, including
                           internal CONTRACTOR hearings which shall include at
                           minimum:

                           i.       The procedures for notifying members of the
                                    right to file a grievance and to request a
                                    hearing using the CONTRACTOR'S hearing
                                    process and provide members written notice
                                    of adverse actions as described in the
                                    Medical Assistance Division Program Manual;

                           ii.      The name of specific individual(s)
                                    designated as the MCO Medicaid member
                                    grievance coordinator with the authority to
                                    administer the policies and procedures for
                                    grievance resolution, to review
                                    patterns/trends in grievances and to
                                    initiate corrective action;

                           iii.     The policies and procedures for a toll-free
                                    telephone line for members to register a
                                    grievance with the CONTRACTOR;

                           iv.      The specific policies and procedures
                                    detailing how a thorough investigation of
                                    the grievance, using applicable statutory,
                                    regulatory, and contractual provisions, is
                                    conducted; The CONTRACTOR shall have
                                    physician involvement in reviewing
                                    medically-related grievances. The CONTRACTOR
                                    shall offer to meet with the member during
                                    the formal grievance process;

                           v.       The investigation and final CONTRACTOR
                                    decision for grievances filed by Medicaid
                                    members and providers shall be completed
                                    within thirty (30) calendar days of the
                                    receipt of the grievance with a report in
                                    writing stating the resolution of the
                                    grievance to HSD, the grievant, and involved
                                    parties. The CONTRACTOR shall implement
                                    policies and procedures for an expedited or
                                    emergency alternative appeal process for
                                    quality of care and level of care/placement
                                    issues, and for cases where the health
                                    and/or welfare of the member is immediately
                                    at risk; The expedited or emergency process
                                    shall result in a timely resolution such
                                    that a reasonable person would believe that
                                    a prevailing member would be able to realize
                                    the full benefit of a decision in his or her
                                    favor;

                           vi.      The procedures for maintaining a file of all
                                    grievances that contain sufficient
                                    information to identify the grievance, the
                                    date the grievance was received, the nature
                                    of the grievance, notice to the

                                     - 73 -
<PAGE>

                                    grievant of receipt of a grievance, all
                                    correspondence between affected parties, the
                                    date the grievance is resolved, the means of
                                    grievance resolution, and notices of final
                                    decision to affected parties and all other
                                    pertinent information. Documentation
                                    regarding the grievance shall be made
                                    available to the grievant, if requested;

                           vii.     Specific policies and procedures detailing
                                    how confidential information gathered or
                                    learned during the investigation or
                                    resolution of a grievance is to be
                                    maintained, including the confidentiality of
                                    the member's status as a Medicaid member and
                                    status as a grievant; and

                           viii.    A statement that the member shall not be
                                    subject to retaliation for filing a
                                    grievance.

         (2)      Accessibility of Grievance Files

                  All grievance files shall be maintained in a secure,
                  designated area and be accessible to HSD upon request, for
                  review. Grievance files shall be retained for six (6) years
                  following the final decision, HSD or judicial appeal, or
                  closure of a grievance case file.

         (3)      Information Distribution

                  The CONTRACTOR shall have the following responsibilities with
                  regard to the distribution of information:

                  A.       Member Notice With Initial Enrollment

                           Upon enrollment, the CONTRACTOR shall provide
                           members, at no cost, with a member information sheet
                           or handbook which provides information on how they
                           and/or their representative(s) can file a grievance
                           and about the grievance resolution process. The
                           member information shall also advise members of their
                           right to file a request for an administrative hearing
                           with HSD Hearings Bureau, without first utilizing the
                           CONTRACTOR'S grievance process, in those instances in
                           which Medicaid benefits are terminated, suspended,
                           reduced or not-provided. The information shall meet
                           the standards for communication specified in Section
                           MAD-606.7, QUALITY MANAGEMENT, Standards for Member
                           Communication.

                                     - 74 -
<PAGE>

                  B.       The CONTRACTOR may not establish time limits of less
                           than one year from the date of occurrence for the
                           member to file a formal grievance.

                           i.       Method of Obtaining Hearing and the Right to
                                    Representation: The information shall
                                    include the method by which a hearing may be
                                    obtained and the right to
                                    self-representation or the use of a
                                    spokesperson or legal counsel.

                           ii.      Non-Disclosure of Information. The member
                                    information shall include a statement that
                                    information about the grievance is not
                                    disclosed without the member's permission
                                    unless disclosure is required by law.

                           iii.     Non-Retaliation. The information shall
                                    include a statement which verifies that the
                                    member shall not be subjected to retaliation
                                    for filing a grievance.

         (4)      Provider Receipt of Grievance Policies and Procedures

                  The CONTRACTOR shall provide a copy of its policies and
                  procedures for grievance resolution to all service providers
                  in the CONTRACTOR network.

         (5)      Acknowledgment When Grievance Filed

                  Within five (5) working days of receipt of the grievance, the
                  CONTRACTOR shall provide the grievant with written notice that
                  the grievance has been received and the expected date of its
                  resolution.

         (6)      Notice to Member or Provider of Final Decision

                  The CONTRACTOR shall mail a copy of its final written decision
                  to HSD, the member or provider to the address on file and all
                  those parties affected by the decision. The final decision
                  shall include and describe at least the following:

                  A.       The nature of the grievance;

                  B.       A statement of the action the CONTRACTOR intends to
                           take;

                  C.       A statement describing the reasons for the
                           CONTRACTOR'S action;

                  D.       Specific references and citations to applicable
                           Medicaid and the CONTRACTOR'S policies and
                           procedures, if any, that support the

                                     - 75 -
<PAGE>

                           action;

                  E.       The member's right to request an administrative
                           hearing, if not already requested, to appeal the
                           CONTRACTOR'S decision to the HSD Hearings Bureau
                           within thirty (30) calendar days of the final
                           CONTRACTOR'S decision to terminate, suspend, reduce,
                           or not provide a benefit to the member; and

                  F.       The statement that the member's request for an
                           administrative hearing which is received by HSD
                           within ten (10) calendar days of the CONTRACTOR'S
                           final decision stays the enforcement of the
                           CONTRACTOR'S decision to discontinue services
                           currently provided, but does not require the
                           CONTRACTOR to initiate any treatment or services or
                           to increase the level of any current treatment or
                           services.

         (7)      Notice to HSD

                  If a request for an administrative hearing to appeal the
                  CONTRACTOR'S final decision is received, an official record of
                  the grievance and copy of the final CONTRACTOR'S decision
                  shall be provided to the HSD Hearings Bureau by the CONTRACTOR
                  within five (5) working days of HSD's request for such
                  information.

         (8)      Administrative Hearings

                  Members may file a request for an administrative hearing
                  through the HSD Hearings Bureau without first availing
                  themselves of the CONTRACTOR'S grievance process when the
                  final decision rendered by the CONTRACTOR is to terminate,
                  suspend, reduce, or not-provide benefit(s) to a member.

         (9)      Quarterly Reports

                  The CONTRACTOR shall provide a quarterly report to HSD of all
                  grievances received from or about Medicaid members, by the
                  CONRACTOR or its subcontractors. The report shall include
                  patient details according to the format in Guidance Memo #62.

         (10)     Hearing Report

                  The CONTRACTOR shall provide a monthly report of all internal
                  CONTRACTOR hearings filed and their disposition.

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<PAGE>

2.10     FIDUCIARY RESPONSIBILITIES

         (1)      Solvency Requirements and Risk Protections

                  A CONTRACTOR that contracts with HSD for the provision of
                  services shall comply with and is subject to all applicable
                  State and Federal laws and regulations including those
                  regarding solvency and risk standards. In addition to
                  requirements imposed by State or Federal law, the CONTRACTOR
                  shall be required to meet specific Medicaid financial
                  requirements and to present to HSD or its agent any
                  information and records deemed necessary to determine its
                  financial condition. The response to requests for information
                  and records shall be delivered to HSD, at no cost to HSD, in a
                  reasonable time from the date of request or as specified
                  herein.

         (2)      Reinsurance

                  The CONTRACTOR shall have and maintain adequate protections
                  against financial loss due to outlier (catastrophic) cases and
                  member utilization that is greater than expected. The
                  CONTRACTOR shall submit to HSD such documentation as is
                  necessary to prove the existence of this protection, which may
                  include policies and procedures of reinsurance.

         (3)      Third Party Liability

                  The CONTRACTOR is responsible for identification of other
                  third party coverage of members and coordination of benefits
                  with applicable third parties. The CONTRACTOR shall inform HSD
                  of any member who has other health care coverage. The
                  CONTRACTOR shall provide documentation to HSD enabling HSD to
                  pursue its rights under State and Federal law. Documentation
                  includes payment information on enrolled members as requested
                  by HSD, Third Party Liability Unit of the MAD, to be delivered
                  within 20 business days from receipt of the request. Other
                  documentation to be provided by the CONTRACTOR includes a
                  quarterly listing of potential accident and personal injury
                  cases to be pursued by HSD that are known to the CONTRACTOR.
                  The CONTRACTOR and HSD shall jointly develop and agree upon a
                  reporting format to carry out the requirement of this
                  subsection. However, if an agreed upon format cannot be
                  developed HSD retains the right to make a final determination
                  of the reporting format.

         (4)      Fidelity Bond Requirement

                                     - 77 -
<PAGE>

                  The CONTRACTOR shall maintain in force a fidelity bond in the
                  amount specified under the Insurance Code, NMSA 1978 Sections
                  59A-1-1, et. seq..

         (5)      Net Worth Requirement

                  The CONTRACTOR shall at all times be in compliance with the
                  net worth requirements in the Insurance Code.

         (6)      Solvency Cash Reserve Requirement

                  A.       The CONTRACTOR shall have sufficient reserve funds
                           available to ensure that the provisions of services
                           to Medicaid members is not at risk in the event of
                           the CONTRACTOR insolvency. The CONTRACTOR shall
                           comply with all state and federal laws and
                           regulations regarding solvency, risk, audit and
                           accounting standards.

                  B.       Per Member Cash Reserve

                           The CONTRACTOR shall maintain three (3) percent of
                           the monthly capitated payments per member with an
                           independent trustee during each month of the first
                           year of the Agreement. The CONTRACTOR shall maintain
                           this cash reserve for the duration of the Agreement.
                           HSD shall adjust this cash reserve requirement
                           annually, or as needed, based on the number of the
                           CONTRACTOR'S members. Each CONTACTOR shall maintain
                           its own cash reserve account. This account may be
                           accessed solely for payment for services to that
                           CONTRACTOR'S members in the event that the CONTRACTOR
                           becomes insolvent. Money in the reserve account
                           remains the property of the CONTRACTOR and any
                           interest earned (even if retained in the account)
                           shall be the property of the CONTRACTOR.

         (7)      Inspection and Audit for Solvency Requirements

                  The CONTRACTOR shall meet all requirements for licensure
                  within the State with respect to inspection and auditing of
                  financial records. The CONTRACTOR shall also cooperate with
                  HSD or its designee, and provide all financial records
                  required by HSD or its designee so that they may inspect and
                  audit the CONTRACTOR'S financial records at least annually or
                  at HSD's discretion.

         (8)      Timely Payments

                                     - 78 -
<PAGE>

                  A.       The CONTRACTOR shall make timely payments to both its
                           contracted and non-contracted providers. The
                           CONTRACTOR shall promptly pay for all covered
                           emergency services, including medically necessary
                           testing to determine if a medical emergency exists,
                           that are furnished by providers that do not have
                           arrangements with the CONTRACTOR. This includes all
                           covered emergency services provided by a
                           nonparticipating provider, including those when the
                           time required to reach the CONTRACTOR'S facilities or
                           the facilities of a provider with which the
                           CONTRACTOR has contracted, would mean risk of
                           permanent damage to the member's health. The
                           CONTRACTOR shall pay 90 percent of all clean claims
                           from practitioners who are in individual or group
                           practice or who practice in shared health facilities
                           within 30 days of date of receipt, and shall pay 99
                           percent of all such clean claims within 90 days of
                           receipt. A "clean claim" means a manually or
                           electronically submitted claim from a participating
                           provider that: contains substantially all the
                           required data elements necessary for accurate
                           adjudication without the need for additional
                           information from outside of the health plan's system;
                           it includes a claim with errors originating in the
                           states' system. It does not include a claim from a
                           provider who is under investigation for fraud or
                           abuse, or a claim under review for medical necessity,
                           is not materially deficient or improper, including
                           lacking substantiating documentation currently
                           required by the health plan; or has no particular or
                           unusual circumstances requiring special treatment
                           that prevent payment from being made by the health
                           plan within thirty days of the date of receipt if
                           submitted electronically or forty-five days if
                           submitted manually.

         (9)      Insurance

                  A.       The CONTRACTOR, its successors and assignees shall
                           procure and maintain such insurance as is required by
                           currently applicable federal and state law and
                           regulation. Such insurance shall include, but not be
                           limited to, the following:

                           i.       Liability insurance for loss, damage, or
                                    injury (including death) of third parties
                                    arising from acts and omissions on the part
                                    of the CONTRACTOR, its agents and employees;

                           ii.      Workers compensation;

                           iii.     Unemployment insurance, and;

                           iv.      Reinsurance.

                                     - 79 -
<PAGE>

                           v.       Automobile insurance to the extent
                                    applicable to CONTRACTOR'S operations.

                  B.       The CONTRACTOR shall provide HSD with documentation
                           that the above specified insurance has been obtained;
                           and the CONTRACTOR'S subcontractors shall provide the
                           same documentation to the CONTRACTOR

         (10)     The CONTRACTOR shall have and maintain adequate protections
                  against financial loss due to outlier (catastrophic) cases and
                  member utilization that is greater than expected. The
                  CONTRACTOR shall submit to HSD such written documentation as
                  is necessary to show the existence of this protection, which
                  may include policies and procedures of reinsurance.

2.11     FRAUD AND ABUSE

         (1)      The CONTRACTOR shall have written policies and procedures to
                  address prevention, detection, preliminary investigation,
                  reporting of potential and actual Medicaid fraud and abuse;

         (2)      The CONTRACTOR shall have a comprehensive internal program to
                  prevent, detect, preliminarily investigate and report
                  potential and actual program violations to help recover funds
                  misspent due to fraudulent actions;

         (3)      The CONTRACTOR shall have specific controls for prevention
                  such as claim edits, post processing, review of claims,
                  provider profiling and credentialing; prior authorizations,
                  utilization/quality management and relevant provisions in the
                  plan's contracts with its providers and subcontractors.

         (4)      The CONTRACTOR shall cooperate with the Medicaid Fraud Control
                  Unit (MFCU) and other investigatory agencies as mutually
                  agreed to by the parties in writing;

         (5)      The CONTRACTOR shall have systems that can monitor service
                  utilization and encounters for fraud and abuse;

         (6)      The CONTRACTOR shall immediately report to HSD any activity
                  giving rise to a reasonable suspicion of fraud and abuse
                  including aberrant utilization derived from provider
                  profiling. The CONTRACTOR shall promptly conduct a preliminary
                  investigation and report the results of the investigation to
                  HSD as

                                     - 80 -
<PAGE>

                  defined by the CONTRACTOR in consultation with HSD and the
                  Medicaid Fraud Control Unit (MFCU). A formal investigation
                  shall not be conducted by the CONTRACTOR but the full
                  cooperation of the CONTRACTOR as mutually agreed to in writing
                  between the parties during the investigation will be required.

         (7)      The CONTRACTOR shall not use its organization's determination
                  as to whether questionable patterns in provider profiles are
                  acceptable or not, as a basis to withhold this information
                  from HSD.

2.12     REPORTING

         The CONTRACTOR shall provide to HSD managerial, financial, and
         utilization and quality reports. The content, format, and schedule for
         submission shall be determined by HSD in advance for the financial
         reporting period and shall conform to reasonable industry, and/or HCFA
         standards. HSD may also require the CONTRACTOR to submit non-routine ad
         hoc reports, provided that HSD shall pay the CONTRACTOR to produce any
         non-routine ad hoc reports that require a significant amount of time,
         resources or effort on the part of the CONTRACTOR.

         (1)      Reporting Standards

                  Reports submitted by the CONTRACTOR to HSD shall meet the
                  following standards:

                  A.       Reports or other required data shall be received on
                           or before scheduled due dates;

                  B.       Reports or other required data shall be prepared in
                           strict conformity with appropriate authoritative
                           sources and/or HSD defined standards; and

                  C.       All required information shall be fully disclosed in
                           a manner that is both responsive and pertinent to
                           report intent with no material omission.

                  D.       The submission of late, inaccurate, or otherwise
                           incomplete reports constitutes failure to report. In
                           such cases, a penalty may be assessed by HSD.

                  E.       Possibility for Change. HSD requirements regarding
                           reports, report content, and frequency of submission
                           are subject to change at any time during the term of
                           the managed care contract. The CONTRACTOR shall
                           comply with all changes specified by HSD.

                                     - 81 -
<PAGE>

         (2)      Monitoring of Grievance Resolution

                  The CONTRACTOR shall submit a Quarterly Grievance Report to
                  HSD using the Quarterly Grievance Report format no later than
                  forty-five (45) days from the end of the quarter.

         (3)      Financial Reporting

                  A.       The CONTRACTOR shall submit annual audited financial
                           statements including but not limited to its Income
                           Statement, Statement of Changes in Financial
                           Condition or cash flow, and Balance Sheet and shall
                           include an audited schedule of Salud! revenues and
                           expenses including a breakout of the Salud!
                           behavioral health revenue and expenses. The result of
                           the CONTRACTOR'S annual audit and related management
                           letters shall be submitted no later than one hundred
                           fifty (150) days following the close of the
                           CONTRACTOR'S fiscal year. The audit shall be
                           performed by an independent Certified Public
                           Accountant. The CONTRACTOR shall submit for
                           examination any other financial reports requested by
                           HSD and related to the CONTRACTOR'S solvency or
                           performance of this Agreement.

                  B.       The CONTRACTOR and its subcontractors shall maintain
                           their accounting systems in accordance with statutory
                           accounting principles, generally accepted accounting
                           principles, or other generally accepted system of
                           accounting . The accounting system shall clearly
                           document all financial transactions between the
                           CONTRACTOR and its subcontractors, and the CONTRACTOR
                           and HSD. These transactions shall include but are not
                           limited to claim payments, refunds, and adjustments
                           of payments.

                  C.       The CONTRACTOR and its subcontractors shall make
                           available to HSD and any other authorized State or
                           Federal agency, any and all financial records
                           required to examine the compliance by the CONTRACTOR
                           insofar as those records are related to CONTRACTOR'S
                           performance under this Agreement.. For the purpose of
                           examination, review, and inspection of its records,
                           the CONTRACTOR and its subcontractors shall provide
                           HSD access to its facilities.

                  D.       The CONTRACTOR and its subcontractors shall retain
                           all records and reports relating to agreements with
                           HSD for a minimum of six (6) years from the date of
                           final payment. In cases involving incomplete audits
                           and/or unresolved audit findings, administrative
                           sanctions, or litigation, the minimum six (6) year
                           retention period shall begin when such actions

                                     - 82 -
<PAGE>

                           are resolved.

                  E.       The CONTRACTOR shall submit records involving any
                           business restructuring when changes in ownership
                           interest of 5% or more have occurred. These records
                           shall include, but are not limited to, an updated
                           list of names and addresses of all persons or
                           entities having ownership interest of 5% or more.
                           These records shall be provided no later than sixty
                           (60) days following the change of ownership.

                  F.       The following table gives an overview of the
                           reporting requirements the HSD has established to
                           monitor and examine CONTRACTOR for solvency and
                           compliance with Federal requirements for financial
                           stability. These requirements shall enable HSD or its
                           designee to determine if changes have occurred which
                           affect an MCO and its subcontractors financial
                           condition. The CONTRACTOR'S required level of
                           reinsurance, fidelity bond, or insurance and solvency
                           cash reserves may change with changes to the MCO net
                           worth or other financial condition.

                  G.       Behavioral Health Reporting

                           (1)      Submit monthly behavioral health UM reports
                                    to HSD, in a format to be determined by HSD
                                    after consultation with the CONTRACTOR.
                                    These monthly reports will include the
                                    following categories: total number of UM
                                    reductions of care, total number of
                                    terminations of care, the total of clinical
                                    denials of care and total number of
                                    administrative denials for all prior
                                    approved behavioral health services;

                           (2)      Submit a monthly behavioral health
                                    utilization report to HSD, in a format to be
                                    determined by HSD after consultation with
                                    the CONTRACTOR, identifying the actual
                                    Medicaid clients impacted by any of the
                                    reporting elements above, including each
                                    client's name, social security number, date
                                    of request, date of UM determinations,
                                    service requested, and final UM
                                    determination.

                           (3)      The CONTRACTOR shall collect and report on a
                                    quarterly basis key variables of program
                                    performance related to behavioral health
                                    services. Key variables will be determined
                                    in consultation with the CONTRACTOR and
                                    stakeholders.

                  H.       Financial Reporting Requirements:

                                      - 83 -
<PAGE>

<TABLE>
<CAPTION>
            DEFINITION                        FREQUENCY                     OBJECTIVE                   DUE DATE
            ----------                        ---------                     ---------                   --------
<S>                                         <C>                 <C>                              <C>
Calendar year Independently Audited         Annual              Examine for Solvency and HCFA    June 1
Financial Statements                                            Compliance

Calendar Year Medicaid Specific             Annual              Examine for Solvency and HCFA    June 1
Behavioral Health Schedule of Revenue                           Compliance
and Expenses

Calendar Year Medicaid Specific             Annual              Examine for Solvency and HCFA    June 1
Audited  Schedule of Revenue and                                Compliance
Expenses

MCO Quarterly Department of Insurance       Quarterly           DOI Quarterly Statements         45 days from end of
Unaudited Statements                                                                             Qtr

Department of Insurance Annual              Annual              DOI Annual Statement             March 1
Statement including all supporting
schedules (Medicaid specific included)

Department of Insurance Reports             Quarterly           Examine for Solvency and HCFA    45 days from end of
                                                                Compliance                       Quarter, March 1 for
                                                                                                 Annual Statement

Claims Aging                                Quarterly           Examine for Solvency and HCFA    30 days from end of
                                                                Compliance                       Qtr

Expenditure by Category of Services         Quarterly           Determine Cost Efficiency        30 days from end of
for hospital, pharmacy, behavioral                                                               Qtr
health, physician, dental,
transportation and other

Expenditure of services to FQHC's.          Quarterly           Enable HSD to make wraparound    30 days from end of
                                                                payments to FQHC's               Qtr
</TABLE>

                                     - 84 -
<PAGE>

<TABLE>
<S>                                         <C>                 <C>                              <C>
Expenditures of services to RHC's           Quarterly           Enable HSD to make wraparound    30 days from end of
                                                                payments to RHC's                Qtr

Expenditures specifically made to           Quarterly           Enable HSD to reconcile the      30 days from end of
IHS, tribal 638 and urban Indian                                payments made by the             Qtr
providers.                                                      CONTRACTOR to IHS, tribal 638,
                                                                and urban Indian providers
                                                                against the supplemental
                                                                capitation payments made by
                                                                HSD to the CONTRACTOR

Analysis of Benefit Coordination            Quarterly           Rate payment and Cost            30 days from end of
savings of MCO by rate cell                                     Efficiency                       Qtr

Identify the Fidelity Bond or               Annual              Examine for Solvency and HCFA    Initially and upon
Insurance Protection by Amount of                               Compliance                       renewal
Coverage in relation to Annual
Payments. Identify MCO Directors,
Officers Employees or Partners.

Analysis of Stop-loss protection            Quarterly and       Examine for Solvency, Rate       30 days from end of
with Detail of Panel Composition            Annually            Payment, and HCFA Compliance     Qtr
                                                                Including Rules Regarding
                                                                Physician Incentives

Reinsurance Policy                          Annual              Assess Solvency and HCFA         Initially and upon
                                                                Compliance                       renewal

Cash Reserve Statement                      Quarterly           Examine for Solvency and HCFA    30 days from end of
                                                                Compliance                       Qtr
</TABLE>

         (4)      Automated Reporting

                  A.       The CONTRACTOR is required to submit data to HSD. HSD
                           shall define

                                     - 85 -
<PAGE>

                           the format and data elements after having consulted
                           with the CONTRACTOR on the definition of these
                           elements.

                  B.       The CONTRACTOR is responsible for identifying any
                           inconsistencies immediately upon discovery. If any
                           unreported inconsistencies are subsequently
                           discovered, the CONTRACTOR shall make the necessary
                           adjustments at its own expense.

                  C.       HSD, in conjunction with its fiscal agent, intends to
                           implement electronic data interchange standards for
                           transactions related to managed health care. The
                           CONTRACTOR shall work with HSD to develop the
                           technical components of such an interface.

         (5)      Encounters

                  HSD maintains oversight responsibility for evaluating and
                  monitoring the volume, timeliness, and quality of encounter
                  data submitted by the CONTRACTOR. If the CONTRACTOR elects to
                  contract with a third party Contractor to process and submit
                  encounter data, the CONTRACTOR remains responsible for the
                  quality, accuracy, and timeliness of the encounter data
                  submitted to HSD. HSD shall communicate directly with the
                  CONTRACTOR any requirements and/or deficiencies regarding
                  quality, accuracy and timeliness of encounter data, and not
                  with the third party Contractor. The CONTRACTOR shall submit
                  encounter data to HSD in accordance with the following:

                  A.       Encounter Submission Media

                           The CONTRACTOR shall provide encounter data to HSD by
                           electronic media, such as magnetic tape or direct
                           file transmission. Paper submission is not permitted.

                  B.       Encounter Submission Time Frames

                           The CONTRACTOR shall submit encounters to HSD within
                           90 days of the date of service or discharge,
                           regardless of whether the encounter is from a
                           subcontractor or subcapitated arrangement. Encounters
                           which do not clear edit checks shall be returned to
                           the CONTRACTOR for correction and resubmission. The
                           CONTRACTOR shall correct and resubmit the encounter
                           data to HSD.

                  C.       Encounter Data Elements

                                     - 86 -
<PAGE>

                           Encounter data elements are based on the
                           Medicaid-Medicare Common Data Initiative (McData Set)
                           which is a minimum core data set for states and MCOs
                           developed by HCFA and HSD for use in managed care.
                           HSD may increase or reduce or make mandatory or
                           optional, data elements as it deems necessary.

                  D.       Encounter Data Formats

                           The CONTRACTOR shall submit encounter data to HSD
                           using the following formats:

                           i.       HCFA 1500 Encounter Format - This format is
                                    used to report individual medical services
                                    such as physician visits, nursing visits,
                                    surgical procedures, anesthesia services,
                                    laboratory test, radiology services, home
                                    and community based services, therapy
                                    procedures, durable medical equipment,
                                    supplies and transportation services.
                                    Services shall be reported through the use
                                    of HCFA Common Procedure Coding System
                                    (HCPCS) codes (level 1, 2, or 3).

                           ii.      UB92 Encounter Format - This encounter
                                    format is primarily used to report facility
                                    services such as inpatient or outpatient
                                    hospital, dialysis, and institutional
                                    services.

                           iii.     New Mexico Drug Form Encounter Format - This
                                    format is used to report pharmacy items
                                    provided to enrolled Medicaid Managed Care
                                    members.

                           iv.      ADA Dental Claim Encounter Format - This
                                    encounter format is used to report dental
                                    services provided to enrolled Medicaid
                                    Managed Care members.

                           v.       Turn Around Document (TAD) - This encounter
                                    format is used to report long term care and
                                    residential care stays.

         (6)      Disease Reporting

                  The CONTRACTOR shall ensure that its providers comply with the
                  disease reporting required by the A New Mexico Regulations
                  Governing the Control of Disease and Conditions of Public
                  Health Significance, 1980".

         (7)      HEDIS

                                     - 87 -
<PAGE>

                  The CONTRACTOR shall participate in the most current HEDIS
                  reporting system; submit a copy of the HEDIS data in
                  accordance with the NCQA requirement; and submit a final audit
                  report to HSD along with the HEDIS data submission tool. The
                  HEDIS compliance audit will be at the expense of the
                  CONTRACTOR.

         (8)      MHSIP

                  The CONTRACTOR shall report MHSIP data annually to HSD;
                  utilize a standardized format for data submission, designed by
                  HSD in consultation with the CONTRACTOR; pull a statistically
                  valid sample from which to collect MHSIP data; and train its
                  staff in the collection and reporting of MHSIP data and in
                  survey conduct.

         (9)      Health Management Systems Reports

                  The CONTRACTOR shall identify the number of adult Severely
                  Disabled Mentally Ill (SDMI) and Severely Emotionally
                  Disturbed Children (SED) and Chronic Substance Abuse (CSA)
                  members served and report the following adverse events
                  involving SDMI, SED, and CSA members to the HSD on a quarterly
                  basis: suicides, other deaths, attempted suicides, involuntary
                  hospitalizations, detentions for protective custody, and
                  detention for alleged criminal activity.

         (10)     Provider Network Reports

                  The CONTRACTOR shall notify HSD within five (5) working days
                  of any unexpected changes to the composition of its provider
                  network that negatively affects member access or the
                  CONTRACTOR'S ability to deliver all services included in the
                  benefit package in a timely manner. Any anticipated material
                  changes in the CONTRACTOR'S provider network shall be reported
                  to HSD in writing when the CONTRACTOR knows of the anticipated
                  change or within thirty (30) calendar days, whichever comes
                  first. The notice submitted to HSD shall include the following
                  information: Nature of the change; Information about how the
                  change affects the delivery of covered services or access to
                  the services; and the CONTRACTOR'S plan for maintaining the
                  access and quality of member care.

2.13     SYSTEM REQUIREMENTS

         (1)      The CONTRACTOR'S Management Information System (MIS) shall be
                  capable of accepting, processing, maintaining and reporting
                  specific information necessary

                                     - 88 -
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                  to the administration of the SALUD! Program by June 1, 2001.
                  The CONTRACTOR'S MIS shall the following requirements.

         (2)      System Hardware, Software and Information Systems
                  Requirements: The CONTRACTOR is required to maintain system
                  hardware, software, and information systems (IS) resources
                  sufficient to provide the capability to:

                  A.       Accept, transmit, maintain, and store electronic data
                           and enrollment roster files;

                  B.       Conduct automated claims processing;

                  C.       Estimate the number of records to be received from
                           providers and subcontractors, monitor, and transmit
                           electronic encounter data to HSD according to
                           encounter data submission standards;

                  D.       Transmit data electronically over a Bulletin Board
                           System and via internet;

                  E.       Disseminate enrollment information to providers
                           within five (5) business days of receipt of the
                           information;

                  F.       Maintain a website for dispersing information to
                           providers and members, and be able to receive
                           comments electronically;

                  G.       Have the systems capability to receive data elements
                           associated with identifying members who are receiving
                           ongoing services under fee-for-service Medicaid or
                           from another CONTRACTOR;

                  H.       Have systems capability to transmit to HSD or another
                           CONTRACTOR data elements associated with their
                           members who have been receiving ongoing services
                           within their organization; and

                  I.       Maintain a system backup and recovery plan.

         (3)      Provider Network Information Requirements: The CONTRACTOR'S
                  provider network capabilities shall include, but not be
                  limited to:

                  A.       Maintaining complete provider information for all
                           providers contracted with the CONTRACTOR and its
                           subcontractors and any other non-contracted providers
                           who have provided services to date;

                  B.       Transmitting a Provider Network File to HSD on a
                           monthly basis, no later

                                     - 89 -
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                           than the 28th day of each month, to include all
                           contracted providers, non-contracted providers who
                           have provided service to date, providers who have
                           applied for contract and are pending, providers whose
                           application has been denied, and providers who have
                           been terminated from contract. The file is a general
                           replacement file each month with no deletions from
                           the file until 3 years past the date of the
                           provider's termination or denied status. Once a
                           provider is shown on the file, the provider should
                           continue to be reported regardless of whether any
                           encounters are reported for that provider or not;

                  C.       Providing a complete and accurate designation of each
                           provider according to the data elements and
                           definitions included in the SALUD! Systems Manual;
                           and

                  D.       Providing automated access to members and providers
                           of a member's PCP assignment.

         (4)      Claims Processing Requirements: The CONTRACTOR and any of its
                  subcontractors or providers paying their own claims are
                  required to maintain claims processing capabilities to
                  include, but not be limited to:

                  A.       Accepting National Standard Formats for electronic
                           claims submission. In the event that final HIPAA
                           regulations change any formats or data required on
                           the standardized formats, the CONTRACTORS shall be
                           required to adapt their systems accordingly;

                  B.       Assigning unique identifiers for all claims received
                           from providers;

                  C.       Standardizing protocols for the transfer of claims
                           information between the CONTRACTOR and its
                           subcontractors/providers, audit trail activities, and
                           the communication of data transfer totals and dates;

                  D.       Meeting both state and federal standards for
                           processing claims;

                  E.       Generating remittance advice to providers;

                  F.       Participating in a joint committee for standardizing
                           coding where national coding systems do not apply;

                  G.       Accepting from providers and subcontractors national
                           standard codes and, where these codes don't apply,
                           acceptance of state-assigned codes that have been
                           approved by the HSD joint committee for
                           standardization;

                                     - 90 -
<PAGE>

                  H.       Editing claims to ensure providers licensed to render
                           the services being billed are submitting services,
                           that services are appropriate in scope and amount,
                           and that enrollees are eligible to receive the
                           service; and

                  I.       Developing and maintaining an electronic billing
                           system for all providers submitting bills directly to
                           the CONTRACTOR within six months of the inception of
                           the Agreement. Require all subcontractor benefit
                           managers to meet the same deadline.

         (5)      Member Information Requirements: The CONTRACTOR'S member
                  information requirements shall include, but not be limited to:

                  A.       Accepting, maintaining and transmitting member
                           information:

                  B.       Monitoring newborns to ensure minimal lapse in time
                           between the infant's birth and their determination of
                           Medicaid eligibility. The CONTRACTOR shall submit
                           electronic claims for newborn capitations until the
                           MMIS is capable of issuing the capitations
                           automatically. The anticipated date for this
                           capability is October 1, 2001, after which the
                           CONTRACTOR shall only be responsible for submitting
                           capitation claims in unusual circumstances, such as
                           to correct a previously unidentified problem.
                           Retroactive capitations shall only be issued for the
                           first three months of life, during which time the
                           mother's MCO shall cover the services of the newborn.
                           After the time, if that newborn has not appeared on a
                           roster for the CONTRACTOR, the CONTRACTOR shall not
                           be responsible for the continuing health care for the
                           child. However, the parent or guardian may choose a
                           different MCO for the newborn as early as the second
                           month of life. In such a case, the MCO of the mother
                           is only entitled to the capitation for the birth
                           month;

                  C.       Generating member information to providers within
                           five (5) business days of receipt of the enrollment
                           roster from HSD;

                  D.       Using all four occurrences of the Medicaid member ID
                           number sent to the CONTRACTOR on the enrollment
                           roster to ensure the CONTRACTOR can differentiate
                           between a change in an existing client's Medicaid
                           member ID number and a new client. These numbers
                           needs to be available to staff to be used as a cross
                           reference when providers or others submit a number
                           other than the number maintained by the CONTRACTOR as
                           the primary number and as a means to update the
                           member's ID number when eligibility changes
                           necessitate a change to the number;

                                     - 91 -
<PAGE>

                  E.       Maintaining a special medical status identifier on
                           their system's database consistent with HSD's for
                           this field. This requirement also applies to any
                           subcontractor who maintains a copy of the member
                           rosters for the purpose of distributing eligibility
                           or roster information to providers or verifying
                           member eligibility;

                  F.       Meeting federal HCFA standards for release of member
                           information (applies to subcontractors as well).
                           Standards are specified in the SALUD! Systems Manual
                           and at 42 CFR 431.306(b);

                  G.       Track changes in the members' category of eligibility
                           to ensure appropriate services are covered and
                           appropriate application of co-pays;

                  H.       Maintaining accurate member eligibility and
                           demographic data,

                  I.       Providing automated access to providers regarding
                           member eligibility and PCP assignment. The CONTRACTOR
                           shall provide an automated voice response system for
                           providers to verify eligibility and PCP assignment;

                  J.       Making member enrollment and PCP assignment
                           information available for electronic verification
                           systems, including swipe card systems; and

                  K.       Providing daily electronic transmission to HSD of
                           member enrollment and PCP assignment.

         (6)      Encounter and Provider Network Reporting Requirements: The
                  CONTRACTOR has a responsibility for the following Encounter
                  and Provider Network File Submission and Reporting
                  capabilities to include, but not be limited to:

                  A.       Submitting to HSD encounters, according to the
                           specifications included in the SALUD! Systems Manual,
                           within 90 days of the date of service or discharge,
                           regardless of whether the encounter is from a
                           subcontractor or subcapitated arrangement;

                  B.       Submitting encounter files that have an error rate of
                           no more than five percent;

                  C.       Submitting corrections to any encounters that are
                           rejected by HSD as exceeding by HSD the five percent
                           error threshold within 30 days of the rejection;

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<PAGE>

                  D.       Submitting adjustments/voids to encounters that have
                           previously been accepted by HSD within 30 days of the
                           adjustment or void of claim;

                  E.       Including written contractual requirements for
                           subcontractors or providers that pay their own claims
                           to submit encounters to the CONTRACTOR on a timely
                           basis to ensure that the CONTRACTOR can submit
                           encounters to HSD within 90 days of the date of
                           service or discharge;

                  F.       Editing encounters prior to submission to prevent or
                           decrease submission of duplicate encounters,
                           encounters from providers not on the CONTRACTOR'S
                           provider network file, and other types of encounter
                           errors;

                  G.       Having a formal monitoring and reporting system to
                           reconcile submissions and resubmission of encounter
                           data between the CONTRACTOR and HSD to assure
                           timeliness of submissions, resubmissions and
                           corrections and completeness of data. The CONTRACTORS
                           shall be required to report the status of their
                           encounter data submissions overall on a form
                           developed by HSD;

                  H.       Having a formal monitoring and reporting system to
                           reconcile submissions and resubmissions of encounter
                           data between the CONTRACTORS and their subcontractors
                           or providers who pay their own claims to assure
                           timeliness and completeness of their submission of
                           encounter data to the CONTRACTORS;

                  I.       Complying with the most current federal standards for
                           encryption of any data that is transmitted via the
                           internet (also applies to subcontractors). A summary
                           of the current HCFA guidelines is included in the
                           SALUD! Systems Manual;

                  J.       Complying with HCFA standards for electronic
                           transmission, security, and privacy, as may be
                           required by HIPAA (also applies to subcontractors);
                           and

                  K.       Reporting all data noted as "required" in the
                           encounter formats provided in the Systems Manual.

                         ARTICLE 3 - LIMITATION OF COST

The total amount payable by HSD to all CONTRACTORS executing Agreements with HSD
to perform services shall be less than the upper payment limit established under
the terms of the

                                     - 93 -
<PAGE>

1915(b) waiver for Medicaid managed care. In no event shall capitation fees or
other payments provided for in the Agreement exceed the payment limits set forth
in 42 C.F.R Section 447.361 and 447.362. In no event shall HSD pay twice for the
provision of services.

                         ARTICLE 4 - HSD RESPONSIBILITY

4.1      HSD shall:

         (1)      Establish and maintain Medicaid eligibility information and
                  transfer eligibility information to assure appropriate
                  enrollment in and assignment to the CONTRACTOR. On the
                  CONTRACTOR'S request, this information shall be transferred
                  electronically. The CONTRACTOR shall have the right to rely on
                  eligibility and enrollment information transmitted to the
                  CONTRACTOR by HSD.

         (2)      Support implementation deadlines by providing technical
                  information at the required level of specificity in a timely
                  fashion.

         (3)      Provide the CONTRACTOR with enrollment information concerning
                  each Medicaid member enrolled with the CONTRACTOR, including
                  the member's name and social security number, the member's
                  address, the member's date of birth and gender, the
                  availability of third party coverage, and the member's rate
                  category.

         (4)      Compensate the CONTRACTOR as specified in Article 5 -
                  Compensation and Payment Reimbursement for Managed Care.

         (5)      Provide a mechanism for fair/administrative hearings to review
                  denials and Utilization Management decisions made by the
                  CONTRACTOR.

         (6)      Monitor the effectiveness of the CONTRACTOR'S Quality
                  Assurance Program.

         (7)      Review the CONTRACTOR'S grievance files as necessary.

         (8)      Establish requirements for review and make decisions
                  concerning the CONTRACTOR'S requests for disenrollment.

         (9)      Determine the period of time within which a member cannot be
                  reenrolled in a CONTRACTOR that successfully has requested
                  his/her disenrollment.

         (10)     Provide mandatory Medicaid enrollees with specific information
                  about services, benefits, and MCOs from which to choose and
                  member enrollment.

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<PAGE>

         (11)     Have the right to receive solvency and reinsurance information
                  from the CONTRACTOR, and to inspect the CONTRACTOR'S financial
                  records as frequently as necessary, but at least annually.

         (12)     Have the right to receive all information regarding third
                  party liability from the CONTRACTOR so that it may pursue its
                  rights under State and Federal law.

         (13)     Review the CONTRACTOR'S policies and procedures concerning
                  Medicaid fraud and abuse until they are deemed acceptable.

         (14)     Provide the content, format and schedule for the CONTRACTOR'S
                  report submission.

         (15)     Inspect, examine, and review the CONTRACTOR'S financial
                  records as necessary to assure compliance with all applicable
                  State and Federal laws and regulations.

         (16)     Monitor encounter data submitted by the CONTRACTOR and shall
                  provide data elements for reporting.

         (17)     Provide the CONTRACTOR with specifications related to data
                  reporting requirements.

         (18)     Amend its fee-for-service and other provider agreements, as
                  necessary, to encourage health care providers paid by HSD to
                  enter into contracts with the CONTRACTOR at the applicable
                  Medicaid reimbursement rate for the provider, absent other
                  negotiated arrangements. The applicable Medicaid reimbursement
                  rate is defined to exclude disproportionate share and medical
                  education payments.

         (19)     Establish maximum enrollment levels to ensure that all MCOs
                  maintain statewide enrollment capacity.

4.2      HSD and/or its fiscal agent shall implement electronic data interchange
         standards for transactions related to managed health care.

4.3      Performance by the CONTRACTOR shall not be contingent upon time
         availability of HSD personnel or resources with the exception of
         specific responsibilities stated in the RFP and the normal cooperation
         that can be expected in such a contractual Agreement. The CONTRACTOR'S
         access to HSD personnel shall be granted as freely as possible.
         However, the competency/sufficiency of HSD staff shall not be reason
         for relieving the CONTRACTOR of any responsibility for failing to meet
         required deadlines or producing

                                     - 95 -
<PAGE>

         unacceptable deliverables. To the extent the CONTRACTOR is unable to
         perform any obligation or meet any deadline under this Agreement
         because of the failure of HSD to perform its specific responsibilities
         under the Agreement, the CONTRACTOR'S performance shall be excused or
         delayed, as appropriate. The CONTRACTOR shall provide HSD written
         notice as soon as possible, but in no event later than the expiration
         of any deadline or date for performance, that identifies the specific
         responsibility that HSD has failed to meet, as well as the reason HSD's
         failure impacts the CONTRACTOR'S ability to meet its performance
         obligations under the Agreement.

                ARTICLE 5 - COMPENSATION & PAYMENT REIMBURSEMENT
                                FOR MANAGED CARE

5.1      Subject to Article 8, ENFORCEMENT, HSD shall pay the monthly rates
         shown below, for each member, in full consideration of all the work to
         be performed by the CONTRACTOR under this Agreement. The monthly rate
         for each member is based on the age, gender, and eligibility category
         of the member. To the extent, if any, it is determined by the
         appropriate taxing authority that the performance of this Agreement by
         the CONTRACTOR is subject to taxation, the amounts paid by HSD to the
         CONTRACTOR under this Agreement, shall include such tax(es). The
         CONTRACTOR is responsible for reporting and remitting all applicable
         taxes to the appropriate taxing agency.

5.2      The monthly rate set forth below shall be subject to renegotiation
         during the Agreement if HSD determines that it is necessary due to
         change in Federal or State law or in the appropriations made available
         for these tasks as set forth in Article 14, Appropriations, and Article
         12, Contract Modification.

5.3      Payment for Services

         (1)      HSD shall pay a capitated amount to the CONTRACTOR for the
                  provision of the managed care benefit package at the rates
                  specified below. The monthly rate for each member is based on
                  a combination of the age, gender and eligibility category of
                  the member. The combinations are grouped into twenty-nine (29)
                  rate cells. Medicaid members shall be held harmless against
                  any liability for debts of a CONTRACTOR that were incurred
                  within the Agreement in providing covered services to the
                  Medicaid member.

         (2)      HSD shall pay each CONTRACTOR an additional payment for each
                  Native American identified in HSD's system. This additional
                  payment is to be used to cover medical costs of Native
                  Americans provided at Indian Health Service; tribal 638 and
                  defined urban Indian providers. The Native American payment
                  amount is

                                     - 96 -
<PAGE>

                  established by HSD and is fully reimbursed to the CONTRACTOR.
                  The supplemental payment amounts are subject to revision based
                  upon an actuarial review. These payments are cost neutral to
                  the CONTRACTOR. Any payment made beyond the amount of the
                  supplemental capitation shall be reimbursed by HSD. Any
                  payment made by HSD that is not expended shall be recouped
                  from the CONTRACTOR.

         (3)      Medicaid and SCHIP members shall be held harmless against any
                  liability for debts of the CONTRACTOR which were incurred
                  within the Agreement in providing health care to the Medicaid
                  or SCHIP member, excluding any members liability for
                  copayments or member's liability for an overpayment resulting
                  from benefits paid pending the results of a fair hearing. The
                  CONTRACTOR has no obligation to continue to see members for
                  treatment if the member fails to meet copayment obligations.

5.4      Payment on Risk Basis

         The CONTRACTOR is at risk of incurring losses if its expenses for
         providing the managed care benefit package exceeds its capitation
         payment. HSD shall not provide a retroactive payment adjustment to the
         CONTRACTOR to reflect the cost of services actually furnished by the
         CONTRACTOR. The CONTRACTOR may retain its profits.

5.5      Changes in the Capitation Rates

         (1)      The capitation rates shall remain in effect as referenced in
                  Attachments A and B for the first twenty-four (24) months for
                  the effective date of this Agreement. Capitation rates may be
                  reviewed if this Agreement is extended with the CONTRACTOR
                  pursuant to this Agreement. Upon mutual Agreement of the
                  CONTRACTOR and HSD, the capitation rates may be adjusted based
                  on factors such as changes in the scope of work, a Native
                  American MCO is established or a Navajo Medicaid Agency
                  created, HCFA requires a modification of the state's waiver or
                  new or amended federal or state laws or regulations are
                  implemented, inflation, significant changes in the demographic
                  characteristics of the member population, or the
                  disproportionate enrollment selection of the CONTRACTOR by
                  members in certain rate cohorts. Any changes to the rates
                  shall be modified pursuant to Articles 12 (Contract
                  Modification) and 37 (Amendments) of this agreement.

         (2)      HSD shall compensate the CONTRACTOR for work performed under
                  this Agreement at the following rates shown on Attachments A
                  and B.

                                     - 97 -
<PAGE>

         (3)      The CONTRACTOR shall obtain reinsurance for coverage of
                  members as required by this Agreement. However, the CONTRACTOR
                  remains ultimately liable to HSD for the services rendered
                  under the terms of this Agreement. The CONTRACTOR shall
                  provide a copy of its proposed reinsurance agreement with its
                  response to the RFP.

5.6      Procedures

         (1)      HSD shall distribute an aggregate amount to the CONTRACTOR for
                  all members enrolled with the CONTRACTOR on or before the
                  second Friday of each month.

         (2)      Until a newborn receives a separate member identifier from
                  HSD, the CONTRACTOR shall submit a payment request to HSD for
                  the newborn member. HSD shall pay the CONTRACTOR the monthly
                  rate for the newborn after receipt and verification of the
                  claim by HSD.

         (3)      HSD shall make a full monthly payment to the CONTRACTOR for
                  the month in which the member's enrollment is terminated. The
                  CONTRACTOR shall be responsible for covered medical services
                  provided to the member in any month for which HSD paid the
                  CONTRACTOR for the member's care under the terms of this
                  Agreement.

         (4)      HSD shall recoup payments for members who are incorrectly
                  enrolled with more than one CONTRACTOR; payments made for
                  members who die prior to the enrollment month for which
                  payment was made; and/or payments for members whom HSD later
                  determines were not eligible for Medicaid during the
                  enrollment month for which payment was made. Notwithstanding
                  the foregoing, HSD shall not have the right to recoup a
                  payment made to the CONTRACTOR if either the CONTRACTOR
                  (and/or its subcontractors) provided any health care services
                  to the member during the relevant period of time or more than
                  twenty-four months have elapsed since the payments were made.

         (5)      With the exception of newborns born while the mother is an
                  enrolled member, HSD is responsible for payment of all
                  inpatient facility and professional services provided from the
                  date of admission until the date of discharge, if a member is
                  hospitalized at the time of enrollment.

         (6)      If the member is hospitalized at the time of disenrollment,
                  the CONTRACTOR shall be responsible for payment of all covered
                  inpatient facility and professional services from the date of
                  admission to the date of discharge. The CONTRACTOR shall be
                  responsible for coverage of such services until the member is
                  discharged from the hospital. The CONTRACTOR shall be

                                     - 98 -
<PAGE>

                  responsible for ensuring proper transition of care if the
                  reason for disenrollment is the member's selection of a
                  different CONTRACTOR.

         (7)      If a member is in a nursing home at the time of disenrollment,
                  the CONTRACTOR shall be responsible for payment of all covered
                  services until the date of discharge or the time the nature of
                  the member's care ceases to be subacute or skilled nursing
                  care, whichever first occurs. The CONTRACTOR shall be
                  responsible for ensuring proper transition of care if the
                  reason for disenrollment is the member's selection of a
                  different MCO.

         (8)      On a periodic basis, HSD shall provide the CONTRACTOR with
                  coordination of benefits information for enrolled members. The
                  CONTRACTOR shall:

                  A.       Not refuse or reduce services provided under this
                           Agreement solely due to the existence of similar
                           benefits provided under other health care contracts.

                  B.       Attempt to recover any third-party resources
                           available to Medicaid recipients (42 C.F.R. 433
                           Subpart D) and shall make all records pertaining to
                           Third Party Collections (TPL) for members available
                           to HSD for audit and review. HSD shall have the right
                           to claim any TPL collections generated by these
                           activities.

                  C.       Notify HSD as set forth below when the CONTRACTOR
                           learns (not identified in enrollment roster) that a
                           member has TPL for medical care:

                           i.       Within fifteen (15) working days when a
                                    member is verified as having dual coverage
                                    under its managed care organization.

                           ii.      Within sixty (60) calendar days when a
                                    member is verified as having coverage with
                                    any other managed care organization or
                                    health carrier.

                  D.       Communicate and ensure compliance with the
                           requirements of this section by subcontractors that
                           provide services under the terms of this Agreement.

                  E.       Members shall not be charged for services covered
                           under the terms of this Agreement, except as provided
                           in the MAD Provider Policy Manual Section MAD-701.7,
                           ACCEPTANCE OF RECIPIENT OR THIRD PARTY PAYMENTS.

                                     - 99 -
<PAGE>

                  F.       Payments provided for under this Agreement shall be
                           denied for new members when, and for so long as,
                           payment for those members is denied under 42 CFR
                           Section 434.67(e).

5.7      Special Payment Requirements

         This section lists special payment requirements by provider type:

         (1)      Reimbursement of Federally Qualified Health Centers (FQHCs)

                  FQHCs are reimbursed at 100 percent of reasonable cost under a
                  Medicaid fee-for-service or managed care program. The FQHC can
                  waive its right to reasonable cost and elect to receive the
                  rate negotiated with the CONTRACTOR. During the course of the
                  contract negotiations with the CONTRACTOR, the FQHC shall
                  state explicitly that it elects to receive 100 percent of
                  reasonable costs or waive this requirement.

         (2)      Reimbursement for Providers Furnishing Care to Native
                  Americans

                  If an Indian Health Service (IHS), or tribal 638 provider
                  delivers services to the CONTRACTOR member who is a Native
                  American, the CONTRACTOR shall reimburse the provider at the
                  rate currently established for the IHS facilities or
                  Federally-leased facilities by the Office of Management (OMB),
                  or Medicaid, or at a fee negotiated between the provider and
                  the CONTRACTOR.

         (3)      Reimbursement for Family Planning Services

                  The CONTRACTOR shall reimburse out-of-network family planning
                  providers for provision of services to CONTRACTOR members at a
                  rate which at a minimum equals the applicable Medicaid
                  fee-for-service rate appropriate to the provider type.

         (4)      Reimbursement for Women in the Third Trimester of Pregnancy

                  If a pregnant woman in the third trimester of pregnancy has an
                  established relationship with an obstetrical provider and
                  desires to continue that relationship, and the provider is not
                  participating with the CONTRACTOR, the CONTRACTOR shall
                  reimburse the nonparticipating provider at the applicable
                  Medicaid fee-for-service rate appropriate to the provider
                  type.

5.8      Reimbursement for Emergency Services

                                    - 100 -
<PAGE>

         (1)      The CONTRACTOR shall ensure that acute general hospitals are
                  reimbursed for emergency services which they provide because
                  of federal mandates such as the "anti-dumping" law in the
                  Omnibus Budget Reconciliation Act of 1989, P.L. 101-239 and 42
                  U.S.C. section 1395 dd (1867 of the Social Security Act).

         (2)      If the screening examination leads to a clinical determination
                  by the examining physician that an actual emergency medical
                  condition exists, the CONTRACTOR shall pay for both the
                  services involved in the screening examination and the
                  services required to stabilize the patient.

         (3)      The CONTRACTOR is required to pay for all emergency services
                  which are medically necessary until the clinical emergency is
                  stabilized. This includes all treatment that may be necessary
                  to assure, within reasonable medical probability, that no
                  material deterioration of the patient's condition is likely to
                  result from, or occur, during discharge of the patient or
                  transfer of the patient to another facility.

         (4)      If the screening examination leads to a clinical determination
                  by the examining physician that an actual emergency medical
                  condition does not exist, then the determining factor for
                  payment liability is whether the member had acute symptoms of
                  sufficient severity at the time of presentation. In these
                  cases, the CONTRACTOR shall review the presenting symptoms of
                  the member and shall pay for all services involved in the
                  screening examination where the present symptoms (including
                  severe pain) were of sufficient severity to have warranted
                  emergency attention under the prudent layperson standard. If
                  the member believes that a claim for emergency services has
                  been inappropriately denied by the CONTRACTOR, the member may
                  seek recourse through the CONTRACTOR or HSD appeal process.

         (5)      When the member's primary care physician or other CONTRACTOR
                  representative instructs the member to seek emergency care in
                  network or out of network, the CONTRACTOR is responsible for
                  payment at the in network rate, for the medical screening
                  examination and for other medically necessary emergency
                  services, intended to medically stabilize the patient without
                  regard to whether the member meets the prudent layperson
                  standard.

                       ARTICLE 6 - CONTRACT ADMINISTRATOR

The Contract Administrator is, and his/her successor shall be, designated by the
Secretary of HSD. HSD shall notify the CONTRACTOR of any changes in the identity
of the Contract Administrator. The Contract Administrator is empowered and
authorized as the agent of HSD to represent HSD in all matters related to this
Agreement except those reserved to other HSD personnel by the Agreement.
Notwithstanding the above, the Contract Administrator does not

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have the authority to amend the terms and conditions of this Agreement. All
events, problems, concerns or requests affecting this Agreement shall be
reported by the CONTRACTOR to the Contract Administrator

                        ARTICLE 7 - CONTRACTOR PERSONNEL

7.1      The CONTRACTOR warrants and represents that it shall assign sufficient
         employees to the performance of this Agreement to meet all aspects of
         its performance as represented by the CONTRACTOR to HSD in its
         proposal.

7.2      Replacement of any CONTRACTOR personnel shall be with personnel of
         equal ability, experience, and qualifications.

7.3      HSD reserves the right to require the CONTRACTOR to make changes in its
         staff assignments if the assigned staff is/are not, in the opinion of
         HSD, meeting the needs of Medicaid members or the needs of HSD in
         implementing and enforcing the terms of this Agreement, provided that
         such CONTRACTOR staff changes shall comport with the CONTRACTOR'S
         personnel policies.

7.4      The CONTRACTOR may not have an employment, consulting or other
         agreement with a person who has been convicted of crimes specified in
         Section 1128 of the Social Security Act for the provision of items and
         services that are significant and material to the entity's obligations
         under the Agreement.

7.5      The CONTRACTOR shall submit to HSD on a quarterly basis a brief job
         description and the qualifications of each individual behavioral health
         UM staff.

                             ARTICLE 8 - ENFORCEMENT

8.1      HSD Sanctions

         (1)      Unless otherwise required by law, the level or extent of
                  sanctions shall be based on the frequency or pattern of
                  conduct, or the severity or degree of harm posed to (or
                  incurred by) members or to the integrity of the Medicaid
                  program.

         (2)      If the Secretary of HSD or his/her designee determines, after
                  notice and opportunity by the CONTRACTOR to be heard in
                  accordance with Article 15, that the CONTRACTOR or any agent
                  or employee of the CONTRACTOR, or any persons with an
                  ownership interest in the CONTRACTOR, or related party of the
                  CONTRACTOR, has failed to comply with any applicable law,
                  regulation, term of this Agreement, policy, standard, rule, or
                  for other good cause, the Secretary of HSD may impose any or
                  all of the following in accordance with applicable law:

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                  A.       Plans of Correction. The CONTRACTOR shall be required
                           to provide to HSD, within fourteen (14) days, a plan
                           of correction to remedy any defect in its
                           performance.

                  B.       Directed Plans of Correction. The CONTRACTOR shall be
                           required to provide to HSD, within fourteen (14)
                           days, a plan of correction as directed by HSD.

                  C.       Civil or administrative monetary penalties may be
                           imposed to the extent authorized by federal or state
                           law.

                           i.       HSD retains the right to apply progressively
                                    strict sanctions against the CONTRACTOR,
                                    including an assessment of a monetary
                                    penalty against the CONTRACTOR, for failure
                                    to perform in any contract areas.

                           ii.      Unless otherwise required by law, the level
                                    of extent of sanctions shall be based on the
                                    frequency or pattern of conduct, or the
                                    severity or degree of harm posed to or
                                    incurred by members or to the integrity of
                                    the Medicaid program. HSD shall impose
                                    liquidated damages consistent with letter J
                                    of this Article.

                           iii.     A monetary penalty, depending upon the
                                    severity of the infraction. Penalty
                                    assessments shall range, up to five (5)
                                    percent of the CONTRACTOR'S Medicaid
                                    capitation payment in the month in which the
                                    penalty is assessed.

                           iv.      Any withholding of capitation payments in
                                    the form of a penalty assessment does not
                                    constitute just cause for the CONTRACTOR to
                                    interrupt services provided to members.

                           v.       All other administrative, contractual or
                                    legal remedies available to HSD shall be
                                    employed in the event that the CONTRACTOR
                                    violates or breaches the terms of the
                                    Agreement.

                  D.       Adjustment of Automated Assignment Formula: HSD may
                           selectively assign members who have not selected a
                           CONTRACTOR to an alternative CONTRACTOR in response
                           to the CONTRACTOR'S failure to fulfill its duties.

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<PAGE>

                  E.       Suspension of New Enrollment: HSD may suspend new
                           enrollment to the CONTRACTOR.

                  F.       Appointment of a State Monitor: Should HSD be
                           required to appoint a State monitor to assure the
                           CONTRACTOR'S performance, the CONTRACTOR shall bear
                           the reasonable cost of the State intervention.

                  G.       Payment Denials. HSD may deny payment for all members
                           or deny payment for new members.

                  H.       Rescission: HSD may rescind marketing consent.

                  I.       Actual Damages: HSD may assess to the CONTRACTOR
                           actual damages to HSD or its members resulting from
                           the CONTRACTOR'S non-performance of its obligations.

                  J.       Liquidated Damages: HSD may pursue liquidated damages
                           in an amount equal to the costs of obtaining
                           alternative health benefits to the member in the
                           event of the CONTRACTOR'S non-performance. The
                           damages shall include the difference in the capitated
                           rates that would have been paid to the CONTRACTOR and
                           the rates paid to the replacement health plan. The
                           State may withhold payment to the CONTRACTOR for
                           liquidated damages until such damages are paid in
                           full.

                  K.       Removal: HSD may remove members with third party
                           coverage from enrollment with the CONTRACTOR.

                  L.       Temporary Management: HSD may appoint temporary
                           management to oversee the operations of the
                           CONTRACTOR upon a finding by the Secretary of HSD
                           that there is continued egregious behavior by the
                           CONTRACTOR, there is a substantial risk to the health
                           of the members, or to assure the health of the
                           CONTRACTOR'S members while there is an orderly
                           termination or reorganization of the CONTRACTOR'S
                           organization or improvements are made to remedy the
                           identified violations. The Secretary of HSD shall not
                           allow the removal of the temporary management until
                           it determines that the CONTRACTOR has the capability
                           to ensure that the violation shall not reoccur. The
                           CONTRACTOR does not have the right to a
                           predetermination hearing prior to the appointment of
                           temporary management.

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                  M.       Terminate Enrollment: HSD may permit members enrolled
                           with the CONTRACTOR to terminate enrollment without
                           cause and notify such members of the right to
                           terminate enrollment.

                  N.       Impose Penalty: HSD may impose an administrative
                           penalty of not more than five thousand dollars
                           ($5,000) each for engaging in any practice described
                           in Section B of the Medicare Provider Act.

                  O.       Intermediate Sanctions: HSD may issue an intermediate
                           sanction in the form of administrative order
                           requiring the CONTRACTOR to cease or modify any
                           specified conduct or practice engaged in by it or its
                           employees, subcontractors, or agents to fulfill its
                           contractual obligations in the manner specified in
                           the order, provide any services that have been denied
                           or take steps to provide or arrange for the provision
                           of any services that it has agreed or is otherwise
                           obligated to make available.

                  P.       Suspension: HSD may suspend the Agreement.

                  Q.       Termination: HSD may terminate the Agreement.

8.2      Federal Sanctions

         (1)      Section 1903 (m)(5)(A) and (B) of the Social Security Act
                  vests the Secretary of HHS with the authority to deny Medicaid
                  payments to a health plan for members who enroll after the
                  date on which the health plan has been found to have committed
                  one of the violations set forth in the Agreement. State
                  payments for the CONTRACTOR'S members are automatically denied
                  whenever, and for so long as, federal payment for such members
                  has been denied as a result of the commission of such
                  violations. The following violations can trigger denial of
                  payment pursuant to section 1903(m)(5) of the Social Security
                  Act:

                  A.       Substantial failure to provide required medically
                           necessary items or services when the failure has
                           adversely affected (or has substantial likelihood of
                           adversely affecting) a member;

                  B.       Imposition of premiums on Medicaid members in excess
                           of permitted premiums;

                  C.       Discrimination among Medicaid beneficiaries with
                           respect to enrollment, re-enrollment, or
                           disenrollment on the basis of Medicaid beneficiaries'
                           health status or requirements for health care
                           services;

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                  D.       Misrepresentation or falsification of certain
                           information; or

                  E.       Failure to cover emergency services under Section
                           1932(b)(2) of the Social Security Act when the
                           failure affects (or has a substantial likelihood of
                           adversely affecting) a member.

         (2)      HSD may also deny payment if HSD learns that a CONTRACTOR:

                  A.       Subcontracts with an individual provider, an entity,
                           or an entity with an individual who is an officer,
                           director, agent or manager or person with more than
                           five percent of beneficial ownership of an entity's
                           equity, that has been convicted of crimes specified
                           in the Section 1128 of the Social Security Act, or
                           who has a contractual relationship with an entity
                           convicted of a crime specified in Section 1128.

         (3)      HSD shall notify the Secretary of Health and Human Services of
                  noncompliance with subparagraph A above. HSD may allow
                  continuance of the Agreement unless the Secretary directs
                  otherwise but may not renew or otherwise extend the duration
                  of the existing Agreement with the CONTRACTOR unless the
                  Secretary provides to HSD and Congress a written statement
                  describing the compelling reasons that exist for renewing and
                  extending the Agreement.

         (4)      This section is subject to the "nonexclusively of remedy"
                  language.

8.3      Notice and Cure

         HSD shall provide reasonable written notice of its decision to impose
         sanctions on the CONTRACTOR and, as HSD may deem necessary and proper,
         subsequently to members and others who may be directly interested. Such
         written notice shall set forth the effective date and the reason(s) for
         the sanctions. Prior to imposing sanctions, HSD shall afford the
         CONTRACTOR a reasonable opportunity to cure, unless such opportunity
         would result in immediate harm to members, or the improper diversion of
         Medicaid program funds.

8.4      Non-exclusivity of Remedy

         The provisions of this Article supplement, rather than replace, any
         other sanctions or remedies available to the HSD under the provisions
         of this Agreement or of applicable law or regulations.

8.5      CONTRACTOR'S Incentive Requirements

                                    - 106 -
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         HSD shall provide incentives to the CONTRACTOR'S that receive
         exceptional grading during the procurement process and for ongoing
         performance under the Agreement for quality assurance standards,
         performance indicators, enrollment processing, fiscal solvency, access
         standards, encounter data submission, reporting requirements, Third
         Party Liability collections and marketing plan requirements as
         determined by HSD by automatically assigning in greater number to the
         CONTRACTOR determined by HSD to warrant greater assignments of such
         Medicaid recipients.

                             ARTICLE 9 - TERMINATION

9.1      All terminations shall be effective at the end of a month, unless
         otherwise specified in this Article. This Agreement may be terminated
         under the following circumstances:

         (1)      By mutual written agreement of HSD and the CONTRACTOR upon
                  such terms and conditions as they may agree;

         (2)      By HSD for convenience, upon not less than one hundred eighty
                  (180) days written notice to the CONTRACTOR;

         (3)      This Agreement shall terminate on the Agreement termination
                  date. The CONTRACTOR shall be paid solely for services
                  provided prior to the termination date. The CONTRACTOR is
                  obligated to pay all claims for all dates of service prior to
                  the termination date. In the event of the Agreement
                  termination date or if the CONTRACTOR terminates this
                  Agreement prior to the Agreement termination date, and, if a
                  member is hospitalized at the time of termination, the
                  CONTRACTOR shall be responsible for payment of all covered
                  inpatient facility and professional services from the date of
                  admission to the date of discharge. Similarly in the event of
                  the Agreement termination date or if the CONTRACTOR terminates
                  this Agreement prior to the Agreement termination date, and, a
                  member is in a nursing home at the time of termination, the
                  CONTRACTOR shall be responsible for payment of all covered
                  services from the date of admission until the date of
                  discharge or the time the nature of the member's care ceases
                  to be subacute or skilled nursing care, whichever occurs
                  first. In the event that HSD terminates this Agreement prior
                  to the agreement termination date, and, a member is
                  hospitalized at the time of termination, the CONTRACTOR shall
                  be responsible for payment of all covered inpatient facility
                  and professional services from the date of admission to sixty
                  (60) days after the effective date of termination. Similarly,
                  in the event that HSD terminates this Agreement prior to the
                  Agreement termination date, and, a member is in a nursing home
                  at the time of the effective date of termination, the
                  CONTRACTOR shall be responsible for payment of all covered
                  services until sixty (60) days after the

                                    - 107 -
<PAGE>

                  effective date of termination or the time the nature of the
                  member's care ceases to be subacute or skilled nursing care,
                  whichever occurs first;

         (4)      By HSD for cause upon failure of the CONTRACTOR to materially
                  comply with the terms and conditions of this Agreement. HSD
                  shall give the CONTRACTOR written notice specifying the
                  CONTRACTOR'S failure to comply. The CONTRACTOR shall correct
                  the failure within thirty (30) days or begin in good faith to
                  correct the failure and thereafter proceed diligently to
                  complete or cure the failure. If within thirty (30) days the
                  CONTRACTOR has not initiated or completed corrective action,
                  HSD may serve written notice stating the date of termination
                  and work stoppage arrangements;

         (5)      By HSD, if required by modification, change, or interpretation
                  in State or Federal law or HCFA waiver terms, because of court
                  order, or because of insufficient funding from the Federal or
                  State government(s), if Federal or State appropriations for
                  Medicaid managed care are not obtained, or are withdrawn,
                  reduced, or limited, or if Medicaid managed care expenditures
                  are greater than anticipated such that funds are insufficient
                  to allow for the purchase of services as required by this
                  Agreement. HSD's decision as to whether sufficient funds are
                  available shall be accepted by the CONTRACTOR and shall be
                  final;

         (6)      By HSD, in the event of default by the CONTRACTOR, which is
                  defined as the inability of the CONTRACTOR to provide services
                  described in this Agreement or the CONTRACTOR'S insolvency.
                  With the exception of termination due to insolvency, the
                  CONTRACTOR shall be given thirty (30) days to cure any such
                  default, unless such opportunity would result in immediate
                  harm to members, or the improper diversion of Medicaid program
                  funds;

         (7)      By HSD, in the event of notification by the Public Regulation
                  Commission or other applicable regulatory body that the
                  certificate of authority under which the CONTRACTOR operates
                  has been revoked, or that it has expired and shall not be
                  renewed;

         (8)      By HSD, in the event of notification that the owners or
                  managers of the CONTRACTOR, or other entities with substantial
                  contractual relationship with the CONTRACTOR, have been
                  convicted of Medicare or Medicaid fraud or abuse or received
                  certain sanctions as specified in section 1128 of the Social
                  Security Act;

         (9)      By HSD, in the event it determines that the health or welfare
                  of Medicaid members are in jeopardy should the Agreement
                  continue. For purposes of this

                                    - 108 -
<PAGE>

                  paragraph, termination of the Agreement requires a finding by
                  HSD that a substantial number of members face the threat of
                  immediate and serious harm;

         (10)     By HSD, in the event of the CONTRACTOR'S failure to comply
                  with the composition of enrollment requirement contained in 42
                  C.F.R. Section 434.26 and the Scope of Work. The CONTRACTOR
                  shall be given fourteen (14) days to cure any such enrollment
                  composition requirement, unless such opportunity would violate
                  any federal law or regulation;

         (11)     By HSD in the event a petition for bankruptcy is filed by or
                  against the CONTRACTOR;

         (12)     By HSD if the CONTRACTOR fails substantially to provide
                  medically necessary items and services that are required under
                  this Agreement;

         (13)     By HSD, if the CONTRACTOR discriminates among members on the
                  basis of their health status or requirements for health
                  services, including expulsion or refusal to reenroll a member,
                  except as permitted by this Agreement and federal law, or
                  engaging in any practice that would reasonably be expected to
                  have the effect of denying or discouraging enrollment with the
                  CONTRACTOR by the eligible member or by members whose medical
                  condition or history indicates a need for substantial future
                  medical services;

         (14)     By HSD, if the CONTRACTOR intentionally misrepresents or
                  falsifies information that is furnished to the Secretary of
                  Health and Human Services, HSD or Medicaid members, potential
                  members or health care providers under the Social Security Act
                  or pursuant to this Agreement;

         (15)     By HSD, if the CONTRACTOR fails to comply with applicable
                  physician incentive prohibitions of Section 1903(m)(2)(A)(x)
                  of the Social Security Act;

         (16)     By the CONTRACTOR, on at least sixty (60) days prior written
                  notice in the event HSD fails to pay any amount due the
                  CONTRACTOR hereunder within thirty (30) days of the date such
                  payments are due; and

         (17)     By the CONTRACTOR, on sixty (60) days written notice with
                  cause, or one hundred eighty (180) days written notice without
                  cause.

9.2.     If HSD terminates this Agreement pursuant to this Article and unless
         otherwise specified in this Article, HSD shall provide the CONTRACTOR
         written notice of such termination at least sixty (60) days prior to
         the effective date of the termination, unless HSD itself receives less
         than sixty (60) days notice, in which case HSD shall provide the

                                    - 109 -
<PAGE>

         CONTRACTOR with as much notice as possible, but in no event less than
         sixty (60) days notice. If HSD determines a reduction in the scope of
         work is necessary, it shall notify the CONTRACTOR and proceed to amend
         this Agreement pursuant to its provisions.

9.3      By termination pursuant to this Article, neither party may nullify
         obligations already incurred for performance of services prior to the
         date of notice or, unless specifically Stated in the notice, required
         to be performed through the effective date of termination. Any
         agreement or notice of termination shall incorporate necessary
         transition arrangements.

                       ARTICLE 10 - TERMINATION AGREEMENT

10.1     When HSD has reduced to writing and delivered to the CONTRACTOR notice
         of termination, the effective date, and reasons therefor, if any, HSD,
         in addition to other rights provided in this Agreement, may require the
         CONTRACTOR to transfer, deliver, and/or make readily available to HSD,
         property in which HSD has a financial interest. Prior to invoking the
         provisions of this paragraph, HSD shall identify that property in which
         it has a financial interest, provided that, subject to HSD's recoupment
         rights herein, property acquired with capitation or other payments made
         for members properly enrolled shall not be considered property in which
         HSD has a financial interest.

10.2     In the event this Agreement is terminated by HSD, immediately as of the
         notice date, the CONTRACTOR shall:

         (1)      Incur no further financial obligations for materials,
                  services, or facilities under this Agreement, without prior
                  written approval of HSD.

         (2)      Terminate all purchase orders or procurements and subcontracts
                  and stop all work to the extent specified in the notice of
                  termination, except as HSD may direct for orderly completion
                  and transition.

         (3)      Agree that HSD is not liable for any costs of the CONTRACTOR
                  arising out of termination unless the CONTRACTOR establishes
                  that the Agreement was terminated due to HSD's negligence,
                  wrongful act, or breach of the Agreement.

         (4)      Take such action as HSD may reasonably direct, for protection
                  and preservation of all property and all records related to
                  and required by this Agreement.

         (5)      Cooperate fully in the closeout or transition of any
                  activities so as to permit continuity in the administration of
                  HSD programs.

                                    - 110 -
<PAGE>

         (6)      Allow HSD, its agents and representatives full access to the
                  CONTRACTOR'S facilities and records to arrange the orderly
                  transfer of the contracted activities. These records include
                  the information necessary for the reimbursement of any
                  outstanding Medicaid claims.

               ARTICLE 11 - RIGHTS UPON TERMINATION OR EXPIRATION

11.1     Upon termination or expiration of this Agreement, the CONTRACTOR shall,
         upon request of HSD, make available to HSD, or to a person authorized
         by HSD, all records and equipment which are the property of HSD.

11.2     Upon termination or expiration, HSD shall pay the CONTRACTOR all
         amounts due for service through the effective date of such termination.
         HSD may deduct from amounts otherwise payable to the CONTRACTOR monies
         determined to be due HSD from the CONTRACTOR. Any amounts in dispute at
         the time of termination shall be placed by HSD in an interest-bearing
         escrow account with an escrow agent mutually agreed to by HSD and the
         CONTRACTOR.

11.3     In the event that HSD terminates the Agreement for cause in full or in
         part, HSD may procure services similar to those terminated and the
         CONTRACTOR shall be liable to HSD for any excess costs for such similar
         services for any calendar month for which the CONTRACTOR has been paid
         for providing services to Medicaid members. In addition, the CONTRACTOR
         shall be liable to HSD for administrative costs incurred by HSD in
         procuring such similar services. The rights and remedies of HSD
         provided in this paragraph shall not be exclusive and are in addition
         to any other rights and remedies provided by law or under this
         contract.

11.4     The CONTRACTOR is responsible for any claims from subcontractors or
         other providers, including emergency service providers, for services
         provided prior to the termination date. The CONTRACTOR shall promptly
         notify HSD of any outstanding claims for which HSD may owe, or be
         liable for fee-for-service payment, which are known to the CONTRACTOR
         at the time of termination or when such new claims incurred prior to
         termination are received.

11.5     Any payments advanced to the CONTRACTOR for coverage of members for
         periods after the date of termination shall be promptly returned to
         HSD. For termination of an Agreement which occurs mid-month, the
         capitation payments for that month shall be apportioned on a daily
         basis. The CONTRACTOR shall be entitled to capitation payments for the
         period of time prior to the date of termination and HSD shall be
         entitled to a refund for the balance of the month. All terminations
         shall include a final accounting of capitation payment received and
         number of members during the month in which termination is effective.

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11.6     The CONTRACTOR shall ensure the orderly and reasonable transfer of
         member care in progress, whether or not those members are hospitalized
         or in long-term treatment.

11.7     The CONTRACTOR shall be responsible to HSD for liquidated damages
         arising out of CONTRACTOR'S breach of this Agreement.

11.8     In the event HSD proves that the CONTRACTOR'S course of performance has
         resulted in reductions in HSD's receipt of federal program funds, as a
         Federal sanction, the CONTRACTOR shall remit to HSD, as liquidated
         damages, such funds as are necessary to make HSD whole but only to the
         extent such damages are caused by the actions of the CONTRACTOR. This
         provision is subject to Article 15, Disputes.

                       ARTICLE 12 - CONTRACT MODIFICATION

12.1     In the event that changes in Federal or State statute, regulation,
         rules, policy, or changes in Federal or State appropriation(s) or other
         circumstances, require a change in the way HSD manages its Medicaid
         program, this Agreement shall be subject to substantial modification by
         amendment. Such election shall be effected by HSD sending written
         notice to the CONTRACTOR. HSD's decision as to the requirement for
         change in the scope of the program shall be final and binding.

12.2     The amendment(s) shall be implemented by Agreement renegotiation in
         accordance with Article 37, Amendment. In addition, in the event that
         approval of HSD's 1915(b) waiver is contingent upon amendment of this
         Agreement, the CONTRACTOR agrees to make any necessary amendments to
         obtain such waiver approval. Notwithstanding the foregoing, any
         material change in the cost to the CONTRACTOR of providing the services
         herein, that is caused by HCFA in granting the waiver, shall be
         negotiated and mutually agreed to between HSD and the CONTRACTOR. The
         results of the negotiations shall be placed in writing in compliance
         with Article 37, (Amendment) of this Agreement.

                       ARTICLE 13 - INTELLECTUAL PROPERTY

13.1     In the event the CONTRACTOR shall elect to use or incorporate in the
         materials to be produced any components of a system already existing,
         the CONTRACTOR shall first notify HSD, who after investigation may
         direct the CONTRACTOR not to incorporate such components. If HSD shall
         not object, and after the CONTRACTOR obtains written consent of the
         party owning the same, and furnishing a copy to HSD, the CONTRACTOR may
         incorporate such components.

                                    - 112 -
<PAGE>

13.2     The CONTRACTOR warrants that all materials produced hereunder shall not
         infringe upon or violate any patent, copyright, trade secret or other
         property right of any third party, and the CONTRACTOR shall indemnify
         and hold HSD harmless from and against any loss, cost, liability, or
         expense arising out of breach or claimed breach of this warranty.

                           ARTICLE 14 - APPROPRIATIONS

14.1     The terms of this Agreement are contingent upon sufficient
         appropriations or authorizations being made by either the Legislature
         of New Mexico, Health and Human Services (HHS)/Health Care Financing
         Authorities (HCFA), or the U.S. Congress for the performance of this
         Agreement. If sufficient appropriations and authorizations are not made
         by either the Legislature, HHS/HCFA or the Congress, this Agreement
         shall be subject to termination or amendment. HSD's decision as to
         whether sufficient appropriations or authorizations exist shall be
         accepted by the CONTRACTOR and shall be final and binding. Any changes
         to the Scope of Work pursuant to this Section 14.1 shall be in writing
         and signed by the parties in accordance with Article 37 (Amendments) of
         this Agreement.

14.2     To the extent Health Care Finance Administration, legislation or
         Congressional action impact the amount of appropriation available for
         performance under this Contract, HSD has the right to amend the Scope
         of Work, in its discretion, which shall be effected by HSD sending
         written notice to the CONTRACTOR.

                              ARTICLE 15 - DISPUTES

15.1     The entire agreement shall consist of: (1) this Agreement, including
         the Scope of Work, items incorporated by reference in paragraph 1.2.7,
         and any amendments; (2) the Request for Proposal, HSD written
         clarifications to the Request for Proposal and CONTRACTOR responses to
         RFP questions where not inconsistent with the terms of this Agreement
         or its amendments; (3) The CONTRACTOR'S Best and Final Offer, and (4)
         the CONTRACTOR'S additional responses to the Request for Proposal where
         not inconsistent with the terms of this Agreement or its amendments,
         all of which are incorporated herein or by reference.

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<PAGE>

15.2     In the event of a dispute under this Agreement, various documents shall
         be referred to for the purpose of clarification or for additional
         detail in the order of priority and significance, specified below:

         15.2.1   Amendments to the Agreement in reverse chronological order
                  followed by;

         15.2.2   The Agreement, including items incorporated by reference in
                  Paragraph 1.2, followed by:

         15.2.3   The CONTRACTOR'S Best and Final Offer followed by;

         15.2.4   The Request for Proposal, including attachments thereto and
                  HSD's written responses to written questions and HSD's written
                  clarifications, and the CONTRACTOR'S response to the Request
                  for Proposal, including both technical and cost portions of
                  the response (but only those portions of the CONTRACTOR'S
                  response including both technical and cost portions of the
                  response that do not conflict with the terms of this Agreement
                  and its amendments).

15.3     Dispute Procedures

         (1)      Any dispute concerning sanctions imposed under this Agreement
                  shall be reported in writing to the MAD Director within
                  fifteen (15) days of the date the reporting party received
                  notice of the sanction. The decision of the Director shall be
                  delivered to the parties in writing within thirty (30) days
                  and shall be final and conclusive unless, within fifteen (15)
                  days from the date of the decision, either party files with
                  the Secretary of the HSD a written appeal of the decision of
                  the Director.

         (2)      Any other dispute concerning performance of the Agreement
                  shall be reported in writing to the MAD Director within thirty
                  (30) days of the date the reporting party knew of the activity
                  or incident giving rise to the dispute. The decision of the
                  Director shall be delivered to the parties in writing within
                  thirty (30) days and shall be final and conclusive unless,
                  within fifteen (15) days from the date of the decision, either
                  party files with the Secretary of the HSD a written appeal of
                  the decision of the Director.

         (3)      Failure to file a timely appeal shall be deemed acceptance of
                  the Director's decision and waiver of any further claim.

         (4)      In any appeal under this Article, the CONTRACTOR and the MAD
                  shall be afforded an opportunity to be heard and to offer
                  evidence and argument in support

                                    - 114 -
<PAGE>

                  of their position to the Secretary or his designee. The appeal
                  is an informal hearing which shall not be recorded or
                  transcribed, and is not subject to formal rules of evidence or
                  procedure.

         (5)      The Secretary or a designee shall review the issues and
                  evidence presented and issue a determination in writing which
                  shall conclude the administrative process available to the
                  parties. The Secretary shall notify the parties of the
                  decision within thirty (30) days of the notice of the appeal,
                  unless otherwise agreed to by the parties in writing or
                  extended by the Secretary for good cause.

         (6)      Pending decision by the Secretary, both parties shall proceed
                  diligently with performance of the Agreement, in accordance
                  with the Agreement.

         (7)      Failure to initiate or participate in any part of this process
                  shall be deemed waiver of any claim.

                           ARTICLE 16 - APPLICABLE LAW

16.1     This Agreement shall be governed by the laws of the State of New
         Mexico. All legal proceedings arising from unresolved disputes under
         this Agreement shall be brought before the First Judicial District
         Court in Santa Fe, New Mexico.

16.2     Each party agrees that it shall perform its obligations hereunder in
         accordance with all applicable Federal and State laws, rules and
         regulations now or hereafter in effect.

16.3     If any provision of this Agreement is determined to be invalid,
         unenforceable, illegal or void, the remaining provisions of this
         Agreement shall not be affected, providing the remainder of the
         Agreement is capable of performance, the remaining provisions shall be
         binding upon the parties hereto, and shall be enforceable, as though
         said invalid, unenforceable, illegal, or void provision were not
         contained herein.

                        ARTICLE 17 - STATUS OF CONTRACTOR

17.1     The CONTRACTOR is an independent CONTRACTOR performing professional
         services for HSD and is not an employee of the State of New Mexico. The
         CONTRACTOR shall not accrue leave, retirement, insurance, bonding, use
         of State vehicles, or any other benefits afforded to employees of the
         State of New Mexico as a result of this Agreement.

17.2     The CONTRACTOR shall be solely responsible for all applicable taxes,
         insurance, licensing and other costs of doing business. Should the
         CONTRACTOR default in these

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         or other responsibilities, jeopardizing the CONTRACTOR'S ability to
         perform services, this Agreement may be terminated immediately upon
         written notice.

17.3     The CONTRACTOR shall not purport to bind HSD, its officers or employees
         nor the State of New Mexico to any obligation not expressly authorized
         herein unless HSD has expressly given the CONTRACTOR the authority to
         so do in writing.

                             ARTICLE 18 - ASSIGNMENT

18.1     With the exception of provider subcontracts or other subcontracts
         expressly permitted under this Agreement, the CONTRACTOR shall not
         assign, transfer or delegate any rights, obligations, duties or other
         interest in this Agreement or assign any claim for money due or to
         become due under this Agreement.

                            ARTICLE 19 - SUBCONTRACTS

19.1     The CONTRACTOR is solely responsible for fulfillment of the Agreement
         with HSD. HSD shall make Agreement payments only to the CONTRACTOR.

19.2     The CONTRACTOR shall remain solely responsible for performance by any
         subcontractor under such subcontract(s).

19.3     HSD may undertake or award other agreements for work related to the
         tasks described in this document or any portion therein if the
         CONTRACTOR'S available time and/or priorities do not allow for such
         work to be provided by the CONTRACTOR. The CONTRACTOR shall fully
         cooperate with such other CONTRACTORS and HSD in all such cases.

19.4     Subcontracting Requirements

         (1)      Except as otherwise provided in this agreement, the CONTRACTOR
                  may subcontract to a qualified individual or organization for
                  the provision of any service defined in the benefit package or
                  other required MCO function. The CONTRACTOR remains legally
                  responsible to HSD for all work performed by any
                  subcontractor. The CONTRACTOR shall submit to HSD boilerplate
                  contract language and/or sample contracts for various types of
                  subcontracts during the procurement process. Changes to
                  contract templates that may materially affect Medicaid members
                  shall be approved by HSD prior to execution by any
                  subcontractor.

         (2)      HSD reserves the right to review and disapprove all
                  subcontracts and/or any significant modifications to
                  previously approved subcontracts to ensure

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                  compliance with requirements set forth in 42 CFR 434.6 or this
                  Agreement. The CONTRACTOR is required to give HSD prior notice
                  with regard to its intent to subcontract certain significant
                  contract requirements as specified herein or in writing by HSD
                  including, but not limited to, credentialing, utilization
                  review, and claims processing. HSD reserves the right to
                  disallow a proposed subcontracting arrangement if the proposed
                  subcontractor has been formally restricted from participating
                  in a federal entitlement program (i.e. Medicare, Medicaid) for
                  other good cause.

         (3)      The CONTRACTOR shall not contract with an individual provider,
                  an entity, or an entity with an individual who is an officer,
                  director, agent or manager or person with more than five
                  percent of beneficial ownership of an entity's equity, that
                  has been convicted of crimes specified in the Section 1128 of
                  the Social Security Act, or who has a contractual relationship
                  with an entity convicted of a crime specified in Section 1128.

         (4)      Pursuant to 42 CFR section 417.479(a), 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 an
                  individual member. The CONTRACTOR shall disclose to HSD the
                  information on provider incentive plans set forth in 42 CFR
                  Sections 471.479(h)(1)(ii)-(iv) at the times required by 42
                  CFR 434.70(a)(3) to allow HSD to determine whether the
                  incentive plans meet the requirements of 42 CFR 417.479(d)
                  through (g). The CONTRACTOR shall provide capitation data
                  required by 42 CFR 479(h)(1)(iv) for the previous calendar
                  year to HSD by application/CONTRACTOR renewal of each year.
                  The CONTRACTOR shall provide the information on its physician
                  incentive plans allowed by 42 CFR Section 417.479(h)(3) to any
                  Medicaid recipient upon request.

         (5)      In its subcontracts, the CONTRACTOR shall ensure that
                  subcontractors agree to hold harmless both the HSD and the
                  CONTRACTOR'S members in the event that the CONTRACTOR cannot
                  or shall not pay for services performed by the subcontractor
                  pursuant to the subcontract. The hold harmless provision shall
                  survive the effective termination of the CONTRACTOR/
                  subcontractor contract for authorized services rendered prior
                  to the termination of the contract, regardless of the cause
                  giving rise to termination and shall be construed to be for
                  the benefit of the members.

         (6)      The CONTRACTOR shall have a written document (agreement),
                  signed by both parties, that describes the responsibilities of
                  the CONTRACTOR and the delegate; the delegated activities; the
                  frequency of reporting (if applicable) to the CONTRACTOR; the
                  process by which the CONTRACTOR evaluates the

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                  delegate; and the remedies, including the revocation of
                  the delegation, available to the MCO if the delegate does not
                  fulfill its obligations.

         (7)      The CONTRACTOR shall have policies and procedures to ensure
                  that the delegated agency meets all standards of performance
                  mandated by HSD for the SALUD! program. These include, but are
                  not limited to, use of appropriately qualified staff,
                  application of clinical practice guidelines and utilization
                  management, reporting capability, and ensuring members' access
                  to care;

         (8)      The CONTRACTOR shall have policies and procedures for the
                  oversight of the delegated agency's performance of the
                  delegated functions.

         (9)      The CONTRACTOR shall have policies and procedures to ensure
                  consistent statewide application of all utilization management
                  criteria when utilization management is delegated;

                  A.       Credentialing Requirements: The CONTRACTOR shall
                           maintain policies and procedures for verifying that
                           the credentials of all its providers and
                           subcontractors meet applicable standards as stated in
                           the Article 2, Scope of Work.

                  B.       Review Requirements: The CONTRACTOR shall maintain a
                           fully executed original of all subcontracts which are
                           accessible to HSD upon request.

                  C.       Minimum Requirements: Subcontracts shall contain at
                           least the following provisions:

                           i.       Subcontracts shall be executed in accordance
                                    with all applicable Federal and State laws,
                                    regulations, policies and procedures and
                                    rules;

                           ii.      Subcontracts shall identify the parties of
                                    the subcontract and their legal basis of
                                    operation in the State of New Mexico;

                           iii.     Subcontracts shall include the procedures
                                    and specific criteria for terminating the
                                    subcontract;

                           iv.      Subcontracts shall identify the services to
                                    be performed by the subcontractor and those
                                    services performed under any other
                                    subcontract(s). Subcontracts shall include
                                    provision(s) describing

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                                    how services provided under the terms of the
                                    subcontract are accessed by members;

                           v.       Subcontracts shall include the reimbursement
                                    rates and risk assumption, if applicable;

                           vi.      Subcontractors shall maintain all records
                                    relating to services provided to members for
                                    a six (6) year period and shall make all
                                    enrollee medical records available for the
                                    purpose of quality review conducted by HSD
                                    or is designated agents both during and
                                    after the contract period;

                           vii.     Subcontracts shall require that member
                                    information be kept confidential, as defined
                                    by Federal and State law;

                           viii.    Subcontracts shall include a provision that
                                    authorized representatives of HSD have
                                    reasonable access to facilities and records
                                    for financial and medical audit purposes
                                    both during and after the contract period;

                           ix.      Subcontracts shall include a provision for
                                    the subcontractor to release to the
                                    CONTRACTOR any information necessary to
                                    perform any of its obligations;

                           x.       The subcontractor shall accept payment from
                                    the CONTRACTOR as payment for any services
                                    included in the benefit package, and cannot
                                    request payment from HSD for services
                                    performed under the subcontract;

                           xi.      If the subcontract includes primary care,
                                    provisions for compliance with PCP
                                    requirements delineated in the primary MCO
                                    contract apply;

                           xii.     The subcontractor shall comply with all
                                    applicable State and Federal statutes, laws,
                                    rules, and regulations;

                           xiii.    Subcontracts shall include provision for
                                    termination for any violation of applicable
                                    HSD, State or Federal requirements;

                           xiv.     The subcontract may not prohibit a provider
                                    or other subcontractor (with the exception
                                    of third party administrators) from entering
                                    into a contractual relationship with another
                                    CONTRACTOR.

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                           xv.      The subcontract may not include any
                                    incentive or disincentive that encourages a
                                    provider or other subcontractor not to enter
                                    into a contractual relationship with another
                                    CONTRACTOR;

                           xvi.     The subcontract cannot contain any gag order
                                    provisions that prohibit or otherwise
                                    restrict covered health professionals from
                                    advising patients about their health status
                                    or medical care or treatment as provided in
                                    Section 1932(b)(3) of the Social Security
                                    act or in contravention of NMSA 1978 Section
                                    59A-57-1 to 57-11, the Patient Protection
                                    Act.

                           xvii.    The subcontract for pharmacy providers shall
                                    include a payment provision consistent with
                                    1978 NMSA Section 27-2-16B unless the
                                    subcontractor provides a voluntary waiver to
                                    any rights under 1978 NMSA Section 27-2-16B
                                    or the CONTRACTOR is notified by HSD that
                                    the provisions of Section 27-2-16B do not
                                    apply to the CONTRACTOR'S subcontract with
                                    the Pharmacies.

                              ARTICLE 20 - RELEASE

20.1     Upon final payment of the amounts due under this Agreement, the
         CONTRACTOR shall release HSD, its officers and employees and the State
         of New Mexico from all liabilities and obligations whatsoever under, or
         arising from this Agreement. The CONTRACTOR agrees not to purport to
         bind the State of New Mexico.

20.2     Payment to the CONTRACTOR by HSD shall not constitute final release of
         the CONTRACTOR. Should audit or inspection of the CONTRACTOR'S records
         or the CONTRACTOR'S member complaints subsequently reveal outstanding
         CONTRACTOR liabilities or obligations, the CONTRACTOR shall remain
         liable to HSD for such obligations. Any payments by HSD to the
         CONTRACTOR shall be subject to any appropriate recoupment by HSD.

20.3     Notice of any post-termination audit or investigation of complaint by
         HSD shall be provided to the CONTRACTOR, and such audit or
         investigation shall be initiated in accordance with HCFA requirements.
         HSD shall notify the CONTRACTOR of any claim or demand within 30 days
         after completion of the audit or investigation or as otherwise
         authorized by HCFA. Any payments by HSD to the CONTRACTOR shall be
         subject to any appropriate recoupment by HSD in accordance with the
         provisions of Article 5 of this Agreement.

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                         ARTICLE 21 - RECORDS AND AUDIT

21.1     Compensation Records

         After final payment under the contract or six (6) years after a pending
         audit is completed and resolved, whichever is later, HSD or its
         designee shall have the right to audit billings both before and after
         payment. The CONTRACTOR shall maintain all necessary records to
         substantiate the services it rendered under this Agreement. These
         records shall be subject to inspection by HSD, the Department of
         Finance and Administration, the State Auditor and/or any authorized
         State or Federal entity and shall be retained for six (6) years.
         Payment under this Agreement shall not foreclose the right of HSD to
         recover excessive or illegal payments as well as interest, attorney
         fees and costs incurred in such recovery.

21.2     Other Records

         In addition, the CONTRACTOR shall retain all member medical records,
         collected data, and other information subject to HSD, State, and
         Federal reporting or monitoring requirements for six (6) years after
         the contract is terminated under any provisions of Article 11 of this
         Agreement or six (6) years after any pending audit is completed and
         resolved, whichever is later. These records shall be subject to
         inspection by HSD, the Department of Finance and Administration and/or
         any authorized State or Federal entity. Payment under this Agreement
         shall not foreclose the right of HSD to recover excessive or illegal
         payments as well as interest, attorney fees and costs incurred in such
         recovery.

21.3     Standards for Medical Records

         (1)      The CONTRACTOR shall require medical records to be maintained
                  in a manner on paper and/or in electronic format that is
                  timely, legible, current, set forth, and organized, and
                  permits effective and confidential patient care and quality
                  review.

         (2)      The CONTRACTOR shall have written medical record
                  confidentiality policies and procedures that implement the
                  requirements of State and Federal law and policy and this
                  Agreement.

         (3)      The CONTRACTOR shall establish, and shall require its
                  practitioners to have, an organized medical record keeping
                  system and standards for the availability of medical records
                  appropriate to the practice site.

         (4)      The CONTRACTOR shall include provisions in its contracts with
                  providers requiring appropriate access to the medical records
                  of the MCO members for purposes of quality reviews to be
                  conducted by HSD or agents thereof, and that

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                  the medical records be available to health care practitioners
                  for each clinical encounter.

21.4     The CONTRACTOR shall comply with HSD's reasonable requests for records
         and documents as necessary to verify that the CONTRACTOR is meeting its
         obligations under this Agreement, or for data reporting legally
         required of HSD. However, nothing in this Agreement shall require the
         CONTRACTOR to provide HSD with information, records, and/or documents
         which are protected from disclosure by any law, including, but not
         limited to, laws protecting proprietary information as a trade secret,
         confidentiality laws, and any applicable legal privileges (including
         but not limited to, attorney/client, physician/patient, quality
         assurance and peer review), except as may otherwise be required by law
         or pursuant to a legally adequate release from the affected member(s).

21.5     The CONTRACTOR shall provide the State of New Mexico, HSD, and any
         other legally authorized governmental entity, or their authorized
         representatives, the right to enter at all reasonable times the
         CONTRACTOR'S premises or other places where work under this contract is
         performed to inspect, monitor or otherwise evaluate the quality,
         appropriateness, and timeliness of services performed under this
         contract. The CONTRACTOR shall provide reasonable facilities and
         assistance for the safety and convenience of the persons performing
         those duties (e.g. assistance from the CONTRACTOR staff to retrieve
         and/or copy materials). HSD and its authorized agents shall schedule
         access with the CONTRACTOR in advance within a reasonable period of
         time except in case of suspected fraud and abuse. All inspection,
         monitoring and evaluation shall be performed in such a manner as not to
         unduly interfere with the work being performed under this contract.

21.6     In the event right of access is requested under this section, the
         CONTRACTOR or subcontractor shall upon request provide and make
         available staff to assist in the audit or inspection effort, and
         provide adequate space on the premises to reasonably accommodate the
         State or Federal representatives conducting the audit or inspection
         effort.

21.7     All inspections or audits shall be conducted in a manner as shall not
         unduly interfere with the performance of the CONTRACTOR'S or any
         subcontractors activities. The CONTRACTOR shall be given 10 working
         days to respond to any findings of an audit before HSD shall finalize
         its findings. All information so obtained shall be accorded
         confidential treatment as provided in applicable law.

                          ARTICLE 22 - INDEMNIFICATION

22.1     The CONTRACTOR agrees to indemnify, defend, and hold harmless the State
         of New Mexico, its officers, agents and employees from any and all
         claims and losses accruing or resulting from any and all CONTRACTOR
         employees, agents, or subcontractors, in

                                     - 122 -
<PAGE>

         connection with the performance of this Agreement, and from any and all
         claims and losses accruing or resulting to any person, association,
         partnership, entity, or corporation who may be injured or damaged by
         the CONTRACTOR in the performance or failure in performance of this
         Agreement. The provisions of this Section 22.1 shall not apply to any
         liabilities, losses, charges, costs or expenses caused by, or resulting
         from, the acts or omissions of the State of New Mexico, HSD, or any of
         its officers, employees, or agents.

22.2     The CONTRACTOR shall at all times during the term of this Agreement,
         indemnify and hold harmless HSD against any and all liability, loss,
         damage, costs or expenses which HSD may sustain, incur or be required
         to pay (1) by reason of any member suffering personal injury, death or
         property loss or damage of any kind as a result of the erroneous or
         negligent acts or omissions of the CONTRACTOR either while
         participating with or receiving care or services from the CONTRACTOR
         under this Agreement, or while on premises owned, leased, or operated
         by the CONTRACTOR or while being transported to or from said premises
         in any vehicle owned, operated, leased, chartered, or otherwise
         contracted for or in the control of the CONTRACTOR or any officer,
         agent, subcontractor or employee thereof. The provisions of this
         Section 22.2 shall not apply to any liabilities, losses, charges, costs
         or expenses caused by, or resulting from, the acts or omissions of the
         State of New Mexico, HSD, or any of its officers, employees, or agents.

22.3     The CONTRACTOR shall agree to indemnify and hold harmless HSD, its
         agents and employees from any and all claims, causes of action, suits,
         judgments, losses, or damages, including court costs and attorney fees,
         or causes of action, caused by reason of CONTRACTOR'S erroneous or
         negligent acts or omissions, including the following:

         (1)      Any claims or losses attributable to any persons or firm
                  injured or damaged by erroneous or negligent acts, including
                  without limitation, disregard of Federal or State Medicaid
                  regulations or statutes by the CONTRACTOR, its officers,
                  employees, or subcontractors in the performance of the
                  Agreement, regardless of whether HSD knew or should have known
                  of such erroneous or negligent acts; unless the State of New
                  Mexico, or any of its officers, employees or agents directed
                  performance of such acts, and

         (2)      Any claims or losses attributable to any person or firm
                  injured or damaged by the publication, translation,
                  reproduction, delivery, performance, use, or disposition of
                  any data processed under the Agreement in a manner not
                  authorized by the Agreement or by Federal or State regulations
                  or statutes, regardless of whether HSD knew or should have
                  known of such publication, translation, reproduction,
                  delivery, performance, use, or disposition unless the State of
                  New Mexico, or any of its officers, employees or agents
                  directed such publication, translation, reproduction,
                  delivery, performance, use or disposition.

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<PAGE>

         (3)      The provisions of this Article 22.3 shall not apply to any
                  liabilities, losses, charges, costs or expenses caused by, or
                  resulting from, the acts or omissions of the State of New
                  Mexico, HSD, or any of its officers, employees, or agents.

22.4     The CONTRACTOR, including its subcontractors, agrees that in no event,
         including but not limited to nonpayment by the CONTRACTOR, insolvency
         of the CONTRACTOR or breach of this Agreement, shall the CONTRACTOR or
         its subcontractor bill, charge, collect a deposit from, seek
         compensation, remuneration, or reimbursement from or have any recourse
         against an enrollee or persons (other than the CONTRACTOR) acting on
         their behalf for services provided pursuant to this Agreement except
         for any MAD population required to make co-payments under Medical
         Assistance Division policy. In no case, shall the State, HSD and/or
         Medicaid beneficiaries be liable for any debts of the CONTRACTOR.

22.5     The CONTRACTOR agrees that the above indemnification provisions shall
         survive the termination of this Agreement, regardless of the cause
         giving rise to termination. This provision is not intended to apply to
         services provided after this Agreement has been terminated.

                             ARTICLE 23 - LIABILITY

23.1     The CONTRACTOR shall be wholly at risk for all covered services. No
         additional payment shall be made by HSD, nor shall any payment be
         collected from an enrollee, except for co-payments authorized by HSD or
         State laws or regulation.

23.2     The CONTRACTOR is solely responsible for ensuring that it issues no
         payments for services for which it is not liable under this Agreement.
         HSD shall accept no responsibility for refunding to the CONTRACTOR any
         such excess payments unless the State of New Mexico, or any of its
         officers, employees or agents directed such services to be rendered or
         payment made.

23.3     The CONTRACTOR, its successors and assignees shall procure and maintain
         such insurance and other forms of financial protections as are
         identified in this Agreement.

                    ARTICLE 24 - EQUAL OPPORTUNITY COMPLIANCE

The CONTRACTOR agrees to abide by all Federal and State laws, rules, regulations
and executive orders of the Governor of the State of New Mexico, and the
President of the United States pertaining to equal opportunity. In accordance
with all such laws, rules, and regulations, and executive orders, the CONTRACTOR
agrees to ensure that no person in the United States shall, on the grounds of
race, color, national origin, sex, sexual preference, age, handicap or religion
be excluded from employment with, participation in, be denied the benefit of, or

                                    - 124 -

<PAGE>

otherwise be subjected to discrimination under any program or activity performed
under this Agreement. If HSD finds that the CONTRACTOR is not in compliance with
this requirement at any time during the term of this Agreement, HSD reserves the
right to terminate this Agreement pursuant to Article 9 or take such other steps
it deems appropriate to correct said deficiency.

                         ARTICLE 25 - RIGHTS TO PROPERTY

All equipment and other property provided or reimbursed to the CONTRACTOR by HSD
is the property of HSD and shall be turned over to HSD at the time of
termination or expiration of this Agreement, unless otherwise agreed in writing.

             ARTICLE 26 - ERRONEOUS ISSUANCE OF PAYMENT OR BENEFITS

In the event of an error which causes payment(s) to the CONTRACTOR (or benefits
to others) to be issued in error, the CONTRACTOR shall reimburse the State
within thirty (30) days of written notice of such error for the full amount of
the payment. Interest shall accrue at the statutory rate upon any amounts not
paid and determined to be due after the thirtieth (30th) day following the
notice.

                          ARTICLE 27 - EXCUSABLE DELAYS

The CONTRACTOR shall be excused from performance hereunder for any period that
it is prevented from performing any services hereunder in whole or in part as a
result of an act of nature, war, civil disturbance, epidemic, court order, or
other cause beyond its reasonable control, and such nonperformance shall not be
a default hereunder or ground for termination of the Agreement.

                             ARTICLE 28 - MARKETING

28.1     The CONTRACTOR shall maintain written policies and procedures governing
         the development and distribution of marketing materials for members;

28.2     HSD shall review and approve the content, comprehension level, and
         language(s) of all marketing materials directed at members before use.
         Examples include written materials, billboards, and radio, television
         advertisements and websites.

         (1)      The CONTRACTOR shall provide a copy of the CONTRACTOR'S member
                  handbook to enrollees or potential enrollees requesting a copy
                  and as requested by HSD..

         (2)      The CONTRACTOR shall send a provider directory to any person
                  requesting a copy;

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<PAGE>

         (3)      The CONTRACTOR shall provide a one page, two-sided summary of
                  its benefits which may be distributed by HSD at its
                  discretion; and

         (4)      The CONTRACTOR shall maintain policies and procedures
                  governing the development and distribution of marketing
                  materials for members.

28.3     Minimum Marketing and Outreach Requirements: The marketing and outreach
         material shall meet the following minimum requirements:

         (1)      Marketing and/or outreach materials shall meet requirements
                  for all communication with Medicaid members, as set forth in
                  Section MAD 606.4.8, MEDICAID MANAGED CARE MARKETING
                  GUIDELINES.

         (2)      All marketing and/or outreach materials produced by the
                  CONTRACTOR under the Medicaid managed care Agreement shall
                  state that such services are funded pursuant to an Agreement
                  with the State of New Mexico.

28.4     Marketing and outreach activities not permitted under the Medicaid
         Managed Care Agreement:

         (1)      The following marketing and outreach activities are prohibited
                  regardless of the method of communication (verbal, written) or
                  whether the activity is performed by the CONTRACTOR directly,
                  its participating providers, its subcontractors, or any other
                  party affiliated with the CONTRACTOR:

                  A.       Asserting or implying that a member shall lose
                           Medicaid benefits if he/she does not enroll with the
                           CONTRACTOR or inaccurately depicting the consequences
                           of choosing a different MCO;

                  B.       Designing a marketing or outreach plan which
                           discourages or encourages MCO selection based on
                           health status or risk;

                  C.       Initiating an enrollment request on behalf of a
                           Medicaid recipient;

                  D.       Making inaccurate, false, materially misleading or
                           exaggerated statements;

                  E.       Asserting or implying that the CONTRACTOR offers
                           unique covered services when another MCO provides the
                           same or similar service;

                  F.       The use of gifts such as diapers, toasters, infant
                           formula, or other incentives to entice people to join
                           a specific health plan;

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<PAGE>

                  G.       Directly or indirectly conducting door-to-door,
                           telephonic, or other "cold call" marketing; and

                  H.       Conducting any other marketing activity prohibited by
                           HSD during the course of this Agreement.

28.5     The CONTRACTOR shall take reasonable steps to prevent subcontractors
         and participating providers from committing the acts described herein;
         the CONTRACTOR shall be held liable only if it knew or should have
         known that its subcontractors or participating providers were
         committing the act described herein and did not timely take corrective
         actions. HSD reserves the right to prohibit additional marketing
         activities at its discretion.

28.6     Marketing Time Frames

         The CONTRACTOR may initiate marketing and outreach activities at any
         time.

28.7     The Medicaid Managed Care Marketing Guidelines are incorporated into
         this Agreement by reference. This Agreement shall incorporate all
         revisions to the Guidelines produced during the course of the
         Agreement.

28.8     Health Education and Outreach Materials may be distributed to the
         CONTRACTOR'S members by mail or in connection with exhibits or other
         organized events, including but not limited to health fair, booths at
         community events and health plan hosted health improvement events.
         Health Education means programs, services or promotions that are
         designed or intended to inform the CONTRACTOR'S actual or potential
         members about the issues related to health lifestyles, situations that
         affect or influence health status or methods or modes of medical
         treatment. Outreach is the means of educating or informing the
         CONTRACTOR'S actual or potential members about health issues. Health
         Education and Outreach materials include but are not limited to general
         distribution brochures, member newsletters, posters, member handbooks.

           ARTICLE 29 - PROHIBITION OF BRIBES, GRATUITIES & KICKBACKS

29.1     Pursuant to Sections NMSA 1978, Section 13-1-191, 30-24-1 et seq.,
         30-41-1, and 30-41-3, the receipt or solicitation of bribes, gratuities
         and kickbacks is strictly prohibited.

29.2     No elected or appointed officer or other employee of the State of New
         Mexico shall benefit financially or materially from this Agreement. No
         individual employed by the State of New Mexico shall be admitted to any
         share or part of the Agreement or to any benefit that may arise
         therefrom.

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29.3     HSD may, by written notice to the CONTRACTOR, immediately terminate the
         right of the CONTRACTOR to proceed under the Agreement if it is found,
         after notice and hearing by the Secretary or his duly authorized
         representative, that gratuities in the form of entertainment, gifts or
         otherwise were offered or given by the CONTRACTOR or any agent or
         representative of the CONTRACTOR to any officer or employee of the
         State of New Mexico with a view toward securing the Agreement or
         securing favorable treatment with respect to the award or amending or
         making of any determinations with respect to the performing of such
         Agreement. In the event the Agreement is terminated as provided in this
         section, the State of New Mexico shall be entitled to pursue the same
         remedies against the CONTRACTOR as it would pursue in the event of a
         breach of contract by the CONTRACTOR and as a penalty in addition to
         any other damages to which it may be entitled by law.

                              ARTICLE 30 - LOBBYING

30.1     The CONTRACTOR certifies, to the best of their knowledge and belief,
         that:

         (1)      No Federal appropriated funds have been paid or shall be paid,
                  by or on behalf of the CONTRACTOR, to any person for
                  influencing or attempting to influence an officer or employee
                  of any agency, a member of Congress, or an employee of a
                  member of Congress in connection with the awarding of any
                  Federal contract, the making of any Federal grant, the making
                  of any Federal loan, the entering into any cooperative
                  agreement, and the extension, continuation, renewal,
                  amendment, or modification of any Federal contract, grant,
                  loan, or cooperative agreement.

         (2)      If any funds other than Federal appropriated funds have been
                  paid or shall be paid to any person for influencing or
                  attempting to influence an officer or employee of any agency,
                  member of Congress, an officer or employee of Congress or an
                  employee of a member of Congress in connection with this
                  Federal contract, grant, loan, or cooperative agreement, the
                  CONTRACTOR shall complete and submit Standard Form-LLL
                  "Disclosure Form to Report Lobbying," in accordance with its
                  instructions.

30.2     The CONTRACTOR shall require that the language of this certification be
         included in the award documents for all subawards at all tiers
         (including subcontracts, subgrants, and contracts under grants, loans,
         and cooperative agreements) and that all subrecipients shall certify
         and disclose accordingly.

30.3     This certification is a material representation of fact upon which
         reliance was placed when this transaction was made or entered into.
         Submission of this certification is a prerequisite for making or
         entering into this transaction imposed under section 1352, title

                                    - 128 -
<PAGE>

         31, U.S. Code. Any person who fails to file the required certification
         shall be subject to a civil penalty of not less than $10,000 and not
         more than $100,000 for such failure.

                        ARTICLE 31 - CONFLICT OF INTEREST

31.1     The CONTRACTOR warrants that it presently has no interest and shall not
         acquire any interest, direct or indirect, which would conflict in any
         manner or degree with the performance of services required under this
         Agreement, and further warrants that signing of this Agreement shall
         not be creating a violation of the Governmental Conduct Act, NMSA 1978
         Section 10-16-1 et seq.

31.2     If during the term of this Agreement and any extension thereof the
         CONTRACTOR becomes aware of an actual or potential relationship which
         may be considered a conflict of interest, the CONTRACTOR shall
         immediately notify the Project Manager in writing, Such notification
         includes when the CONTRACTOR employs or contracts with a person, on a
         matter related to this Agreement, and that person: (1) is a former HSD
         employee who has an obligation to comply with NMSA 1978 Section 10-16-1
         et. seq., or (2) is a former employee of the Department of Health or
         the Children, Youth and Families Department who was substantially and
         directly involved in the development or enforcement of this Agreement.

                          ARTICLE 32 - CONFIDENTIALITY

32.1     Any confidential information, as defined in State or Federal law, code,
         rules or regulations or otherwise applicable by the Code of Ethics,
         regarding HSD's recipients or providers given to or developed by the
         CONTRACTOR and its subcontractors shall not be made available to any
         individual or organization by the CONTRACTOR and its subcontractors
         without the prior written approval of HSD.

32.2     The CONTRACTOR shall (1) notify HSD promptly of any unauthorized
         possession, use, knowledge, or attempt thereof, of HSD's data files or
         other confidential information; and (2) promptly furnish HSD full
         details of the unauthorized possession, use of knowledge or attempt
         thereof, and assist investigating or preventing the recurrence thereof.

32.3     In order to protect the confidentiality of member information and
         records:

         (1)      The CONTRACTOR shall adopt and implement written
                  confidentiality policies and procedures which conform to
                  Federal and State laws and regulations.

         (2)      The CONTRACTOR'S contracts with practitioners and other
                  providers shall explicitly state expectations about the
                  confidentiality of member information and records.

                                    - 129 -
<PAGE>

         (3)      The CONTRACTOR shall afford members and/or legal guardians the
                  opportunity to approve or deny the release of identifiable
                  personal information by the CONTRACTOR to a person or agency
                  outside of the CONTRACTOR, except to duly authorized
                  subcontractors, providers or review organizations, or when
                  such release is required by law, State regulation, or quality
                  standards.

         (4)      When release of information is made in response to a court
                  order, the CONTRACTOR shall notify the member and/or legal
                  guardian of such action in a timely manner.

         (5)      The CONTRACTOR shall have specific written policies and
                  procedures that direct how confidential information gathered
                  or learned during the investigation or resolution of a
                  grievance is maintained, including the confidentiality of the
                  member's status as a grievant.

32.4     The CONTRACTOR shall comply with HSD's requests for records and
         documents as necessary to verify the CONTRACTOR is meeting its duties
         and obligations under this Agreement, or for data reporting legally
         required of HSD. Except as otherwise required by law, HSD may not
         request from the CONTRACTOR records and documents that go beyond
         ensuring that the CONTRACTOR is meeting its duties under this
         Agreement, including, where appropriate, records and documents that are
         protected by any law, including, but not limited to, laws protecting
         proprietary information as a trade secret, confidentiality laws, and
         any and all applicable legal privileges (including, but not limited to,
         attorney/client, physician/patient, and quality assurance and peer
         review).

            ARTICLE 33 - COOPERATION WITH MEDICAID FRAUD CONTROL UNIT

33.1     The CONTRACTOR shall immediately report to the New Mexico State
         Medicaid Fraud Control Unit (MFCU) of the Attorney General's Office and
         HSD any reasonable suspicion or knowledge of fraud and/or abuse,
         including but not limited to the false or fraudulent filings of claims
         and/or the acceptance of or failure to return monies allowed or paid on
         claims known to be false or fraudulent. Where required by law, the
         reporting entity shall not attempt to investigate or resolve the
         reported suspicion, knowledge or action without informing the MFCU.

33.2     The CONTRACTOR shall cooperate fully in any investigation by the MFCU
         or subsequent legal action that may result from such investigation. The
         CONTRACTOR and its subcontractors and participating network providers
         shall, upon request, make available to the MFCU any and all
         administrative, financial and medical records relating to the delivery
         of items or services for which HSD monies are expended, unless
         otherwise provided by law. In addition, the MFCU shall be allowed to
         have access during normal

                                    - 130 -
<PAGE>

         business hours to the place of business and all records of the
         CONTRACTOR and its subcontractors and participating network providers,
         except under special circumstances when after hours access shall be
         allowed. Special circumstances shall be determined by the MFCU.

33.3     The CONTRACTOR shall disclose to HSD, the MFCU, and any other state or
         federal agency charged with overseeing the Medicaid program, full and
         complete information regarding ownership, significant financial
         transactions or financial transactions relating to or affecting the
         Salud! program and persons related to the CONTRACTOR convicted of
         criminal activity related to Medicaid, Medicare, or the federal Title
         XX programs.

33.4     Any actual or potential conflict of interest within the CONTRACTOR'S
         Salud! program shall be referred by the CONTRACTOR to the MFCU. The
         CONTRACTOR also shall refer to the MFCU any instance where a financial
         or material benefit is given by any representative, agent or employee
         of the CONTRACTOR to HSD or any other party with direct responsibility
         for this Agreement. In addition, the CONTRACTOR shall notify the MFCU
         if it hires or enters into any business relationship with any person
         who, within two years previous to that hiring or contract, was employed
         by HSD in a capacity relating to Medicaid or the Salud! program or any
         other party with direct responsibility for this Agreement.

33.5     Any recoupment received from the CONTRACTOR by HSD pursuant to the
         provisions of Article 8 (Enforcement) of this Agreement herein shall
         not preclude the MFCU from exercising its right to criminal
         prosecution, civil prosecution, or any applicable civil penalties,
         administrative fines or other remedies.

33.6     Upon request to the CONTRACTOR, the MFCU shall be provided with copies
         of all grievances and resolutions affecting Medicaid members.

33.7     Should the CONTRACTOR know about or become aware of any investigation
         being conducted by the MFCU or HSD, the CONTRACTOR, and its
         representatives, agents and employees, shall maintain the
         confidentiality of this information.

33.8     The CONTRACTOR shall have in place and enforce policies and procedures
         to educate Medicaid members of the existence of, and role of, the MFCU.

33.9     The CONTRACTOR shall have in place and enforce policies and procedures
         for the detection and deterrence of fraud. These policies and
         procedures shall include specific requirements governing who within the
         CONTRACTOR'S organization is responsible for these activities, how
         these activities shall be conducted, and how the CONTRACTOR shall
         address cases of suspected fraud and abuse.

                                    - 131 -
<PAGE>

33.10    All documents submitted by the CONTRACTOR to HSD, if developed or
         generated by the CONTRACTOR, or its agents, shall be deemed to be
         certified by the CONTRACTOR as submitted under penalty of perjury.

                              ARTICLE 34 - WAIVERS

34.1     No term or provision of this Agreement shall be deemed waived and no
         breach excused, unless such waiver or consent shall be in writing by
         the party claimed to have waived or consented.

34.2     A waiver by either of the parties hereto of a breach of any of the
         covenants, conditions, or agreements to be performed by the other shall
         not be construed to be a waiver of any succeeding breach thereof or of
         any other covenant, condition, or Agreement herein contained.

                       ARTICLE 35 - PROVIDER AVAILABILITY

All providers owned (wholly or partially) or controlled by the CONTRACTOR, or
any of the CONTRACTOR'S related or affiliated entities, and any and all
providers that own (wholly or partially) or control the CONTRACTOR, shall be
willing to become a network provider for any managed care organization that
contracts with HSD for Medicaid managed care services, to be reimbursed by such
MCO at the then-current and applicable Medicaid reimbursement rate for that
provider type. The Applicable Medicaid reimbursement rate is defined to exclude
disproportionate share and medical education payments.

                               ARTICLE 36 - NOTICE

36.1     A notice shall be deemed duly given upon delivery, if delivered by
         hand, or three days after posting if sent by first class mail, with
         proper postage affixed. Notice may also be tendered by facsimile
         transmission, with original to follow by first class mail.

36.2     All notices required to be given to HSD under this Agreement shall be
         sent to the HSD Contract Administrator or his/her designee at:

                  Contract Administrator
                  Human Services Department
                  P.O. Box 2348
                  Santa Fe, NM  87504-2348

36.3     All notices required to be given to the CONTRACTOR under this Agreement
         shall be sent to:

                                    - 132 -
<PAGE>

                  Roger Carl, Director of Medicaid
                  Lovelace Health Plan
                  4101 Indian School Road, NE
                  Altura Office Complex
                  Albuquerque, NM  87110

                             ARTICLE 37 - AMENDMENTS

This Agreement shall not be altered, changed or amended other than by an
instrument in writing executed by the parties to this Agreement. Amendments
shall become effective and binding when signed by the parties, approved by the
Department of Finance and Administration, and written approvals have been
obtained from any necessary State and Federal agencies. All necessary approvals
shall be attached as exhibits to the Agreement.

                      ARTICLE 38 - HEADINGS NOT CONTROLLING

Headings used in this Agreement are for reference purposes only and shall not be
deemed a part of the Agreement.

          ARTICLE 39 - STATE CHILDREN HEALTH INSURANCE PROGRAM (SCHIP)

39.1     The CONTRACTOR shall enroll as members children who are participants in
         SCHIP under Title XXI of the Social Security Act. SCHIP enrollees are
         entitled to all of the benefits provided under this Agreement and any
         Amendments thereto except that the CONTRACTOR may enforce, against
         participants of SCHIP only, any cost sharing requirements approved by
         HSD.

39.2     The CONTRACTOR may enforce, against participants of the SCHIP only, any
         cost sharing requirements approved by HCFA. All other terms and
         conditions of the Agreement and this Amendment shall apply to SCHIP
         participants, as they do to Title XIX Medicaid recipients.

                          ARTICLE 40 - ENTIRE AGREEMENT

This Agreement incorporates all the agreements, covenants, and understandings
between the parties hereto concerning the subject matter hereof, and all such
covenants, agreements and understandings have been merged into this written
Agreement. No prior agreement or understanding, verbal or otherwise, of the
parties or their agents shall be valid or enforceable unless embodied in this
Agreement.

                       ARTICLE 41 - AUTHORIZATION FOR CARE

                                    - 133 -
<PAGE>

The CONTRACTOR shall, to the extent possible, ensure that administrative burdens
placed on providers are minimized. In furtherance of this objective, the
CONTRACTOR shall provide to HSD, on a quarterly basis, a report of all benefits
and procedures for which the CONTRACTOR or any of its subcontractors require a
prior authorization. This report shall identify, for each such benefit and
procedures, the number of such authorization requests that were made by
providers, and the percentage that were approved and denied.

                                    - 134 -
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date of
execution by the State Contracts Officer, below.

CONTRACTOR

By: /s/ ILLEGIBLE                                     Date: 5/18/01
    ------------------------------------
Title: SVP & General Manager

STATE  OF NEW MEXICO

By: /s/ Robin Dozier Otten
   -------------------------------------              Date: May 23, 2001
   Robin Dozier Otten, Deputy Secretary
   Human Services Department

Approved as to Form and Legal sufficiency:

By: /s/ Rumaldo Armijo                                Date: 5-22-01
   -------------------------------------
   Rumaldo Armijo, General Counsel
   Human Services Department

OFFICE OF THE ATTORNEY GENERAL

Approved as to Form and Legal sufficiency:

By: /s/ ILLEGIBLE                                     Date: 6-27-01
    -------------------------------------
DEPARTMENT OF FINANCE AND ADMINISTRATION

By: /s/ ILLEGIBLE                                     Date: 7-1-01
    -------------------------------------
   State Contracts Officer

                                    - 135 -
<PAGE>

The records of the Taxation and Revenue Department reflect that the CONTRACTOR
is registered with the Taxation and Revenue Department of the State of New
Mexico to pay gross Receipts and compensating taxes.

TAXATION AND REVENUE DEPARTMENT

ID Number: ILLEGIBLE

By: /s/ Julie Rico                                    Date: 5/24/01
    ---------------------------
                                    - 136 -<PAGE>
                                                                   EXHIBIT 10.21

                            AGREEMENT NO. PSC 02-05
            BETWEEN THE STATE OF NEW MEXICO HUMAN SERVICES DEPARTMENT
                       AND LOVELACE COMMUNITY HEALTH PLAN

Amendment No. 1 ("Amendment") is entered into by and between the New Mexico
Human Services Department (hereinafter referred to "HSD") and LOVELACE COMMUNITY
HEALTH PLAN (hereinafter referred to as "CONTRACTOR" OR "MCO").

         WHEREAS, the parties have previously entered into Agreement PSC 02-05
Approved by the Department of Finance and Administration (DFA) on July 1, 2001
(the "Agreement") and

         WHEREAS, Article 37 of the Agreement allows for amendment of the
Agreement; and

         WHEREAS, the parties have determined that the term of the Agreement
should be extended for an additional year.

         WHEREAS, the Balanced Budget Act of 1997 requires certain changes to
the Agreement; and

         WHEREAS, based on the parties' experience since implementation of the
Agreement, the parties have agreed to certain changes in the Agreement
beneficial to the Agreement's goals;

         NOW THEREFORE, the parties do amend the Agreement as follows:

         1. All terms, definitions and conditions stated in the Agreement and
not modified by this Amendment shall remain in full force and effect. This
Amendment shall become effective July 1, 2003, provided it has been approved by
the Department of Finance and Administration, and the U.S. Department of Health
and Human Services, Center for Medicare/Medicaid Services (CMS). Any reference
to CMS in this document is a reference to the agency formerly known as Health
Care Financing Administration (HCFA);

         2. This Agreement is extended to expire at midnight June 30, 2004.

         3. In the event of a conflict between, on the one hand, the Agreement
as amended herein, and on the other hand, the regulations promulgated by the
Code of Federal Regulations (CFR) for Managed Care Organizations (MCOs) and the
Human Services Department, the federal and state regulations will prevail.

         IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as
of the date of execution by the State Contracts Officer, below.

                                       1
<PAGE>

ARTICLE 1 (RECITALS), SECTION 1.2.(6). IS AMENDED TO READ AS FOLLOWS:

1.2.(6).          All applicable statutes, regulations and rules implemented by
                  the Federal Government, the State of New Mexico ("State"), and
                  HSD, concerning Medicaid services, managed care organizations,
                  health maintenance organizations, fiscal and fiduciary
                  responsibilities applicable under the Insurance Code of New
                  Mexico, NMSA 1978 ss.ss. 59A-1-1 et. seq., and any other
                  applicable laws.

ARTICLE 1 (RECITALS), SECTION 1.7. IS ADDED TO READ AS FOLLOWS:

1.7.              The parties to this contract acknowledge the need to work
                  cooperatively to address and resolve problems that may arise
                  in the administration and performance of this contract.

ARTICLE 1 (RECITALS), SECTION 1.8. IS ADDED TO READ AS FOLLOWS:

1.8               HSD may, in the administration of this contract, seek input on
                  health care related issues from any advisory group or steering
                  committee.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).A.V. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).A.v.      The CONTRACTOR shall provide potential members upon request
                  and enrolled members with a directory to include MCO addresses
                  and telephone numbers. The CONTRACTOR shall also provide upon
                  request a listing of primary care and specialty providers with
                  the identity, location, phone number and qualifications to
                  include area of specialty, board certification and any area of
                  special expertise that would be helpful to individuals
                  deciding to enroll with the CONTRACTOR. This material must be
                  available in a manner and format that may be easily
                  understood. At the option of the CONTRACTOR, the directory may
                  be limited to primary care and self-refer providers.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).A.VI. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).A.vi.     The CONTRACTOR shall provide potential members upon request
                  and enrolled members with a list of all items and services
                  that are available to members covered either directly or
                  through a method of referral and/or prior authorization. These
                  materials must be available in a manner and format that may be
                  easily understood.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(1).D. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).D.        MCO Enrollment Information

                                       2
<PAGE>

                  Once a member is determined to be an MCO mandatory member, HSD
                  provides specific information about services included in the
                  benefit packages, MCOs from which the member can choose, and
                  enrollment of the member(s). The CONTRACTOR shall have written
                  policies and procedures regarding the utilization of
                  information on race, ethnicity, and primary language spoken,
                  as provided by HSD to the CONTRACTOR at the time of enrollment
                  in the MCO of each Medicaid member.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).E.II. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).E.ii.     The CONTRACTOR is responsible for providing members with a
                  member handbook and provider directory within a reasonable
                  time after the CONTRACTOR is notified by HSD of the member's
                  enrollment. The CONTRACTOR must notify all members at least
                  once per year of their right to request and obtain this
                  information. The member handbook shall include information
                  contained in 42 CFR, Section 438.10.F.2.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).E.III. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).E.iii.    The CONTRACTOR shall send a provider directory and member
                  handbook to members or potential members requesting a copy and
                  as requested by HSD. The CONTRACTOR may direct a person
                  requesting a member handbook or a provider directory to an
                  internet site. However, a specific request for a printed
                  document shall be met. The CONTRACTOR shall provide a one
                  page, two-sided summary of its benefits which may be
                  distributed by HSD at its discretion. The CONTRACTOR must
                  notify all members at least once per year of their right to
                  request and obtain this information.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).E.IV.A.B.C. ARE AMENDED TO READ AS
FOLLOWS:

2.1.(1).E.iv.     Member handbooks shall be available in formats other than
                  English and in an appropriate manner that takes into
                  consideration the special needs of those who for example, are
                  visually limited or have limited reading proficiency, if, in
                  the CONTRACTOR'S or HSD's determination there is a prevalent
                  population of the CONTRACTOR'S Salud! members that are
                  conversant only in those other languages or require alternate
                  formats. In addition, oral interpretation must be made
                  available free of charge to potential members or members.
                  These oral interpretations must be available in all
                  non-English languages, not just those that are determined to
                  be prevalent by the CONTRACTOR and HSD. The CONTRACTOR must
                  notify potential members and members that oral interpretation
                  is

                                       3
<PAGE>

                  available in any language and that written information is
                  available in prevalent languages and how to access this
                  information.

                  (1)      The format for the written material shall:
                           a)       Use easily understood language and format;
                           b)       Be available in alternative formats and in
                                    an appropriate manner that takes into
                                    consideration the special needs of those
                                    who, for example, are visually limited or
                                    have limited reading proficiency.

                  (2)      All potential members upon request and enrolled
                           members must be notified how to access these formats.

                  (3)      The handbook shall include:
                           a)       Limitations to the receipt of care from
                                    non-participating providers;
                           b)       Coordination of care by PCPs;
                           c)       The CONTRACTOR demographic information
                                    including the organization's toll-free
                                    member phone number;
                           d)       Services for which prior authorization or a
                                    referral is required, and the method
                                    of obtaining both;
                           e)       The provider directory, which need not
                                    physically be part of the handbook. This
                                    provider directory shall include the names,
                                    locations, telephone numbers of, and non-
                                    English languages spoken by current
                                    contracted providers in the member's service
                                    area, including the identification of
                                    providers who are not accepting new
                                    patients. At a minimum, this information
                                    shall include Primary Care Providers (PCPs),
                                    self referral specialists, and hospitals.
                           f)       Any restrictions on the member's freedom of
                                    choice among network providers;
                           g)       Notice to members on both the CONTRACTOR'S
                                    internal grievance and appeal processes
                                    and HSD's fair hearing process;
                           h)       Information on how to obtain services, such
                                    as after hours and emergency service,
                                    including the 911 telephone system or its
                                    local equivalent;
                           i)       The member's rights, protections, and
                                    responsibilities;
                           j)       Information on obtaining care in emergency
                                    or urgent conditions;
                           k)       Information on accessing behavioral health
                                    or other specialty services, including
                                    but not limited to EPSDT and family planning
                                    services, information regarding the member's
                                    rights to self-refer to in-plan and
                                    out-of-plan family planning providers; and a
                                    female member's right to self-refer to a
                                    women's health specialist within the network
                                    for covered care

                                       4
<PAGE>

                                    necessary to provide women's routine and
                                    preventive health care services. This is in
                                    addition to the member's designated source
                                    of primary care if that source is not a
                                    women's health specialist.
                           l)       Information on the member's rights to
                                    terminate enrollment and the process for
                                    voluntarily disenrolling from the plan;
                           m)       Other information determined by HSD to be
                                    essential during the member's initial
                                    contact with the CONTRACTOR;
                           n)       The CONTRACTOR'S policy on referrals for
                                    specialty care and other benefits not
                                    furnished by the member's primary care
                                    provider;
                           o)       Information regarding advanced directives.
                           p)       Information on cost sharing if any;
                           q)       Additional information upon request,
                                    including information on how to obtain the
                                    CONTRACTOR'S structure and operation and
                                    physician incentive plans.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(1).F.III. IS ADDED TO READ AS FOLLOWS:

2.1.(1).F.iii.    The CONTRACTOR shall provide for a second opinion from a
                  qualified health care professional within the network, or
                  arrange for the member to obtain one outside the network if
                  there is not another qualified provider in the network, at no
                  cost to the member.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).I.I.D). IS AMENDED TO READ AS FOLLOWS:

2.1.(1).I.i.d)    The following information regarding the member's rights of
                  access to and coverage of emergency services shall include:

                           1.       The fact that the member has a right to use
                                    any hospital or other setting for emergency
                                    care;
                           2.       What constitutes emergency medical
                                    condition, emergency services, and post
                                    stabilization services;
                           3.       That an emergency condition is a medical
                                    condition manifesting itself by acute
                                    symptoms of sufficient severity (including
                                    severe pain) such that a prudent layperson,
                                    who possesses an average knowledge of health
                                    and medicine, could reasonably expect the
                                    absence of immediate medical attention to
                                    result in placing the individual's health
                                    (or with respect to a pregnant woman, the
                                    health of a woman or her unborn child) in
                                    serious jeopardy, serious impairment to
                                    bodily function or serious dysfunction of
                                    any bodily organ or part;
                           4.       That post stabilization care covers services
                                    related to an emergency medical condition,
                                    that are provided after the

                                       5
<PAGE>

                                    member is stabilized in order to maintain
                                    the stabilized condition or, to improve or
                                    resolve the member's condition;
                           5.       The fact that prior authorization is not
                                    required for emergency services in or out of
                                    the network with all emergency services
                                    reimbursed at least at the Medicaid network
                                    rate and that the CONTRACTOR shall not
                                    retroactively deny a claim for an emergency
                                    screening examination because the condition,
                                    which appeared to be an emergency medical
                                    condition under the prudent layperson
                                    standard (defined above), turned out to be
                                    non-emergency in nature;
                           6.       The locations of any emergency settings and
                                    other locations at which providers and
                                    hospital furnish emergency services and post
                                    stabilization services furnished under the
                                    contract.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).I.IV. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).I.iv.     The CONTRACTOR shall provide affected members and/or legal
                  guardians with written updated information within 30 days of
                  the intended effective date of any material change. In
                  addition, the CONTRACTOR must make a good faith effort to give
                  written notice of termination of a contracted provider, within
                  fifteen days after receipt or issuance of termination notice
                  to each who received his or her primary care from, or was seen
                  on a regular basis by, the terminated provider.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).K. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).K.        The CONTRACTOR shall be required to comply with the MAD
                  regulation 8.305.8.15. on Patient Bill of Rights. The
                  CONTRACTOR shall provide each member with written information,
                  in English or prevalent language, as appropriate, found in the
                  MAD patient Bill of Rights pursuant to MAD 8.305.8.15.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(1).K.II.A IS AMENDED TO READ AS FOLLOWS:

2.1.(1).K.ii.a    Members and, as appropriate, their families and/or legal
                  guardians have a right to participate with practitioners in
                  decision making regarding all aspects of their health care,
                  including development of the course of treatment. The
                  CONTRACTOR'S policy shall contain procedures for obtaining
                  informed consent.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(1).K.XI. IS ADDED TO READ AS FOLLOWS:

2.1.(1).K.xi.     Members have a right to be free from any form of restraint or
                  seclusion used as a means of coercion, discipline, convenience
                  or retaliation, as

                                       6
<PAGE>

                  specified in other federal regulations on the use of
                  restraints and seclusion.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(1).L.II. IS AMENDED TO READ AS FOLLOWS:

2.1.(1).L.ii.     The Consumer Advisory Board shall serve to advise the
                  CONTRACTOR on issues concerning service delivery and quality,
                  member rights and responsibilities, the process for resolving
                  member grievances, and the needs of the groups they represent
                  as they pertain to Medicaid managed care. The Board shall meet
                  on at least a quarterly basis. The CONTRACTOR shall conduct
                  outreach activities in the state's regions to ensure member
                  input. The CONTRACTOR is responsible for keeping a written
                  record of the board meetings.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(1).M.VII IS AMENDED TO READ AS FOLLOWS:

2.1.(1).M.vii.    The CONTRACTOR shall comply with NCQA standards for
                  Utilization Management and follow NCQA timeliness standards
                  for routine, urgent and emergent situations. The
                  decision-making timeframes should accommodate the clinical
                  urgency of the situation and not delay the provision of
                  services to member for lengthy periods of time. These required
                  timeframes are not to be affected by "pend" decisions. A
                  possible extension of up to 14 additional calendar days may
                  apply if:

                  (i)      the member, or the provider, requests extension; or

                  (ii)     the CONTRACTOR justifies to HSD a need for additional
                           information and demonstrates how the extension is in
                           the member's interest.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(1).N. IS ADDED TO READ AS FOLLOWS:

A.       Coverage and authorization of services.

         The CONTRACTOR shall do the following:

         (1)      Identify, define, and specify the amount, duration, and scope
                  of each service that the CONTRACTOR is required to offer.

         (2)      Require that the services identified in paragraph (1) of this
                  section be furnished in an amount, duration, and scope that is
                  no less than the amount, duration, and scope for the same
                  services furnished to beneficiaries under fee-for-service
                  Medicaid as set forth in 42 CFR, Section 440.230.

         (3)      The CONTRACTOR:

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<PAGE>

                  (i)      shall ensure that the services are sufficient in
                           amount, duration, or scope to reasonably be expected
                           to achieve the purpose for which the services are
                           furnished.

                  (ii)     may not arbitrarily deny or reduce the amount,
                           duration, or scope of a required service solely
                           because of diagnosis, type of illness, or condition
                           of the beneficiary;

                  (iii)    may place appropriate limits on a service -

                           (a)      on the basis of criteria applied under HSD,
                                    such as medical necessity; or
                           (b)      for the purpose of utilization control,
                                    provided the services furnished can
                                    reasonably be expected to achieve their
                                    purpose, as required in paragraph
                                    (A)(3)(i) of this section; and

         (4)      The CONTRACTOR shall specify what constitutes "medically
                  necessary services" in a manner that:

                  (i)      Is no more restrictive than that used by HSD as
                           indicated in State statutes and regulations, the
                           State Plan, and other State policy and procedures;
                           and

                  (ii)     Addresses the extent to which the CONTRACTOR is
                           responsible for covering services related to the
                           following:

                           (a)      the prevention, diagnosis, and treatment of
                                    health impairments;
                           (b)      the ability to achieve age-appropriate
                                    growth and development;
                           (c)      the ability to attain, maintain, or regain
                                    functional capacity.

(B)      Authorization of Services
         For the processing of requests for initial and continuing
         authorizations of services, the CONTRACTOR must:

         (1)      Require that its subcontractors have in place, and follow,
                  written policies and procedures;

         (2)      Have in effect mechanisms to ensure consistent application of
                  review criteria for authorization decisions;

         (3)      Consult with the requesting provider when appropriate; and

         (4)      Require that any decision to deny a service authorization
                  request or to authorize a service in an amount, duration, or
                  scope that is less than requested, be made by a health care
                  professional who has appropriate

                                       8
<PAGE>

                  clinical expertise in treating the member's condition or
                  disease, such as the CONTRACTOR'S Medical Director.

(C)      Notice of adverse action.

         The CONTRACTOR must notify the requesting provider, and give the member
         written notice of any decision by the CONTRACTOR to deny a service
         authorization request, or to authorize a service in an amount,
         duration, or scope that is less than requested. The notice must meet
         the requirement of 42 CFR Section 438.404, except that the notice to
         the provider need not be in writing.

D.       Compensation for utilization management activities.

         Each contract must provide that, consistent with 42 CFR, Sections
         438.6(h) and 422.208, compensation to individuals or entities that
         conduct utilization management activities is not structured so as to
         provide incentives for the individual or entity to deny, limit, or
         discontinue medically necessary services to any member.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(1).N. (DENIALS) IS CHANGED TO
SECTION  2.1.(1).O.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(2).F.VIII. IS AMENDED TO READ AS
FOLLOWS:

2.1.(2).F.viii.   The CONTRACTOR shall have written policies and procedures for
                  conducting member surveys.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(2).G.II. IS AMENDED TO READ AS FOLLOWS:

2.1.(2).G.ii.     Ensure that the QI program is applied to the entire range of
                  health services provided through the CONTRACTOR by assuring
                  that all major population groups, care settings, and service
                  types are included in the scope of the review. A major
                  population group is one which represents at least five percent
                  of a CONTRACTOR'S enrollment.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(2).J.X. IS ADDED TO READ AS FOLLOWS:

2.1.(2).J.x.      Ensure the delegate takes corrective action if the CONTRACTOR
                  identifies deficiencies.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(2).J.XI. IS ADDED TO READ AS FOLLOWS:

                                       9
<PAGE>

2.1.(2).J.xi.     Revoke delegation or impose other sanctions if the delegate's
                  performance is inadequate, in accordance with CONTRACTOR'S
                  policy and procedures.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(2).L.IV. IS AMENDED TO READ AS FOLLOWS:

2.1.(2).L.iv.     Follow NCQA guidelines for the conduct of provider
                  satisfaction surveys; cooperate with HSD in conducting
                  provider satisfaction survey, including making available a
                  current, unduplicated provider file(s) available to HSD or its
                  EQRO upon request;

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(2).M.I. IS AMENDED TO READ AS FOLLOWS:

2.1.(2).M.i.      HSD shall retain the services of an external quality review
                  organization in accordance with the Social Security Act,
                  Section 1902 (a) (30) [C], and the CONTRACTOR shall cooperate
                  fully with that organization and prove to that organization
                  the CONTRACTOR'S adherence to HSD's quality standards as set
                  forth in MAD Policy Section 8.305.8. HSD shall also contract
                  with an external review organization to audit a statistically
                  valid sample of the CONTRACTOR behavioral health UM decisions
                  including authorizations, reductions, terminations and
                  denials. This audit is intended to determine if authorized
                  service levels are appropriate with respect to accepted
                  standards of clinical care. The CONTRACTOR shall cooperate
                  fully with that organization.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(3). IS AMENDED TO READ AS FOLLOWS:

2.1.(3). Disease Management Indicators

         A.       Disease Management Programs and Performance Improvement
                  Projects are two of the tools that HSD has chosen to use to
                  measure a CONTRACTOR'S ability to identify problematic areas
                  within its operations and take actions which shall improve its
                  performance in those focus areas. Examples of these include
                  but, are not limited to, administrative functions (telephone
                  response rates), utilization management (timeliness of prior
                  authorizations), access to care, preventive care (improvement
                  of EPSDT screening rates), and care coordination.

         B.       The CONTRACTOR shall:

                  i.       Participate in disease management
                           programs/performance improvement projects annually.
                           HSD will coordinate with CONTRACTOR to select
                           programs that meet the NCQA requirements. Fifty
                           percent of the disease management
                           programs/performance improvement projects shall
                           relate to behavioral health;

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<PAGE>

                  ii.      Adhere to timely and accurate collection of baseline
                           project indicator data (physical health, behavioral
                           health, administrative), which shall show the
                           CONTRACTOR'S performance rate for those indicators
                           identified for improvement by HSD;

                  iii.     Identify specific interventions that the CONTRACTOR
                           intends to use to improve performance in a given
                           area;

                  iv.      Demonstrate improvement in each quality indicator
                           within each calendar year of the contract; and

                  v.       Perform subsequent measurement and written assessment
                           of the ongoing effectiveness of named interventions.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(3).C.I. AND II. IS AMENDED TO READ AS
FOLLOWS:

2.1.(3).C.i.      Track, analyze, and report to HSD quarterly, certain
                  indicators identified specific to behavioral or physical
                  health that shall enable HSD to determine potential problems
                  areas within quality of care, access, or service delivery;

2.1.(3).C.ii.     Collect the requested data quarterly, perform analysis on the
                  data for the purpose of determining completeness and validity,
                  and report results to HSD quarterly;

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(3).D. IS ADDED TO READ AS FOLLOWS:

2.1.(3).D.        PHYSICAL AND BEHAVIORAL HEALTH PERFORMANCE MEASURES FOR FY
                  2004 MCO CONTRACTS.

                  A.       Managed Care Performance Measures:

                  For capitation payments made on or after June 25, 2003, HSD
                  shall withhold one-half of one (0.5) percent of the
                  CONTRACTOR'S payments. The withhold funds shall be released to
                  the CONTRACTOR no sooner than July 1st and no later than July
                  31st of 2004 only if, in the judgment of HSD, performance
                  targets in the contract are achieved. Withhold funds shall be
                  released to the CONTRACTOR based on the following scoring
                  system for each of the ten performance measures listed below:

                           1.       Dental Access to Care shall be worth 10
                                    points;
                           2.       Child Access to PCP shall be worth 10
                                    points;
                           3.       Diabetes Care shall be worth 10 points;
                           4.       Consumer/Family Based Services shall be
                                    worth 15 points;

                                       11
<PAGE>

                           5.       RTC Readmissions shall be worth 10 points;
                           6.       Behavioral Health Discharge Follow-up after
                                    7 days shall be worth 5 points;
                           7.       Behavioral Health Discharge Follow-up after
                                    30 days shall be worth 5 points;
                           8.       Provider Payment Timeliness shall be worth
                                    15 points;
                           9.       Customer Support Services shall be worth 10
                                    points; and
                           10.      Encounter Data Reporting shall be worth 10
                                    points.

                  The percentage of the CONTRACTOR'S withhold funds to be
                  released shall be calculated by summing all earned points,
                  dividing the sum by 100, and converting to a percentage. No
                  partial whole number of points will be assigned if the
                  CONTRACTOR fails to completely meet performance measures
                  described in one through ten above. Points assigned for the
                  performance measures will be all or none (e.g. 15 points or 0
                  points).

                  To the extent that the following performance measures are not
                  based on HEDIS measures, the parties agree that the measure
                  shall be evaluated based on the standard reports for such
                  measures already submitted to HSD by CONTRACTOR, provided that
                  HSD shall have the right to audit and validate the information
                  or results as reported by CONTRACTOR.

                  For the current contract amendment the CONTRACTOR shall submit
                  HEDIS scores for calendar year 2003 according to the required
                  HEDIS submission schedule for evaluation under this
                  performance measurement section.

         B.       Performance Measures Requirements:

                  The ten performance measures shall be evaluated using the
                  following criteria:

                  1.       DENTAL ACCESS TO CARE:

                           The CONTRACTOR'S members between the ages of four and
                           twenty-one who were continuously enrolled with the
                           CONTRACTOR during the measurement period will have a
                           dental visit during the measurement year, as
                           evidenced by a minimum HEDIS score of 44.00.

                  2.       CHILD ACCESS TO PCP:

                           The CONTRACTOR'S members between the age of twelve
                           months through twenty-four months who are
                           continuously enrolled with the CONTRACTOR during the
                           measurement period, will have a visit with a
                           pediatrician, family physician, or other CONTRACTOR'S

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<PAGE>

                           primary care provider during the measurement year, as
                           evidenced by a minimum HEDIS score of 96.00.

                  3.       DIABETES CARE, HbA1c:

                           Diabetic members who are continuously enrolled with
                           the CONTRACTOR during the measurement period will
                           have a glycohemoglobin (HbA1c) blood test during the
                           measurement year, as evidenced by a minimum HEDIS
                           score of 73.72.

                  4.       CONSUMER/FAMILY BASED SERVICES:

                           At least one-half of one (0.5) percent of the Salud!
                           behavioral health expenditures for FY 04 will be
                           expended for non-profit family and/or member
                           controlled/operated organizations. These
                           organizations shall be member-centered and
                           recovery-driven. These organizations shall develop
                           and direct activities that provide support, education
                           and access to services to consumers and families. HSD
                           shall provide the reporting format to the CONTRACTOR.
                           The CONTRACTOR shall report to HSD on a quarterly
                           basis.

                           For all three CONTRACTORS the total minimum
                           expenditure will be $434,166.00 (0.5% of
                           $86,833,000.00).

                           Cimarron's minimum expenditure will be $117,225.00.
                           Lovelace's minimum expenditure will be $104,200.00.
                           Presbyterian's minimum expenditure will be
                           $212,741.00.

                  5.       RTC RE-ADMISSIONS:

                           Nineteen percent or less of the CONTRACTOR'S members
                           who are discharged from a residential treatment
                           center (RTC) will be readmitted to the same level of
                           care or a higher level of care within thirty days of
                           discharge from the RTC.

                  6.       BEHAVIORAL HEALTH DISCHARGE FOLLOW-UP:

                           The CONTRACTOR'S members who are discharged from an
                           acute psychiatric hospital setting will receive
                           follow-up care within seven days of discharge as
                           evidenced by a minimum HEDIS score of 34.56.

                  7.       BEHAVIORAL HEALTH DISCHARGE FOLLOW-UP:

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<PAGE>

                           The CONTRACTOR'S members who are discharged from an
                           acute psychiatric hospital setting will receive
                           follow-up care within thirty days of discharge as
                           evidenced by a minimum HEDIS score of 57.25.

                  8.       PROVIDER PAYMENT TIMELINESS:

                           The CONTRACTOR shall pay ninety percent of all clean
                           claims for physical and behavioral health within
                           thirty days and ninety-nine percent of all physical
                           and behavioral health clean claims within ninety
                           days.

                  9.       CUSTOMER SUPPORT SERVICES:

                           a.       Ninety percent of the CONTRACTOR'S member
                                    services calls shall be answered within
                                    thirty seconds or less based on the reported
                                    average.

                           b.       The CONTRACTOR shall conduct a Consumer
                                    Advisory Board meeting on a quarterly basis.

                  10.      ENCOUNTER DATA REPORTING:

                           The CONTRACTOR shall submit 100 percent of all
                           required encounter data on a timely basis for
                           submissions and necessary re-submissions as set forth
                           in the contract, 2.12.(5).B. The submissions and
                           required re-submissions shall have an error rate of
                           five percent or less for at least seventy-five
                           percent of the files.

         C.       Retention and Release of Withhold Funds:

                  1.       The retention of funds withheld shall be accomplished
                           as follows:

                           A.       The CONTRACTOR shall place all funds to be
                                    withheld by HSD, under part A. (Managed Care
                                    Performance Measures) of this section, in a
                                    separate account and shall provide to HSD a
                                    monthly statement of the account in order to
                                    verify that the withheld funds are being
                                    maintained during the period of time
                                    specified in this contract.

                  2.       The release of the funds withheld shall be made as
                           follows:

                           A.       The funds in the withheld funds account
                                    shall be released for use by the CONTRACTOR
                                    only after HSD has submitted in writing
                                    that, in HSD's judgment, the performance
                                    targets in the contract have been achieved
                                    for the period of time

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<PAGE>

                                    specified in the contract. HSD shall provide
                                    written confirmation no sooner than July 1st
                                    and no later than July 31st of 2004.

                  3.       The release of funds withheld shall be calculated as
                           follows:

                           A.       The difference between the total FY 2004
                                    capitation payments to the CONTRACTOR as of
                                    June 30, 2004 divided by 0.995 (99.5
                                    percent) and the total FY 2004 capitation
                                    payments to the MCO as of June 30, 2004.

                           B.       The difference calculated shall be
                                    multiplied by the percentage determined in
                                    Section A., Managed Care Withhold, above.

         D.       Challenge Pool Funding:

                  If the CONTRACTOR fails to earn any portion of its withheld
                  funds, these funds will immediately be placed in a challenge
                  pool. The challenge pool funds will be paid based upon the
                  performance across the average of the two HEDIS 2004 Use of
                  Services measurements.

                  A.  Challenge Pool Measurement. For purposes of the challenge
                      pool funds, the percentage of the CONTRACTOR'S qualifying
                      members meeting each target measurement will be weighted
                      together pursuant to the following:

                      1.            HEDIS WELL-CHILD VISITS IN THE THIRD,
                                    FOURTH, FIFTH, AND SIXTH YEAR OF LIFE.

                                    As annually reported to HSD, the percentage
                                    of members who were three, four, five, or
                                    six years old during the measurement year,
                                    who were continuously enrolled with the
                                    CONTRACTOR during the measurement year, and
                                    who received at least one primary care
                                    provider visit.
                                    a.       For this measurement, the
                                             CONTRACTOR shall determine
                                             continuous enrollment for a member
                                             pursuant to the HEDIS technical
                                             specifications.
                                    b.       The CONTRACTOR shall determine a
                                             primary care provider visit
                                             pursuant to the HEDIS technical
                                             specifications for administrative
                                             or hybrid methods.

                      2.            HEDIS ADOLESCENT WELL-CHILD VISIT.

                                    As annually reported to HSD, the year's
                                    percentage of members who were twelve
                                    through twenty-one years old

                                       15
<PAGE>

                                    during the measurement year, who were
                                    continuously enrolled with the CONTRACTOR
                                    during the measurement year, and who
                                    received at least one primary care provider
                                    visit.
                                    a.       For this measurement, the
                                             CONTRACTOR shall determine
                                             continuous enrollment for a member
                                             pursuant to the HEDIS technical
                                             specifications.
                                    b.       The CONTRACTOR shall determine a
                                             primary care provider visit
                                             pursuant to the HEDIS technical
                                             specifications for administrative
                                             or hybrid methods.

                  3.       For the purpose of weighting together the Use of
                           Service measurements, a CONTRACTOR who does not
                           submit data to HSD for either of the two target HEDIS
                           measurements above shall receive a zero score for any
                           unreported HEDIS target measurement.

         B.       Challenge Pool Payments

                  1.  A CONTRACTOR that earns all withhold funds described in
                      Section A shall not be eligible for any Challenge Pool
                      payment.

                  2.  The CONTRACTOR with the highest overall average of two
                      HEDIS 2004 measurements during the measurement year will
                      have released an amount that does not exceed one hundred
                      percent of the funds withheld from the CONTRACTOR.

                  3.  All other CONTRACTORS will have returned a percentage of
                      their withheld funds not already returned calculated as:
                      the CONTRACTOR'S average performance divided by the
                      highest CONTRACTOR average performance, times the amount
                      of the CONTRACTOR'S withheld funds that were not earned
                      under Section A.

     E.           Tracking Measures That Are Not Subject to the Managed Care
                  Withhold or Challenge Pool:

                  The following measures are not subject to the managed care
                  withhold or challenge pool and shall be reported to HSD:

                  1.       CERVICAL CANCER SCREENING:

                           Female members aged twenty-one to sixty-four who were
                           continuously enrolled with the CONTRACTOR during the
                           measurement year will receive one or more Pap tests
                           during the

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<PAGE>

                           measurement year or the two years prior to the
                           measurement year as evidenced by HEDIS reported data.

                  2.       DISTRIBUTION OF BEHAVIORAL HEALTH PROVIDERS:

                           As demonstrated by a quarterly geo-access report,
                           ninety percent of CONTRACTOR members in urban areas
                           will have access to a licensed behavioral health
                           provider within thirty miles. Ninety percent of
                           CONTRACTOR members in rural areas will have access to
                           a licensed behavioral health provider within sixty
                           miles. Ninety percent of CONTRACTOR members in
                           frontier areas will have access to a licensed
                           behavioral health provider within ninety miles. The
                           behavioral health provider must be in active
                           practice. Telemedicine and circuit-riders can be
                           utilized to fulfill this requirement. Compliance
                           shall be averaged over a six-month measurement
                           period.

                  3.       BEHAVIORAL HEALTH PENETRATION RATE:

                           The penetration rates for the following populations
                           shall be determined according to HEDIS methodology,
                           using appropriate encounter data:

                           a.       CONTRACTOR members up to the age of
                                    twenty-one who are continuously enrolled
                                    during the measurement year, there will be a
                                    behavioral health penetration rate of at
                                    least 7.7 percent.

                           b.       CONTRACTOR members ages nineteen through
                                    twenty who are continuous enrolled during
                                    the measurement year, there will be a
                                    behavioral health penetration rate of at
                                    least 10.5 percent.

                  4.       COMMUNITY BASED BEHAVIORAL HEALTH SERVICES:

                           The CONTRACTOR shall increase its expenditures on the
                           following community based services by a total of ten
                           percent:

                           Assertive Community Treatment (ACT);
                           Behavior Management Services (BMS);
                           Case Management for children and adults (CM);
                           Non-Emergency Room Crisis Services;
                           Home Based Services;
                           Intensive Outpatient Services (IOP);
                           Psychosocial Rehabilitation Services (PSR);
                           Respite Services for children/adolescents and adults;

                                       17
<PAGE>

                           Shelter Care Services for children/adolescents;
                           Transitional Living Services for children/adolescents
                           and adults;
                           Day Treatment Program (DTP); and
                           Multi-Systemic Therapy (MST).

                           HSD shall provide a reporting format to the
                           CONTRACTOR. The CONTRACTOR shall report to HSD on a
                           quarterly basis using this format.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(4).C. IS AMENDED TO READ AS FOLLOWS:

2.1.(4).C.        The CONTRACTOR shall meet time and distance standards for PCPs
                  and pharmacies as determined by HSD or as described in MAD
                  Policy 8.305.8.18. The CONTRACTOR shall have systems to track
                  and report this data and such data shall be available to HSD
                  upon request.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(4).D. IS AMENDED TO READ AS FOLLOWS:

2.1.(4).D.        The CONTRACTOR shall meet provider appointment and pharmacy
                  in-person prescription fill time standards as described in MAD
                  Policy 8.305.8.18; shall approve or deny requests for DME
                  within seven (7) working days of the initial request. Members
                  shall be able to obtain prescribed medical supplies and
                  non-specialized DME within 24 hours, when needed on an urgent
                  basis. All new, customized, made-to-measure equipment shall be
                  delivered within 150 days of the request date. All repairs or
                  modifications shall be delivered within 60 days of the request
                  date.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(4).E.I. IS AMENDED TO READ AS FOLLOWS:

2.1.(4).E.i.      Routine and non-specialized supplies

                  The CONTRACTOR shall:
                  a)       Ensure supplies are delivered consistent with
                           clinical need;
                  b)       Have an emergency response plan for medical equipment
                           or supplies needed on an emergent basis;
                  c)       Ensure that members and/or their family receive
                           adequate instruction on use of the supplies or
                           equipment;
                  d)       Be able to deliver the transportation benefit
                           statewide;
                  e)       Have a sufficient transportation network available to
                           meet the transportation needs of members. This
                           includes requiring an appropriate number of handivans
                           for members who are wheelchair or
                           ventilator-dependent or have other equipment needs;
                  f)       Require that all transportation vehicles be equipped
                           with a communication device for use in case of an
                           emergency;

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<PAGE>

                  g)       Have CPR certified drivers to transport members whose
                           clinical needs dictate.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(4).I IS ADDED TO READ AS FOLLOWS:

2.1.(4).I         The CONTRACTOR shall meet and require its providers to meet
                  State standards for timely access to care and services, taking
                  into account the urgency of the need for services; establish
                  mechanisms to ensure compliance by providers; monitor
                  providers regularly to determine compliance; and take
                  corrective action if there is a failure to comply.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(6).A.III IS AMENDED TO READ AS FOLLOWS:

2.1.(6).A.iii     Develop and implement written policies and procedures, which
                  govern how members with multiple and complex special physical,
                  and behavioral health care needs shall be identified.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(6).A.IV. IS AMENDED TO READ AS FOLLOWS:

2.1.(6).A.iv      Develop and implement written policies and procedures,
                  governing how care coordination shall be provided for members
                  with special health care needs. A member or family shall have
                  a right to refuse care coordination or case management.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.1.(6).B.VII IS AMENDED TO READ AS FOLLOWS:

2.1.(6).B.vii     Coordination of Services with Children, Youth and Families
                  Department (CYFD). The CONTRACTOR shall have written policies
                  and procedures requiring coordination with the CYFD Protective
                  Services and Juvenile Justice Divisions to ensure that members
                  receive medically necessary services regardless of the
                  member's custody status. These policies and procedures shall
                  specifically address compliance with the current New Mexico
                  Children's Code. If Child Protective Services (CPS), Juvenile
                  Justice or Adult Protective Services (APS) has an open case on
                  a member, the CYFD social worker or Juvenile Probation Officer
                  assigned to the case shall be involved in the assessment and
                  planning for the course of treatment, including decisions
                  regarding the provision of services for the member. The
                  CONTRACTOR shall designate a single contact point for these
                  cases.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.1.(7).B. IS AMENDED TO READ AS FOLLOWS:

2.1.(7).B.        Subsequent Change in PCP Initiated by Member. Members may
                  initiate a PCP change at any time, for any reason. The request
                  can be made in writing or by telephone. If a request is made
                  by the 20th of a month it becomes effective as of the first of
                  the following month. If a request is

                                       19
<PAGE>

                  made after the 20th of the month the change becomes effective
                  the first of the month after the following month.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.2.(3).A.IV. IS AMENDED TO READ AS FOLLOWS:

2.2.(3.).A.       HSD shall determine eligibility for enrollment in the managed
                  care program. All Medicaid eligible members are required to
                  participate in the Medicaid managed care program except for
                  the following:

                  iv.      Members participating in the Health Insurance Premium
                           (HIPP) Program or the Breast and Cervical Cancer
                           (BCC) Medicaid Program.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.2.(5).B. IS AMENDED TO READ AS FOLLOWS:

2.2.(5).B.        Hospitalized Members
                  A member who is hospitalized in a general acute-care,
                  rehabilitation or freestanding psychiatric hospital at the
                  time he/she first enrolls with the CONTRACTOR may enroll with
                  the CONTRACTOR. However, the CONTRACTOR shall not be
                  responsible for the costs of such hospitalization, except
                  newborns born to a member mother, until the member is
                  discharged from the hospital or there is a change in the level
                  of care. Instead, HSD shall pay the appropriate provider(s) on
                  a fee-for-service basis for all provider-submitted claims
                  related to a member who is hospitalized in a general acute
                  care, rehabilitation or freestanding psychiatric hospital at
                  the time such member enrolls with the CONTRACTOR, until such
                  time as the member is discharged from the hospital.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.2.(5).C. IS AMENDED TO READ AS FOLLOWS:

2.2.(5).C.        Members in Placement in Residential Treatment Centers
                  If a child or adolescent becomes Medicaid eligible or enrolls
                  with the CONTRACTOR while residing in an accredited or
                  non-accredited residential treatment center, he or she shall
                  be immediately eligible for enrollment and the CONTRACTOR
                  shall assume financial responsibility for the member as of the
                  effective date of enrollment.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.2.(5).D. IS AMENDED TO READ AS FOLLOWS:

2.2.(5).D.        Members in Treatment Foster Care Placements
                  If a child or adolescent was residing in a treatment foster
                  care placement at the time managed care enrollment began, they
                  shall be exempt from enrolling in an MCO until he or she is
                  discharged from treatment foster care.

                                       20
<PAGE>

ARTICLE 2 (SCOPE OF WORK), SECTION 2.2.(6). IS AMENDED TO READ AS FOLLOWS:

2.2.(6).          Enrollment Process for Members

                  Current members may request a change in MCOs during the first
                  ninety (90) days of a twelve (12) month enrollment period.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.2.(6).C. IS AMENDED TO READ AS FOLLOWS:

2.2.(6).C.        Member Switch and Loss of Medicaid Eligibility
                  A current CONTRACTOR  member has the opportunity to change
                  CONTRACTORS during the first ninety (90) days of a twelve (12)
                  month period. HSD shall notify the CONTRACTOR members of their
                  opportunity to select a new CONTRACTOR provider. A member is
                  limited to one ninety day switch period per CONTRACTOR. After
                  exercising the switching rights, and returning to a previously
                  selected CONTRACTOR, the member shall remain with the
                  CONTRACTOR until his/her twelve (12) month lock-in period
                  expires before being permitted to switch CONTRACTORS.

                  If a member loses Medicaid eligibility for a period of two
                  months or less, he/she will be automatically reenrolled with
                  the former CONTRACTOR. If the member misses the annual
                  disenrollment opportunity during this two month time, he/she
                  may request to be assigned to another CONTRACTOR.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.2.(6).E.II. IS AMENDED TO READ AS FOLLOWS:

2.2.(6).E.ii      The CONTRACTOR shall develop a detailed plan for the
                  transition of an individual member, which includes member and
                  provider education about the CONTRACTOR, and the CONTRACTOR
                  process to assure any existing courses of treatment are
                  revised as necessary;

ARTICLE 2 (SCOPE OF WORK) SECTION 2.2.(6).E.X. IS AMENDED TO READ AS FOLLOWS:

2.2.(6).E.x.      The CONTRACTOR is responsible for payment of all inpatient
                  services provided by a general acute-care, rehabilitation or
                  freestanding psychiatric hospital until discharge from the
                  hospital or transfer to a different level of care, if the
                  member is hospitalized in such a facility at the time the
                  member becomes exempt or switches enrollment;

ARTICLE 2 (SCOPE OF WORK) SECTION 2.2.(6).E.XI. IS AMENDED TO READ AS FOLLOWS:

2.2.(6).E.xi.     The CONTRACTOR is responsible for payment until disenrollment
                  or switch enrollment, if an enrolled member is placed in a
                  residential treatment center or treatment foster care, or is
                  admitted to a nursing

                                       21
<PAGE>

                  facility or intermediate care facility for the mentally
                  retarded as a long term or permanent placement; and

ARTICLE 2 (SCOPE OF WORK), SECTION 2.2.(7).A.IV. IS AMENDED TO READ AS FOLLOWS:

2.2.(7).A.iv.     The CONTRACTOR shall not request disenrollment because of an
                  adverse change in the member's health status, or because of
                  the member's utilization of medical services, diminished
                  mental capacity, or uncooperative or disruptive behavior
                  resulting from his or her special needs (except when his or
                  her continued enrollment with the CONTRACTOR seriously impairs
                  the CONTRACTOR'S ability to furnish services to either this
                  particular member or other members). The CONTRACTOR shall
                  provide adequate documentation that the CONTRACTOR'S request
                  for termination is proper;

ARTICLE 2 (SCOPE OF WORK), SECTION 2.2.(7).B. IS AMENDED TO READ AS FOLLOWS:

2.2.(7).B.        Member Initiated Disenrollment
                  1.       A member who is required to participate in managed
                           care may request to be disenrolled from the
                           CONTRACTOR "for cause" at anytime, even during a
                           lock-in period. The following are causes for
                           disenrollment:
                           i.       The member moves out of the Contractor's
                                    service area.
                           ii.      The CONTRACTOR does not, because of moral or
                                    religious objections, cover the service the
                                    member seeks.
                           iii.     The member needs related services (for
                                    example, a caesarian section and a tubal
                                    ligation) to be performed at the same time
                                    and there is no network provider able to do
                                    this and another provider determines that
                                    receiving the services separately would
                                    subject the member to unnecessary risk.
                           iv.      Other reasons, including but not limited to,
                                    poor quality of care, lack of access to
                                    services covered under the contract, or lack
                                    of access to providers experienced in
                                    dealing with the member's health care needs.
                  2.       This request shall be submitted in writing to HSD for
                           review. HSD shall complete the review and furnish a
                           written decision to the member and the CONTRACTOR.
                           The effective date of an approved disenrollment must
                           be no later than the first day of the second month
                           following the month in which the member files the
                           request. If HSD fails to make the determination
                           within this timeframe, the disenrollment is
                           considered approved. A member who is denied
                           disenrollment shall have access to the State fair
                           hearing process.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.2.(7).D. IS ADDED TO READ AS FOLLOWS:

                                       22
<PAGE>

2.2.(7).D         Retroactive Reenrollment
                  A member who is no longer enrolled with the CONTRACTOR,
                  whether in error or otherwise, shall not be retroactively
                  reenrolled by the CONTRACTOR unless HSD submits its request
                  for re-enrollment to the CONTRACTOR within 30 days of the date
                  the CONTRACTOR received enrollment data from HSD indicating
                  that the member was no longer enrolled with the CONTRACTOR or
                  eligible for Medicaid Managed Care provided however that
                  nothing in this section shall restrict the appropriate
                  enrollment of newborns in accordance with the provision of
                  2.2.(5).A. The CONTRACTOR may not be obligated to accept
                  retroactive reenrollment.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.3, IS AMENDED TO READ AS FOLLOWS:

2.3      The CONTRACTOR shall establish and maintain a comprehensive network of
         providers capable of serving all members who enroll in the MCO.
         Pursuant to Section 1932(b)(7) of the Social Security Act, the
         CONTRACTOR shall not discriminate against providers that serve
         high-risk populations or specialize in conditions that require costly
         treatment, and with respect to participation, reimbursement, or
         indemnification for any provider acting within the scope of that
         provider's license or certification under applicable state law solely
         on the basis of the provider's license or certification. In addition,
         the CONTRACTOR shall not discriminate against providers with respect to
         participation, reimbursement, or indemnification for any provider
         acting within the scope of that provider's license or certification
         under applicable state law solely on the basis of the provider's
         license or certification. If the CONTRACTOR declines to include
         individual or groups of providers in its network, it must give the
         affected providers written notice of the reason for its decision. The
         CONTRACTOR shall not be required to contract with providers beyond the
         number necessary to meet the needs of its members. The CONTRACTOR shall
         be allowed to use different reimbursement amounts for different
         specialties or for different practitioners in the same specialty. The
         CONTRACTOR shall be allowed to establish measures that are designed to
         maintain quality of services and control of costs and are consistent
         with its responsibility to members.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.3(1).C IS ADDED TO READ AS FOLLOWS:

2.3.(1).C.        The CONTRACTOR, in establishing and maintaining the network of
                  appropriate providers, shall consider its:

                  i.       Anticipated Medicaid enrollment;

                  ii.      Expected utilization of services, taking into
                           consideration the characteristics and health care
                           needs of specific Medicaid populations represented in
                           the CONTRACTOR'S population;

                                       23
<PAGE>

                  iii.     Numbers and types (in terms of training, experience,
                           and specialization) of providers required to furnish
                           the contracted Medicaid services;

                  iv.      Numbers of network providers who are not accepting
                           new Medicaid patients; and

                  v.       Geographic location of providers and Medicaid
                           members, considering distance, travel time, the means
                           of transportation ordinarily used by Medicaid member,
                           and whether the location provides physical access for
                           Medicaid members with disabilities.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.3.(1).D. IS ADDED TO READ AS FOLLOWS:

2.3.(1).D         The CONTRACTOR shall ensure that the network providers offer
                  hours of operation that are no less than the hours of
                  operation offered to commercial enrollees or comparable to
                  Medicaid fee-for-service, if the provider serves only Medicaid
                  enrollees.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.3.(11).A. IS AMENDED TO READ AS FOLLOWS:

2.3.(11).A.       The CONTRACTOR shall contract with public health providers for
                  services as described in Section MAD 8.305.6.15 and those
                  defined as public health services under State law, NMSA 1978
                  ss.ss. 24-1-1, et. seq.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.3.(16).B IS AMENDED TO READ AS FOLLOWS:

2.3.(16).B.       The CONTRACTOR shall give each member, including adolescents,
                  the opportunity to use his or her own primary care provider or
                  go to any family planning center for family planning services
                  without requiring a referral. Each female member shall also
                  have the right to self-refer to a women's health specialist
                  within the network for covered care necessary to provide
                  women's routine and preventive health care services. This is
                  in addition to the member's designated source of primary care
                  if that source is not a women's health specialist. Clinics and
                  providers, including those funded by Title X of the Public
                  Health Service Act, shall be reimbursed by the CONTRACTOR for
                  all family planning services regardless of whether they are a
                  participating or non-participating provider. Unless otherwise
                  negotiated, the CONTRACTOR shall reimburse providers of family
                  planning services at the Medicaid rate.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.3.(17).A.III. IS AMENDED TO READ AS FOLLOWS:

2.3.(17).A.iii.   Build a statewide behavioral health provider network that
                  ensures access to all levels of behavioral health services,
                  across a continuum from the most to the least restrictive
                  setting. The network shall be sufficient to

                                       24
<PAGE>

                  ensure that the standards in MAD Policy 8.305 for access to
                  care providers who want to refer members for behavioral health
                  care and vice versa;

ARTICLE 2 (SCOPE OF WORK), SECTION 2.3.(17).B.II. IS AMENDED TO READ AS FOLLOWS:

2.3.(17).B.ii     The CONTRACTOR shall provide care coordination for members
                  with multiple and complex special physical, mental,
                  neurobiological, emotional and/or behavioral health care needs
                  on an as needed basis, depending upon the clinical profile of
                  the member. The CONTRACTOR shall have written policies and
                  procedures, which govern how members with these multiple and
                  complex needs shall be identified and how these specific care
                  coordination services shall be provided.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.3.(17).C IS AMENDED TO READ AS FOLLOWS:

2.3.(17).C        The CONTRACTOR shall provide care coordination for members
                  with multiple and complex special physical, mental,
                  neurobiological, emotional and/or behavioral health care needs
                  on an as needed basis, depending upon the clinical profile of
                  the member. The CONTRACTOR shall have written policies and
                  procedures, which govern how members with these multiple and
                  complex needs shall be identified and how these specific care
                  coordination services shall be provided.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.3.(20). IS AMENDED TO READ AS FOLLOWS:

2.3.(20)          Recredentialing

                  The CONTRACTOR shall formally recredential its network
                  providers at least every three years.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.4.(1). IS AMENDED TO READ AS FOLLOWS:

2.4.(1).          Inpatient Hospital Services

                  The benefit package includes hospital inpatient acute care,
                  procedures, and services asset forth in MAD Program Manual
                  section MAD-721, HOSPITAL SERVICES. The CONTRACTOR shall
                  comply with the maternity length of stay in the Health
                  Insurance Portability and Accounting Act of 1996. Coverage for
                  a hospital stay following a normal vaginal delivery may
                  generally not be limited to less than 48 hours for both the
                  mother and newborn child. Health coverage for a hospital stay
                  in connection with childbirth following a cesarean section may
                  generally not be limited to less than 96 hours for both mother
                  and newborn child.

ARTICLE 2, (SCOPE OF WORK), SECTION 2.4.(5).A. IS AMENDED TO READ AS FOLLOWS:

                                       25
<PAGE>

2.4.(5).A.        The benefit package includes emergency and poststabilization
                  care services. Emergency services are covered inpatient and
                  outpatient services that are furnished by a provider that is
                  qualified to furnish these services and are needed to evaluate
                  or stabilize an emergency condition. An emergency condition
                  shall meet the definition of emergency as per NMAC
                  8.305.1.7.V. Emergency services shall be provided in
                  accordance with NMAC 8.305.7.11F. Poststabilization care
                  services are covered services related to an emergency
                  condition that are provided after a patient is stabilized in
                  order to maintain the stabilized condition or to improve or
                  resolve the patient's condition, such that within reasonable
                  medical probability, no material deterioration of the
                  patient's condition is likely to result from or occur during
                  discharge of the patient or transfer of the patient to another
                  facility.

ARTICLE 2, (SCOPE OF WORK), SECTION 2.4.(5).B.III. IS AMENDED TO READ AS
FOLLOWS:

2.4.(5).B.iii.    The CONTRACTOR is required to pay for all emergency and
                  poststabilization care services that are medically necessary
                  until the emergency condition is stabilized and maintained.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.4.(23). IS AMENDED TO READ AS FOLLOWS:

2.4.(23).         Reproductive Health Services
                  The benefit package includes reproductive health services as
                  set forth in MAD Program Policy, Section 762, REPRODUCTIVE
                  HEALTH SERVICES. The CONTRACTOR shall provide Medicaid members
                  with sufficient information to allow them to make informed
                  choices including: the types of family planning services
                  available; the member's right to access these services in a
                  timely and confidential manner; and the freedom to choose a
                  qualified family planning provider who participates in the
                  CONTRACTOR network or from a provider who does not participate
                  in the CONTRACTOR network. A female member shall have the
                  right to self-refer to a women's health specialist within the
                  network for covered care necessary to provide women's routine
                  and preventive health care services. This is in addition to
                  the member's designated source of primary care if that source
                  is not a women's health specialist.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.4.(28) IS AMENDED TO READ AS FOLLOWS:

2.4.(28).A.       The benefit package includes prevention, screening,
                  diagnostics, ameliorative services, and other medically
                  necessary behavioral health care and substance abuse treatment
                  or services for Medicaid members under twenty-one (21) years
                  of age whose need for behavioral health services is identified
                  during an Early and Periodic Screening, Diagnostic, and
                  Treatment (EPSDT) screen.

                                       26
<PAGE>

ARTICLE 2 (SCOPE OF WORK), SECTION 2.4.(31).A. IS AMENDED TO ADD AS FOLLOWS:

2.4.(31).A.       The CONTRACTOR shall implement written policies and
                  procedures with respect to advance directives. The CONTRACTOR
                  shall provide adult members with written information on
                  advance directives policies to include a description of
                  applicable state law. The information must reflect changes in
                  State law as soon as possible, but no later than 90 days after
                  effective date of the change.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.5.(1). IS AMENDED TO READ AS FOLLOWS:

2.5.(1).          The CONTRACTOR shall develop and implement a Cultural
                  Competency/Sensitivity Plan, through which the CONTRACTOR
                  shall ensure that it provides, both directly and through its
                  health care providers and subcontractors, culturally competent
                  services to its SALUD! members. The CONTRACTOR shall
                  participate with the State's efforts to promote the delivery
                  of services in a culturally competent manner to all members,
                  including those with limited English proficiency and diverse
                  cultural ethnic backgrounds.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.5.(2).B.I IS AMENDED TO READ AS FOLLOWS:

2.5.(2).B.i       Incorporate cultural competence into utilization management,
                  quality improvement and planning for the course of treatment.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.6 IS AMENDED IN ITS ENTIRETY TO READ AS
FOLLOWS:

2.6.              INDIVIDUALS WITH SPECIAL HEALTH CARE NEEDS

2.6.(1)           General Requirements

                  Individuals with special health care needs have ongoing health
                  conditions, high or complex service utilization, and low to
                  severe functional limitations. The primary purpose of the
                  definition is to identify these individuals so that the
                  CONTRACTOR can facilitate access to appropriate services. The
                  definition also allows for a flexible targeting of individuals
                  based on clinical justification and discontinuing targeted
                  efforts when such efforts are no longer needed.

2.6.(1).A.        CONTRACTOR Requirements:

                  i.       The CONTRACTOR shall produce a special handbook or
                           create an insert to include in its member services
                           handbook a description of

                                       27
<PAGE>

                           providers and programs available to individuals with
                           special health care needs.
                  ii.      The CONTRACTOR shall identify from among its members
                           individuals with special health care needs, using the
                           criteria for identification and information provided
                           by the state to the MCO.

2.6.(1).B.        The CONTRACTOR shall work with HSD to develop and implement
                  written policies and procedures which govern how members with
                  multiple and complex physical and behavioral health care needs
                  shall be identified. The CONTRACTOR shall have an internal
                  operational process, in accordance with policy and procedure,
                  to target members for the purpose of applying stratification
                  criteria to identify individuals with special health care
                  needs.

2.6.(1).C.        SALUD! Enrollment for Individuals with Special Health Care
                  Needs

                  The CONTRACTOR shall have written policies and procedures to
                  facilitate a smooth transition of a member to another
                  CONTRACTOR, when a member chooses and is approved to switch to
                  another CONTRACTOR.

2.6.(2)           Information and Education for Individuals with Special Health
                  Care Needs

2.6.(2)A.         The CONTRACTOR shall develop and distribute, as appropriate,
                  information and materials specific to the needs of individuals
                  with special health care needs, and, in the case of children
                  with special health care needs, their caregivers. This
                  includes information, such as a list of items and services
                  that are in the SALUD! benefit package and those that are
                  carved out, how to plan for and arrange transportation, how to
                  access behavioral health care without going through the PCP,
                  how to present for care in an emergency room unfamiliar with
                  the individual's special health care needs, and the
                  availability of a care coordinator. This information could be
                  included in a special member handbook on individuals with
                  special needs or in an insert to the member handbook.

2.6.(2).B.        The CONTRACTOR shall make available health education programs
                  to assist individuals with special health care needs, and, in
                  the case of children with special health care needs, the
                  caregiver(s), in understanding how to cope with the day-to-day
                  stress of living with the limitation or providing care.

2.6.(2).C.        The CONTRACTOR shall provide a list of key CONTRACTOR resource
                  people and their phone numbers.

2.6.(2).D.        The CONTRACTOR shall designate a single entity that can be
                  called for information during the enrollment process and after
                  becoming a member.

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<PAGE>

2.6.(3).          Choice of Specialist as Primary Care Provider (PCP) for
                  Individuals with Special Health Care Needs

                  The CONTRACTOR shall develop and implement written policies
                  and procedures governing the process for member selection of a
                  PCP, including the right to choose a specialist as a PCP, if
                  warranted and agreed upon by the specialist provider.

2.6.(4).          Specialty Providers for Individuals with Special Health Care
                  Needs

                  The CONTRACTOR shall have policies and procedures in place to
                  allow direct access to necessary specialty care, consistent
                  with SALUD! access appointment standards for clinical urgency.

2.6.(5).          Transportation for Individuals with Special Health Care Needs

2.6.(5).A.        The CONTRACTOR shall have written policies and procedures in
                  place to ensure that the appropriate level of transportation
                  is arranged based on the individual's clinical condition.

2.6.(5).B.        The CONTRACTOR shall have past member and service data
                  available at the time services are requested to expedite
                  appropriate arrangements.

2.6.(5).C.        The CONTRACTOR shall ensure that CPR-certified drivers
                  transport individuals with special health care needs whose
                  clinical need dictates.

2.6.(5).D         The CONTRACTOR shall have written policies and procedures to
                  ensure that transportation mode is clinically appropriate,
                  including access to non-emergency ground ambulance carriers.

2.6.(5).E.        The CONTRACTOR shall develop and implement written policies
                  and procedures to ensure that individuals can access and
                  receive authorization for needed transportation services under
                  certain unusual circumstances without the usual advance
                  notification.

2.6.(5).F.        The CONTRACTOR shall develop and implement a written policy
                  regarding the transportation of minors if a parent or legal
                  guardian shall not be in attendance to ensure the minor's
                  safety.

2.6.(5).G.        The CONTRACTOR shall distribute clear and detailed written
                  information to individuals with special health care needs and,
                  if needed, their caregivers on how to obtain transportation
                  services and also make this information available to network
                  providers.

2.6.(6).          Care Coordination for Individuals with Special Needs

                                       29
<PAGE>

2.6.(6).A.        The CONTRACTOR shall have an internal operational process, in
                  accordance with policy and procedure, to target Medicaid
                  members for purposes of applying stratification criteria to
                  identify those who are potential Individuals with Special
                  Health Care Needs. The CONTRACTOR will provide HSD with the
                  applicable policy and procedure describing the targeting and
                  stratification process.

2.6.(6).B.        The CONTRACTOR shall have written policies and procedures for
                  accessing the need for care coordination.

2.6.(6).C.        The CONTRACTOR shall have written policies and procedures for
                  educating individuals with special health care needs and, in
                  the case of children with special health care needs,
                  parent(s), legal guardians, that care coordination is
                  available and when it may be appropriate to their needs.

2.6.(6).D.        The CONTRACTOR shall have written policies and procedures for
                  educating providers about the availability of care
                  coordination, its value as a resource in caring for
                  individuals with special health care needs, and how to access
                  it.

2.6.(7).          Emergency, Inpatient and Outpatient Ambulatory Surgery
                  Hospital Requirements for Individuals with Special Health Care
                  Needs

2.6.(7).A.        The CONTRACTOR shall develop and implement written policies
                  and procedures for educating individuals with special care
                  needs, and with complicated clinical histories, and their
                  caregivers, on how to utilize emergency room care, including
                  what clinical history to present when emergency care or
                  inpatient admission are needed.

2.6.(7).B         The CONTRACTOR shall develop and implement written policies
                  and procedures governing how coordination with the PCP and
                  hospitalists shall occur when an individual with a special
                  health care need is hospitalized.

2.6.(7).C         The CONTRACTOR shall develop and implement written policies
                  and procedures to ensure that the ER physician has access to
                  the individual's medical history.

2.6.(7).D.        The CONTRACTOR shall develop and implement written policies
                  and procedures for obtaining any necessary referrals from PCPs
                  for hospitals that require in-house staff to examine or treat
                  individuals having outpatient or ambulatory surgical
                  procedures performed.

2.6.(8)           Rehabilitation Therapy Services (Physical, Occupational,
                  Speech Therapy) for Individuals with Special Health Care Needs

                                       30
<PAGE>

2.6.(8).A.        The CONTRACTOR shall develop and implement therapy clinical
                  practice guidelines specific to the chronic or long term
                  conditions of their individuals with special health care needs
                  population, based on Medicaid managed care policy on medical
                  necessity.

2.6.(8).B.        The CONTRACTOR shall be informed about and coordinate with
                  other therapy services being delivered by: Special
                  Rehabilitation Services, the Home and Community Based Waiver
                  programs or by the schools to avoid unnecessary duplication.

2.6.(8).C.        The CONTRACTOR shall involve families of members, physicians
                  and therapy providers to identify issues that should be
                  addressed in developing the new criteria.

2.6.(8).D.        The CONTRACTOR shall develop and implement utilization prior
                  approval and continued stay criteria, including timeframes,
                  that are appropriate to the chronicity of the member 's status
                  and anticipated development process.

2.6.(9).          Durable Medical Equipment (DME) and Supplies for Individuals
                  with Special Health Care Needs

2.6.(9).A.        Subject to any requirements to procure a physician's order to
                  provide supplies to members, the CONTRACTOR shall develop and
                  implement a process to permit members utilizing supplies on an
                  ongoing basis to submit a list of supplies monthly. The
                  CONTRACTOR shall contact the member or the member's legal
                  guardian when requested supplies cannot be delivered (require
                  back-ordering, etc.) and make other arrangements, consistent
                  with clinical need.

2.6.(9).B.        The CONTRACTOR shall develop and implement a system for
                  monitoring compliance with standards for DME and medical
                  supplies, and instituting corrective action, if the provider
                  is out of compliance.

2.6.(9).C.        The CONTRACTOR shall have an emergency response plan for DME
                  and medical supplies needed on an emergent basis.

2.6.(10).         Clinical Practice Guidelines for Provision of Care to
                  Individuals with Special Health Care Needs

                  The CONTRACTOR shall develop clinical practice guidelines,
                  practice parameters and/or other specific criteria that
                  consider the needs of individuals with special health care
                  needs and provide guidance in the provision of acute and
                  chronic medical and behavioral health care

                                       31
<PAGE>

                  services to this population. The guidelines should be
                  professionally accepted standards of practice and national
                  guidelines.

2.6.(11).         Utilization Management (UM) for Services to Individuals with
                  Special Health Care Needs

                  The CONTRACTOR shall develop written policies and procedures
                  to exclude from prior authorization any item or service in the
                  course of treatment, and/or extend the authorization
                  periodicity, for services provided for a chronic condition.
                  There should be a process for review and periodic update of
                  the course of treatment, as indicated.

2.6.(12).         Consumer Surveys Specific to Individuals with Special Health
                  Care Needs

                  The CONTRACTOR shall add questions about individuals with
                  special health care needs to the most current HEDIS CAHPS
                  survey.

2.6.(13).         Individuals with Special Health Care Needs Performance
                  Improvement Project

                  The CONTRACTOR shall perform a performance improvement project
                  specific to individuals with special health care needs.

ARTICLE 2 (SCOPE OF WORK), SECTION 2.9 IS AMENDED IN ITS ENTIRETY TO READ AS
FOLLOWS:

2.9      GRIEVANCE SYSTEM

         The CONTRACTOR shall have a grievance system in place for members that
         includes a grievance process related to dissatisfaction, and an appeals
         process related to a CONTRACTOR action, including the opportunity to
         request an HSD fair hearing.

         A grievance is a member's expression of dissatisfaction about any
         matter or aspect of the CONTRACTOR or its operation other than a
         CONTRACTOR action.

         An appeal is a request for review by the CONTRACTOR of a CONTRACTOR
         action. An action is the denial or limited authorization of a requested
         service, including the type or level of service; the reduction,
         suspension, or termination of a previously authorized service; the
         denial, in whole or in part, of payment for a service; or the failure
         to provide services in a timely manner. An untimely service
         authorization constitutes a denial and is thus considered an action.

                                       32
<PAGE>

         The member, legal guardian of the member for minors or incapacitated
         adults, or a representative of the member as designated in writing to
         the CONTRACTOR, has the right to file a grievance or an appeal of a
         CONTRACTOR action on behalf of the member. A provider acting on behalf
         of the member and with the member's written consent, may file a
         grievance and/or an appeal of a CONTRACTOR action.

         General Requirements for Grievance & Appeals
         1.       The CONTRACTOR shall implement written policies and procedures
                  describing how the member may register a grievance or an
                  appeal with the CONTRACTOR and how the CONTRACTOR resolves the
                  grievance or appeal.

         2.       The CONTRACTOR shall provide a copy of its policies and
                  procedures for resolution of a grievance and/or an appeal to
                  all service providers in the CONTRACTOR'S network.

         3.       The CONTRACTOR shall have available reasonable assistance in
                  completing forms and taking other procedural steps. This
                  includes, but is not limited to, providing interpreter
                  services and toll-free numbers that have adequate TTY/TTD and
                  interpreter capability.

         4.       The CONTRACTOR shall name a specific individual(s) designated
                  as the CONTRACTOR'S Medicaid member grievance coordinator with
                  the authority to administer the policies and procedures for
                  resolution of a grievance and/or an appeal, to review
                  patterns/trends in grievances and/or appeals, and to initiate
                  corrective action.

         5.       The CONTRACTOR shall ensure that the individuals who make
                  decisions on grievances and/or appeals are not involved in any
                  previous level of review or decision-making. The CONTRACTOR
                  shall also ensure that health care professionals with
                  appropriate clinical expertise will make decisions for the
                  following:
                  a)   An appeal of a CONTRACTOR denial that is based on lack of
                       medical necessity;
                  b)   A CONTRACTOR denial that is upheld in an expedited
                       resolution;
                  c)   A grievance or appeal that involves clinical issues.

         6.       Upon enrollment, the CONTRACTOR shall provide members, at no
                  cost, with a member information sheet or handbook that
                  provides information on how they and/or their
                  representative(s) can file a grievance and/or an appeal, and
                  the resolution process. The member information shall also
                  advise members of their right to file a request for an
                  administrative hearing with the HSD Hearings Bureau, upon
                  notification of a CONTRACTOR action, or concurrent with or
                  following an appeal of the CONTRACTOR

                                       33
<PAGE>

                  action. The information shall meet the standards for
                  communication specified in MAD policy 8.305.8.15.(13).

         7.       The CONTRACTOR must ensure that punitive or retaliatory action
                  is not taken against a member or a provider that files a
                  grievance and/or an appeal, or a provider that supports a
                  member's grievance and/or appeal.

         GRIEVANCE
         A grievance is a member's expression of dissatisfaction about any
         matter or aspect of the CONTRACTOR or its operation other than a
         CONTRACTOR action.

         1.       A member may file a grievance either orally or in writing with
                  the CONTRACTOR within 90 calendar days of the date the
                  dissatisfaction occurred. The legal guardian of the member for
                  minors or incapacitated adults, a representative of the member
                  as designated in writing to the CONTRACTOR, or a provider
                  acting on behalf of the member and with the member's written
                  consent, has the right to file a grievance on behalf of the
                  member.

         2.       Within five (5) working days of receipt of the grievance, the
                  CONTRACTOR shall provide the grievant with written notice that
                  the grievance has been received and the expected date of its
                  resolution.

         3.       The investigation and final CONTRACTOR resolution process for
                  grievances shall be completed within thirty (30) calendar days
                  of the date the grievance is received by the CONTRACTOR and
                  shall include a resolution letter to the grievant.

         4.       The CONTRACTOR may request an extension from HSD of up to
                  fourteen (14) calendar days if the member requests the
                  extension, or the CONTRACTOR demonstrates to HSD that there is
                  need for additional information, and the extension is in the
                  member's interest. For any extension, not requested by the
                  member, the CONTRACTOR shall give the member written notice of
                  the reason for the extension within two (2) working days of
                  the decision to extend the timeframe.

         5.       Upon resolution of the grievance the CONTRACTOR shall mail a
                  resolution letter to the member. The resolution letter must
                  include but not be limited to the following:

                  (a)      all information considered in investigating the
                           grievance;
                  (b)      findings and conclusions based on the investigation;
                           and
                  (c)      the disposition of the grievance.

         APPEALS

                                       34
<PAGE>

         An appeal is a request for review by the CONTRACTOR of a CONTRACTOR
         action.

         1.       A member may file an appeal of a CONTRACTOR action within 90
                  calendar days of receiving the CONTRACTOR'S notice of action.
                  The legal guardian of the member for minors or incapacitated
                  adults, a representative of the member as designated in
                  writing to the CONTRACTOR, or a provider acting on behalf of
                  the member with the member's written consent, has the right to
                  file an appeal of an action on behalf of the member.

                  An "action" is defined as:

                  (a)      the denial or limited authorization of a requested
                           service, including the type or level of service;
                  (b)      the reduction, suspension, or termination of a
                           previously authorized service;
                  (c)      the denial, in whole or in part, of payment for a
                           service;
                  (d)      the failure of the CONTRACTOR to provide services in
                           a timely manner, as defined by HSD; or
                  (e)      the failure of the CONTRACTOR to complete the
                           authorization request in a timely manner as defined
                           in 42 CFR Section 438.408.

         2.       The CONTRACTOR shall have a process in place that assures that
                  an oral inquiry from a member seeking to appeal an action is
                  treated as an appeal (to establish the earliest possible
                  filing date for the appeal). An oral appeal must be followed
                  by a written appeal that is signed by the member.

         3.       Within five (5) working days of receipt of the appeal, the
                  CONTRACTOR shall provide the grievant with written notice that
                  the appeal has been received and the expected date of its
                  resolution. The CONTRACTOR shall confirm in writing receipt of
                  oral appeals, unless the member or the provider requests an
                  expedited resolution.

         4.       The CONTRACTOR has thirty (30) calendar days from the date the
                  oral or written appeal is received by the CONTRACTOR to
                  resolve the appeal.

         5.       The CONTRACTOR may extend the thirty (30) day timeframe by 14
                  calendar days if the member requests the extension, or the
                  CONTRACTOR demonstrates to HSD that there is need for
                  additional information, and the extension is in the member's
                  interest. For any extension not requested by the member, the
                  CONTRACTOR must give the member written notice of the
                  extension and the reason for the extension within two (2)
                  working days of the decision to extend the timeframe.

                                       35
<PAGE>

         6.       The CONTRACTOR shall provide the member and/or the
                  representative a reasonable opportunity to present evidence,
                  and allegations of the fact or law, in person as well as in
                  writing.

         7.       The CONTRACTOR shall provide the member and/or the
                  representative the opportunity, before and during the appeals
                  process, to examine the member's case file, including medical
                  records, and any other documents and records considered during
                  the appeals process. The CONTRACTOR shall include as parties
                  to the appeal, the member and his or her representative, or
                  the legal representative of a deceased member's estate.

         8.       For all appeals, the CONTRACTOR shall provide written notice
                  within the thirty (30) calendar day timeframe of the appeal
                  resolution to the member and the provider, if the provider
                  filed the appeal.

                  a.       The written notice of the appeal resolution must
                           include but not be limited to the following
                           information:
                           (i)      the result(s) of the appeal resolution; and
                           (ii)     the date it was completed.

                  b.       The written notice of the appeal resolution for
                           appeals not resolved wholly in favor of the member
                           must include but not be limited to the following
                           information:
                           (i)      the right to request an HSD fair hearing and
                                    how to do so;
                           (ii)     the right to request receipt of benefits
                                    while the hearing is pending, and how to
                                    make the request; and
                           (iii)    that the member may be held liable for the
                                    cost of those benefits if the hearing
                                    decision upholds the CONTRACTOR'S action.

         9.       The CONTRACTOR may continue benefits while the appeal and/or
                  the HSD fair hearing process is pending.

                  a.       The CONTRACTOR shall continue the member's benefits
                           if all of the following are met:
                           (i)      The member or the provider files a timely
                                    appeal of the CONTRACTOR action (within
                                    10 days of the date the CONTRACTOR mails the
                                    notice of action);
                           (ii)     The appeal involves the termination,
                                    suspension, or reduction of a previously
                                    authorized course of treatment;
                           (iii)    The services were ordered by an authorized
                                    provider;
                           (iv)     The time period covered by the original
                                    authorization has not expired; and
                           (v)      The member requests extension of the
                                    benefits.

                                       36
<PAGE>

                  b.       The CONTRACTOR shall provide benefits until one of
                           the following occurs:
                           (i)      The member withdraws the appeal;
                           (ii)     Ten days have passed since the date the
                                    CONTRACTOR mailed the resolution letter,
                                    providing the resolution of the appeal was
                                    against the member and the member has
                                    taken no further action;
                           (iii)    An HSD Administrative Law Judge issues a
                                    hearing decision adverse to the member;
                           (iv)     The time period or service limits of a
                                    previously authorized service has expired.

                  c.       If the final resolution of the appeal is adverse to
                           the member, that is, the CONTRACTOR'S action is
                           upheld, the CONTRACTOR may recover the cost of the
                           services furnished to the member while the appeal was
                           pending to the extent that services were furnished
                           solely because of the requirements of this section,
                           and in accordance with the policy set forth in 42 CFR
                           Section 431.230(b).

                  d.       If the CONTRACTOR or the HSD Administrative Law Judge
                           reverses a decision to deny, limit, or delay
                           services, and these services were not furnished while
                           the appeal was pending, the CONTRACTOR must authorize
                           or provide the disputed services promptly and as
                           expeditiously as the member's health condition
                           requires.

                  e.       If the CONTRACTOR or the HSD Administrative Law Judge
                           reverses a decision to deny, limit or delay services
                           and the member received the disputed services while
                           the appeal was pending, the CONTRACTOR must pay for
                           these services.

         EXPEDITED RESOLUTION OF APPEALS
         An expedited resolution of an appeal is an expedited review by the
         CONTRACTOR of a CONTRACTOR action.

         1.       The CONTRACTOR shall establish and maintain an expedited
                  review process for appeals when the CONTRACTOR determines that
                  taking the time for a standard resolution could seriously
                  jeopardize the member's life or health or ability to attain,
                  maintain, or regain maximum function. Such a determination is
                  based on:
                  (i)      a request from the member;
                  (ii)     a provider's support of the member's request;
                  (iii)    a provider's request on behalf of the member; and
                  (iv)     the CONTRACTOR'S independent determination.

                                       37
<PAGE>

         2.       The CONTRACTOR shall ensure that the expedited review process
                  is convenient and efficient for the member.

         3.       The CONTRACTOR shall resolve the appeal within three (3)
                  working days of receipt of the request for an expedited
                  appeal.

         4.       The CONTRACTOR may extend the timeframe by up to 14 calendar
                  days if the member requests the extension, or the CONTRACTOR
                  demonstrates to HSD that there is need for additional
                  information, and the extension is in the member's interest.
                  For any extension not requested by the member, the CONTRACTOR
                  shall make reasonable efforts to give the member prompt oral
                  notification and follow-up within two (2) days.

         5.       The CONTRACTOR shall ensure that punitive action is not taken
                  against a member or a provider who requests an expedited
                  resolution or supports a member's expedited appeal.

         6.       The CONTRACTOR shall provide expedited resolution of an appeal
                  in response to an oral or written request from the member or
                  provider on behalf of the member.

         7.       The CONTRACTOR shall inform the member of the limited time
                  available to present evidence and allegations in fact or law.

         8.       If the CONTRACTOR denies a request for an expedited resolution
                  of an appeal, it shall:

                  (i)      transfer the appeal to the thirty (30) day timeframe
                           for standard resolution, in which the 30-day period
                           begins on the date the CONTRACTOR received the
                           request; and
                  (ii)     make reasonable efforts to give the member prompt
                           oral notice of the denial, and follow up with a
                           written notice within two (2) calendar days;
                  (iii)    inform the member in the written notice of the right
                           to file a grievance if the member is dissatisfied
                           with the CONTRACTOR'S decision to deny an expedited
                           resolution.

         9.       The CONTRACTOR shall document in writing all oral requests for
                  expedited resolution and shall maintain the documentation in
                  the case file.

         Special Rule for Certain Expedited Service Authorization Decisions
         In the case of certain expedited service authorization decisions that
         deny or limit services, the CONTRACTOR shall, within 72 hours of
         receipt of the request for service, automatically file an appeal on
         behalf of the member, make a best effort to give the member oral notice
         of the decision of the automatic appeal, and make a best effort to
         resolve the appeal.

                                       38
<PAGE>

         OTHER RELATED CONTRACTOR PROCESSES

         1.       Notice of CONTRACTOR Action (this also applies to Article 2
                  Section 2.1.(1).N. ii., Denials in the current contract and
                  renumbered in this Amendment as Section 2.1.(1).O.ii.)

                  a.       The CONTRACTOR shall mail a notice of action to the
                           member or provider and all those parties affected by
                           the decision within 10 days of the date of an action.
                           The notice must contain but not be limited to the
                           following:

                           (i)      The action the CONTRACTOR has taken or
                                    intends to take;
                           (ii)     The reasons for the action;
                           (iii)    The member's or the provider's right to file
                                    an appeal of the CONTRACTOR action through
                                    the CONTRACTOR;
                           (iv)     The member's right to request an HSD fair
                                    hearing and what the process would be;
                           (v)      The procedures for exercising the rights
                                    specified;
                           (vi)     The circumstances under which expedited
                                    resolution of an appeal is available and how
                                    to request it;
                           (vii)    The member's right to have benefits continue
                                    pending resolution of an appeal, how to
                                    request the benefits be continued, and the
                                    circumstances under which the member may be
                                    required to pay the costs of these services.

         2.       Information About Grievance System to Providers and
                  Subcontractors
                  The CONTRACTOR must provide information specified in 42 CFR
                  Section, 438.10(g)(1) about the grievance system to all
                  providers and subcontractors at the time they enter into a
                  contract.

         3.       Grievance and/or Appeal Files
                  a.       All grievance and/or appeal files shall be maintained
                           in a secure, designated area and be accessible to HSD
                           upon request, for review. Grievance and/or appeal
                           files shall be retained for six (6) years following
                           the final decision by the CONTRACTOR, HSD, an
                           Administrative Law Judge, judicial appeal, or closure
                           of a file, whichever occurs later.

                  b.       The CONTRACTOR will have procedures for assuring that
                           files contain sufficient information to identify the
                           grievance and/or appeal, the date it was received,
                           the nature of the grievance and/or appeal, notice to
                           the member of receipt of the grievance and/or appeal,
                           all correspondence between the CONTRACTOR and the
                           member, the date the grievance and/or appeal is
                           resolved, the resolution, and notices of final
                           decision to the member and all other pertinent
                           information.

                                       39
<PAGE>

                  c.       Documentation regarding the grievance shall be made
                           available to the member, if requested.

         4.       Reporting
                  a.       The CONTRACTOR shall provide information requested or
                           required by the Centers for Medicare and Medicaid
                           Services.

                  b.       The CONTRACTOR shall provide a quarterly report to
                           HSD of all grievances received from or about Medicaid
                           members, by the CONTRACTOR or its subcontractors in
                           compliance with the timelines and procedures set
                           forth in Section 2.12.(2).

SECTION 2 (SCOPE OF WORK), SECTION 2.10.(2). IS AMENDED TO READ AS FOLLOWS:

2.10.(2).         The CONTRACTOR shall have and maintain adequate protections
                  against financial loss due to outlier (catastrophic) cases and
                  member utilization that is greater than expected. The
                  CONTRACTOR shall submit to HSD such documentation as is
                  necessary to prove the existence of this protection, which may
                  include policies and procedures of reinsurance. Information
                  provided to HSD on the CONTRACTOR's reinsurance must be
                  computed on an actuarially sound basis.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.10.(6).B. IS AMENDED TO READ AS FOLLOWS:

2.10.(6).B.       Per Member Cash Reserve
                  The CONTRACTOR shall maintain three (3) percent of the monthly
                  capitated payments per member with an independent trustee
                  during each month of the first year of the Agreement;
                  provided, however, that if this Agreement replaces or extends
                  a previous agreement with HSD to provide Medicaid managed
                  care, then continued maintenance of the per member cash
                  reserve established and maintained by CONTRACTOR pursuant to
                  such previous agreement shall be deemed to satisfy this
                  requirement. The CONTRACTOR shall maintain this cash reserve
                  for the duration of the Agreement. HSD shall adjust this cash
                  reserve requirement annually, or as needed, based on the
                  number of the CONTRACTOR'S members. Each CONTRACTOR shall
                  maintain its own cash reserve account. This account may be
                  accessed solely for payment for services to that CONTRACTOR'S
                  members in the event that the CONTRACTOR becomes insolvent.
                  Money in the reserve account remains the property of the
                  CONTRACTOR and any interest earned (even if retained in the
                  account) shall be the property of the CONTRACTOR.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.10.(8).A. IS AMENDED TO READ AS FOLLOWS:

2.10.(8).         Timely Payments

                                       40
<PAGE>

                  A.       The CONTRACTOR shall make timely payments to both its
                           contracted and non-contracted providers.
                           i.       The CONTRACTOR shall promptly pay for all
                                    covered emergency services, including
                                    medically necessary testing to determine if
                                    a medical emergency exists, that are
                                    furnished by providers that do not have
                                    arrangements with the CONTRACTOR. This
                                    includes all covered emergency services
                                    provided by a nonparticipating provider,
                                    including those when the time required to
                                    reach the CONTRACTOR'S facilities or the
                                    facilities of a provider with which the
                                    CONTRACTOR has contracted, would mean risk
                                    of permanent damage to the member's health.
                           ii.      The CONTRACTOR shall pay 90 percent of all
                                    clean claims from practitioners who are in
                                    individual or group practice or who practice
                                    in shared health facilities within 30 days
                                    of date of receipt, and shall pay 99 percent
                                    of all such clean claims within 90 days of
                                    receipt. A "clean claim" means a manually or
                                    electronically submitted claim from a
                                    participating provider that: contains
                                    substantially all the required data elements
                                    necessary for accurate adjudication without
                                    the need for additional information from
                                    outside of the health plan's system. It does
                                    not include a claim from a provider who is
                                    under investigation for fraud or abuse, or a
                                    claim under review for medical necessity, or
                                    one that is not materially deficient or
                                    improper, including lacking substantiating
                                    documentation currently required by the
                                    health plan; or one that has no particular
                                    or unusual circumstances requiring special
                                    treatment that prevent payment from being
                                    made by the health plan within thirty days
                                    of the date of receipt if submitted
                                    electronically or forty-five days if
                                    submitted manually.
                           iii.     Consistent with the requirements of MAD Reg.
                                    8.305.11.9.B(1), which applies to clean
                                    claims submitted electronically, and NMSA
                                    Section59A-2-9.2, the CONTRACTOR shall pay
                                    interest at the rate of one and one-half
                                    percent a month on:
                                    (1)      the amount of a clean claim
                                             electronically submitted by a
                                             contracted provider and not paid
                                             within thirty days of the date of
                                             receipt; and
                                    (2)      the amount of a clean claim
                                             manually submitted by a contracted
                                             provider and not paid within
                                             forty-five days of the date of
                                             receipt.
                                    (3)      Interest payments shall accrue and
                                             begin on the 31st day for
                                             electronic submissions and the 46th
                                             day for hard copy.

                                       41
<PAGE>

ARTICLE 2 (FIDUCIARY RESPONSIBILITIES), SECTION 2.10.(11) IS ADDED TO READ AS
FOLLOWS:

2.10.(11)         Special Contract Provisions As required by 42 CFR 438.6 (c
                  )(5): Pursuant to 42 CFR Section 438.6(c)(5), contract
                  provisions for reinsurance, stop-loss limits or other risk
                  sharing methodologies must be computed on an actuarially sound
                  basis.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.12.(4).A., B. AND C IS AMENDED TO READ AS
FOLLOWS:

2.12.(4).A.       The CONTRACTOR is required to submit data to HSD. Subject to
                  the provisions of Section 4.2 of this Agreement, HSD shall
                  define the format and data elements after having consulted
                  with the CONTRACTOR on the definition of these elements.

2.12.(4).B.       The CONTRACTOR is responsible for identifying and reporting to
                  HSD immediately upon discovery any inconsistencies in its
                  automated reporting, CONTRACTOR shall make necessary
                  adjustments to its reports at its own expense.

2.12.(4).C.       HSD, in conjunction with its fiscal agent, intends to
                  implement electronic data interchange standards for
                  transactions related to managed health care. Subject to the
                  provisions of Section 4.2 of this Agreement, the CONTRACTOR
                  shall work with HSD to develop the technical components of
                  such an interface.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.12.(5).B. IS AMENDED TO READ AS FOLLOWS:

2.12.(5).B.       Encounter Submission Time Frames
                  The CONTRACTOR shall submit encounters to HSD within 120 days
                  of the date of service or discharge, regardless of whether the
                  encounter is from a subcontractor or subcapitated arrangement.
                  Encounters that do not clear edit checks shall be returned to
                  the CONTRACTOR for correction and re-submission. The
                  CONTRACTOR shall correct and resubmit the encounter data to
                  HSD.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.12.(5).C IS AMENDED TO READ AS FOLLOWS:

2.12.(5).C.       Encounter Data Elements
                  Encounter data elements are based on the Medicaid-Medicare
                  Common Data Initiative (McData Set) which is a minimum core
                  data set for states and MCOs developed by CMS and HSD for use
                  in managed care. Subject to the provisions of Section 4.2 of
                  this Agreement, HSD may

                                       42
<PAGE>

                  increase or reduce or make mandatory or optional, data
                  elements as it deems necessary.

ARTICLE 2 (SCOPE OF WORK) SECTION 2.13.(6).A. IS AMENDED TO READ AS FOLLOWS:

2.13.(6).A.       Submitting to HSD encounters, according to the specifications
                  included in the SALUD! Systems Manual, within 120 days of the
                  date of service or discharge, regardless of whether the
                  encounter is from a subcontractor or subcapitated arrangement;

ARTICLE 2 (SCOPE OF WORK) SECTION 2.13.(6).E. IS AMENDED TO READ AS FOLLOWS:

2.13.(6).E.       Including written contractual requirements for subcontractors
                  or providers that pay their own claims to submit encounters to
                  the CONTRACTOR on a timely basis to ensure that the CONTRACTOR
                  can submit encounters to HSD within 120 days of the date of
                  service or discharge;

ARTICLE 2 (SCOPE OF WORK), SECTION 2.14 IS ADDED TO READ:

2.14     CARE COORDINATION

         (1)      General  Requirements

         Care coordination is defined as a service that assists clients with
         special health care needs. Care coordination is provided on an as
         needed basis. Care coordination is member-centered, family-focused
         (when appropriate), culturally competent and strength-based service.
         Care coordination helps to ensure that the medical and behavioral
         health needs of the Salud! population are identified and related
         services are provided and coordinated with the individual member and
         family as appropriate. Care coordination operates within the MCO by
         means of a dedicated care coordination staff functioning independently
         but is structurally linked to the other MCO systems, such as quality
         assurance, member services and grievances. Clinical decisions shall be
         based on the medically necessary covered services and not fiscal
         considerations. If both physical and behavioral health conditions
         exist, the care shall be coordinated between both physical and
         behavioral health staff, and the responsibility for the care
         coordination shall be based upon what is in the best interest of the
         member.

         (2)      Primary Elements of Care Coordination

         The CONTRACTOR shall use the following primary elements for care
         coordination:

                  A.       Identify proactively the eligible populations;
                  B.       Identify proactively the needs of the eligible
                           population;

                                       43
<PAGE>

                  C.       Designate an individual who has primary
                           responsibility for coordinating health services and
                           serves as the single point of contact for the member;
                  D.       Inform the member regarding the care coordinator's
                           name and how to contact him/her;
                  E.       Ensure access to a qualified provider who is
                           responsible for developing and implementing a
                           comprehensive treatment plan or plan of care as per
                           applicable provider regulation.
                  F.       Ensure the provision of necessary services and
                           actively assist members and providers in obtaining
                           such services;
                  G.       Ensure appropriate coordination between physical and
                           behavioral health services and non-Salud! services;
                  H.       Coordinate with designated case managers and/or
                           medical/behavioral health service providers;
                  I.       Monitor progress of the members to ensure that
                           services are received and assist in resolving
                           identified problems;
                  J.       Be responsible for linking individuals to case
                           management when needed if a local case
                           manager/designated provider is not available.

ARTICLE 3 (LIMITATION OF COST) IS AMENDED TO READ AS FOLLOWS:

In no event shall capitation fees or other payments provided for in the
Agreement exceed the payment limits set forth in 42 C.F.R. Section 447.361 and
447.362. In no event shall HSD pay twice for the provision of services.

ARTICLE 4 (HSD RESPONSIBILITY) SECTION 4.1.(18). IS AMENDED TO READ AS FOLLOWS:

4.1.(18).         Amend its fee-for-service and other provider agreements, or
                  take such other action as may be necessary to encourage health
                  care providers paid by HSD to enter into contracts with the
                  CONTRACTOR at the applicable Medicaid reimbursement rate for
                  the provider, absent other negotiated arrangements, and take
                  all available measures to have any Medicaid participating
                  provider who is not contracted with the CONTRACTOR accept the
                  applicable Medicaid reimbursement as payment in full for
                  covered services provided in an emergency to a member who is
                  enrolled with the CONTRACTOR. The applicable Medicaid
                  reimbursement rate is defined to exclude disproportionate
                  share and medical education payments.

ARTICLE 4 (HSD RESPONSIBILITY) SECTION 4.1.(20). IS ADDED TO READ AS FOLLOWS:

4.1.(20).         Ensure that no requirement or specification established or
                  provided by HSD under this section conflicts with requirements
                  or specifications established pursuant to the federal Health
                  Insurance Portability and Accountability Act (HIPAA) and the
                  regulations promulgated thereunder.

                                       44
<PAGE>

                  All requirements and specifications established or provided by
                  HSD under this section shall comply with the requirements of
                  Section 4.2 of this Agreement.

ARTICLE 4 (HSD RESPONSIBILITY) SECTION 4.1.(21). IS ADDED TO READ AS FOLLOWS:

4.1.(21).         Cooperate with CONTRACTOR in CONTRACTOR'S efforts to achieve
                  compliance with HIPAA requirements.

ARTICLE 4 (HSD RESPONSIBILITY) SECTION 4.2. IS AMENDED TO READ AS FOLLOWS:

4.2.(1).          HSD and/or its fiscal agent shall implement electronic data
                  standards for transactions related to managed health care. In
                  the event HSD and/or any of its agents are unable to accept
                  standard transactions on or after October 1, 2003, the
                  CONTRACTOR and HSD shall address any additional costs
                  associated with such an event through an amendment to this
                  contract.

4.2.(2).          In the event that HSD and/or its fiscal agent requests that
                  the CONTRACTOR or its subcontractors deviate from or provide
                  information in addition to the information called for in
                  required and optional fields included in the standard
                  transaction code sets established under HIPAA, such request
                  shall be made by amendment to this Agreement in accordance
                  with the provisions of Article 37.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE), SECTION 5.1
IS AMENDED TO READ AS FOLLOWS:

5.1               HSD shall make payments under capitated risk contracts which
                  are actuarially sound. Rates shall be developed in accordance
                  with generally accepted actuarial principles and practices.
                  Rates must be appropriate for the populations to be covered,
                  the services to be furnished under the contract and be
                  certified as meeting the foregoing requirements by actuaries.
                  The actuaries must meet the qualification standards
                  established by the American Academy of Actuaries and follow
                  the practice standards established by the Actuarial Standards
                  Board. To the extent, if any, it is determined by the
                  appropriate taxing authority, that the performance of this
                  Agreement by the CONTRACTOR is subject to taxation, the
                  amounts paid by HSD to the CONTRACTOR under this Agreement,
                  shall include such tax(es). The CONTRACTOR is responsible for
                  reporting and remitting all applicable taxes to the
                  appropriate taxing agency.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE) SECTION 5.2.
IS AMENDED TO READ AS FOLLOWS:

                                       45
<PAGE>

5.2      The monthly rates set forth in Attachments A and B shall be subject to
         renegotiation during the Agreement if HSD determines that it is
         necessary due to change in Federal or State law or in the
         appropriations made available for these tasks as set forth in Article
         14, Appropriations, and Article 12, Contract Modification. Rates shall
         in all events be actuarially sound. In addition, in the event that HSD
         implements a significant or material program change under this or any
         other provision of this Agreement, such change including but not
         limited to the rates paid hereunder and the costs associated with the
         change, shall be adjusted appropriately pursuant to a mutually
         agreeable amendment to this Agreement in accordance with the provisions
         of Article 37.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE), SECTION
5.3.(1). IS AMENDED TO READ AS FOLLOWS:

5.3.(1).          HSD shall pay a capitated amount to the CONTRACTOR for the
                  provision of the managed care benefit package at the rates
                  specified below. The monthly rate for each member is based on
                  actuarially sound capitation rate cells. Medicaid members
                  shall be held harmless against any liability for debts of a
                  CONTRACTOR that were incurred within the Agreement in
                  providing covered services to the Medicaid member.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE), SECTION
5.3.(4). IS ADDED TO READ AS FOLLOWS:

5.3.(4).          42 CFR Section 438.6(c), which regulates participation in the
                  Medicaid program, requires that all payments under risk
                  contracts and all risk-sharing mechanisms in contracts must be
                  actuarially sound and approved as such by the Centers for
                  Medicare and Medicaid Strategies (CMS) prior to
                  implementation. To meet the requirement for actuarial
                  soundness, all capitation rates must be certified by an
                  actuary meeting the qualification standards of the American
                  Academy of Actuaries following generally accepted actuarial
                  principles, as set forth in the standards of practice
                  established by the Actuarial Standards Board. Accordingly, the
                  State's offer of all capitation rates referred to in the
                  attached Schedule of this contract is contingent on both
                  certification by the State's actuary and final approval by
                  CMS, prior to becoming effective for payment purposes. In the
                  event such certification or approval is not obtained for any
                  or all capitation rates subject to this regulation, the State
                  reserves the right to renegotiate these rates. The state's
                  decision to renegotiate the rates under the circumstances
                  described above is binding on the CONTRACTOR.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE) SECTION
5.5.(1) IS AMENDED TO READ AS FOLLOWS:

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5.5.(1).          The capitation rates shall remain in effect as referenced in
                  Attachments A and B for the first twenty-four (24) months
                  following the effective date of the original Agreement and
                  thereafter the capitation rates shall be effective for twelve
                  (12) months. Capitation rates may be reviewed if this
                  Agreement is extended with the CONTRACTOR pursuant to this
                  Agreement. Upon mutual agreement of the CONTRACTOR and HSD,
                  the capitation rates may be adjusted based on factors such as
                  changes in the scope of work, a Native American MCO is
                  established or a Navajo Medicaid Agency created, CMS requires
                  a modification of the state's waiver or new or amended federal
                  or state laws or regulations are implemented, inflation,
                  significant changes in the demographic characteristics of the
                  member population, or the disproportionate enrollment
                  selection of the CONTRACTOR by members in certain rate
                  cohorts. Any changes to the rates shall be actuarially sound
                  and negotiated and implemented pursuant to Articles 12
                  (Contract Modification) and 37 (Amendments) of this Agreement.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE) SECTION
5.6.(4) IS AMENDED TO READ AS FOLLOWS:

5.6.(4).          HSD shall have the discretion to recoup payments for members
                  who are incorrectly enrolled with more than one CONTRACTOR
                  including members categorized as newborns or X5; payments made
                  for members who die prior to the enrollment month for which
                  payment was made; and/or payments for members whom HSD later
                  determines were not eligible for Medicaid during the
                  enrollment month for which payment was made. Notwithstanding
                  the foregoing, in the absence of fraud on the part of
                  CONTRACTOR, HSD shall not have the right to recoup any payment
                  made to the CONTRACTOR if either the CONTRACTOR (and/or its
                  subcontractors) provided any health care services to the
                  member during the relevant period of time or more than
                  twenty-four months have elapsed since the payments were made
                  unless HSD is required by a federal agency to go beyond the
                  twenty-four month period. To allow for claim submission lags,
                  HSD will not request a payment recoupment until 120 days has
                  elapsed from the date of which the enrollment error was made.
                  Any process that automates the recoupment procedures will be
                  mutually agreed upon in advance by HSD and the CONTRACTOR and
                  documented in writing. The CONTRACTOR has the right to dispute
                  any recoupment requests in accordance with Article 15
                  (DISPUTES).

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE), SECTION
5.6.(8). IS AMENDED TO READ AS FOLLOWS:

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5.6.(8).          On a periodic basis, HSD shall provide the CONTRACTOR with
                  coordination of benefits and third party liability information
                  for enrolled members. The CONTRACTOR shall:

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE), SECTION
5.6.(8).B IS AMENDED TO READ AS FOLLOWS:

5.6.(8).B.        Have the sole right of subrogation, and to recovery of and/or
                  to attempt to recover any third-party resources available to
                  Medicaid members but shall make records pertaining to Third
                  Party Collections (TPL) for members available to HSD for audit
                  and review.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE), SECTION
5.8.(3) IS AMENDED TO READ AS FOLLOWS:

5.8.(3).          The CONTRACTOR is required to pay for all emergency and
                  poststabilization care services that are medically necessary
                  until the emergency medical condition is stabilized and
                  maintained such that within reasonable medical probability, no
                  material deterioration of the patient's condition is likely to
                  result from or occur during discharge of the patient or
                  transfer of the patient to another facility.

ARTICLE 5 (COMPENSATION & PAYMENT REIMBURSEMENT FOR MANAGED CARE), SECTION 5.9
IS ADDED TO READ AS FOLLOWS:

5.9.     The CONTRACTOR shall accept the capitation rate paid each month by the
         HSD as payment in full for all services to be provided pursuant to this
         Agreement, including all administrative costs associated therewith. A
         minimum of eighty-five percent (85%) of all the CONTRACTOR'S income
         generated under this Agreement, including but not limited to Third
         Party Recoupments and Interest, shall be expended on the medical and
         related services required under this Agreement to be provided to the
         CONTRACTOR'S Medicaid Members. If the CONTRACTOR does not expend a
         minimum of eighty-five percent (85%) on medical and related services of
         the Agreement, the HSD will withhold an amount so that the CONTRACTOR'S
         ratio for service expenditures are eighty-five percent (85%). The HSD
         will calculate the CONTRACTOR'S income at the end of the State Fiscal
         Year to determine if eighty-five percent (85%) was expended on the
         medical and related services required under the contract utilizing
         reported information and the Department of Insurance Reports.
         Administrative costs and other financial information will be monitored
         on a regular basis by the HSD.

         Members shall be entitled to receive all covered services for the
         entire period for which payment has been made by the HSD. Any and all
         costs incurred by the CONTRACTOR in excess of the capitation payment
         will be borne in full by the CONTRACTOR. Interest generated through
         investment of funds paid to the

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         CONTRACTOR pursuant to this Agreement shall be the property of the
         CONTRACTOR.

ARTICLE 8 (ENFORCEMENT) SECTION 8.1.(2).B. IS AMENDED TO READ AS FOLLOWS:

8.1.(2).B.        Directed Plans of Correction.  The CONTRACTOR shall be
                  required to provide to HSD, within fourteen (14) days, a
                  response to the directed plan of correction as directed by
                  HSD.

ARTICLE 8 (ENFORCEMENT), SECTION 8.1.(2).C.III IS AMENDED TO READ AS FOLLOWS:

8.1.(2).C.iii.    The limit on, or specific amount of, civil monetary penalties
                  that HSD may impose upon the CONTRACTOR varies depending upon
                  the nature and severity of the CONTRACTOR'S action or failure
                  to act, as specified below:
                  a.       A maximum of $25,000 for each of the following
                           determinations: failure to provide medically
                           necessary services; misrepresentation or false
                           statements to members, potential members, or health
                           care provider(s); or failure to comply with physician
                           incentive plan requirements and marketing violations.
                  b.       A maximum of $100,000 for each of the following
                           determinations: discrimination; or misrepresentation
                           or false statements to HSD or CMS.
                  c.       A maximum of $15,000 for each member HSD determines
                           was not enrolled, or reenrolled, or enrollment was
                           terminated because of a discriminatory practice. This
                           is subject to an overall limit of $100,000 under (b.)
                           above.
                  d.       A maximum of $25,000 or double the amount of excess
                           charges whichever is greater, for premiums or charges
                           in excess of the amount permitted under the Medicaid
                           program. HSD will deduct from the penalty the amount
                           of overcharge and return it to the affected
                           member(s).

ARTICLE 8. (ENFORCEMENT), SECTION 8.1.(2).L. IS AMENDED TO READ AS FOLLOWS:

8.1.(2).L.        Temporary Management
                  1.       Optional imposition of sanction. HSD may impose
                           temporary management to oversee the operations of the
                           CONTRACTOR upon a finding by the Secretary of HSD
                           that there is continued egregious behavior by the
                           CONTRACTOR, including but not limited to behavior
                           that is described in 42 CFR Section 438.700, or that
                           is contrary to any requirements of 42 USC, Sections
                           42 USC 1396b (m) or 1396u-2; there is substantial
                           risk to members health; or the sanction is necessary
                           to ensure the health of the CONTRACTOR'S members
                           while improvement is made to remedy violations under
                           42

                                       49
<PAGE>

                           CFR Section 438.700; or until there is an orderly
                           termination or reorganization of the CONTRACTOR.

                  2.       The CONTRACTOR does not have the right to a
                           predetermination hearing prior to the appointment of
                           temporary management if the conditions above are not
                           met.

                  3.       Required imposition of sanction. HSD shall impose
                           temporary management (regardless of any other
                           sanction that may be imposed) if it finds that the
                           CONTRACTOR has repeatedly failed to meet substantive
                           requirements in 42 USC, Section 1396b (m) or 1396u-2
                           or 42 CFR 438, Subpart I (Sanctions).

                  4.       Hearing. HSD shall not delay imposition of temporary
                           management to provide a hearing before imposing this
                           sanction.

                  5.       Duration of Sanction. HSD shall not terminate
                           temporary management until it determines that the
                           CONTRACTOR can ensure that the sanctioned behavior
                           will not recur.

ARTICLE 8. (ENFORCEMENT), SECTION 8.1.(2).M. IS AMENDED TO READ AS FOLLOWS:

8.1.(2).M.        Terminate Enrollment
                  HSD shall grant members the right to terminate enrollment
                  without cause as described in 42 CFR Section 438.702 (a) (3),
                  and shall notify the affected members of their right to
                  terminate enrollment.

ARTICLE 8. (ENFORCEMENT), SECTION 8.1.(2).O. IS AMENDED TO READ AS FOLLOWS:

8.1.(2).O.        Intermediate Sanctions

                  1.       Basis for imposition of Sanctions: HSD will impose
                           the foregoing sanctions if HSD determines that the
                           CONTRACTOR acts or fails to act as follows:
                           (a)      fails substantially to provide medically
                                    necessary services and items that the
                                    CONTRACTOR is required to provide, under law
                                    or under its contract with HSD, to a member
                                    covered under the contract;
                           (b)      imposes on members premiums or charges that
                                    are in excess of the premiums or charges
                                    permitted under the Medicaid program;
                           (c)      acts to discriminate among members on the
                                    basis of their health status or need for
                                    health care services. This includes
                                    termination of enrollment or refusal to
                                    reenroll a member, except as permitted by
                                    the Medicaid program, or any practice that
                                    would reasonably be expected to discourage

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<PAGE>

                                    enrollment by members whose medical
                                    condition or history indicate probable need
                                    for substantial future medical services;
                           (d)      misrepresents or falsifies information that
                                    it furnishes to HSD or CMS;
                           (e)      misrepresents or falsifies information that
                                    it furnishes to a member, potential member,
                                    or health care provider;
                           (f)      fails to comply with Federal requirements
                                    for physician incentive plans, including
                                    disclosures;
                           (g)      has distributed directly, or becomes aware
                                    of material distributed indirectly through
                                    any agent or independent subcontractor,
                                    marketing materials that have not been
                                    approved by HSD or that contain false or
                                    materially misleading information; or
                           (h)      fails to perform in any other contract
                                    areas.

                  2.       HSD's determination of any of the above may be based
                           on findings from onsite reviews; surveys or audits;
                           member or other complaints; financial status; or any
                           other source.

                  3.       HSD retains authority to impose additional sanctions
                           under state statutes or state regulations that
                           address areas of noncompliance specified in 42 CFR
                           Section 438.700, as well as additional areas of
                           noncompliance.

                  4.       Intermediate Sanctions: The Secretary of HSD or
                           designee will impose upon the CONTRACTOR any of the
                           following intermediate sanctions:
                           (a)      civil monetary penalties in the amounts
                                    specified in the 42 CFR, Section 438.704;
                           (b)      appointing temporary management for the
                                    CONTRACTOR or a State Monitor as provided in
                                    42 CFR Section 438.706;
                           (c)      granting members the right to terminate
                                    enrollment without cause (affected members
                                    will be notified by HSD of their right to
                                    disenroll);
                           (d)      suspending all new enrollment, including
                                    default enrollment after the effective date
                                    of sanction;
                           (e)      suspending of payment for members enrolled
                                    after the effective date of the sanction
                                    until HSD or CMS is satisfied that the
                                    reason for imposing the sanction no longer
                                    exists and is not likely to recur.

ARTICLE 8 (ENFORCEMENT) 8.1. (2).Q. IS AMENDED TO READ AS FOLLOWS:

8.1.(2).Q.        The Secretary of HSD or the designee has the authority to
                  terminate the contract and enroll the CONTRACTOR'S members in
                  another MCO or

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<PAGE>

                  other MCOs, or provide their Medicaid benefits through other
                  options included in the State plan, if HSD determines that the
                  CONTRACTOR has failed to do either of the following:

                  1.       Carry out the substantive terms of its contract; or
                  2.       Meet applicable requirements in Sections 1932,
                           1903(m), and 1905 of the Social Security Act.

ARTICLE 8 (ENFORCEMENT) 8.1.(2).R. IS ADDED TO READ AS FOLLOWS:

8.1.(2).R.        Notice of sanction: Except as provided in this Article
                  regarding Temporary Management, before imposing any of the
                  intermediate sanctions specified, HSD must give the CONTRACTOR
                  timely written notice that explains the basis and nature of
                  the sanction and any other due process protections that HSD
                  elects to provide.

                  a.       Pre-termination hearing: Before terminating the
                           contract, HSD must provide the CONTRACTOR a
                           pre-termination hearing, which consist of the
                           following procedures:
                           1.       HSD shall give the CONTRACTOR written notice
                                    of its intent to terminate, the reason for
                                    the termination, and the time and place of
                                    the hearing.
                           2.       After the hearing, HSD shall give the
                                    CONTRACTOR written notice of the decision
                                    affirming or reversing the proposed
                                    termination of the contract and, for an
                                    affirming decision, the effective date of
                                    termination.
                           3.       For an affirming decision, give members of
                                    the CONTRACTOR notice of the termination and
                                    information, consistent with their options
                                    for receiving Medicaid services following
                                    the effective date of termination.
                           4.       The pre-termination hearing procedures shall
                                    proceed according to Section 15.3 (Dispute
                                    Procedures) of the Agreement.

                  b.    HSD will give the CMS Regional Office written notice
                        whenever it imposes or lifts a sanction for one of the
                        violations listed in Section 8.1.(2).O. of this Article.
                        The notice will be given no later than 30 days after HSD
                        imposes or lifts a sanction; and must specify the
                        affected CONTRACTOR, the kind of sanction, and the
                        reason for HSD's decision to impose or lift the
                        sanction.

ARTICLE 8 (ENFORCEMENT) SECTION 8.3 IS AMENDED TO READ AS FOLLOWS:

8.3.     Notice and Cure
         HSD shall provide reasonable written notice of its decision to impose
         sanctions on the CONTRACTOR and, as HSD may deem necessary and proper,
         subsequently to members and others who may be directly interested. Such
         written notice shall set forth the effective date and the reason(s) for
         the

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<PAGE>

         sanctions. Prior to imposing sanctions, HSD shall afford the CONTRACTOR
         a reasonable opportunity to cure, unless such opportunity would result
         in immediate harm to members, or the improper diversion of Medicaid
         program funds.

ARTICLE 9 (TERMINATION) SECTION 9.1.(17) IS AMENDED TO READ AS FOLLOWS:

9.1.(17).         By the CONTRACTOR, on at least sixty (60) days prior written
                  notice in the event that HSD is unable to make future payments
                  of undisputed capitation payments due to a lack of a state
                  budget or legislative appropriation;

ARTICLE 9 (TERMINATION) SECTION 9.1.(18). IS ADDED TO READ AS FOLLOWS:

9.1.(18).         By either party, upon 90 days written notice, in the event of
                  a material change in the Medicaid managed care program,
                  regardless of the cause of or reason for such change, if the
                  parties after negotiating in good faith are unable to agree on
                  the terms of an amendment to incorporate such change; and

ARTICLE 9 (TERMINATION) SECTION 9.1.(19). IS RENUMBERED TO READ AS FOLLOWS:

9.1.(19).         By the CONTRACTOR on sixty (60) days prior written notice with
                  cause, or one hundred eighty (180) days written notice without
                  cause.

ARTICLE 10 (TERMINATION AGREEMENT), SECTION 10.3 IS ADDED TO READ AS FOLLOWS:

10.3.    Dispute Procedure Involving Contract Termination Proceedings. In the
         event HSD seeks to terminate this Agreement with the CONTRACTOR, the
         CONTRACTOR may appeal the termination directly to the HSD Secretary
         within ten (10) days of receiving HSD's termination notice.

         (1)      The HSD Secretary shall acknowledge receipt of the
                  CONTRACTOR'S appeal request within three (3) calendar days of
                  the date the appeal request is received.
         (2)      The HSD Secretary will conduct a formal hearing on the
                  contract termination issues raised by the CONTRACTOR.
         (3)      The CONTRACTOR and MAD, or its successor, shall be allowed to
                  present evidence in the form of documents and testimony.
         (4)      The parties to the hearing are the CONTRACTOR and MAD, or its
                  successor.
         (5)      The hearing shall be recorded by a court reporter paid for
                  equally by HSD and the CONTRACTOR. Copies of transcripts of
                  the hearing shall be paid by the party requesting the copy.
         (6)      The court reporter shall swear witnesses under oath.

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<PAGE>

         (7)      The HSD Secretary shall determine which party presents its
                  issues first and shall allow both sides to question each
                  other's witnesses in the order determined by the Secretary.
         (8)      The HSD Secretary may, but is not required, to allow opening
                  statements from the parties before taking evidence.
         (9)      The HSD Secretary may, but it not required, to request written
                  findings of fact, conclusions of law and closing argument or
                  any combination thereof. Or, the Secretary may, but is not
                  required, to allow only oral closing argument.
         (10)     The HSD Secretary shall render a written decision and mail the
                  decision to the CONTRACTOR within sixty (60) days of the date
                  the request for a hearing is received.
         (11)     MAD, or its successor, and the CONTRACTOR may be represented
                  by counsel or another representative of choice at the hearing.
                  The legal or other representative shall submit a written
                  request for an appearance with the Secretary within fifteen
                  (15) days of the date of the hearing request.
         (12)     The civil rules of procedure and rules of evidence shall not
                  apply, but the Secretary may limit evidence that is redundant
                  or not relevant to the contract termination issues presented
                  for review.
         (13)     The Secretary's written decision shall be mailed by certified
                  mail, postage prepaid, to the CONTRACTOR. Another copy of the
                  decision shall be sent to the MAD director.

ARTICLE 14 (APPROPRIATIONS) SECTION 14.1 IS AMENDED TO READ AS FOLLOWS:

14.1     The terms of this Agreement are contingent upon sufficient
         appropriations or authorizations being made by either the Legislature
         of New Mexico, Health and Human Services (HHS)/Centers for Medicare and
         Medicaid Services (CMS), or the U.S. Congress for the performance of
         this Agreement. If sufficient appropriations and authorizations are not
         made by either the Legislature, HHS/CMS or the Congress, this Agreement
         shall be subject to termination or amendment. Subject to the provisions
         of Article 27 of this Agreement, HSD's decision as to whether
         sufficient appropriations or authorizations exist shall be accepted by
         the CONTRACTOR and shall be final and binding. Any changes to the Scope
         of Work and compensation to CONTRACTOR effected pursuant to this
         Section 14.1 shall be negotiated, reduced to writing and signed by the
         parties in accordance with Article 37 (Amendments) of this Agreement
         and any other applicable state or federal rules, regulations or
         statutes.

ARTICLE 14 (APPROPRIATIONS) SECTION 14.2 IS AMENDED TO READ AS FOLLOWS:

14.2     To the extent CMS, legislation or congressional action impacts the
         amount of appropriation available for performance under this contract,
         HSD has the right to amend the Scope of Work, in its discretion, which
         shall be effected by HSD sending written notice to the CONTRACTOR. Any
         changes to the Scope of Work and compensation to CONTRACTOR effected
         pursuant to this Section

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<PAGE>

         14.2 shall be negotiated, reduced to writing and signed by the parties
         in accordance with Article 37 (Amendments) of this Agreement and any
         other applicable state or federal rules, regulations or statutes.

ARTICLE 15 (DISPUTES), SECTION 15.3.(1). IS AMENDED TO READ AS FOLLOWS:

15.3.    Dispute Procedures for Other than Contract Termination Proceedings

         (1)      Except for contract termination (specified in Section 8.1.(2)
                  (Q), any dispute concerning sanctions imposed under this
                  Agreement shall be reported in writing to the MAD director
                  within fifteen (15) days of the date the reporting party
                  receives notice of the sanction. The decision of the Director
                  regarding the dispute shall be delivered to the parties in
                  writing within thirty (30) days of the date the Director
                  receives the written dispute. The decision shall be final and
                  conclusive unless, within fifteen (15) days from the date of
                  the decision, either party files with the HSD Secretary a
                  written appeal of the decision of the Director.

ARTICLE 26 (ERRONEOUS ISSUANCE OF PAYMENT OR BENEFITS) IS AMENDED TO READ AS
FOLLOWS:

In the event of an error which causes payment(s) to the CONTRACTOR to be issued
by HSD, the CONTRACTOR shall reimburse the State within thirty (30) days of
written notice of such error for the full amount of the payment, subject to the
provisions of Section 5.6(4) of this Agreement. Interest shall accrue at the
statutory rate on any amounts not paid and determined to be due after the
thirtieth (30th) day following the notice.

ARTICLE 27 (EXCUSABLE DELAYS) IS AMENDED TO READ AS FOLLOWS:

The CONTRACTOR shall be excused from performance hereunder for any period that
it is prevented from performing any services hereunder in whole or in part as a
result of an act of nature, war, civil disturbance, epidemic, court order, or
other cause beyond its reasonable control, and such nonperformance shall not be
a default hereunder or ground for termination of the Agreement.

In addition the CONTRACTOR shall be excused from performance hereunder during
any period for which the State of New Mexico has failed to enact a budget or
appropriate monies to fund the managed care program provided that the CONTRACTOR
notifies HSD, in writing, of its intent to suspend performance and HSD is unable
to resolve the budget or appropriation deficiencies within forty-five (45) days.

In addition, the CONTRACTOR shall be excused from performance hereunder for
insufficient payment by HSD provided that the CONTRACTOR notifies HSD in writing
of its intent to suspend performance and HSD is unable to remedy the monetary
shortfall within 45 days.

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<PAGE>

ARTICLE 28 (MARKETING), SECTION 28.2. IS AMENDED IN ITS ENTIRETY TO READ AS
FOLLOWS:

28.2     HSD shall review and approve the content, comprehension level, and
         language(s) of all marketing materials directed at members before use.

         (1)      The CONTRACTOR shall distribute its marketing materials to its
                  entire service area;
         (2)      The CONTRACTOR shall not seek to influence enrollment in
                  conjunction with the sale or offering of any private
                  insurance, not including public/private partnerships; and
         (3)      The CONTRACTOR shall specify the methods by which the entity
                  assures HSD that marketing materials are accurate and do not
                  mislead, confuse, or defraud the members or HSD. Statements
                  that will be considered inaccurate, false, or misleading
                  include, but are not limited to, any assertion or statement
                  (whether written or oral )that:
                  (a)      the member must enroll in the MCO in order to obtain
                           benefits or in order not to lose benefits; or
                  (b)      The MCO is endorsed by CMS, the Federal or State
                           Government, or similar entity.

ARTICLE 28 (MARKETING) SECTION 28.3.(1). IS AMENDED TO READ AS FOLLOWS:

28.3.(1).         Marketing and/or outreach materials shall meet requirements
                  for all communication with Medicaid members, as set forth in
                  Section MAD 8.305.5.16, MEDICAID MANAGED CARE MARKETING
                  GUIDELINES.

ARTICLE 28 (MARKETING), SECTION 28.4.(1).G. IS AMENDED TO READ AS FOLLOWS:

28.4.(1).G.       Directly or indirectly conducting door-to-door, telephonic or
                  other "Cold Call" marketing. "Cold Call" marketing is defined
                  as any unsolicited personal contact by the MCO with a
                  potential member for the purpose of marketing. Marketing means
                  any communication from an MCO to a Medicaid member who is not
                  enrolled in that entity, that can reasonably be interpreted as
                  intended to influence the member to enroll in that particular
                  MCO's Medicaid product, or either not to enroll in, or to
                  disenroll from, another MCO's Medicaid product. The CONTRACTOR
                  may send informational material regarding their benefit
                  package to potential members.

ARTICLE 28 (MARKETING), SECTION 28.8. IS AMENDED TO READ AS FOLLOWS:

28.8              Health Education and Outreach Materials may be distributed to
                  the CONTRACTOR'S members by mail or in connection with
                  exhibits or other organized events, including but not limited
                  to health fair, booths at

                                       56
<PAGE>

                  community events and health plan hosted health improvement
                  events. Health Education means programs, services or
                  promotions that are designed or intended to inform the
                  CONTRACTOR'S actual or potential members upon request about
                  the issues related to health lifestyles, situations that
                  affect or influence health status or methods or modes of
                  medical treatment. Outreach is the means of educating or
                  informing the CONTRACTOR'S actual or potential members about
                  health issues. Health Education and Outreach materials include
                  but are not limited to general distribution brochures, member
                  newsletters, posters, member handbooks. HSD shall not approve
                  health education materials.

ARTICLE 32 (CONFIDENTIALITY), SECTION 32.1 IS AMENDED TO READ AS FOLLOWS:

32.1     Any confidential information, as defined in State or Federal law, code,
         rules or regulations or otherwise applicable by the Code of Ethics,
         regarding HSD's members or providers given to or developed by the
         CONTRACTOR and its subcontractors shall not be made available to any
         individual or organization by the CONTRACTOR and its subcontractors
         without the prior written approval of HSD. Specifically the CONTRACTOR
         shall ensure that medical records and any other health and enrollment
         information that identifies a particular member, that the CONTRACTOR
         uses and discloses such individually identifiable health information in
         accordance with the privacy requirements in 45 CFR parts 160 and 164,
         subparts A and E, to the extent that these requirements are applicable.

ARTICLE 32 (CONFIDENTIALITY) SECTION 32.5. IS ADDED TO READ AS FOLLOWS:

32.5     The CONTRACTOR and HSD shall each comply with all requirements
         established under HIPAA regarding the privacy of individually
         identifiable health information and notices.

ARTICLE 33 (COOPERATION WITH MEDICAID FRAUD CONTROL UNIT) SECTION 33.1. IS
AMENDED TO READ AS FOLLOWS:

33.1     The CONTRACTOR shall make an initial report to HSD within five working
         days when, in CONTRACTOR'S professional judgment, suspicious activities
         may have occurred. The CONTRACTOR shall then take steps to establish
         whether or not, in its professional judgment, potential fraud has
         occurred. The CONTRACTOR will then make a report to the HSD and submit
         any applicable evidence in support of its findings. If HSD decides to
         refer the matter to the New Mexico State Medicaid Fraud Control Unit of
         the Attorney General's Office (MFCU), HSD will notify the CONTRACTOR
         within five working days of making the referral. The CONTRACTOR shall
         cooperate fully with any and all requests from MFCU for additional
         documentation or other types of collaboration in accordance with
         applicable law.

                                       57
<PAGE>

CONTRACTOR

BY:  /s/ ILLEGIBLE                          DATE:   6/12/03
    -------------------------------
TITLE:   PRESIDENT

STATE OF NEW MEXICO

BY:  /s/ ILLEGIBLE                          DATE:   6/30/03
    -------------------------------
         SECRETARY
         HUMAN SERVICES DEPARTMENT

APPROVED AS TO FORM AND LEGAL SUFFICIENCY:

BY:  /s/ ILLEGIBLE                          DATE:   6/19/03
    -------------------------------
         GENERAL COUNSEL
         HUMAN SERVICES DEPARTMENT

OFFICE OF THE ATTORNEY GENERAL

BY:  /s/ ILLEGIBLE                          DATE:   8/5/03
    -------------------------------

THE RECORDS OF THE TAXATION AND REVENUE DEPARTMENT REFLECT THAT THE CONTRACTOR
IS REGISTERED WITH THE TAXATION AND REVENUE DEPARTMENT OF THE STATE OF NEW
MEXICO TO PAY GROSS RECEIPTS AND COMPENSATING TAXES.

TAXATION AND REVENUE DEPARTMENT
ID NUMBER  02 02 1710002

BY:  /s/ Julie Rico                         DATE:   6/23/03
    -------------------------------

DEPARTMENT OF FINANCE AND ADMINISTRATION

BY:  /s/ ILLEGIBLE                          DATE:   8/26/03
    -------------------------------
         STATE CONTRACTS OFFICER

                                       58

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