Document:

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                                                                    Exhibit 10.5

                                           TDH Document No. 4810323494* 2001A-C
                                           Orig #23923

                                      1999
                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO

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                               TABLE OF CONTENTS

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

ARTICLE II     DEFINITIONS................................................     2

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

3.1      ORGANIZATION AND ADMINISTRATION..................................    14
3.2      NON-PROVIDER SUECONTRACTS........................................    15
3.3      MEDICAL DIRECTOR.................................................    17
3.4      PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS................    18
3.5      RECORDS REQUIREMENTS AND RECORDS RETENTION.......................    19
3.6      HMO REVIEW OF TDH MATERIALS......................................    20
3.7      HMO TELEPHONE ACCESS REQUIREMENTS................................    21

ARTICLE IV    FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS........    21

4.1      FISCAL SOLVENCY..................................................    21
4.2      MINIMUM NET WORTH................................................    22
4.3      PERFORMANCE BOND.................................................    22
4.4      INSURANCE........................................................    22
4.5      FRANCHISE TAX....................................................    23
4.6      AUDIT............................................................    23
4.7      PENDING OR THREATENED LITIGATION.................................    23
4.8      MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN
         HMO OPERATIONS...................................................    23
4.9      THIRD PARTY RECOVERY.............................................    24
4.10     CLAIMS PROCESSING REQUIREMENTS...................................    25
4.11     INDEMNIFICATION..................................................    27

ARTICLE V     STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS............    28

5.1      COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS...................    28
5.2      PROGRAM INTEGRITY................................................    28
5.3      FRAUD AND ABUSE COMPLIANCE PLAN..................................    28
5.4      SAFEGUARDING INFORMATION.........................................    31
5.5      NON-DISCRIMINATION...............................................    31
5.6      HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs).....................    32
5.7      BUY TEXAS........................................................    33
5.8      CHILD SUPPORT....................................................    33
5.9      REQUESTS FOR PUBLIC INFORMATION..................................    33
5.10     NOTICE AND APPEAL................................................    34

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ARTICLE VI    SCOPE OF SERVICES...........................................    34

6.1      SCOPE OF SERVICES................................................    34
6.2      PRE-EXISTING CONDITIONS..........................................    37
6.3      SPAN OF ELIGIBILITY..............................................    37
6.4      CONTINUITY OF CARE AND OUT-OF-NET WORK PROVIDERS.................    38
6.5      EMERGENCY SERVICES...............................................    39
6.6      BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS..........    40
6.7      FAMILY PLANNING - SPECIFIC REQUIREMENTS..........................    42
6.8      TEXAS HEALTH STEPS (EPSDT).......................................    43
6.9      PERINATAL SERVICES...............................................    46
6.10     EARLY CHILDHOOD INTERVENTION (ECI)...............................    47
6.11     SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN,
         INFANTS, AND CHILDREN
         (WIC) - SPECIFIC REQUIREMENTS....................................    48
6.12     TUBERCULOSIS (TB)................................................    49
6.13     PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS........    50
6.14     HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS...............    52
6.15     SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN
         IMMUNODEFICIENCY VIRUS (HIV).....................................    53
6.16     BLIND AND DISABLED MEMBERS.......................................    55

ARTICLE VII   PROVIDER NETWORK REQUIREMENTS...............................    56

7.1      PROVIDER ACCESSIBILITY...........................................    56
7.2      PROVIDER CONTRACTS...............................................    57
7.3      PHYSICIAN INCENTIVE PLANS........................................    61
7.4      PROVIDER MANUAL AND PROVIDER TRAINING............................    63
7.5      MEMBER PANEL REPORTS.............................................    64
7.6      PROVIDER COMPLAINT AND APPEAL PROCEDURE..........................    64
7.7      PROVIDER QUALIFICATIONS - GENERAL................................    64
7.8      PRIMARY CARE PROVIDERS...........................................    66
7.9      OB/GYN PROVIDERS.................................................    70
7.10     SPECIALTY CARE PROVIDERS.........................................    70
7.11     SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES..................    71
7.12     BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA).........    71
7.13     SIGNIFICANT TRADITIONAL PROVIDERS (STPs).........................    73
7.14     RURAL HEALTH PROVIDERS...........................................    73
7.15     FEDERALLY QUALIFIED HEALTH CENTERS (FOHC) AND RURAL HEALTH
         CLINICS (RHC)....................................................    74
7.16     COORDINATION WITH PUBLIC HEALTH..................................    75
7.17     COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND
         REGULATORY SERVICES..............................................    79

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7.18     DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS
         AND ANHCs).......................................................    80

ARTICLE VIII  MEMBER SERVICES REQUIREMENTS................................    82

8.1      MEMBER EDUCATION.................................................    82
8.2      MEMBER HANDBOOK..................................................    82
8.3      ADVANCE DIRECTIVES...............................................    82
8.4      MEMBER ID CARDS..................................................    84
8.5      MEMBER HOTLINE...................................................    85
8.6      MEMBER COMPLAINT PROCESS.........................................    85
8.7      MEMBER NOTICE, APPEALS AND FAIR HEARINGS.........................    87
8.8      MEMBER ADVOCATES.................................................    89
8.9      MEMBER CULTURAL AND LINGUISTIC SERVICES..........................    89

ARTICLE IX    MARKETING AND PROHIBITED PRACTICES..........................    91

9.1      MARKETING MATERIAL MEDIA AND DISTRIBUTION........................    91
9.2      MARKETING ORIENTATION AND TRAINING...............................    92
9.3      PROHIBITED MARKETING PRACTICES...................................    92
9.4      NETWORK PROVIDER DIRECTORY.......................................    93

ARTICLE X     MIS SYSTEM REQUIREMENTS.....................................    93

10.1     MODEL MIS REQUIREMENTS...........................................    93
10.2     SYSTEM-WIDE FUNCTIONS............................................    95
10.3     ENROLLMENT/ELIGIBILITY SUBSYSTEM.................................    96
10.4     PROVIDER SUBSYSTEM...............................................    97
10.5     ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM............................    98
10.6     FINANCIAL SUBSYSTEM..............................................    99
10.7     UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM........................   100
10.8     REPORT SUBSYSTEM.................................................   102
10.9     DATA INTERFACE SUBSYSTEM.........................................   103
10.10    TPR SUBSYSTEM....................................................   104
10.11    YEAR 2000 (Y2K) COMPLIANCE.......................................   105

ARTICLE XI    QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM...........   105

11.1     QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM.........................   105
11.2     WRITTEN QIP PLAN.................................................   105
11.3     QIP SUBCONTRACTING...............................................   105
11.4     ACCREDITATION....................................................   106
11.5     BEHAVIORAL HEALTH INTEGRATION INTO QIP...........................   106
11.6     QIP REPORTING REQUIREMENTS.......................................   106

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ARTICLE XII   REPORTING REQUIREMENTS......................................   106

12.1     FINANCIAL REPORTS................................................   106
12.2     STATISTICAL REPORTS..............................................   108
12.3     ARBITRATION/LITIGATION CLAIMS REPORT.............................   110
12.4     SUMMARY REPORT OF PROVIDER COMPLAINTS............................   110
12.5     PROVIDER NETWORK REPORTS.........................................   110
12.6     MEMBER COMPLAINTS................................................   110
12.7     FRAUDULENT PRACTICES.............................................   111
12.8     UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH...............   111
12.9     UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH.................   111
12.10    QUALITY IMPROVEMENT REPORTS......................................   111
12.11    HUB REPORTS......................................................   113
12.12    THSTEPS REPORTS..................................................   113

ARTICLE XIII  PAYMENT PROVISIONS..........................................   113

13.1     CAPITATION AMOUNTS...............................................   113
13.2     EXPERIENCE REBATE TO STATE.......................................   117
13.3     PERFORMANCE OBJECTIVES...........................................   118
13.4     ADJUSTMENTS TO PREMIUM...........................................   119

ARTICLE XIV   ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT..................   119

14.1     ELIGIBILITY DETERMINATION........................................   119
14.2     ENROLLMENT.......................................................   121
14.3     DISENROLLMENT....................................................   122
14.4     AUTOMATIC RE-ENROLLMENT..........................................   122
14.5     ENROLLMENT REPORTS...............................................   123

ARTICLE XV    GENERAL PROVISIONS..........................................   123

15.1     INDEPENDENT CONTRACTOR...........................................   123
15.2     AMENDMENT........................................................   123
15.3     LAW, JURISDICTION AND VENUE......................................   124
15.4     NON-WAIVER.......................................................   124
15.5     SEVERABILITY.....................................................   124
15.6     ASSIGNMENT.......................................................   124
15.7     MAJOR CHANGE IN CONTRACTING......................................   125
15.8     NON-EXCLUSIVE....................................................   125
15.9     DISPUTE RESOLUTION...............................................   125
15.10    DOCUMENTS CONSTITUTING CONTRACT..................................   125
15.11    FORCE MAJEURE....................................................   125
15.12    NOTICES..........................................................   126
15.13    SURVIVAL.........................................................   126

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ARTICLE XVI   DEFAULT AND REMEDIES........................................   126

16.1     DEFAULT BY TDH...................................................   126
16.2     REMEDIES AVAILABLE TO HMO FOR TDH's DEFAULT......................   126
16.3     DEFAULT BY HMO...................................................   127

ARTICLE XVII  NOTICE OF DEFAULT AND CURE OF DEFAULT.......................   135

ARTICLE XVIII EXPLANATION OF REMEDIES.....................................   136

18.1     TERMINATION......................................................   136
18.2     DUTIES OF CONTRACTING PARTIES UPON TERMINATION...................   138
18.3     SUSPENSION OF NEW ENROLLMENT.....................................   139
18.4     LIQUIDATED MONEY DAMAGES.........................................   139
18.5     APPOINTMENT OF TEMPORARY MANAGEMENT..............................   141
18.6     TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS
         WITHOUT CAUSE....................................................   142
18.7     RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN
         AGAINST HMO......................................................   142
18.8     CIVIL MONETARY PENALTIES.........................................   142
18.9     FORFEITURE OF ALL OR PART OF THE TDI PERFORMANCE BOND............   143
18.10    REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED.......................   143

ARTICLE XIX   TERM........................................................   143

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                                   APPENDICES

APPENDIX A
         Standards For Quality Improvement Programs

APPENDIX B
         HUB Progress Assessment Reports

APPENDIX C
         Value-added Services

APPENDIX D
         Required Critical Elements

APPENDIX E
         Transplant Facilities

APPENDIX F
         Trauma Facilities

APPENDIX G
         Hemophilia Treatment Centers And Programs

APPENDIX H
         Utilization Management Report - Behavioral Health

APPENDIX I
         Managed Care Financial-Statistical Report

APPENDIX J
         Utilization Management Report - Physical Health

APPENDIX K
         Preventive Health Performance Objectives

APPENDIX L
         Cost Principles For Administrative Expenses

APPENDIX M
         Arbitration/Litigation Report

                                      1999

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                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO

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

ARTICLE I         PARTIES AND AUTHORITY TO CONTRACT

1.1               The Texas Legislature has designated the Texas Health and
                  Human Services Commission (THHSC) as the single State agency
                  to administer the Medicaid program in the State of Texas.
                  THHSC has delegated the authority to operate the Medicaid
                  managed care delivery system for acute care services to TDH.
                  TDH has authority to contract with HMO to carry out the duties
                  and functions of the Medicaid managed care program under
                  Health and Safety Code, Title 2, ss.12.011 and ss. 12.021 and
                  Texas Government Code ss.533.00 1 et seq.

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

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

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1.4               Renewal Review. TDH is required by Human Resources Code
                  ss.32.034(a) and Government Code 533.007 to conduct renewal
                  review of HMO's performance and compliance with this contract
                  as a condition for retention and renewal.

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

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

1.4.3             TDH reserves the right to conduct on-site inspections of any
                  or all of HMO's systems and processes as often as necessary to
                  ensure compliance with contract requirements. TDH may conduct
                  at least one complete on-site inspection of all systems and
                  processes every three years. TDH will provide six weeks
                  advance notice to HMO of the three year on-site inspection,
                  unless TDH enters into an MOU with the Texas Department of
                  Insurance to accept the TDI report in lieu of a TDH on-site
                  inspection. TDH will notify HMO prior to conducting an onsite
                  visit related to a regularly scheduled review specifically
                  described in this contract. Even in the case of a regularly
                  scheduled visit, TDH reserves the right to conduct an onsite
                  review without advance notice if TDH believes there may be
                  potentially serious or life-threatening deficiencies.

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

ARTICLE II        DEFINITIONS

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

Abuse means provider practices that are inconsistent with sound fiscal,
business, or medical practices and result in an unnecessary cost to the Medicaid
program, or in reimbursement for services that are

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not medically necessary or that fail to meet professionally recognized standards
for health care. It also includes Member practices that result in unnecessary
cost to the Medicaid program.

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

Adjudicate means to deny or pay a clean claim.

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

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

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

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

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

Auxiliary aids and services includes qualified interpreters or other effective
methods of making aurally delivered materials understood by persons with hearing
impairments; and, taped texts, large print, Braille, or other effective methods
to ensure visually delivered materials are available to individuals with visual
impairments. Auxiliary aids and services also includes effective methods to
ensure that materials (delivered both aurally and visually) are available to
those with cognitive or other disabilities affecting communication.

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

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

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

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

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

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

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

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

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

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

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

Comprehensive Care Program: See definition for Texas Health Steps.

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

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

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

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

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

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

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

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

Day means calendar day unless specified otherwise.

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

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

Disability-related access means that facilities are readily accessible to and
usable by individuals with disabilities, and that auxiliary aids and services
are provided to ensure effective communication, in compliance with Title III of
the Americans with Disabilities Act.

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

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

Effective date means the date on which TDH signs the contract following
signature of the contract by HMO.

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

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

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

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

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

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

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

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

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

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

Fair Hearing means the process adopted and implemented by the Texas Department
of Health, 25 TAC Chapter 1, in compliance with federal regulations and state
rules relating to Medicaid Fair Hearings found at 42 CFR Part 431, Subpart E,
and 1 TAC, Chapter 357.

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

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

HCFA means the federal Health Care Financing Administration.

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

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

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

JCAHO means Joint Commission on Accreditation of Health Care Organizations

Linguistic access means translation and interpreter services, for written and
spoken language to ensure effective communication. Linguistic access includes
sign language interpretation, and the provision of other auxiliary aids and
services to persons with disabilities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MIS means management information system.

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

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

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

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

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

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

Provider contract means an agreement entered into by a direct provider of health
care services and HMO or an intermediary entity. New definitions (Proxy Claim
Form means a form submitted by providers to document services delivered to
Medicaid Members under a capitated arrangement. It is not a claim for payment.)

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

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

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

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RFA means Request For Application issued by TDH for the initial procurement in
the service area and all RFA addenda, corrections or modifications.

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

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

SED means severe emotional disturbance as determined by a local mental health
authority.

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

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

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY >95 and all other providers in
a county that, when listed by provider type in descending order by the number of
recipient encounters, provided the top 80 percent of recipient encounters for
each provider type in FY >95.

Special hospital means an establishment that:

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

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

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

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

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

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

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

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

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

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

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

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

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

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

Texas Health Steps (THSteps) is the name adopted by the State of Texas for the
federally mandated Early and Periodic Screening, Diagnosis and Treatment (EPSDT)
program. It includes the State's Comprehensive Care Program extension to EPSDT,
which adds benefits to the federal EPSDT requirements contained in 42 United
States Code '1396d(r), and defined and codified at 42 C.F.R. '440.40 and
("44 1.56-62.) TDH's rules are contained in 25 TAC, Chapter 33 (relating to
Early and Periodic Screening, Diagnosis and Treatment).

Texas Medicaid Provider Procedures Manual means the policy and procedures manual
published by or on behalf of TDH which contains policies and procedures required
of all health care providers who

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participate in the Texas Medicaid program. The manual is published annually and
is updated bimonthly by the Medicaid Bulletin.
                            -----------------

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

THHSC means the Texas Health and Human Services Commission.

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

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

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

Unclean claim means a claim that does not contain accurate and complete data in
all claim fields that are required by HMO and TDH and other HMO-published
requirements for adjudication, such as medical records, as appropriate (see
definition of Clean Claim). Urgent behavioral health situations means conditions
which require attention and assessment within 24 hours but which do not place
the Member in immediate danger to themselves or others and the Member is able to
cooperate with treatment.

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

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

ARTICLE III       PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

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

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

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

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

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

3.1.5             HMO must notify TDH no later than 30 days after the effective
                  date of this contract of any changes in its organizational
                  chart as previously submitted to TDH.

3.1.5.1           HMO must notify TDH within fifteen (15) working days of any
                  change in key managers or behavioral health subcontractors.
                  This information must be updated whenever there is a
                  significant change in organizational structure or personnel.

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

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

3.2               NON-PROVIDER SUBCONTRACTS
                  -------------------------

3.2.1             HMO must enter into written contracts with all subcontractors
                  and maintain copies of the subcontracts in HMO's
                  administrative office. HMO must submit two copies of all
                  non-provider subcontracts to TDH for approval no later than 60
                  days after the

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                  effective date of this contract, unless the subcontract has
                  already been submitted to and approved by TDH. Subcontracts
                  entered into after the effective date of this contract must be
                  submitted no later than 30 days prior to the date of execution
                  of the subcontract. HMO must also make non-provider
                  subcontracts available to TDH upon request, at the time and
                  location requested by TDH.

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

3.2.1.2           HMO must notify TDH no later than 90 days prior to terminating
                  any subcontract affecting a major performance function of this
                  contract. All major subcontractor terminations or
                  substitutions require TDH approval (see Article 15.7). TDH may
                  require HMO to provide a transition plan describing how the
                  subcontracted function will continue to be provided. All
                  subcontracts are subject to the terms and conditions of this
                  contract and must contain the provisions of Article V,
                  Statutory and Regulatory Compliance, and the provisions
                  contained in Article 3.2.4.

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

3.2.3             The form and substance of all subcontracts including
                  subsequent amendments are subject to approval by TDH. TDH
                  retains the authority to reject or require changes to any
                  provisions of the subcontract that do not comply with the
                  requirements or duties and responsibilities of this contract
                  or create significant barriers for TDH in carrying out its
                  duty to monitor compliance with the contract. HMO REMAINS
                  RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES AND
                  SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
                  RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER.

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

3.2.4.1           [Contractor) understands that services provided under this
                  contract are funded by state and federal funds under the Texas
                  Medical Assistance Program (Medicaid).

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                  [Contractor] is subject to all state and federal laws, rules
                  and regulations that apply to persons or entities receiving
                  state and federal funds. [Contractor] understands that any
                  violation by [Contractor] of a state or federal law relating
                  to the delivery of services under this contract, or any
                  violation of the TDH/HMO contract could result in liability
                  for contract money damages, and/or civil and criminal
                  penalties and sanctions under state and federal law.

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

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

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

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

3.2.5             The Texas Medicaid Fraud Control Unit must be allowed to
                  conduct private interviews of HMO personnel, subcontractors
                  and their personnel, witnesses, and patients. Requests for
                  information are to be complied with, in the form and the
                  language requested. HMO employees and Contractors and
                  subcontractors and their employees and Contractors must
                  cooperate fully in making themselves available in person for
                  interviews, consultation, grand jury proceedings, pretrial
                  conference, hearings, trial and in any other process,
                  including investigations. Compliance with this Article is at
                  HMO's and subcontractors' own expense.

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

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

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

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

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

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

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

3.3.1.6           Oversight responsibility for medically related complaints.

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

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

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

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

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

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3.4.3             All materials regarding the STAR Program, including Member
                  education materials, must be submitted to TDH for approval
                  prior to distribution. TDH has 15 working days to review the
                  materials and recommend any suggestions or required changes.
                  If TDH has not responded to HMO by the fifteenth day, HMO may
                  print and distribute these materials. TDH reserves the right
                  to request HMO to modify plan materials that are deemed
                  approved and have been printed or distributed. These
                  modifications can be made at the next printing unless
                  substantial non-compliance exists. An exception to the 15
                  working day timeframe may be requested in writing by HMO for
                  written provider materials that require a quick turn-around
                  time (e.g., letters). These materials will be reviewed by TDH
                  within 5 working days.

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

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

3.4.6             HMO must provide TDH with at least three paper copies and one
                  electronic copy of their Member Handbook, Provider Manual and
                  Member Provider Directory. If an electronic format is not
                  available, five paper copies are required.

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

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

3.5.1             HMO must keep all records required to be created and retained
                  under this contract. Records related to Members served in this
                  service area must be made available in

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

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

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

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

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

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

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

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

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

3.7               HMO TELEPHONE ACCESS REQUIREMENTS
                  ---------------------------------

                  HMO must ensure that HMO has adequately-staffed telephone
                  lines. Telephone personnel must receive customer service
                  telephone training. HMO must ensure that telephone staffing is
                  adequate to fulfill the standards of promptness and quality
                  listed below:

                  1.       80% of all telephone calls must be answered within
                           an average of 30 seconds;
                  2.       The lost (abandonment) rate must not exceed 10%;
                  3.       HMO cannot impose maximum call duration limits but
                           must allow calls to be of sufficient length to ensure
                           adequate information is provided to the Member or
                           Provider.

ARTICLE IV -  FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

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

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

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

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

4.2               MINIMUM NET WORTH
                  -----------------

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

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

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

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

4.4               INSURANCE
                  ---------

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

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

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

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

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

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

4.6               AUDIT
                  -----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.10.5            HMO is subject to Article XVI, Default and Remedies, for
                  claims that are not processed on a timely basis as required by
                  this contract and the Claims Manual. Notwithstanding the
                  provisions of Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's
                  failure to adjudicate (paid, denied, or external pended) at
                  least ninety percent (90%) of all claims within thirty (30)
                  days of receipt and ninety-nine percent (99%) within ninety
                  (90) days of receipt for the contract year to date is a
                  default under Article XVI of this contract.

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

4.10.7            For claims requirements regarding retroactive PCP changes for
                  mandatory Members, see Article 7.8.12.2.

4.11              INDEMNIFICATION
                  ---------------

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

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

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

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

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

ARTICLE V     STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

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

5.1.1             HMO must know, understand and comply with all state and
                  federal laws and regulations relating to the Texas Medicaid
                  Program which have not been waived by HCFA. HMO must comply
                  with all rules relating to the Medicaid managed care program
                  adopted by TDH, TDI, THHSC, TDMHMR and any other state agency
                  delegated authority to operate or administer Medicaid or
                  Medicaid managed care programs. To the extent there is an
                  inconsistency or conflict between or among state and federal
                  laws relating to the Texas Medicaid Program, the Medicaid
                  managed care program, or this contract, federal law shall
                  apply.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5.3.3.3           If HMO'S executive and essential personnel change or if HMO
                  employs additional executive and essential personnel, the new
                  or additional personnel must attend OIE training within 90
                  days of employment by HMO.

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

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

5.3.6             Subcontractors. HMO must submit the documentation described in
                  Articles 5.3.6.1 through 5.3.6.3, in compliance with Texas
                  Government Code ss.533.012, regarding any subcontractor
                  providing health care services under this contract except for
                  those

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<PAGE>

                  providers who have re-enrolled as a provider in the Medicaid
                  program as required by Section 2.07, Chapter 1153, Acts of the
                  75th Legislature, Regular Session, 1997, or who modified a
                  contract in compliance with that section. HMO must submit
                  information in a format as specified by TDH. Documentation
                  must be submitted no later than 120 days after the effective
                  date of this contract. Subcontracts entered into after the
                  effective date of this contract must be submitted no later
                  than 90 days after the effective date of the subcontract. The
                  required documentation required under this provision is not
                  subject to disclosure under Chapter 552, Government Code.

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

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

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

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

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

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

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

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

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

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

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

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

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

5.5.4             HMO shall not discriminate with respect to participation,
                  reimbursement, or indemnification as to any provider who is
                  acting within the scope of the provider's license or
                  certification under applicable State law, solely on the basis
                  of such license or certification. This requirement shall not
                  be construed to prohibit HMO from including providers only to
                  the extent necessary to meet the needs of HMO's Members or
                  from establishing any measure designed to maintain quality and
                  control costs consistent with HMO'S responsibilities.

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

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

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

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

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

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

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

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

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

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

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

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

5.9.1             This contract and all network provider and subcontractor
                  contracts are subject to public disclosure under the Public
                  Information Act (Texas Government Code, Chapter 552). TDH may
                  receive Public Information requests related to this contract,

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                  information submitted as part of the compliance of the
                  contract and HMO's application upon which this contract was
                  awarded. TDH agrees that it will promptly deliver a copy of
                  any request for Public Information to HMO.

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

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

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

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

ARTICLE VI    SCOPE OF SERVICES

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

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

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

6.1.2             TDH must pay for or reimburse for all covered services
                  provided to SSI voluntary Members who enroll with HMO on a
                  voluntary basis. It is at HMO's discretion whether to provide
                  value-added services to voluntary Members.

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

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

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

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

6.1.6.1           The approval request must include:

6.1.6.1.1         A detailed description of the service to be offered;

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

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                  discretion to determine if voluntary Members are eligible for
                  the value-added services);

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                  The following outlines HMO'S responsibilities for payment of
                  hospital and freestanding psychiatric facility (facility)
                  admissions:

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

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

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

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

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

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                  loses Medicaid eligibility.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.5.6             Post-stabilization Services. Post-stabilization services are
                  services subsequent to an emergency that a treating physician
                  views as medically necessary after an emergency medical
                  condition has been stabilized. They are not "emergency
                  services" and are

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

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

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

6.6.1             HMO must provide or arrange to have provided to Members all
                  behavioral health care services included as covered services.
                  These services are described in detail in the Texas Medicaid
                  Provider Procedures Manual (Provider Procedures Manual) and
                  the Texas Medicaid Bulletins, which is the bi-monthly update
                  to the Provider Procedures Manual. Clinical information
                  regarding covered services are published by the Texas Medicaid
                  program in the Texas Medicaid Service Delivery Guide.

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

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

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

6.6.5             When assessing Members for behavioral health care services,
                  HMO and network behavioral health providers must use the
                  DSM-IV multi-axial classification and report axes I, II, III,
                  IV, and V to TDH. TDH may require use of other assessment

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                  instrument/outcome measures in addition to the DSM-IV.
                  Providers must document DSM-IV and assessment/outcome
                  information in the Member's medical record.

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

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

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

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

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

6.6.11            HMO must provide inpatient psychiatric services to Members
                  under the age of 2l who have been ordered to receive the
                  services by a court of competent jurisdiction under the
                  provisions of Chapters 573 and 574 of the Texas Health and
                  Safety Code, relating to court ordered commitments to
                  psychiatric facilities.

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

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

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

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

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

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

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

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

6.7.4.1           general benefits of family planning services and
                  contraception;

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

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

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

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

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

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

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

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

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

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

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

6.8.2             Member Education and Information. HMO must ensure that Members
                  are provided information and educational materials about the
                  services available through the

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                  THSteps program, and how and when they can obtain the
                  services. The information should tell the Member how they can
                  obtain dental benefits, transportation services through the
                  TDH Medical Transportation program, and advocacy assistance
                  from HMO.

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

6.8.4             Member Outreach. HMO must provide an outreach unit that works
                  with Members to ensure they receive prompt services and are
                  effectively informed about available THSteps services. Each
                  month HMO must retrieve from the Enrollment Broker BBS a list
                  of Members who are due and overdue THSteps services. Using
                  these lists and their own internally generated lists, HMOs
                  will contact Members and encourage Members who are
                  periodically due or overdue a THSteps service obtain the
                  service as soon as possible. HMO outreach staff must
                  coordinate with TDH THSteps outreach staff to ensure that
                  Members have access to the Medical Transportation Program, and
                  that any coordination with other agencies is maintained.

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

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

6.8.7             Newborn Checkups. HMO must have mechanisms in place to ensure
                  that all newborn Members have an initial newborn checkup
                  before discharge from the hospital and again within two weeks
                  from the time of birth. HMO must require providers to send

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                  all THSteps newborn screens to the TDH Bureau of Laboratories
                  or a TDH certified laboratory. Providers must include detailed
                  identifying information for all screened newborn Members and
                  the Member's mother to allow TDH to link the screens performed
                  at the hospital with screens performed at the two week
                  follow-up.

6.8.7.1           Laboratory Tests: All laboratory specimens collected as a
                  required component of a THSteps checkup (see Medicaid Provider
                  Procedures Manual for age-specific requirements) must be
                  submitted to the TDH Laboratory for analysis. HMO must educate
                  providers about THSteps program requirements for submitting
                  laboratory tests to the TDH Bureau of Laboratories.

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

6.8.9             Immunizations. HMO must educate providers on the Immunization
                  Standard Requirements set forth in Chapter 161, Health and
                  Safety Code; the standards in the ACIP Immunization Schedule;
                  and the AAP Periodicity Schedule.

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

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

6.8.11            Compliance with THSteps Performance Benchmark. TDH will
                  establish performance benchmarks against which HMO's full
                  compliance with the THSteps periodicity schedule will be
                  measured. The performance benchmarks will establish minimum
                  compliance measures which will increase over time. HMO must
                  meet all performance benchmarks required for THSteps services.

6.8.12            Validation of Encounter Data. Encounter data will be validated
                  by chart review of a random sample of THSteps eligible
                  enrollees against monthly encounter data reported by HMO.
                  Chart reviews will be conducted by TDH to validate that all
                  screens are performed when due and as reported, and that
                  reported data is accurate and timely. Substantial deviation
                  between reported and charted encounter data could

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                  result in HMO and/or network providers being investigated for
                  potential fraud and abuse without notice to HMO or the
                  provider.

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

6.9.1             HMO's perinatal health care services must ensure appropriate
                  care is provided to women and infants who are Members of HMO,
                  from the preconception period through the infant's first year
                  of life. HMO's perinatal health care system must comply with
                  the requirements of Health & Safety Code, Chapter 32 Maternal
                  and Infant Health Improvement Act and 25 TAC ss.37.233 et seq.

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

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

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

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

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

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

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

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

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

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

6.9.4.1           48 hours following an uncomplicated vaginal delivery; and

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6.9.4.2           96 hours for an uncomplicated caesarian delivery.

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

6.9.6             HMO is responsible for all covered services provided to
                  newborn Members. The State will enroll newborn children of
                  STAR Members in accordance with Section 533.0075 of the Texas
                  Government Code when changes to the DHS eligibility system
                  that are necessary to implement the law have been made. TDH
                  will notify HMO of the implementation date of the changes
                  under Section 533.0075 of the Government Code. Section
                  533.0075 states that newborn children of STAR Members will be
                  enrolled in a STAR health plan on the date on which DHS has
                  completed the newborn's Medicaid eligibility determination,
                  including the assignment of a Medicaid eligibility number to
                  the newborn, or 60 days after the date of birth, whichever is
                  earlier.

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

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

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

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

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                  Eligibility for ECI services is determined by the local ECI
                  program using the criteria contained in 25 TAC ss.621.21 et
                  seq.

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

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

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

6.11.1            HMO must coordinate with WIC to provide certain medical
                  information which is necessary to determine WIC eligibility,
                  such as height, weight, hematocrit or hemoglobin (see Article
                  7.16.3.2).

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

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

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

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

6.12.1            Education, Screening, Diagnosis and Treatment. HMO must
                  provide Members and providers with education on the
                  prevention, detection and effective treatment of

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                  tuberculosis (TB). HMO must establish mechanisms to ensure all
                  procedures required to screen at-risk Members and to form the
                  basis for a diagnosis and proper prophylaxis and management of
                  TB are available to all Members, except services referenced in
                  Article 6.1.8 as non-capitated services. HMO must develop
                  policies and procedures to ensure that Members who may be or
                  are at risk for exposure to TB are screened for TB. An at-risk
                  Member refers to a person who is susceptible to TB because of
                  the association with certain risk factors, behaviors, drug
                  resistance, or environmental conditions. HMO must consult with
                  the local TB control program to ensure that all services and
                  treatments provided by HMO are in compliance with the
                  guidelines recommended by the American Thoracic Society (ATS),
                  the Centers for Disease Control and Prevention (CDC), and TDH
                  policies and standards.

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

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

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

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

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

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

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

6.13.1            HMO shall provide the following services to persons with
                  disabilities or chronic or complex conditions. These services
                  are in addition to the covered services described in detail in
                  the Texas Medicaid Provider Procedures Manual (Provider
                  Procedures Manual) and the Texas Medicaid Bulletins which is
                  the bi-monthly update to the Provider Procedures Manual.
                  Clinical information regarding covered services are published
                  by the Texas Medicaid program in the Texas Medicaid Service
                  Delivery Guide.

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

6.13.3             HMO must require that the PCP for all persons with
                  disabilities or chronic or complex conditions develops a plan
                  of care to meet the needs of the Member. The plan of care must
                  be based on health needs, specialist(s) recommendations, and
                  periodic reassessment of the Member's developmental and
                  functional status and service delivery needs. HMO must require
                  providers to maintain record keeping systems to ensure that
                  each Member who has been identified with a disability or
                  chronic or complex condition has an initial plan of care in
                  the primary care provider's medical records, Member agrees to
                  that plan of care, and that the plan is updated as often as
                  the Member's needs change, but at least annually.

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

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

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

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

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

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

6.13.9.1          Participate in hospital discharge planning;

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

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

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

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

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

6.13.11           HMO must assist, through information and referral, eligible
                  Members in accessing providers of non-capitated Medicaid
                  services listed in Article 6.1.8, as applicable.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.15.8.4          Informed Consent and Counseling. HMO must have policies and
                  procedures in place regarding obtaining informed consent and
                  counseling Members. The subcontracts with providers who treat
                  HIV patients must include provisions requiring the provider to
                  refer Members with HIV infection to public health agencies for
                  in-depth prevention counseling, on-going partner elicitation
                  and notification services and other prevention support
                  services. The subcontracts must also include provisions that
                  require the

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                  provider to direct-counsel or refer an HIV-infected Member
                  about the need to inform and refer all sex and/or
                  needle-sharing partners that might have been exposed to the
                  infection for prevention counseling and antibody testing.

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

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

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

6.16.2.1          Prior authorization of services;

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

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

6.16.2.4          Health education;

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

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

6.16.2.7          Coordination to link Blind and Disabled Members with
                  applicable community resources and targeted case management
                  programs (see Non-Capitated Services in Article 6.1.8).

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

6.16.4            HMO must provide services to Blind and Disabled Members within
                  HMO's network unless necessary services are unavailable within
                  network. HMO must also allow referrals to out-of-network
                  providers if necessary services are not available within HMO's
                  network. Records must be forwarded to Member's PCP following a
                  referral visit.

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ARTICLE VII   PROVIDER NETWORK REQUIREMENTS

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

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

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

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

7.1.3.1           Urgent Care within 24 hours of request;

7.1.3.2           Routine care within 2 weeks of request;

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

7.1.3.4           HMO must establish policies and procedures to ensure that
                  THSteps Checkups be provided within 90 days of new enrollment,
                  except newborn Members should be seen within 2 weeks of
                  enrollment, and in all cases for all Members be consistent
                  with the American Academy of Pediatrics and THSteps
                  periodicity schedule which is based on the American Academy of
                  Pediatrics schedule and delineated in the Texas Medicaid
                  Provider Procedures Manual and the Medicaid bi-monthly
                  bulletins (see Article 6.1, Scope of Services). If the Member
                  does not request a checkup, HMO must establish a procedure for
                  contacting the Member to schedule the checkup.

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

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

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

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

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

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

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

7.2.5             TDH reserves the right and retains the authority to make
                  reasonable inquiry and conduct investigations into patterns of
                  provider and Member complaints against HMO or any intermediary
                  entity with whom HMO contracts to deliver health care services

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                  under this contract. TDH may impose appropriate sanctions and
                  contract remedies to ensure HMO compliance with the provisions
                  of this contract.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7.2.9.2           A provider who is terminated is entitled to an expedited
                  review process by HMO on request by the provider. HMO must
                  provide notification of the provider's termination to HMO's
                  Members receiving care from the terminated provider at least
                  30 days before the effective date of the termination. If a
                  provider is terminated for reasons related to imminent harm to
                  patient health, HMO may notify its Members immediately.

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

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7.2.11            HMO must include a complaint and appeals process which
                  complies with the requirements of Article 20A.12 of the Texas
                  Insurance Code relating to Complaint Systems in all provider
                  contracts. HMO's complaint and appeals process must be the
                  same for all providers.

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

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

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

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

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

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

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

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

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

7.3.3             HMO must submit the information required in Articles 7.3.2.1 -
                  7.3.2.5 to TDH by the effective date of this contract and each
                  anniversary date of the contract.

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

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<PAGE>

                  groups at substantial financial risk must conduct a survey of
                  all Members who have voluntarily disenrolled in the previous
                  year. A list of voluntary disenrollees may be obtained from
                  the Enrollment Broker.

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

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

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

7.3.5.3           whether stop-loss protection is provided; and

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

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

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

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

                  Provider Manual and any revisions must be approved by TDH
                  prior to publication and distribution to providers (see
                  Article 3.4.1 regarding the process for plan materials
                  review).

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

7.4.2.1           HMO training for all providers must be completed no later than
                  30 days after placing a newly contracted provider on active
                  status. HMO must provide on-going training to new and existing
                  providers as required by HMO or TDH to comply with this
                  contract.

7.4.2.2           HMO must include in all PCP training how to screen for and
                  identify behavioral health disorders, HMOs referral process to
                  behavioral health care services and clinical

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

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

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

7.4.5             HMO must have its written policies and procedures for the
                  screening, assessment and referral processes between
                  behavioral health providers and physical medicine providers
                  available for TDH review prior to the effective date of the
                  contract.

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

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

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

7.6.1             HMO must develop implement and maintain a provider complaint
                  system which must be in compliance with all applicable state
                  and federal law or regulations. Modifications and amendments
                  to the complaint system must be submitted to TDH no later than
                  30 days prior to the implementation of the modification or
                  amendment.

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

7.6.3             HMO's complaint and appeal process cannot contain provisions
                  requiring a Member to submit a complaint or appeal to TDH for
                  resolution in lieu of the HMO's process.

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

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

                  The providers in HMO network must meet the following
                  qualifications:

--------------------------------------------------------------------------------
FQHC                      A Federally Qualified Health Center meets the
                          standards established by federal rules and procedures.
                          The FQHC must also be an eligible provider enrolled in
                          the Medicaid program.
--------------------------------------------------------------------------------
Physician                 An individual who is licensed to practice medicine as
                          an M.D. or a D.O. in the State of Texas either as a
                          primary care provider or in the area of specialization
                          under which they will provide medical services under
                          contract with HMO; who is a provider enrolled in the
                          Medicaid program; and who has a valid Drug Enforcement
                          Agency registration number and a Texas Controlled
                          Substance Certificate, if either is required in their
                          practice.
--------------------------------------------------------------------------------
Hospital                  An institution licensed as a general or special
                          hospital by the State of Texas under Chapter 241 of
                          the Health and Safety Code and Private Psychiatric
                          Hospitals under Chapter 577 of the Health and Safety
                          Code (or is a provider which is a component part of a
                          State or local government entity which does not
                          require a license under the laws of the State of
                          Texas), which is enrolled as a provider in the Texas
                          Medicaid Program. HMO will require that all facilities
                          in the network used for acute inpatient specialty care
                          for people under age 21 with disabilities or chronic
                          or complex conditions will have a designated pediatric
                          unit; 24-hour laboratory and blood bank availability;
                          pediatric radiological capability; meet JCAHO
                          standards; and have discharge planning and social
                          service units.
--------------------------------------------------------------------------------
Non-Physician             An individual holding a license issued by the
Practitioner              applicable licensing agency of the State of Texas
Provider                  who is enrolled in the Texas Medicaid Program or an
                          individual properly trained to provide behavioral
                          health support services who practices under the direct
                          supervision of an appropriately licensed professional.
--------------------------------------------------------------------------------
Clinical                  An entity having a current certificate issued under
Laboratory                the Federal Clinical Laboratory Improvement Act(CLIA),
                          and enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health              An institution which meets all of the criteria for
                          designation as a rural health
--------------------------------------------------------------------------------

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--------------------------------------------------------------------------------
Clinic (RHC)              clinic, and enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Local Health              A local health department established pursuant to
Department                Health and Safety Code, Title 2, Local Public Health
                          Reorganization Act ss. 121.031ff.
--------------------------------------------------------------------------------
Local Mental              Under Section 531.002(8) of the Health and Safety
Health Authority          Code, the local component of the TXMHMR system
(LMHA)                    designated by TDMHMR to carry out the legislative
                          mandate for planning, policy development,
                          coordination, and resource development/allocation and
                          for supervising and ensuring the provision of mental
                          health care services to persons with mental illness in
                          one or more local service areas.
--------------------------------------------------------------------------------
Non-Hospital              A provider of health care services which is licensed
Facility Provider         and credentialed to provide services, and enrolled in
                          the Texas Medicaid Program.
--------------------------------------------------------------------------------
School Based              Clinics located at school campuses that provide
Health Clinic             on-site primary and preventive care to children and
(SBHC)                    adolescents.
--------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

7.8.7             HMO's primary care provider network may include providers from
                  any of the following practice areas: General Practitioners;
                  Family Practitioners; Internists; Pediatricians;
                  Obstetricians/Gynecologists (OB/GYN); Pediatric and Family
                  Advanced Practice Nurses (APNs) and Certified Nurse Midwives
                  Women Health (CNMs) practicing under the supervision of a
                  physician; Physician Assistants (PAS) practicing under the
                  supervision of a physician specializing in Family Practice,
                  Internal Medicine, Pediatrics or Obstetrics/Gynecology who
                  also qualifies as a PCP under this contract; or Federally
                  Qualified Health Centers (FQHCs), Rural Health Clinics (RHCs)
                  and similar community clinics; and specialists who are willing
                  to provide medical homes to selected Members with special
                  needs and conditions (see Article 7.9.4).

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

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

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

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                  Acceptable:

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

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

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

                  Unacceptable:

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

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

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

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

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

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

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

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

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

7.8.12            PCP Selection and Changes. All Medicaid recipients who are
                  eligible for participation in the STAR program have the right
                  to select their PCP and HMO.-- Medicaid recipients who are
                  mandatory STAR participants who do not select a PCP and/or HMO
                  during the time period allowed will be assigned to a PCP
                  and/or HMO using the TDH default process. Members may change
                  PCPs at any time, but these changes are limited to four (4)
                  times per year.

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7.8.12.1          Voluntary SSI Members. PCP changes cannot be performed
                  retroactively for voluntary SSI Members. If an SSI Member
                  requests a PCP change on or before the 15th of the month, the
                  change will be effective the first day of the next month. If
                  an SSI Member requests a PCP change after the 15th of the
                  month, the change will be effective the first day of the
                  second month that follows. Exceptions to this policy will be
                  allowed for reasons of medical necessity or other extenuating
                  circumstances.

7.8.12.2          Mandatory Members. Retroactive changes to a Member's PCP
                  should only be made if it is medically necessary or there are
                  other circumstances which necessitate a retroactive change.
                  HMO must pay claims for services provided by the original PCP.
                  If the original PCP is paid on a capitated basis and services
                  were provided during the period for which capitation was paid,
                  HMO cannot recoup the capitation.

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

                  HMO must allow a female Member to select an OB/GYN within its
                  provider network or within a limited provider network in
                  addition to a PCP, to provide health care services within the
                  scope of the professional specialty practice of a properly
                  credentialed OB/GYN. See Article 21 53D of the Texas Insurance
                  Code and 28 TAC Sections 11.506, 11.1600 and 11.1608. A Member
                  who selects an OB/GYN must be allowed direct access to the
                  health care services of the OB/GYN without a referral by the
                  woman's PCP or a prior authorization or precertification from
                  HMO. HMO must allow Members to change OB/GYNs up to four times
                  per year. Health care services must include, but not be
                  limited to:

7.9.1             One well-woman examination per year;

7.9.2             Care related to pregnancy;

7.9.3             Care for all active gynecological conditions; and

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

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

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

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

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

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

7.10.3            HMO must ensure availability and accessibility to appropriate
                  specialists.

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

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

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

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

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

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

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

7.12.1            Assessment to determine eligibility for rehabilitative and
                  targeted MHMR case management services is a function of the
                  LMHA. HMO must provide all covered services described in
                  detail in the Texas Medicaid Provider Procedures Manual
                  (Provider Procedures Manual) and the Texas Medicaid Bulletins
                  which is the bimonthly update to the Provider Procedures
                  Manual. Clinical information regarding covered services are
                  published by the Texas Medicaid program in the Texas Medicaid
                  Service Delivery Guide. Covered services must be provided to
                  Members with SPMI and SED, when medically necessary, whether
                  or not they are also receiving targeted case management or
                  rehabilitation services through the LMHA.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                  HMO must seek participation in its provider network from:

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

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

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

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

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

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

7.14.1.2          are Significant Traditional Providers.

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

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

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

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

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

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

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

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

7.15.2.1          HMO must submit monthly FQHC and RHC encounter and payment
                  reports to all contracted FQHCs and RHCs, and QHCs and RHCs
                  with whom there have been

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

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

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

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

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

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

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

7.16.1.2          Confidential HIV Testing (see Article 6.15);

7.16.1.3          Immunizations;

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

7.16.1.5          Family Planning Services (see Article 6.7);

7.16.1.6          THSteps checkups (see Article 6.8); and

7.16.1.7          Prenatal services (see Article 6.9).

7.16.2            HMO must make a good faith effort to enter into subcontracts
                  with public health entities in the service area. The
                  subcontracts must be available for review by TDH or its
                  designated agent(s) on the same basis as all other
                  subcontracts. If any changes are made to the contract, it must
                  be resubmitted to TDH. If an HMO is unable to enter into a
                  contract with public health entities, HMO must document
                  current and past efforts to TDH. Documentation must be
                  submitted no later than 120 days after the execution of this
                  contract. Public health subcontracts must include the
                  following areas:

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

7.16.2.2          Public Health Entity responsibilities:

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

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

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

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

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7.16.2.3          HMO Responsibilities:

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

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

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

7.16.2.4          Existing contracts must include the provisions in Articles
                  7.16.2.1 through 7.16.2.3.

7.16.3            Non-Reimbursed Arrangements with Public Health Entities.
                  -------------------------------------------------------

7.16.3.1          Coordination with Public Health Entities. HMOs must make a
                  good faith effort to enter into a Memorandum of Understanding
                  (MOU) with Public Health Entities in the service area
                  regarding the provision of services for essential public
                  health care services. These MOUs must be entered into in each
                  service area and are subject to TDH approval. If any changes
                  are made to the MOU, it must be resubmitted to TDH. If an HMO
                  is unable to enter into an MOU with a public health entity,
                  HMO must document current and past efforts to TDH.
                  Documentation must be submitted no later than 120 days after
                  the execution of this contract. MOUs must contain the roles
                  and responsibilities of HMO and the public health department
                  for the following services:

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

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

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

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

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                  (5)      Referral for WIC services and information sharing;

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

7.16.3.2          Coordination with Other TDH Programs. HMOs must make a good
                  faith effort to enter into a Memorandum of Understanding (MOU)
                  with other TDH programs regarding the provision of services
                  for essential public health care services. These MOUs must be
                  entered into in each service area and are subject to TDH
                  approval. If any changes are made to the MOU, it must be
                  resubmitted to TDH. If an HMO is unable to enter into an MOU
                  with other TDH programs, HMO must document current and past
                  efforts to TDH. Documentation must be submitted no later than
                  120 days after the execution of this contract. MOUs must
                  delineate the roles and responsibilities of HMO and the TDH
                  programs for the following services:

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

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

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

                  (4)      Referral for WIC services and information sharing;

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

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

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

                  (8)      Referral to the TDH Medical Transportation Program;

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

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

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

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

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

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

7.17.3            HMO cannot deny, reduce, or controvert the medical necessity
                  of any health or behavioral health care services included in
                  an Order entered by a court. HMO may participate in the
                  preparation of the medical and behavioral care plan prior to
                  TDPRS submitting the health care plan to the Court. Any
                  modification or termination of court ordered services must be
                  presented and approved by the court with jurisdiction over the
                  matter.

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

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

7.17.5.1          providing medical records;

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

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

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

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7.18              DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)
                  --------------------------------------------------------------

7.18.1            All HMO contracts with any of the entities described in Texas
                  Insurance Code Article 20A.02(ee) and a group of providers who
                  are licensed to provide the same health care services or an
                  entity that is wholly-owned or controlled by one or more
                  hospitals and physicians including a physician-hospital
                  organization (delegated network contracts) must:

7.18.1.1          contain the mandatory contract provisions for all
                  subcontractors in Article 3.2 of this contract;

7.18.1.2          comply with the requirements, duties and responsibilities of
                  this contract;

7.18.1.3          not create a barrier for full participation to significant
                  traditional providers;

7.18.1.4          not interfere with TDH's oversight and audit responsibilities
                  including collection and validation of encounter data; or

7.18.1.5          be consistent with the federal requirement for simplicity in
                  the administration of the Medicaid program.

7.18.2            In addition to the mandatory provisions for all subcontracts
                  under Articles 3.2. and 7.2, all HMO/delegated network
                  contracts must include the following mandatory standard
                  provisions:

7.18.2.1          HMO is required to include subcontract provisions in its
                  delegated network contracts which require the UM protocol used
                  by a delegated network to produce substantially similar
                  outcomes, as approved by TDH, as the UM protocol employed by
                  the contracting HMO. The responsibilities of an HMO in
                  delegating UM functions to a delegated network will be
                  governed by Article 16.3.11 of this contract.

7.18.2.2          Delegated networks that are delegated claims payment
                  responsibilities by HMO must also have the responsibility to
                  submit encounter, utilization, quality, and financial data to
                  HMO. HMO remains responsible for integrating all delegated
                  network data reports into HMO's reports required under this
                  contract. If HMO is not able to collect and report all
                  delegated network data for HMO reports required by this
                  contract, HMO must not delegate claims processing to the
                  delegated network.

7.18.2.3          The delegated network must comply with the same records
                  retention and production requirements, including Open Records
                  requirements as the HMO under this contract.

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7.18.2.4          The delegated network is subject to the same marketing
                  restrictions and requirements as the HMO under this contract.

7.18.2.5          HMO is responsible for ensuring that delegated network
                  contracts comply with the requirements and provisions of the
                  TDH/HMO contract. TDH will impose appropriate sanctions and
                  remedies upon HMO for any default under the TDH/HMO contract
                  which is caused directly or indirectly by the acts or
                  omissions of the delegated network.

7.18.3            HMO cannot enter into contracts with delegated networks to
                  provide services under this contract which require the
                  delegated network to enter into exclusive contracts with HMO
                  as a condition for participation with HMO.

7.18.3.1          Article 17.18.3 does not apply to providers who are employees
                  or participants in limited provider networks.

7.18.4            All delegated networks that limit Member access to those
                  providers contracted with the delegated network (closed or
                  limited panel networks) with whom HMO contracts must either
                  independently meet the access provisions of 28 Texas
                  Administrative Code ss. 11.1607, relating to access
                  requirements for those Members enrolled or assigned to the
                  delegated network, or HMO must provide for access through
                  other network providers outside the closed panel delegated
                  network.

7.18.5            HMO cannot delegate to a delegated network the enrollment,
                  re-enrollment, assignment or reassignment of a Member.

7.18.6            In addition to the above provision HMO and approved Non-Profit
                  Health Corporations must comply with all of the requirements
                  contained in 28 TAC ss.11.1604, relating to Requirements of
                  Certain Contracts between Primary HMOs and ANHCs and Primary
                  HMOs and Provider HMOs.

7.18.7             HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
                   RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT
                   REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS
                   CONTRACTED OR DELEGATED TO ANOTHER. HMO MUST PROVIDE A COPY
                   OF THE CONTRACT PROVISIONS THAT SET OUT HMO'S DUTIES,
                   RESPONSIBILITIES, AND SERVICES TO ANY PROVIDER NETWORK OR
                   GROUP WITH WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE SERVICES
                   ON A RISK SHARING OR CAPITATED BASIS OR TO PROVIDE HEALTH
                   CARE SERVICES.

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ARTICLE VIII  MEMBER SERVICES REQUIREMENTS

8.1               MEMBER EDUCATION
                  ----------------

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

8.2               MEMBER HANDBOOK
                  ---------------

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

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

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

8.3               ADVANCE DIRECTIVES
                  ------------------

8.3.1             Federal and state law require HMOs and providers to maintain
                  written policies and procedures for informing and providing
                  written information to all adult Members 18 years of age and
                  older about their rights under state and federal law, in
                  advance of their receiving care (Social Security Act ss.
                  l902(a)(57) and ss. 1903(m)(l)(A)). The written policies and
                  procedures must contain procedures for providing written
                  information regarding the Member's right to refuse, withhold
                  or withdraw medical treatment advance directives. HMO's
                  policies and procedures must comply with provisions contained
                  in 42 CFR ss. 434.28 and 42 CFR ss. 489, SubPart I, relating
                  to advance directives for all hospitals, critical access
                  hospitals, skilled nursing facilities,

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                  home health agencies, providers of home health care, providers
                  of personal care services and hospices, as well as the
                  following state laws and rules:

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

8.3.1.2           the Advance Directives Act, Chapter 166, Texas Health and
                  Safety Code, which includes:

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

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

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

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

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

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

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

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

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

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

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

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

8.3.7             HMO must notify Members of any changes in state or federal
                  laws relating to advance directives within 90 days from the
                  effective date of the change, unless the law or regulation
                  contains a specific time requirement for notification.

8.4               MEMBER ID CARDS
                  ---------------

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

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

8.5               MEMBER HOTLINE
                  --------------

                  HMO must maintain a toll-free Member telephone hotline 24
                  hours a day, seven days a week for Members to obtain
                  assistance in accessing services under this contract.
                  Telephone availability must be demonstrated through an
                  abandonment rate of less than 10%.

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8.6               MEMBER COMPLAINT PROCESS
                  ------------------------

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

8.6.2             HMO must have written policies and procedures for receiving,
                  tracking, reviewing, and reporting and resolving of Member
                  complaints. The procedures must be reviewed and approved in
                  writing by TDH. Any changes or modifications to the procedures
                  must be submitted to TDH for approval thirty (30) days prior
                  to the effective date of the amendment.

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

8.6.4             HMO must have a routine process to detect patterns of
                  complaints and disenrollments and involve management and
                  supervisory staff to develop policy and procedural
                  improvements to address the complaints. HMO must cooperate
                  with TDH and TDH's Enrollment Broker in Member complaints
                  relating to enrollment and disenrollment.

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

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

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8.6.7             HMO's process must include a requirement that the Governing
                  Body of HMO reviews the written records (logs) for complaints
                  and appeals.

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

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

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

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

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

8.6.13            The provisions of Article 2l.58A, Texas Insurance Code,
                  relating to a Member's right to appeal an adverse
                  determination made by HMO or a utilization review agent by an
                  independent review organization, do not apply to a Medicaid
                  recipient. Federal fair

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                  hearing requirements (Social Security Act ss. 1902a(3),
                  codified at 42 C.F.R. 431.200 et. seq.) require the agency to
                  make a final decision after a fair hearing, which conflicts
                  with the State requirement that the IRO make a final decision.
                  Therefore, the State requirement is pre-empted by the federal
                  requirement.

8.6.14            HMO will cooperate with the Enrollment Broker and TDH to
                  resolve all Member complaints. Such cooperation may include,
                  but is not limited to, participation by HMO or Enrollment
                  Broker and/or TDH internal complaint committees.

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

8.6.16            HMO must provide Member Advocates to assist Members in
                  understanding and using HMO's complaint system and appeal of
                  an adverse determination.

8.6.17            HMO's Member Advocates must assist Members in writing or
                  filing a complaint or appeal of an adverse determination and
                  monitoring the complaint or appeal through the Contractor's
                  complaint or appeal of an adverse determination process until
                  the issue is resolved.

8.7               MEMBER NOTICE, APPEALS AND FAIR HEARINGS
                  ----------------------------------------

8.7.1             HMO must send Members the notice required by 1 Texas
                  Administrative Code ss. 357.5, whenever HMO takes an action to
                  deny, delay, reduce or terminate covered services to a Member.
                  The notice must be mailed to the Member no less than 10 days
                  before HMO intends to take an action. If an emergency exists,
                  or if the time within which the service must be provided makes
                  giving 10 days notice impractical or impossible, notice must
                  be provided by the most expedient means reasonably calculated
                  to provide actual notice to the Member, including by phone,
                  direct contact with the Member, or through the provider's
                  office.

8.7.2             The notice must contain the following information:

8.7.2.1           Member's right to immediately access TDH's Fair Hearing
                  process;

8.7.2.2           a statement of the action HMO will take;

8.7.2.3           the date the action will be taken;

8.7.2.4           an explanation of the reasons HMO will take the action;

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8.7.2.5           a reference to the state and/or federal regulations which
                  support HMO's action;

8.7.2.6           an address where written requests may be sent and a toll-free
                  number Member can call to: request the assistance of a Member
                  representative, or file a complaint, or request a Fair
                  Hearing;

8.7.2.7           a procedure by which Member may appeal HMO's action through
                  either HMO's complaint process or TDH's Fair Hearings process;

8.7.2.8           an explanation that Members may represent themselves, or be
                  represented by HMO's representative, a friend, a relative,
                  legal counsel or another spokesperson;

8.7.2.9           an explanation of whether, and under what circumstances,
                  services may be continued if a complaint is filed or a Fair
                  Hearing requested;

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

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

8.7.2.12          a statement explaining that a final decision must be made by
                  TDH within 90 days from the date a Fair Hearing is requested.

8.8               MEMBER ADVOCATES
                  ----------------

8.8.1             HMO must provide Member Advocates to assist Members. Member
                  Advocates must be physically located within the service area.
                  Member Advocates must inform Members of their rights and
                  responsibilities, the complaint process, the health education
                  and the services available to them, including preventive
                  services.

8.8.2             Member Advocates must assist Members in writing complaints and
                  are responsible for monitoring the complaint through HMO's
                  complaint process until the Member's issues are resolved or a
                  TDH Fair Hearing requested (see Articles 8.6.15, 8.6.16, and
                  8.6.17).

8.8.3             Member Advocates are responsible for making recommendations to
                  management on any changes needed to improve either the care
                  provided or the way care is delivered. Member Advocates are
                  also responsible for helping or referring Members to

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                  community resources available to meet Member needs that are
                  not available from HMO as Medicaid covered services.

8.8.4             Member Advocates must provide outreach to Members and
                  participate in TDH-sponsored enrollment activities.

8.9               MEMBER CULTURAL AND LINGUISTIC SERVICES
                  ---------------------------------------

8.9.1             Cultural Competency Plan. HMO must have a comprehensive
                  written Cultural Competency Plan describing how HMO will
                  ensure culturally competent services, and provide linguistic
                  and disability-related access. The Plan must describe how the
                  individuals and systems within HMO will effectively provide
                  services to people of all cultures, races, ethnic backgrounds
                  and religions as well as those with disabilities in a manner
                  that recognizes, values, affirms, and respects the worth of
                  the individuals and protects and preserves the dignity of
                  each. HMO must submit a written plan to TDH prior to the
                  effective date of this contract unless previously submitted.
                  Modifications and amendments to the written plan must be
                  submitted to TDH no later than 30 days prior to implementation
                  of the modification or amendment. The Plan must also be made
                  available to HMO's network of providers.

8.9.2             The Cultural Competency Plan must include the following:

8.9.2.1           HMO's written policies and procedures for ensuring effective
                  communication through the provision of linguistic services
                  following Title VI of the Civil Rights Act guidelines and the
                  provision of auxiliary aids and services, in compliance with
                  the Americans with Disabilities Act, Title III, Department of
                  Justice Regulation 36.303. HMO must disseminate these policies
                  and procedures to ensure that both Staff and subcontractors
                  are aware of their responsibilities under this provision of
                  the contract.

8.9.2.2           A description of how HMO will educate and train its staff and
                  subcontractors on culturally competent service delivery, and
                  the provision of linguistic and/or disability-related access
                  as related to the characteristics of its Members;

8.9.2.3           A description of how HMO will implement the plan in its
                  organization, identifying a person in the organization who
                  will serve as the contact with TDH on the Cultural Competency
                  Plan;

8.9.2.4           A description of how HMO will develop standards and
                  performance requirements for the delivery of culturally
                  competent care and linguistic access, and monitor adherence
                  with those standards and requirements;

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8.9.2.5           A description of how HMO will provide outreach and health
                  education to Members, including racial and ethnic minorities,
                  non-English speakers or limited-English speakers, and those
                  with disabilities; and

8.9.2.6           A description of how HMO will help Members access culturally
                  and linguistically appropriate community health or social
                  service resources;

8.9.3             Linguistic, Interpreter Services, and Provision of Auxiliary
                  Aids and Services. HMO must provide experienced, professional
                  interpreters when technical, medical, or treatment information
                  is to be discussed. See Title VI of the Civil Rights Act of
                  1964, 42 U.S.C. ss.ss. 2000d, et seq. HMO must ensure the
                  provision of auxiliary aids and services necessary for
                  effective communication, as per the Americans with
                  Disabilities Act, Title III, Department of Justice Regulations
                  36.303.

8.9.3.1           HMO must adhere to and provide to Members the Member Bill of
                  Rights and Responsibilities as adopted by the Texas Health and
                  Human Services Commission and contained at 1 Texas
                  Administrative Code (TAC) ss.ss. 353.202-353.203. The Member
                  Bill of Rights and Responsibilities assures Members the right
                  "to have interpreters if needed, during appointments with
                  their providers and when talking to their health plan.
                  Interpreters include people who can speak in their native
                  language, assist with a disability, or help them understand
                  the information."

8.9.3.2           HMO must have in place policies and procedures that outline
                  how Members can access face-to-face interpreter services in a
                  provider's office if necessary to ensure the availability of
                  effective communication regarding treatment, medical history
                  or health education for a Member. HMOs must inform its
                  providers on how to obtain an updated list of participating,
                  qualified interpreters.

8.9.3.3           A competent interpreter is defined as someone who is:

8.9.3.4           proficient in both English and the other language;

8.9.3.5           has had orientation or training in the ethics of interpreting;
                  and

8.9.3.6           has the ability to interpret accurately and impartially.

8.9.3.7           HMO must provide 24-hour access to interpreter services for
                  Members to access emergency medical services within HMO's
                  network.

8.9.3.8           Family Members, especially minor children, should not be used
                  as interpreters in assessments, therapy or other medical
                  situations in which impartiality and confidentiality are
                  critical, unless specifically requested by the Member.
                  However, a

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                  family member or friend may be used as an interpreter if they
                  can be relied upon to provide a complete and accurate
                  translation of the information being provided to the Member;
                  provided that the Member is advised that a free interpreter is
                  available; and the Member expresses a preference to rely on
                  the family member or friend.

8.9.4             All Member orientation presentations education classes and
                  materials must be presented in the languages of the major
                  population groups making up 10% or more of the Medicaid
                  population in the service area, as specified by TDH. HMO must
                  provide auxiliary aids and services, as needed, including
                  materials in alternative formats (i.e., large print, tape or
                  Braille), and interpreters or real-time captioning to
                  accommodate the needs of persons with disabilities that affect
                  communication.

8.9.5             HMO must provide or arrange access to TDD to Members who are
                  deaf or hearing impaired.

8.10              On the date of the new Member's enrollment, TDH will provide
                  HMOs with the Member's Medicaid certification date.

ARTICLE IX    MARKETING AND PROHIBITED PRACTICES

9.1               MARKETING MATERIAL MEDIA AND DISTRIBUTION
                  -----------------------------------------

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

9.2               MARKETING ORIENTATION AND TRAINING
                  ----------------------------------

                  HMO must require that all HMO staff having direct contact with
                  Members as part of their job duties and their supervisors
                  satisfactorily complete TDH's marketing orientation and
                  training program prior to engaging in marketing activities on
                  behalf of HMO. TDH will notify HMO of scheduled orientations.

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9.3               PROHIBITED MARKETING PRACTICES
                  ------------------------------

9.3.1             HMO and its agents, subcontractors and providers are
                  prohibited from engaging in the following marketing practices:

9.3.1.1           conducting any direct-contact marketing to prospective Members
                  except through TDH-sponsored enrollment events;

9.3.1.2           making any written or oral statement containing material
                  misrepresentations of fact or law relating to HMO's plan or
                  the STAR program;

9.3.1.3           making false, misleading or inaccurate statements relating to
                  services or benefits of HMO or the STAR program;

9.3.1.4           offering prospective Members anything of material or financial
                  value as an incentive to enroll with a particular PCP or HMO;
                  and

9.3.1.5           discriminating against an eligible Member because of race,
                  creed, age, color, sex, religion, national origin, ancestry,
                  marital status, sexual orientation, physical or mental
                  handicap, health status, or requirements for health care
                  services.

9.3.2             HMO may offer nominal gifts with a retail value of no more
                  than $10 and/or free health screens to potential Members, as
                  long as these gifts and free health screenings are offered
                  whether or not the potential Member enrolls in their HMO. Free
                  health screenings cannot be used to discourage less healthy
                  potential Members from joining HMO. All gifts must be approved
                  by TDH prior to distribution to Members. The results of free
                  screenings must be shared with the Member's PCP if the Member
                  enrolls with HMO providing the screen.

9.3.3             Marketing representatives may not conduct or participate in
                  marketing activities for more than one HMO.

9.4               NETWORK PROVIDER DIRECTORY
                  --------------------------

9.4.1             The provider directory and any revisions must be approved by
                  TDH prior to publication and distribution to prospective
                  Members (see Article 3.4.1 regarding the process for plan
                  materials review). The directory must contain all critical
                  elements specified by TDH. See Appendix D, Required Critical
                  Elements, for specific details regarding content requirements.

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

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

ARTICLE X     MIS SYSTEM REQUIREMENTS

10.1              MODEL MIS REQUIREMENTS
                  ----------------------

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

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

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

10.1.4            HMO is required to submit and receive data as specified in
                  this contract and HMO Encounter Data Submissions Manual. HMO
                  must provide complete encounter data of all capitated services
                  within the scope of services of the contract between HMO and
                  TDH. Encounter data must follow the format, data elements and
                  method of transmission specified in the contract and HMO
                  Encounter Data Submissions Manual. HMO must submit encounter
                  data, including adjustments to encounter data. The Encounter
                  transmission will include all encounter data and encounter
                  data adjustments processed by HMO for the previous month. Data
                  quality validation will incorporate assessment standards
                  developed jointly by HMO and TDH. Original records will be

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                  made available for inspection by TDH for validation purposes.
                  Data which do not meet quality standards must be corrected and
                  returned within a time period specified by TDH.

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

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

10.1.7            HMO must notify TDH of any changes to HMO's MIS department
                  dedicated to or supporting this contract by Phase I of Renewal
                  Review. Any updates to the organizational chart and the
                  description of responsibilities must be provided to TDH at
                  least 30 days prior to the effective date of the change.
                  Official points of contact must be provided to TDH on an
                  on-going basis. An Internet E-mail address must be provided
                  for each point of contact.

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

10.1.8.1          The Contractor's system must be able to meet all eight MIS
                  Model Guidelines as listed below. The eight subsystems are
                  used in the Model MIS Requirements to identify specific
                  functions or features required by HMO's MIS. These subsystems
                  focus on the individual systems functions or capabilities to
                  support the following operational and administrative areas:

                  (1)      Enrollment/Eligibility Subsystem

                  (2)      Provider Subsystem

                  (3)      Encounter/Claims Processing Subsystem

                  (4)      Financial Subsystem

                  (5)      Utilization/Quality Improvement Subsystem

                  (6)      Reporting Subsystem

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                  (7)      Interface Subsystem

                  (8)      TPR Subsystem

10.2              SYSTEM-WIDE FUNCTIONS
                  ---------------------

                  HMO MIS system must include functions and/or features which
                  must apply across all subsystems as follows:

                  (1)      Ability to update and edit data.

                  (2)      Maintain a history of changes and adjustments and
                           audit trails for current and retroactive data. Audit
                           trails will capture date, time, and reasons for the
                           change, as well as who made the change.

                  (3)      Allow input mechanisms through manual and electronic
                           transmissions.

                  (4)      Have procedures and processes for accumulating,
                           archiving, and restoring data in the event of a
                           system or subsystem failure.

                  (5)      Maintain automated or manual linkages between and
                           among all MIS subsystems and interfaces.

                  (6)      Ability to relate Member and provider data with
                           utilization, service, accounting data, and reporting
                           functions.

                  (7)      Ability to relate and extract data elements into
                           summary and reporting formats attached as Appendices
                           to contract.

                  (8)      Must have written process and procedures manuals
                           which document and describe all manual and automated
                           system procedures and processes for all the above
                           functions and features, and the various subsystem
                           components.

                  (9)      Maintain and cross-reference all Member-related
                           information with the most current Medicaid number.

10.3              ENROLLMENT/ELIGIBILITY SUBSYSTEM
                  --------------------------------

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

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                  (1)      Identify other health coverage available or third
                           party liability (TPL), including type of coverage and
                           effective dates.

                  (2)      Maintain historical data (files) as required by TDH.

                  (3)      Maintain data on enrollments/disenrollments and
                           complaint activities. The data must include reason or
                           type of disenrollment, complaint, and resolution--by
                           incident.

                  (4)      Receive, translate, edit and update files in
                           accordance with TDH requirements prior to inclusion
                           in HMO's MIS. Updates will be received from TDH's
                           agent and processed within two working days after
                           receipt.

                  (5)      Provide error reports and a reconciliation process
                           between new data and data existing in MIS.

                  (6)      Identify enrollee changes in primary care provider
                           and the reason(s) for those changes and effective
                           dates.

                  (7)      Monitor PCP capacity and limitations prior to
                           connecting the enrollee to PCP in the system, and
                           provide a kick-out report when capacity and
                           limitations are exceeded.

                  (8)      Verify enrollee eligibility for medical services
                           rendered or for other enrollee inquiries.

                  (9)      Generate and track referrals,
                           e.g., Hospitals/Specialists.

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

                  (10)     Send PCP assignment updates to TDH in the format as
                           specified by TDH.

10.4              PROVIDER SUBSYSTEM
                  ------------------

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

                  Functions and Features:

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

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

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

                  (4)      Support HMO credentialing, recredentialing, and
                           credential tracking processes; incorporates or links
                           information to provider record.

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

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

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

                  (8)      Provide provider network files 90 days prior to
                           implementation and updates monthly. Format will be
                           provided by TDH to contracted entities.

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

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

10.5              ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
                  -------------------------------------

                  The encounter/claims processing subsystem must collect,
                  process, and store data on all health care services delivered
                  for which HMO is responsible. The functions of these
                  subsystems are claims/encounter processing and capturing
                  health service utilization data. The subsystem must capture
                  all health care services, including medical supplies, using
                  standard codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92 Revenue
                  Codes), rendered by health-care providers to an eligible
                  enrollee regardless

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                  of payment arrangement (e.g. capitation or fee-for-service).
                  It approves, prepares for payment, or may reject or deny
                  claims submitted. This subsystem may integrate manual and
                  automated systems to validate and adjudicate claims and
                  encounters. HMO must use encounter data validation
                  methodologies prescribed by TDH.

                  Functions and Features:

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

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

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

                  (4)      Interface with Member and provider subsystems.

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

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

                  (7)      Submit data to TDH through electronic transmission
                           using specified formats.

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

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

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

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

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

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

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

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

                  (16)     Receive and capture claim and encounter data from
                           TDH.

                  (17)     Receive and capture value-added services codes.

                  (18)     Capability of identifying adjustments and linking
                           them to the original claims/encounters.

10.6              FINANCIAL SUBSYSTEM
                  -------------------

                  The financial subsystem must provide the necessary data for
                  100% of all accounting functions including cost accounting,
                  inventory, fixed assets, payroll, general ledger, accounts
                  receivable, accounts payable, financial statement
                  presentation, and any additional data required by TDH. The
                  financial subsystem must provide management with information
                  that can demonstrate that the proposed or existing HMO is
                  meeting, exceeding, or falling short of fiscal goals. The
                  information must also provide management with the necessary
                  data to spot the early signs of fiscal distress, far enough in
                  advance to allow management to take corrective action where
                  appropriate.

                  Functions and Features:

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

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

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

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

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

                  (6)      Generate Remittance and Status Reports.

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

                  (8)      Reduce/increase accounts payable/receivable based on
                           adjustments to claims or recoveries from third party
                           resources.

10.7              UTILIIZATION/QUALITY IMPROVEMENT SUBSYSTEM
                  ------------------------------------------

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

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

                  The subsystem incorporates and summarizes information from
                  enrollee surveys, provider and enrollee complaints, and appeal
                  processes.

                  Functions and Features:

                  (1)      Supports provider credentialing and recredentialing
                           activities.

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

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

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

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                  (5)      Supports quality-of-care Focused Studies.

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

                  (7)      Monitors primary care provider referral patterns.

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

                  (9)      Stores and reports patient satisfaction data through
                           use of enrollee surveys.

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

                  (11)     Meets minimum report/data collection/analysis
                           functions of Article XI and Appendix A - Standards
                           For Quality Improvement Programs.

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

10.8              REPORT SUBSYSTEM
                  ----------------

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

                  Functions and Capabilities:

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

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

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

                  (4)      Generate an alphabetic Member listing.

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                  (5)      Generate a numeric Member listing.

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

                  (7)      Report on PCP change by reason code.

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

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

                  (10)     Generate or produce an aged outstanding liability
                           report.

                  (11)     Produce a Member ID Card.

                  (12)     Produce Member/provider mailing labels.

10.9              DATA INTERFACE SUBSYSTEM
                  ------------------------

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

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

10.9.3            Provider Network File. The provider file shall supply Network
                  Provider data between an HMO and TDH. This process shall
                  accomplish the following:

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

                  (2)      Maintain history on provider
                           enrollment/disenrollment.

                  (3)      Identify PCP capacity.

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

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

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10.9.4            Eligibility/Enrollment Interface. The enrollment interface
                  must provide eligibility data between TDH and HMOs.

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

                  (2)      Provides PCP assignments.

                  (3)      Provides Member eligibility status data.

                  (4)      Provides Member demographics data.

                  (5)      Provides HMOs with cross-reference data to identify
                           duplicate Members.

10.9.5            Encounter/Claim Data Interface. The encounter/claim interface
                  must transfer paid fee-for-service claims data to HMOs and
                  capitated services/encounters from HMO, including adjustments.
                  This file will include all service types, such as inpatient,
                  outpatient, and medical services. TDH's agent will process
                  claims for non-capitated services.

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

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

10.9.8            TDH will provide a diagnosis file which will give the code and
                  description of each diagnosis permitted by TDH.

10.9.9            TDH will provide a procedure file which contains the
                  procedures which must be used on all claims and encounters.
                  This file contains HCPCS, revenue, and ICD9-CM surgical
                  procedure codes.

10.9.10           TDH will provide a provider file that contains the Medicaid
                  provider numbers, and the provider's names and addresses. The
                  provider number authorized by TDH must be submitted on all
                  claims, encounters, and network provider submissions.

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10.10             TPR SUBSYSTEM
                  -------------

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

                  (1)      Identify, store, and use other health coverage
                           available to eligible Members or third party
                           liability (TPL) including type of coverage and
                           effective dates.

                  (2)      Provide changes in information to TDH as specified by
                           TDH.

                  (3)      Receive TPL data from TDH to be used in claim and
                           encounter processing.

10.11             YEAR 2000 (Y2K) COMPLIANCE
                  --------------------------

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

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

ARTICLE XI    QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.1              QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM
                  ----------------------------------------

                  HMO must develop, maintain, and operate a Quality Improvement
                  Program (QIP) system which complies with federal regulations
                  relating to Quality Assurance systems, found at 42 C.F.R.
                  ss. 434.34. The system must meet the Standards for Quality
                  Improvement Programs contained in Appendix A.

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<PAGE>
11.2              WRITTEN QIP PLAN
                  -----------------

                  HMO must have on file with TDH an approved plan describing its
                  Quality Improvement Plan (QIP), including how HMO will
                  accomplish the activities pertaining to each Standard (I-XVI)
                  in Appendix A. Modifications and amendments must be submitted
                  to TDH no later than 60 days prior to the implementation of
                  the modification or amendment.

11.3              QIP SUBCONTRACTING
                  ------------------

                  If HMO subcontracts any of the essential functions or
                  reporting requirements of QIP to another entity, HMO must
                  maintain a file of the subcontractors. The file must be
                  available for review by TDH or its designee upon request. HMO
                  must notify TDH no later than 90 days prior to terminating any
                  subcontract affecting a major performance function of this
                  contract (see Article 3.2.1.2).

11.4              ACCREDITATION
                  -------------

                  If HMO is accredited by an external accrediting agency,
                  documentation of accreditation must be provided to TDH. HMO
                  must provide TDH with their accreditation status upon request.

11.5              BEHAVIORAL HEALTH INTEGRATION INTO QIP
                  --------------------------------------

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

11.6              QIP REPORTING REQUIREMENTS
                  --------------------------

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

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ARTICLE XII   REPORTING REQUIREMENTS

12.1              FINANCIAL REPORTS
                  -----------------

12.1.1            Monthly MCFS Report. HMO must submit the Managed Care
                  Financial-Statistical Report (MCFS) included in Appendix I.
                  The report must be submitted to TDH no later than 30 days
                  after the end of each state fiscal year quarter (i.e., Dec.
                  30, March 30, June 30, Sept. 30) and must include complete
                  financial and statistical information for each month. The MCFS
                  Report must be submitted for each claims processing
                  subcontractor in accordance with this Article. HMO must
                  incorporate financial and statistical data received by its
                  delegated networks (IPAs, ANHCs, Limited Provider Networks) in
                  its MCFS Report.

12.1.2            For any given month in which an HMO has a net loss of $200,000
                  or more for the contract period to date, HMO must submit an
                  MCFS Report for that month by the 30th day after the end of
                  the reporting month. The MCFS Report must be completed in
                  accordance with the Instructions for Completion of the Managed
                  Care Financial-Statistical Report developed by TDH.

12.1.3            An HMO must submit monthly reports for each of the first 6
                  months following the Implementation Date. If the cumulative
                  net loss for the contract period to date after the 6th month
                  is less than $200,000, HMO may submit quarterly reports in
                  accordance with the above provisions unless the condition in
                  Article 12.1.2 exists, in which case monthly reports must be
                  submitted.

12.1.4            Final MCFS Reports. HMO must file two Final Managed Care
                  ------------------
                  Financial-Statistical Reports. The first final report must
                  reflect expenses incurred through the 90th day after the end
                  of the contract year. The first final report must be filed on
                  or before the 120th day after the end of the contract year.
                  The second final report must reflect data completed through
                  the 334th day after the end of the contract year and must be
                  filed on or before the 365th day following the end of the
                  contract year.

12.1.5            Administrative expenses reported in the monthly and Final MCFS
                  Reports must be reported in accordance with Appendix L, Cost
                  Principles for Administrative Expenses. Indirect
                  administrative expenses must be based on an allocation
                  methodology for Medicaid managed care activities and services
                  that is developed or approved by TDH.

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12.1.6            Affiliate Report. HMO must submit an Affiliate Report to TDH
                  ----------------
                  if this information has changed since the last report was
                  submitted. The report must contain the following information:

12.1.6.1          A listing of all Affiliates; and

12.1.6.2          A schedule of all transactions with Affiliates which, under
                  the provisions of this Contract, will be allowable as expenses
                  in either Line 4 or Line 5 of Part 1 of the MCFS Report for
                  services provided to HMO by the Affiliates for the prior
                  approval of TDH. Include financial terms, a detailed
                  description of the services to be provided, and an estimated
                  amount which will be incurred by HMO for such services during
                  the Contract period.

12.1.7            Annual Audited Financial Report. On or before June 30th of
                  -------------------------------
                  each year, HMO must submit to TDH a copy of the annual audited
                  financial report filed with TDI.

12.1.8            Form HCFA-1513. HMO must file an updated Form HCFA-1513
                  --------------
                  regarding control, ownership, or affiliation of HMO 30 days
                  prior to the end of the contract year. An updated Form HCFA
                  1513 must also be filed no later than 30 days after any change
                  in control, ownership, or affiliation of HMO. Forms may be
                  obtained from TDH.

12.1.9            Section 1318 Financial Disclosure Report. HMO must file an
                  ----------------------------------------
                  updated HCFA Public Health Service (PHS) "Section 1318
                  Financial Disclosure Report" no later than 30 days after the
                  end of the contract year and no later than 30 days after
                  entering into, renewing, or terminating a relationship with an
                  affiliated party. These forms may be obtained from TDH.

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

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

12.1.12           Third Party Recovery (TPR) Reports. HMO must file quarterly
                  ----------------------------------
                  Third Party Recovery (TPR) Reports in accordance with the
                  format developed by TDH. TPR reports must

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<PAGE>

                  include total dollars recovered from third party payers for
                  services to HMO's Members for each month and the total dollars
                  recovered through coordination of benefits, subrogation, and
                  worker's compensation.

12.1.13           Each report required under this Article must be mailed to:
                  Bureau of Managed Care; Texas Dept. of Health; 1100 West 49th
                  Street; Austin, TX 78756-3168 (Exception: The MCFS Report may
                  be submitted to TDH via E-mail). HMO must also mail a copy of
                  the reports, except for items in Article 12.1.7 and Article
                  12.1.10 to Texas Department of Insurance, Mail Code 106-3A,
                  HMO Division, Attention: HMO Division Director, P.O. Box
                  149104, Austin, TX 78714-9104.

12.2              STATISTICAL REPORTS
                  -------------------

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

12.2.2            Monthly reports must include current month encounter data and
                  encounter data adjustments to the previous month's data.

12.2.3            Data quality standards will be developed jointly by HMO and
                  TDH. Encounter data must meet or exceed data quality
                  standards. Data that does not meet quality standards must be
                  corrected and returned within the period specified by TDH.
                  Original records must be made available to validate all
                  encounter data.

12.2.4            HMO must require providers to submit claims and encounter data
                  to HMO no later than 95 days after the date services are
                  provided.

12.2.5            HMO must use the procedure codes, diagnosis codes and other
                  codes contained in the most recent edition of the Texas
                  Medicaid Provider Procedures Manual and as otherwise provided
                  by TDH. Exceptions or additional codes must be submitted for
                  approval before HMO uses the codes.

12.2.6            HMO must use its TDH-specified identification numbers on all
                  encounter data submissions. Please refer to the TDH Encounter
                  Data Submission Manual for further specifications.

12.2.7            HMO must validate all encounter data using the encounter data
                  validation methodology prescribed by TDH prior to submission
                  of encounter data to TDH.

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<PAGE>

12.2.8            All Claims Summary Report. HMO must submit the "All Claims
                  -------------------------
                  Summary Report" identified in the Texas Managed Care Claims
                  Manual as a contract year-to-date report. The report must be
                  submitted quarterly by the last day of the month following the
                  reporting period. The reports must be submitted to TDH in a
                  format specified by TDH.

12.2.9            Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
                  ------------------------------------------------------
                  must file preliminary and final Medicaid Disproportionate
                  Share Hospital (DSH) reports, required by TDH to identify and
                  reimburse hospitals that qualify for Medicaid DSH funds. The
                  preliminary and final DSH reports must include the data
                  elements and be submitted in the form and format specified by
                  TDH. The preliminary DSH reports are due on or before June 1
                  of the year following the state fiscal year for which data is
                  being reported. The final DSH reports are due on or before
                  August 15 of the year following the state fiscal year for
                  which data is being reported.

12.3              ARBITRATION/LITIGATION CLAIMS REPORT
                  ------------------------------------

                  HMO must submit an Arbitration/Litigation Claims Report in a
                  format provided by TDH (see Appendix M) identifying all
                  provider or HMO requests for arbitration or matters in
                  litigation. The report must be submitted within 30 days from
                  the date the matter is referred to arbitration or suit is
                  filed, or whenever there is a change of status in a matter
                  referred to arbitration or litigation.

12.4              SUMMARY REPORT OF PROVIDER COMPLAINTS
                  -------------------------------------

                  HMO must submit a Summary Report of Provider Complaints. HMO
                  must also report complaints submitted to its subcontracted
                  risk groups (e.g., IPAs). The complaint report must be
                  submitted in two paper copies and one electronic copy on or
                  before the 45 days following the end of the state fiscal
                  quarter using a form specified by TDH.

12.5              PROVIDER NETWORK REPORTS
                  ------------------------

12.5.1            Provider Network Report. HMO must submit to the Enrollment
                  -----------------------
                  Broker an electronic file summarizing changes in HMO's
                  provider network including PCPs, specialists, ancillary
                  providers and hospitals. The file must indicate if the PCPs
                  and specialists participate in a closed network and the name
                  of the delegated network. The electronic file must be
                  submitted in the format specified by TDH and can be submitted
                  as often as daily but must be submitted at least weekly.

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<PAGE>

12.5.2            Provider Termination Report. HMO must submit a monthly report
                  ---------------------------
                  which identifies any providers who cease to participate in
                  HMO's provider network, either voluntarily or involuntarily.
                  The report must be submitted to TDH in the format specified by
                  TDH. HMO will submit the report no later than thirty (30) days
                  after the end of the reporting month. The information must
                  include the provider's name, Medicaid number, the reason for
                  the provider's termination, and whether the termination was
                  voluntary or involuntary.

12.6              MEMBER COMPLAINTS
                  ----------------
                  HMO must submit a quarterly summary report of Member
                  complaints. HMO must also report complaints submitted to its
                  subcontracted risk groups (e.g., IPAs). The complaint report
                  format must be submitted to TDH as two paper copies and one
                  electronic copy on or before 45 days following the end of the
                  state fiscal quarter using a form specified by TDH.

12.7              FRAUDULENT PRACTICES
                  --------------------

                  HMO must report all fraud and abuse enforcement actions or
                  investigations taken against HMO and/or any of its
                  subcontractors or providers by any state or federal agency for
                  fraud or abuse under Title XVIII or Title XIX of the Social
                  Security Act or any State law or regulation and any basis upon
                  which an action for fraud or abuse may be brought by a State
                  or federal agency as soon as such information comes to the
                  attention of HMO.

12.8              UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
                  --------------------------------------------------

                  Behavioral health (BH) utilization management reports are
                  required on a semi-annual basis with submission of data files
                  that are, at a minimum, due to TDH or its designee, on a
                  quarterly basis no later than 150 days following the end of
                  the period. Refer to Appendix H for the standardized reporting
                  format for each report and detailed instructions, for
                  obtaining the specific data required in the report and for
                  data file submission specifications. The BH utilization report
                  and data file submission instructions may periodically be
                  updated by TDH to facilitate clear communication to the health
                  plan.

12.9              UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
                  ------------------------------------------------

                  Physical health (PH) utilization management reports are
                  required on a semi-annual basis with submission of data files
                  that are, at a minimum, due to TDH or its designee on a
                  quarterly basis no later than 150 days following the end of
                  the period. Refer to Appendix J for the standardized reporting
                  format for each report and detailed

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<PAGE>

                  instructions for obtaining specific data required in the
                  report and for data file submission specifications. The PH
                  Utilization Management Report and data file submission
                  instructions may periodically be updated by TDH to facilitate
                  clear communication to the health plan.

12.10             QUALITY IMPROVEMENT REPORTS
                  ---------------------------

12.10.1           HMO must conduct health Focused Studies in well child and
                  pregnancy, and a study chosen by HMO that may be performed in
                  the areas of behavioral health care, asthma, or other chronic
                  conditions. Well child and pregnancy studies shall be
                  conducted and data collected using criteria and methods
                  developed by TDH. The following format shall be utilized:

                  (1)      Executive Summary.

                  (2)      Definition of the population and health areas of
                           concern.

                  (3)      Clinical guidelines/standards, quality indicators,
                           and audit tools.

                  (4)      Sources of information and data collection
                           methodology.

                  (5)      Data analysis and information/results.

                  (6)      Corrective actions if any, implementation, and
                           follow-up plans including monitoring, assessment of
                           effectiveness, and methods for provider feedback.

12.10.2           Annual Focused Studies. Focused Studies on well child,
                  ----------------------
                  pregnancy, and a study chosen by the plan, must be submitted
                  to TDH according to due dates established by TDH.

12.10.3           Annual QIP Summary Report. An annual QIP summary report must
                  -------------------------
                  be conducted yearly based on the state fiscal year. The annual
                  QIP summary report must be submitted by March 31 of each year.
                  This report must provide summary information on HMO's QIP
                  system and include the following:

                  (1)      Executive summary of QIP - include results of all QI
                           reports and interventions.

                  (2)      Activities pertaining to each standard (I through
                           XVI) in Appendix A. Report must list each standard.

                  (3)      Methodologies for collecting, assessing data and
                           measuring outcomes.

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                  (4)      Tracking and monitoring quality of care.

                  (5)      Role of health professionals in QIP review.

                  (6)      Methodology for collection data and providing
                           feedback to provider and staff.

                  (7)      Outcomes and/or action plan.

12.10.4           Provider Medical Record Audit and Report. HMO is required to
                  ----------------------------------------
                  conform to commonly accepted medical record standards such as
                  those used by, NCQA, JCAHO, or those used for credentialing
                  review such as the Texas Environment of Care Assessment
                  Program (TECAP), and have documentation on file at HMO for
                  review by TDH or its designee during an on-site review.

12.11             HUB REPORTS
                  -----------

                  HMO must submit quarterly reports documenting HMO's HUB
                  program efforts and accomplishments. The report must include a
                  narrative description of HMO's program efforts and a financial
                  report reflecting payments made to HUB. HMO must use the
                  format included in Appendix B for HUB quarterly reports. For
                  HUB Certified Entities: HMO must include the General Service
                  Commission (GSC) Vendor Number and the ethnicity/gender under
                  which a contracting entity is registered with GSC. For HUB
                  Qualified (but not certified) Entities: HMO must include the
                  ethnicity/gender of the major owner(s) (51%) of the entity.
                  Any entities for which HMO cannot provide this information,
                  cannot be included in the HUB report. For both types of
                  entities, an entity will not be included in the HUB report if
                  HMO does not list ethnicity/gender information.

12.12             THSTEPS REPORTS
                  ---------------

                  Minimum reporting requirements. HMO must submit, at a minimum,
                  80% of all THSteps checkups on HCFA 1500 claim forms as part
                  of the encounter file submission to the TDH Claims
                  Administrator no later than thirty (30) days after the date of
                  final adjudication (finalization) of the claims. Failure to
                  comply with these minimum reporting requirements will result
                  in Article XVIII sanctions and money damages.

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ARTICLE XIII  PAYMENT PROVISIONS

13.1              CAPITATION AMOUNTS
                  ------------------

13.1.1            TDH will pay HMO monthly premiums calculated by multiplying
                  the number of Member months by Member risk group times the
                  monthly capitation amount by Member risk group. HMO and
                  network providers are prohibited from billing or collecting
                  any amount from a Member for health care services covered by
                  this contract, in which case the Member must be informed of
                  such costs prior to providing non-covered services.

13.1.2            Delivery Supplemental Payment (DSP). TDH has submitted the
                  delivery supplemental payment methodology to HCFA for
                  approval. The monthly capitation amounts established for each
                  risk group in the Travis Service Area using the DSP
                  methodology will apply only if the methodology is approved by
                  HCFA, and the methodology is implemented for all HMO's in all
                  existing service areas by contract. The monthly capitation
                  amounts for September 1, 1999, through August 31, 2000 and the
                  DSP amount are listed below and will supersede the standard
                  Methodology of Article 13.1.3 upon approval by HCFA.

                  --------------------------------------------------------------
                  Risk Group                     Monthly Capitation Amounts
                                                 September 1, 1999 - August 31,
                                                 2000
                  --------------------------------------------------------------
                  TANF Adults                             $107.58
                  --------------------------------------------------------------
                  TANF Children > 12 Months                $57.03
                  of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                  $73.44
                  Months of Age
                  --------------------------------------------------------------
                  Newborns (<12 Months of                 $390.55
                  Age)
                  --------------------------------------------------------------
                  TANF Children < 12 Months               $390.55
                  of Age
                  --------------------------------------------------------------
                  Expansion Children < 12                 $390.55
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                 $41.89
                  --------------------------------------------------------------

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<PAGE>
                  --------------------------------------------------------------
                  CHIP Phase I                             $71.71
                  --------------------------------------------------------------
                  Pregnant Women                          $164.78
                  --------------------------------------------------------------
                  Disabled/Blind Administration            $14.00
                  --------------------------------------------------------------

                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.

13.1.2.1          HMO will receive a DSP for each live or still birth. The
                  one-time payment is made regardless of whether there is a
                  single or multiple births at time of delivery. A delivery is
                  the birth of a liveborn infant, regardless of the duration of
                  the pregnancy, or a stillborn (fetal death) infant of 20 weeks
                  or more gestation. A delivery does not include a spontaneous
                  or induced abortion, regardless of the duration of the
                  pregnancy.

13.1.2.2          For an HMO Member who is classified in the Pregnant Women,
                  TANF Adults, TANF Children >12 months, Expansion Children >12
                  months, Federal Mandate Children >12 months, or CHIP risk
                  group, HMO will be paid the monthly capitation amount
                  identified in Article 13.1.2 for each month of classification,
                  plus the DSP amount identified in Article 13.1.2.

13.1.2.3          HMO must submit a monthly DSP Report (report) that includes
                  the data elements specified by TDH. TDH will consult with
                  contracted HMOs prior to revising the report data elements and
                  requirements. The reports must be submitted to TDH in the
                  format and time specified by TDH. The report must include only
                  unduplicated deliveries. The report must include only
                  deliveries for which HMO has made a payment for the delivery,
                  to either a hospital or other provider. No DSP will be made
                  for deliveries which are not reported by HMO to TDH within 90
                  days from the receipt of claim, or within 30 days from the
                  date of discharge from the hospital for the stay related to
                  the delivery, whichever is later.

13.1.2.4          HMO must maintain complete claims and adjudication disposition
                  documentation, including paid and denied amounts for each
                  delivery. HMO must submit the documentation to TDH within five
                  (5) days from the date of TDH request for documents.

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<PAGE>

13.1.2.5          The DSP will be made by TDH to HMO within twenty (20) state
                  working days after receiving an accurate report from HMO.

13.1.2.6          All infants of age equal to or less than twelve months
                  (Newborns) in the TANF Children, Expansion Children, and
                  Newborns risk groups will be capitated at the Newborns
                  classification capitation amount in Article 13.1.2.

13.1.3            Standard Methodology. If the DSP methodology is not approved
                  by HCFA, the monthly capitation amounts established for each
                  risk group in the Travis Service Area using the Methodology
                  set forth in Article 13.1.1, without the DSP, are as follows:

                  --------------------------------------------------------------
                  Risk Group                     Monthly Capitation Amounts
                                                 September 1,1999 - August 31,
                                                 2000
                  --------------------------------------------------------------
                  TANF Adults                             $138.32
                  --------------------------------------------------------------
                  TANF Children                            $75.09
                  --------------------------------------------------------------
                  Expansion Children                       $90.48
                  --------------------------------------------------------------
                  Newborns                                $455.14
                  --------------------------------------------------------------
                  Federal Mandate Children                 $42.25
                  --------------------------------------------------------------
                  CHIP Phase I                             $77.26
                  --------------------------------------------------------------
                  Pregnant Women                          $546.69
                  --------------------------------------------------------------
                  Disabled/Blind Administration            $14.00
                  --------------------------------------------------------------

13.1.4            TDH will re-examine the capitation rates paid to HMO under
                  this contract during the first year of the contract period and
                  will provide HMO with capitation rates for the second year of
                  the contract period no later than 30 days before the date of
                  the one-year anniversary of the contract's effective date.
                  Capitation rates for state fiscal year 2001 will be
                  re-examined based on the most recent available traditional
                  Medicaid cost data for the contracted risk groups in the
                  service area, trended forward and discounted.

13.1.4.1          Once HMO has received their capitation rates established by
                  TDH for the second year of this contract, HMO may terminate
                  this contract as provided in Article 18.1.6 of this contract.
                  HMO may also terminate this contract as provided in Article
                  18.1.6 if HCFA does not approve the Delivery Supplemental
                  Payment Methodology described

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<PAGE>

                  in Article 13.1.2.

13.1.5            The monthly premium payment to HMO is based on monthly
                  enrollments adjusted to reflect money damages set out in
                  Article 18.8 and adjustments to premiums in Article 13.4

13.1.6            The monthly premium payments will be made to HMO no later than
                  the 10th working day of the month for which premiums are paid.
                  HMO must accept payment for premiums by direct deposit into an
                  HMO account.

13.1.7            Payment of monthly capitation amounts is subject to
                  availability of appropriations. If appropriations are not
                  available to pay the full monthly capitation amounts, TDH will
                  equitably adjust capitation amounts for all participating
                  HMOs, and reduce scope of service requirements as appropriate.

13.1.8            HMO renewal rates reflect program increases appropriated by
                  the 76th legislature for physician (to include THSteps
                  providers) and outpatient facility services. HMO must report
                  to TDH any change in rates for participating physicians (to
                  include THSteps providers) and outpatient facilities resulting
                  from this increase. The report must be submitted to TDH at the
                  end of the first quarter of the FY2000 and FY2001 contract
                  years according to the deliverables matrix schedule set for
                  HMO.

13.2              EXPERIENCE REBATE TO STATE

13.2.1            For fiscal year 2000, HMO must pay to TDH the State's portion
                  of an experience rebate calculated in accordance with the
                  tiered rebate method listed below based on the excess of
                  allowable HMO STAR revenues over allowable HMO STAR expenses
                  as measured by any positive amount on Line 7 of "Part 1:
                  Financial Summary, All Coverage Groups Combined" of the annual
                  Managed Care Financial-Statistical Report set forth in
                  Appendix I, as reviewed and confirmed by TDH. TDH reserves the
                  right to have an independent audit performed to verify the
                  information provided by HMO.

--------------------------------------------------------------------------------
                             Graduated Rebate Method
--------------------------------------------------------------------------------
       Excess as a Percentage        HMO Share of             State Share of
           of Revenues              Experience Rebate        Experience Rebate
--------------------------------------------------------------------------------
       0% - 3%                    100% of excess between   0% of excess between
                                   0% and 3%-of revenues   0% and 3% of revenues
--------------------------------------------------------------------------------
       Over 3% - 7%                75% of excess >3% and     25% of excess >3%
                                      <7% of revenues       and <7% of revenues
                                      -                         -
--------------------------------------------------------------------------------
       Over 7% - 10%                50% of excess >7% and    50% of excess >7%
                                      <10% of revenues      and <10% of revenues
                                      -                         -
--------------------------------------------------------------------------------

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<PAGE>

--------------------------------------------------------------------------------
       Over 10% - 15%                25% of excess >10%      75% of excess >10%
                                    and <15% of revenues    and <15% of revenues
                                        -                       -
--------------------------------------------------------------------------------
       Over 15%                     0% of excess of 15% of   100% of excess over
                                        revenues                 15% of revenues
--------------------------------------------------------------------------------

13.2.2            Carry Forward of Prior Contract Period Losses: Losses incurred
                  for one contract period can only be carried forward to the
                  next contract period.

13.2.2.1          Carry Forward of Loss from one Service Delivery Area to
                  Another: If HMO operates in multiple Service Delivery Areas
                  (SDAs), losses in one SDA cannot be used to offset net income
                  before taxes in another SDA.

13.2.3            Experience rebate will be based on a pre-tax basis.

13.2.4            Population-Based Initiatives (PBIs) and Experience Rebates:
                  HMO may subtract from an experience rebate owed to the State,
                  expenses for population-based health initiatives that have
                  been approved by TDH. A population-based initiative (PBI) is a
                  project or program designed to improve some aspect of quality
                  of care, quality of life, or health care knowledge for the
                  community as a whole. Value-added service does not constitute
                  a PBI. Contractually required services and activities do not
                  constitute a PBI.

13.2.5            There will be two settlements for payment(s) of the state
                  share of the experience rebate. The first settlement shall
                  equal 100 percent of the state share of the experience rebate
                  as derived from Line 7 of Part 1 (Net Income Before Taxes) of
                  the annual Managed Care Financial Statistical (MCFS) Report
                  and shall be paid on the same day the first annual MCFS Report
                  is submitted to TDH. The second settlement shall be an
                  adjustment to the first settlement and shall be paid to TDH on
                  the same day that the second annual MCFS Report is submitted
                  to TDH if the adjustment is a payment from HMO to TDH. TDH or
                  its agent may audit or review the MCFS reports. If TDH
                  determines that corrections to the MCFS reports are required,
                  based on a TDH audit/review or other documentation acceptable
                  to TDH, to determine an adjustment to the amount of the second
                  settlement, then final adjustment shall be made within two
                  years from the date that HMO submits the second annual MCFS
                  report. HMO must pay the first and second settlements on the
                  due dates for the first and second MCFS reports respectively
                  as identified in Article 12.1.5. TDH may adjust the experience
                  rebate if TDH determines HMO has paid affiliates amounts for
                  goods or services that are higher than the fair market value
                  of the goods and services in the service area. Fair market
                  value may be based on the amount HMO pays a non-affiliate(s)
                  or the amount another HMO pays for the same or similar service
                  in the service area. TDH has final authority in auditing and
                  determining the amount of the experience rebate.

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<PAGE>

13.3              PERFORMANCE OBJECTIVES
                  ----------------------

13.3.1            Preventive Health Performance Objectives are contained in this
                  contract at Appendix K. These reports are submitted annually
                  and must be submitted no later than 150 days after the end of
                  the State fiscal year.

13.4              ADJUSTMENTS TO PREMIUM
                  ----------------------

13.4.1            TDH may recoup premiums paid to HMO in error. Error may be
                  either human or machine error on the part of TDH or an agent
                  or contractor of TDH. TDH may recoup premiums paid to HMO if a
                  Member is enrolled into HMO in error, and HMO provided no
                  covered services to Member for the period of time for which
                  premium was paid. If services were provided to Member as a
                  result of the error, recoupment will not be made.

13.4.2            TDH may recoup premium paid to HMO if a Member for whom
                  premium is paid moves outside the United States, and HMO has
                  not provided covered services to the Member for the period of
                  time for which premium has been paid. TDH will not recoup
                  premium if HMO has provided covered services to the Member
                  during the period of time for which premium has been paid.

13.4.3            TDH may recoup premium paid to HMO if a Member for whom
                  premium is paid dies before the first day of the month for
                  which premium is paid.

13.4.4            TDH may recoup or adjust premium paid to HMO for a Member if
                  the Member's eligibility status or program type is changed,
                  corrected as a result of error, or is retroactively adjusted.

13.4.5            Recoupment or adjustment of premium under Articles 13.4.1
                  through 13.4.4 may be appealed using the TDH dispute
                  resolution process.

13.4.6            TDH may adjust premiums for all Members within an eligibility
                  status or program type if adjustment is required by reductions
                  in appropriations and/or if a benefit or category of benefits
                  is excluded or included as a covered service. Adjustment must
                  be made by amendment as required by Article 15.2. Adjustment
                  to premium under this subsection may not be appealed using the
                  TDH dispute resolution process.

ARTICLE XIV   ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

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<PAGE>

14.1              ELIGIBILITY DETERMINATION
                  -------------------------

14.1.1            TDH will identify Medicaid recipients who are eligible for
                  participation in the STAR program using the eligibility status
                  described below.

14.1.2            Individuals in the following categories who reside in any part
                  of the Service Area must enroll in one of the health plans
                  providing services in the Service Areas:

14.1.2.1          TANF ADULTS - Individuals age 21 and over who are eligible for
                  the TANF program. This category may also include some pregnant
                  women.

14.1.2.2          TANF CHILDREN - Individuals under age 21 who are eligible for
                  the TANF program. This category may also include some pregnant
                  women and some children less than one year of age.

14.1.2.3          PREGNANT WOMEN receiving Medical Assistance Only (MAO) -
                  Pregnant women whose families' income is below 185% of the
                  Federal Poverty Level (FPL).

14.1.2.4          NEWBORN (MAO) - Children under age one born to
                  Medicaid-eligible mothers.

14.1.2.5          EXPANSION CHILDREN (MAO) - Children under age 18, ineligible
                  for TANF because of the applied income of their stepparents or
                  grandparents.

14.1.2.6          EXPANSION CHILDREN (MAO) - Children under age 1 whose
                  families' income is below 185% FPL.

14.1.2.7          EXPANSION CHILDREN MAO - Children age 1- 5 whose families'
                  income is at or below 133% of FPL.

14.1.2.8          FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born
                  before October 10, 1983, whose families' income is below the
                  TANF income limit.

14.1.2.9          CHIP PHASE I - Children's Health Insurance Program Phase I
                  (Federal Mandate Acceleration) Children under age nineteen
                  (19) born before October 1, 1983, with family income below
                  100% Federal Poverty Income Level.

14.1.3            The following individuals are eligible for the STAR Program
                  and are not required to enroll in a health plan but have the
                  option to enroll in a plan. HMO will be required to accept
                  enrollment of those Medicaid recipients from this group who
                  elect to enroll in HMO.

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<PAGE>

14.1.3.1          DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients
                  with Supplemental Security Income (SSI) benefits who are not
                  eligible for Medicare may elect to participate in the STAR
                  program on a voluntary basis.

14.1.3.2          Certain blind or disabled individuals who lose SSI eligibility
                  because of Title II income and who are not eligible for
                  Medicare.

14.1.4            During the period after which the Medicaid eligibility
                  determination has been made but prior to enrollment in HMO,
                  Members will be enrolled under the traditional Medicaid
                  program. All Medicaid-eligible recipients will remain in the
                  fee-for-service Medicaid program until enrolled in or assigned
                  to an HMO.

14.2              ENROLLMENT
                  ----------

14.2.1            TDH has the right and responsibility to enroll and disenroll
                  eligible individuals into the STAR program. TDH will conduct
                  continuous open enrollment for Medicaid recipients and HMO
                  must accept all persons who chose to enroll as Members in HMO
                  or who are assigned as Members in HMO by TDH, without regard
                  to the Member's health status or any other factor.

14.2.2            All enrollments are subject to the accessibility and
                  availability limitations and restrictions contained in the
                  ss. 1915(b) waiver obtained by TDH. TDH has the authority to
                  limit enrollment into HMO if the number and distance
                  limitations are exceeded.

14.2.3            TDH makes no guarantees or representations to HMO regarding
                  the number of eligible Medicaid recipients who will ultimately
                  be enrolled as STAR Members of HMO.

14.2.4            HMO must cooperate and participate in all TDH sponsored and
                  announced enrollment activities. HMO must have a
                  representative at all TDH enrollment activities unless an
                  exception is given by TDH. The representative must comply with
                  HMO's cultural and linguistic competency plan (see Cultural
                  and Linguistic requirements in Article 8.9). HMO must provide
                  marketing materials, HMO pamphlets, Member Handbooks, a list
                  of network providers, HMO's linguistic and cultural
                  capabilities and other information requested or required by
                  TDH or its Enrollment Broker to assist potential Members in
                  making informed choices.

14.2.5            TDH will provide HMO with at least 10 days written notice of
                  all TDH planned activities. Failure to participate in, or send
                  a representative to a TDH sponsored enrollment activity is a
                  default of the terms of the contract. Default may be excused

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<PAGE>

                  if HMO can show that TDH failed to provide the required
                  notice, or if HMO's absence is excused by TDH.

14.3              DISENROLLMENT
                  -------------

14.3.1            HMO has a limited right to request a Member be disenrolled
                  from HMO without the Member's consent. TDH must approve any
                  HMO request for disenrollment of a Member for cause.
                  Disenrollment of a Member may be permitted under the following
                  circumstances:

14.3.1.1          Member misuses or loans Member's HMO membership card to
                  another person to obtain services.

14.3.1.2          Member is disruptive, unruly, threatening or uncooperative to
                  the extent that Member's membership seriously impairs HMO's or
                  provider's ability to provide services to Member or to obtain
                  new Members, and Member's behavior is not caused by a physical
                  or behavioral health condition.

14.3.1.3          Member steadfastly refuses to comply with managed care
                  restrictions (e.g., repeatedly using emergency room in
                  combination with refusing to allow HMO to treat the underlying
                  medical condition).

14.3.2            HMO must take reasonable measures to correct Member behavior
                  prior to requesting disenrollment. Reasonable measures may
                  include providing education and counseling regarding the
                  offensive acts or behaviors.

14.3.3            HMO must notify the Member of HMO's decision to disenroll the
                  Member if all reasonable measures have failed to remedy the
                  problem.

14.3.4            If the Member disagrees with the decision to disenroll the
                  Member from HMO, HMO must notify the Member of the
                  availability of the complaint procedure and TDH's Fair Hearing
                  process.

14.3.5            HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
                  THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH
                  ARE MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4              AUTOMATIC RE-ENROLLMENT
                  -----------------------
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<PAGE>

14.4.1            Members who are disenrolled because they are temporarily
                  ineligible for Medicaid will be automatically re-enrolled into
                  the same health plan. Temporary loss of eligibility is defined
                  as a period of 6 months or less.

14.4.2            HMO must inform its Members of the automatic re-enrollment
                  procedure. Automatic re-enrollment must be included in the
                  Member Handbook (see Article 8.2.1).

14.5              ENROLLMENT REPORTS
                  ------------------

14.5.1            TDH will provide HMO enrollment reports listing all STAR
                  Members who have enrolled in or were assigned to HMO during
                  the initial enrollment period.

14.5.2            TDH will provide monthly HMO Enrollment Reports to HMO on or
                  before the first of the month.

14:5.3            TDH will provide Member verification to HMO and network
                  providers through telephone verification or TexMedNet.

ARTICLE XV    GENERAL PROVISIONS

15.1              INDEPENDENT CONTRACTOR
                  ----------------------

                  HMO, its agents, employees, network providers, and
                  subcontractors are independent contractors and do not perform
                  services under this contract as employees or agents of TDH.
                  HMO is given express, limited authority to exercise the
                  State's right of recovery as provided in Article 4.9.

15.2              AMENDMENT
                  ---------

15.2.1            This contract must be amended by TDH if amendment is required
                  to comply with changes in state or federal laws, rules, or
                  regulations.

15.2.2            TDH and HMO may amend this contract if reductions in funding
                  or appropriations make full performance by either party
                  impracticable or impossible, and amendment could provide a
                  reasonable alternative to termination. If HMO does not agree
                  to the amendment, contract may be terminated under Article
                  XVIII.

15.2.3            This contract must be amended if either party discovers a
                  material omission of a negotiated or required term, which is
                  essential to the successful performance or maintaining
                  compliance with the terms of the contract. The party
                  discovering the

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                  omission must notify the other party of the omission in
                  writing as soon as possible after discovery. If there is a
                  disagreement regarding whether the omission was intended to be
                  a term of the contract, the parties must submit the dispute to
                  dispute resolution under Article 15.9.

15.2.4            This contract may be amended by mutual agreement at any time.

15.2.5            All amendments to this contract must be in writing and signed
                  by both parties.

15.2.6            No agreement shall be used to amend this contract unless it is
                  made a part of this contract by specific reference, and is
                  numbered sequentially by order of its adoption.

15.3              LAW, JURISDICTION AND VENUE
                  ---------------------------

                  Venue and jurisdiction shall be in the state and federal
                  district courts of Travis County, Texas. The laws of the State
                  of Texas shall be applied in all matters of state law.

15.4              NON-WAIVER
                  ----------

                  Failure to enforce any provision or breach shall not be taken
                  by either party as a waiver of the right to enforce the
                  provision or breach in the future.

15.5              SEVERABILITY
                  ------------

                  Any part of this contract which is found to be unenforceable,
                  invalid, void, or illegal shall be severed from the contract.
                  The remainder of the contract shall be effective.

15.6              ASSIGNMENT
                  ----------

                  This contract was awarded to HMO based on HMO's qualifications
                  to perform personal and professional services. HMO cannot
                  assign this contract without the written consent of TDI and
                  TDH. This provision does not prevent HMO from subcontracting
                  duties and responsibilities to qualified subcontractors. If
                  TDI and TDH consent to an assignment of this contract, a
                  transition period of 90 days will run from the date the
                  assignment is approved by TDI and TDH so that Members'
                  services are not interrupted and, if necessary, the notice
                  provided for in Article 15.7 can be sent to Members. The
                  assigning HMO must also submit a transition plan, as set out
                  in Article 18.2.1, subject to TDH's approval.

15.7              MAJOR CHANGE IN CONTRACTING
                  ---------------------------

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                  TDH may send notice to Members when a major change affecting
                  HMO occurs. A "major change" includes, but is not limited to,
                  a substantial change of subcontractors and assignment of this
                  contract. The notice letter to Members may permit the Members
                  to re-select their plan and PCP. TDH will bear the cost of
                  preparing and sending the notice letter in the event of an
                  approved assignment of the contract. For any other major
                  change in contracting, HMO will prepare the notice letter and
                  submit it to TDH for review and approval. After TDH has
                  approved the letter for distribution to Members, HMO will bear
                  the cost of sending the notice letter.

15.8              NON-EXCLUSIVE
                  -------------

                  This contract is a non-exclusive agreement. Either party may
                  contract with other entities for similar services in the same
                  service area.

15.9              DISPUTE RESOLUTION
                  ------------------

                  The dispute resolution process adopted by TDH in accordance
                  with Chapter 2260, Texas Government Code, will be used to
                  attempt to resolve all disputes arising under this contract.
                  All disputes arising under this contract shall be resolved
                  through TDH's dispute resolution procedures, except where a
                  remedy is provided for through TDH `s administrative rules or
                  processes. All administrative remedies must be exhausted prior
                  to other methods of dispute resolution. TDH will assist HMO in
                  resolution of a conflict of law or interpretation of law
                  between or among state agencies with authority to regulate and
                  enforce this contract.

15.10             DOCUMENTS CONSTITUTING CONTRACT
                  -------------------------------

                  This contract includes this document and all amendments and
                  appendices to this document, the Request for Application, the
                  Application submitted in response to the Request for
                  Application, the Texas Medicaid Provider Procedures Manual and
                  Texas Medicaid Bulletins addressed to HMOs, contract
                  interpretation memoranda issued by TDH for this contract, and
                  the federal waiver granting TDH authority to contract with
                  HMO. If any conflict in provisions between these documents
                  occurs, the terms of this contract and any amendments shall
                  prevail. The documents listed above constitute the entire
                  contract between the parties.

15.11             FORCE MAJEURE
                  -------------

                  TDH and HMO are excused from performing the duties and
                  obligations under this contract for any period that they are
                  prevented from performing their services as a result of a
                  catastrophic occurrence, or natural disaster, clearly beyond
                  the control of either party, including but not limited to an
                  act of war, but excluding labor disputes.

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15.12             NOTICES
                  -------

                  Notice may be given by any means which provides for
                  verification of receipt. All notices to TDH shall be addressed
                  to Bureau Chief, Texas Department of Health, Bureau of Managed
                  Care, 1100 W. 49th Street, Austin, TX 78756-3168, with a copy
                  to the Contract Administrator. Notices to HMO shall be
                  addressed to President/CEO, Michael A. Seltzer, Vice
                  President, West Region, 8431 Fredericksburg Road, San Antonio,
                  Texas 78229; AND Medicaid Director, Cheryl Dietz, 8303 Mopac,
                  Suite 450-C, Austin, Texas 78759.

15.13             SURVIVAL
                  --------

                  The provisions of this contract which relate to the
                  obligations of HMO to maintain records and reports shall
                  survive the expiration or earlier termination of this contract
                  for a period not to exceed six (6) years unless another period
                  may be required by record retention policies of the State of
                  Texas or HCFA.

ARTICLE XVI   DEFAULT AND REMEDIES

16.1              DEFAULT BY TDH
                  --------------

16.1.1            FAILURE TO MAKE CAPITATION PAYMENTS
                  -----------------------------------

                  Failure by TDH to make capitation payments when due is a
                  default under this contract.

16.1.2            FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES
                  ----------------------------------------------

                  Failure by TDH to perform a material duty or responsibility as
                  set out in this contract is a default under this contract.

16.2              REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT
                  -------------------------------------------

                  HMO may terminate this contract as set out in Article 18.1.5
                  of this contract if TDH commits either of the events of
                  default set out in Article 16.1.

16.3              DEFAULT BY HMO
                  --------------

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16.3.1            FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
                  ---------------------------------------------

                  Failure of HMO to perform an administrative function is a
                  default under this contract. Administrative functions are any
                  requirements under this contract that are not direct delivery
                  of health care services, including claims payment; encounter
                  data submission; filing any report when due; cooperating in
                  good faith with TDH, an entity acting on behalf of TDH, or an
                  agency authorized by statute or law to require the cooperation
                  of HMO in carrying out an administrative, investigative, or
                  prosecutorial function of the Medicaid program; providing or
                  producing records upon request; or entering into contracts or
                  implementing procedures necessary to carry out contract
                  obligations.

16.3.1.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to perform an administrative function under
                  this contract, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Assess liquidated money damages as set out in
                  Article 18.4; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.2            ADVERSE ACTION AGAINST HMO BY TDI
                  ---------------------------------

                  Termination or suspension of HMO's TDI Certificate of
                  Authority or any adverse action taken by TDI that TDH
                  determines will affect the ability of HMO to provide health
                  care services to Members is a default under this contract.

16.3.2.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For an adverse action against HMO by TDI, TDH may:

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                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.3            INSOLVENCY
                  ----------

                  Failure of HMO to comply with state and federal solvency
                  standards or in capacity of HMO to meet its financial
                  obligations as they come due is a default under this contract.

16.3.3.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's insolvency, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.4            FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
                  ---------------------------------------------------

                  Failure of HMO to comply with the federal requirements for
                  Medicaid, including, but not limited to, federal law regarding
                  misrepresentation, fraud, or abuse; and, by incorporation,
                  Medicare standards, requirements, or prohibitions, is a
                  default under this contract.

                  The following events are defaults under this contract pursuant
                  to 42 U.S.C. 1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1          HMO's substantial failure to provide medically necessary items
                  and services that are required under this contract to be
                  provided to Members;

16.3.4.2          HMO's imposition of premiums or charges on Members in excess
                  of the premiums or charge permitted by federal law;

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16.3.4.3          HMO's acting to discriminate among Members on the basis of
                  their health status or requirements for health care services,
                  including expulsion or refusal to enroll an individual, except
                  as permitted by federal law, or engaging in any practice that
                  would reasonably be expected to have the effect of denying or
                  discouraging enrollment with HMO by eligible individuals whose
                  medical condition or history indicates a need for substantial
                  future medical services;

16.3.4.4          HMO's misrepresentation or falsification of information that
                  is furnished to HCFA, TDH, a Member, a potential Member, or a
                  health care provider;

16.3.4.5          HMO's failure to comply with the physician incentive
                  requirements under 42 U.S.C. '1396b(m)(2)(A)(x); or

16.3.4.6          HMO's distribution, either directly or through any agent or
                  independent contractor, of marketing materials that contain
                  false or misleading information, excluding materials prior
                  approved by TDH.

16.3.5            REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  If HMO repeatedly fails to meet the requirements of Articles
                  16.3.4.1 through and including 16.3.4.6, TDH must, regardless
                  of what other sanctions are provided, appoint temporary
                  management and permit Members to disenroll without cause.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to comply with federal laws and regulations,
                  TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Appoint temporary management as set out in
                  Article 18.5; Initiate disenrollment of a Member of Members
                  without cause as set out in Article 18.6; Suspend or default
                  all enrollment of individuals; Suspend payment to HMO;
                  Recommend to HCFA that sanctions be taken against HMO as set
                  out in Article 18.7; Assess civil monetary penalties as set
                  out in Article 18.8; and/or Require forfeiture of all or part
                  of the TDI performance bond as set out in Article 18.9.

16.3.6            FAILURE TO COMPLY WITH APPLICABLE STATE LAW
                  -------------------------------------------

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                  HMO's failure to comply with Texas law applicable to Medicaid,
                  including, but not limited to, Article 32.039 of the Texas
                  Human Resources Code and state law regarding
                  misrepresentation, fraud, or abuse, is a default under this
                  contract.

16.3.6.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to comply with applicable state law, TDH
                  may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Assess administrative penalties as set out in
                  Article 32.039, Government Code, with the opportunity for
                  notice and appeal as required by Article 32.039; and/or
                  Require forfeiture of all or part of the TDI performance bond
                  as set out in Article 18.9.

16.3.7            MISREPRESENTATION OR FRAUD UNDER ARTICLE 4.8
                  --------------------------------------------

                  HMO's misrepresentation or fraud under Article 4.8 of this
                  contract is a default under this contract.

16.3.7.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's misrepresentation or fraud under Article 4.8, TDH
                  may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.8            EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
                  ----------------------------------------------------

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16.3.8.1          Exclusion of HMO or any of the managing employees or persons
                  with an ownership interest whose disclosure is required by
                  '1124(a) of the Social Security Act (the Act) from the
                  Medicaid or Medicare program under the provisions of '1128(a)
                  and/or (b) of the Act is a default under this contract.

16.3.8.2          Exclusion of any provider or subcontractor or any of the
                  managing employees or persons with an ownership interest of
                  the provider or subcontractor whose disclosure is required by
                  '1124(a) of the Social Security Act (the Act) from the
                  Medicaid or Medicare program under the provisions of '1128(a)
                  and/or (b) of the Act is a default under this contract if the
                  exclusion will materially affect HMO's performance under this
                  contract.

16.3.8.3          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's exclusion from Medicare or Medicaid, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.9            FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND
                  SUBCONTRACTORS
                  --------------

                  HMO's failure to make timely and appropriate payments to
                  network providers and subcontractors is a default under this
                  contract. Withholding or recouping capitation payments as
                  allowed or required under other articles of this contract is
                  not a default under this contract.

16.3.9.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

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                  For HMO's failure to make timely and appropriate payments to
                  network providers and subcontractors, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Assess liquidated money damages as set out in
                  Article 18.4; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.10           FAILURE TO TIMELY ADJUDICATE CLAIMS
                  -----------------------------------

                  Failure of HMO to adjudicate (paid, denied, or external
                  pended) at least ninety (90%) of all claims within thirty (30)
                  days of receipt and ninety-nine percent (99%) of all claims
                  within ninety days of receipt for the contract year is a
                  default under this contract.

16.3.10.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consequently.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to timely adjudicate claims, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.11           FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT
                  FUNCTIONS
                  --------

                  Failure to pass any of the mandatory system or delivery
                  functions of the Readiness Review required in Article I of
                  this contract is a default under the contract.

16.3.11.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

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                  For HMO's failure to demonstrate the ability to perform
                  contract functions, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.12           FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS
                  OR NETWORK PROVIDERS
                  --------------------

16.3.12.1         Failure of HMO to audit, monitor, supervise, or enforce
                  functions delegated by contract to another entity that results
                  in a default under this contract or constitutes a violation of
                  state or federal laws, rules, or regulations is a default
                  under this contract.

16.3.12.2         Failure of HMO to properly credential its providers, conduct
                  reasonable utilization review, or conduct quality monitoring
                  is a default under this contract.

16.3.12.3         Failure of HMO to require providers and contractors to provide
                  timely and accurate encounter, financial, statistical, and
                  utilization data is a default under this contract.

16.3.12.4         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDK
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to monitor and/or supervise activities of
                  contractors or network providers, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.13           PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY
                  ----------------------------------------------------

                  HMO's placing the health and safety of the Members in jeopardy
                  is a default under this contract.

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16.3.13.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's placing the health and safety of Members in
                  jeopardy, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.14           FAILURE TO MEET ESTABLISHED BENCHMARK
                  -------------------------------------

                  Failure of HMO to meet any benchmark established by TDH under
                  this contract is a default under this contract.

16.3.14.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to meet any benchmark established by TDH
                  under this contract, TDH may:

                  Remove the THSteps component from the capitation paid to HMO
                  if the benchmark(s) missed is for THSteps; Terminate the
                  contract if the applicable conditions set out in Article
                  18.1.1 are met; Suspend new enrollment as set out in Article
                  18.3; Assess liquidated money damages as set out in Article
                  18.4; and/or Require forfeiture of all or part of the TDI
                  performance bond as set out in Article 18.9.

ARTICLE XVII  NOTICE OF DEFAULT AND CURE OF DEFAULT

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<PAGE>

17.1              TDH will provide HMO with written notice of default (Notice of
                  Default) under this contract. The Notice of Default may be
                  given by any means that provides verification of receipt. The
                  Notice of Default must contain the following information:

17.1.1            A clear and concise statement of the circumstances or
                  conditions that constitute a default under this contract;

17.1.2            The contract provision(s) under which default is being
                  declared;

17.1.3            A clear and concise statement of how and/or whether the
                  default may be cured;

17.1.4            A clear and concise statement of the time period during which
                  HMO may cure the default if HMO is allowed to cure;

17.1.5            The remedy or remedies TDH is electing to pursue and when the
                  remedy or remedies will take effect;

17.1.6            If TDH is electing to impose money damages and/or civil
                  monetary penalties, the amount that TDH intends to withhold or
                  impose and the factual basis on which TDH is imposing the
                  chosen remedy or remedies;

17.1.7            Whether any part of money damages or civil monetary penalties,
                  if TDH elects to pursue one or both of those remedies, may be
                  passed through to an individual or entity who is or may be
                  responsible for the act or omission for which default is
                  declared;

17.1.8            Whether failure to cure the default within the given time
                  period if any, will result in TDH pursuing an additional
                  remedy or remedies, including, but not limited to, additional
                  damages or sanctions, referral for investigation or action by
                  another agency, and/or termination of the contract.

ARTICLE XVIII EXPLANATION OF REMEDIES

18.1              TERMINATION
                  -----------

18.1.1            TERMINATION BY TDH
                  ------------------

                  TDH may terminate this contract if:

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<PAGE>

18.1.1.1          HMO substantially fails or refuses to provide medically
                  necessary services and items that are required under this
                  contract to be provided to Members after notice and
                  opportunity to cure;

18.1.1.2          HMO substantially fails or refuses to perform administrative
                  functions under this contract after notice and opportunity to
                  cure;

18.1.1.3          HMO materially defaults under any of the provisions of Article
                  XVI;

18.1.1.4          Federal or state funds for the Medicaid program are no longer
                  available; or

18.1.1.5          TDH has a reasonable belief that HMO has placed the health or
                  welfare of Members in jeopardy.

18.1.2            TDH must give HMO 90 days written notice of intent to
                  terminate this contract if termination is the result of HMO's
                  substantial failure or refusal to perform administrative
                  functions or a material default under any of the provisions of
                  Article XVI. TDH must give HMO reasonable notice under the
                  circumstances if termination is the result of federal or state
                  funds for the Medicaid program no longer being available. TDH
                  must give the notice required under TDH's formal hearing
                  procedures set out in Section 1.2.1 in Title 25 of the Texas
                  Administrative Code if termination is the result of HMO's
                  substantial failure or refusal to provide medically necessary
                  services and items that are required under the contract to be
                  provided to Members or TDH's reasonable belief that HMO has
                  placed the health or welfare of Members in jeopardy.

18.1.2.1          Notice may be given by any means that gives verification of
                  receipt.

18.1.2.2          Unless termination is the result of HMO's substantial failure
                  or refusal to provide medically necessary services and items
                  that are required under this contract to be provided to
                  Members or is the result of TDH's reasonable belief that HMO
                  has placed the health or welfare of Members in jeopardy, the
                  termination date is 90 days following the date that HMO
                  receives the notice of intent to terminate. For HMO's
                  substantial failure or refusal to provide services and items,
                  HMO is entitled to request a pre-termination hearing under
                  TDH's formal hearing procedures set out in Section 1.2.1 of
                  Title 25, Texas Administrative Code.

18.1.3            TDH may, for termination for HMO's substantial failure or
                  refusal to provide medically necessary services and items,
                  notify HMO's Members of any hearing requested by HMO and
                  permit Members to disenroll immediately without cause.
                  Additionally, if TDH terminates for this reason, TDH may
                  enroll HMO's Members

                                                           1999 Renewal Contract
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                                                                  August 9, 1999
                                      134

<PAGE>

                  with another HMO or permit HMO's Members to receive
                  Medicaid-covered services other than from an HMO.

18.1.4            HMO must continue to perform services under the transition
                  plan described in Article 18.2.1 until the last day of the
                  month following 90 days from the date of receipt of notice if
                  the termination is for any reason other than TDH's reasonable
                  belief that HMO is placing the health and safety of the
                  Members in jeopardy. If termination is due to this reason, TDH
                  may prohibit HMO's further performance of services under the
                  contract.

18.1.5            If TDH terminates this contract, HMO may appeal the
                  termination under ss. 32.034, Texas Human Resources Code.

18.1.6            TERMINATION BY HMO
                  ------------------

                  HMO may terminate this contract if TDH fails to pay HMO as
                  required under Article XIII of this contract or otherwise
                  materially defaults in its duties and responsibilities under
                  this contract, or by giving notice no later than 30 days after
                  receiving the capitation rates for the second contract year.
                  Retaining premium, recoupment, sanctions, or penalties that
                  are allowed under this contract or that result from HMO's
                  failure to perform or HMO's default under the terms of this
                  contract is not cause for termination.

18.1.6.1          HMO may terminate this contract without cause, except HMO
                  cannot terminate this contract without cause for the 90 days
                  immediately following the effective date of the contract.

18.1.7            HMO must give TDH 90 days written notice of intent to
                  terminate this contract, either for cause or without cause.
                  Notice may be given by any means that gives verification of
                  receipt. The termination date will be calculated as the last
                  day of the month following 90 days from the date the notice of
                  intent to terminate is received by TDH.

18.1.8            TDH must be given 30 days from the date TDH receives HMO's
                  written notice of intent to terminate for failure to pay HMO
                  to pay all amounts due. If TDH pays all amounts then due
                  within this 30-day period, HMO cannot terminate the contract
                  under this article for that reason.

18.1.9            TERMINATION BY MUTUAL CONSENT
                  -----------------------------

                  This contract may be terminated at any time by mutual consent
                  of both HMO and TDH.

18.2              DUTIES OF CONTRACTING PARTIES UPON TERMINATION
                  ----------------------------------------------

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                                                             Travis Service Area
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                                      135

<PAGE>

                  When termination of the contract occurs, TDH and HMO must meet
                  the following obligations:

18.2.1            TDH and HMO must prepare a transition plan, which is
                  acceptable to and approved by TDH, to ensure that Members are
                  reassigned to other plans without interruption of services.
                  That transition plan will be implemented during the 90-day
                  period between receipt of notice and the termination date
                  unless termination is the result of TDH's reasonable belief
                  that HMO is placing the health or welfare of Members in
                  jeopardy.

18.2.2            If the contract is terminated by TDH for any reason other than
                  federal or state funds for the Medicaid program no longer
                  being available or if HMO terminates the contract based on
                  lower capitation rates for the second contract year as set out
                  in Article 13.1.4.1:

18.2.2.1          TDH is responsible for notifying all Members of the date of
                  termination and how Members can continue to receive contract
                  services;

18.2.2.2          HMO is responsible for all expenses related to giving notice
                  to Members; and

18.2.2.3          HMO is responsible for all expenses incurred by TDH in
                  implementing the transition plan.

18.2.3            If the contract is terminated by HMO for any reason other than
                  based on lower capitation rates for the second contract year
                  as set out in Article 13.1.4.1:

18.2.3.1          TDH is responsible for notifying all Members of the date of
                  termination and how Members can continue to receive contract
                  services;

18.2.3.2          TDH is responsible for all expenses related to giving notice
                  to Members; and.

18.2.3.3          TDH is responsible for all expenses it incurs in implementing
                  the transition plan.

18.2.4            If the contract is terminated by mutual consent:

18.2.4.1          TDH is responsible for notifying all Members of the date of
                  termination and how Members can continue to receive contract
                  services

18.2.4.2          HMO is responsible for all expenses related to giving notice
                  to Members; and

18.2.4.3          TDH is responsible for all expenses it incurs in implementing
                  the transition plan.

                                                           1999 Renewal Contract
                                                             Travis Service Area
                                                                  August 9, 1999
                                      136

<PAGE>

18.3              SUSPENSION OF NEW ENROLLMENT
                  ----------------------------

18.3.1            TDH must give HMO 30 days notice of intent to suspend new
                  enrollment in the Notice of Default other than for default for
                  fraud and abuse or imminent danger to the health or safety of
                  Members. The suspension date will be calculated as 30 days
                  following the date that HMO receives the Notice of Default.

18.3.2            TDH may immediately suspend new enrollment into HMO for a
                  default declared as a result of fraud and abuse or imminent
                  danger to the health and safety of Members.

18.3.3            The suspension of new enrollment may be for any duration, up
                  to the termination date of the contract. TDH will base the
                  duration of the suspension upon the type and severity of the
                  default and HMO's ability, if any, to cure the default.

18.4              LIQUIDATED MONEY DAMAGES
                  ------------------------

18.4.1            The measure of damages in the event that HMO fails to perform
                  its obligations under this contract may be difficult or
                  impossible to calculate or quantify. Therefore, should HMO
                  fail to perform in accordance with the terms and conditions of
                  this contract, TDH may require HMO to pay sums as specified
                  below as liquidated damages. The liquidated damages set out in
                  this Article are not intended to be in the nature of a penalty
                  but are intended to be reasonable estimates of TDH's financial
                  loss and damage resulting from HMO's non-performance.

18.4.2            If TDH imposes money damages, TDH may collect those damages by
                  reducing the amount of any monthly premium payments otherwise
                  due to HMO by the amount of the damages. Money damages that
                  are withheld from monthly premium payments are forfeited and
                  will not be subsequently paid to HMO upon compliance or cure
                  of default unless a determination is made after appeal that
                  the damages should not have been imposed.

18.4.3            Failure to file or filing incomplete or inaccurate annual,
                  semi-annual or quarterly reports may result in money damages
                  of not more than $11,000.00 for every month from the month the
                  report is due until submitted in the form and format required
                  by TDH. These money damages apply separately to each report.

18.4.4            Failure to produce or provide records and information
                  requested by TDH, an entity acting on behalf of TDH, or an
                  agency authorized by statute or law to require production of
                  records at the time and place the records were required or
                  requested may result in money damages of not more than
                  $5,000.00 per day for each day the records are not produced as
                  required by the requesting entity or agency if the

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      137

<PAGE>

                  requesting entity or agency is conducting an investigation or
                  audit relating to fraud or abuse, and not more than $1,000.00
                  per day for each day records are not produced if the
                  requesting entity or agency is conducting routine audits or
                  monitoring activities.

18.4.5            Failure to file or filing incomplete or inaccurate encounter
                  data may result in money damages of not more than $25,000 for
                  each month HMO fails to submit encounter data in the form and
                  format required by TDH. TDH will use the encounter data
                  validation methodology established by TDH to determine the
                  number of encounter data and the number of months for which
                  damages will be assessed.

18.4.6            Failing or refusing to cooperate with TDH, an entity acting on
                  behalf of TDH, or an agency authorized by statute or law to
                  require the cooperation of HMO in carrying out an
                  administrative, investigative, or prosecutorial function of
                  the Medicaid program may result in money damages of not more
                  than $8,000.00 per day for each day HMO fails to cooperate.

18.4.7            Failure to enter into a required or mandatory contract or
                  failure to contract for or arrange to have all services
                  required under this contract provided may result in money
                  damages of not more than $1,000.00 per day that HMO either
                  fails to negotiate in good faith to enter into the required
                  contract or fails to arrange to have required services
                  delivered.

18.4.8            Failure to meet the benchmark for benchmarked services under
                  this contract may result in money damages of not more than
                  $25,000 for each month that HMO fails to meet the established
                  benchmark.

18.4.9            TDH may also impose money damages for a default under Article
                  16.3.9, Failure to Make Payments to Network Providers and
                  subcontractors, of this contract. These money damages are in
                  addition to the interest HMO is required to pay to providers
                  under the provisions of Articles 4.10.4 and 7.2.7.10 of this
                  contract.

18.4.9.1          If TDH determines that HMO has failed to pay a provider for a
                  claim or claims for which the provider should have been paid,
                  TDH may impose money damages of $2 per day for each day the
                  claim is not paid from the date the claim should have been
                  paid (calculated as 30 days from the date a clean claim was
                  received by HMO) until the claim is paid by HMO.

18.4.9.2          If TDH determines that HMO has failed to pay a capitation
                  amount to a provider who has contracted with HMO to provide
                  services on a capitated basis, TDH may impose money damages of
                  $10 per day, per Member for whom the capitation is not paid,
                  from the date on which the payment was due until the
                  capitation amount is paid.

                                                           1999 Renewal Contract
                                                             Travis Service Area
                                                                  August 9, 1999
                                      138

<PAGE>

18.5              APPOINTMENT OF TEMPORARY MANAGEMENT
                  -----------------------------------

18.5.1            TDH may appoint temporary management to oversee the operation
                  of HMO upon a finding that there is continued egregious
                  behavior by HMO or there is a substantial risk to the health
                  of the Members.

18.5.2            TDH may appoint temporary management to assure the health of
                  HMO's Members if there is a need for temporary management
                  while:

18.5.2.1          there is an orderly termination or reorganization of HMO; or

18.5.2.2          are made to remedy violations found under Article 16.3.4.

18.5.3            Temporary management will not be terminated until TDH has
                  determined that HMO has the capability to ensure that the
                  violations that triggered appointment of temporary management
                  will not recur.

18.5.4            TDH is not required to appoint temporary management before
                  terminating this contract.

18.5.5            No pre-termination hearing is required before appointing
                  temporary management.

18.5.6            As with any other remedy provided under this contract, TDH
                  will provide notice of default as is set out in Article XVII
                  to HMO. Additionally, as with any other remedy provided under
                  this contract, under Article 18.1 of this contract, HMO may
                  dispute the imposition of this remedy and seek review of the
                  proposed remedy.

18.6              TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT
                  ----------------------------------------------------------
                  CAUSE
                  -----

                  TDH must give HMO 30 days notice of intent to initiate
                  disenrollment of a Member of Members in the Notice of Default.
                  The TDH-initiated disenrollment date will be calculated as 30
                  days following the date that HMO receives the Notice of
                  Default.

18.7              RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO
                  ----------------------------------------------------------

18.7.1            If HCFA determines that HMO has violated federal law or
                  regulations and that federal payments will be withheld, TDH
                  will deny and withhold payments for new enrollees of HMO.

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      139

<PAGE>

18.7.2            HMO must be given notice and opportunity to appeal a decision
                  of TDH and HCFA pursuant to 42 CFR '434.67.

18.8              CIVIL MONETARY PENALTIES
                  ------------------------

18.8.1            For a default under Article 16.3.4.1, TDH may assess not more
                  than $25,000 for each default;

18.8.2            For a default under Article 16.3.4.2, TDH may assess double
                  the excess amount charged in violation of the federal
                  requirements for each default. The excess amount shall be
                  deducted from the penalty and returned to the Member
                  concerned.

18.8.3            For a default under Article 16.3.4.3, TDH may assess not more
                  than $100,000 for each default, including $15,000 for each
                  individual not enrolled as a result of the practice described
                  in Article 16.3.4.3.

18.8.4            For a default under Article 16.3.4.4, TDH may assess not more
                  than $100,000 for each default if the material was provided to
                  HCFA or TDH and not more than $25,000 for each default if the
                  material was provided to a Member, a potential Member, or a
                  health care provider.

18.8.5            For a default under Article 16.3.4.5, TDH may assess not more
                  than $25,000 for each default.

18.8.6            For a default under Article 16.3.4.6, TDH may assess not more
                  than S25,000 for each default.

18.8.7            HMO may be subject to civil money penalties under the
                  provisions of 42 CFR 1003 in addition to or in place of
                  withholding payments for a default under Article 16.3.4.

18.9              FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
                  -------------------------------------------------------

                  TDH may require forfeiture of all or a portion of the face
                  amount of the TDI performance bond if TDH determines that an
                  event of default has occurred. Partial payment of the face
                  amount shall reduce the total bond amount available pro rata.

18.10             REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED
                  ------------------------------------------

18.10.1           HMO may dispute the imposition of any sanction under this
                  contract. HMO notifies TDH of its dispute by filing a written
                  response to the Notice of Default, clearly stating the reason
                  HMO disputes the proposed sanction. With the written response,
                  HMO must submit to TDH any documentation that supports HMO's
                  position. HMO must

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      140

<PAGE>

                  file the review within 15 days from HMO's receipt of the
                  Notice of Default. Filing a dispute in a written response to
                  the Notice of Default suspends imposition of the proposed
                  sanction.

18.10.2           HMO and TDH must attempt to informally resolve the dispute. If
                  HMO and TDH are unable to informally resolve the dispute, HMO
                  must notify the Bureau Chief of Managed Care that HMO and TDH
                  cannot agree. The Bureau Chief will refer the dispute to the
                  Associate Commissioner for Health Care Financing who will
                  appoint a committee to review the dispute under TDH's dispute
                  resolution procedures. The decision of the dispute resolution
                  committee will be TDH's final administrative decision.

ARTICLE XIX   TERM

19.1              The effective date of this contract is September 1, 1999. This
                  contract will terminate on August 31, 2001, unless terminated
                  earlier as provided for elsewhere in this contract.

19.2              This contract may be renewed for an additional one-year period
                  by written amendment to the contract executed by the parties
                  prior to the termination date of the present contract. TDH
                  will notify HMO no later than 90 days before the end of the
                  contract period of its intent not to renew the contract.

19.3              If either party does not intend to renew the contract beyond
                  its contract period, the party intending not to renew must
                  submit a written notice of its intent not to renew to the
                  other party no later than 90 days before the termination date
                  set out in Article 19.1.

19.4              If either party does not intend to renew the contract beyond
                  its contract period and sends the notice required in Article
                  19.3, a transition period of 90 days will run from the date
                  the notice of intent not to renew is received by the other
                  party. By signing this contract, the parties agree that the
                  terms of this contract shall automatically continue during any
                  transition period.

19.5              The party that does not intend to renew the contract beyond
                  its contract period and sends the notice required by Article
                  19.3 is responsible for sending notices to all Members on how
                  the Member can continue to receive covered services. The
                  expense of sending the notices will be paid by the
                  non-renewing party. If TDH does not intend to renew and sends
                  the required notice, TDH is responsible for any costs it
                  incurs in ensuring that Members are reassigned to other plans
                  without interruption of services. If HMO does not intend to
                  renew and sends the required notice, HMO is responsible

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      141

<PAGE>

                  for any costs TDH incurs in ensuring that Members are
                  reassigned to other plans without interruption of services. If
                  both parties do not intend to renew the contract beyond its
                  contract period, TDH will send the notices to Members and the
                  parties will share equally in the cost of sending the notices
                  and of implementing the transition plan.

19.6              Non-renewal of this contract is not a contract termination for
                  purposes of appeal rights under the Human Resources
                  Code ss. 32.034.

SIGNED 1st day of September, 1999.

TEXAS DEPARTMENT OF HEALTH                  PCA Health Plans Of Texas, Inc.

BY:  /s/ WILLIAM R. ARCHER, III             BY: /s/ MICHAEL A. SELTZER
    -------------------------------            ---------------------------------
     William R. Archer III, M.D.            Printed Name: Michael A. Seltzer
     Commissioner of Health                 Title: Vice President, West Region
                                            Humana Health Plan of Texas, Inc.

Approved as to Form:

Office of General Counsel

Appendices
----------
Copies of the Appendices will be available upon request.

<PAGE>

                                 AMENDMENT NO. 1
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 1 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Travis Service Area, dated
September 1, 1999. The effective date of this Amendment is September 1, 1999.
All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract as follows:

1.       Article XIII is amended by deleting existing 13.1.2, 13.1.2.2, and
         13.1.2.3 and replacing them with the new Article 13.1.2, 13.1.2.2, and
         13.1.2.3 as follows:

         13.1.2            Delivery Supplemental Payment (DSP). TDH has
                           submitted the delivery supplemental payment
                           methodology to HCFA for approval. The monthly
                           capitation amounts for September 1, 1999, through
                           August 31, 2000, and the DSP amount are listed below.
                           These amounts are effective September 1, 1999. The
                           monthly capitation amounts established for each risk
                           group in the Travis Service Area using the Standard
                           methodology (listed in Article 13.1.3) will apply if
                           the DSP methodology is not approved by HCFA.

                                                                      Travis SDA
                                       1

<PAGE>

                  --------------------------------------------------------------
                  Risk Group                Monthly Capitation Amounts
                                            September 1, 1999 - August 31,
                                            2000
                  --------------------------------------------------------------
                  TANF Adults                             $107.58
                  --------------------------------------------------------------
                  TANF Children > 12                      $ 57.03
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                 $ 73.44
                  Months of Age
                  --------------------------------------------------------------
                  Newborns <12 Months of                  $390.55
                           -
                  Age
                  --------------------------------------------------------------
                  TANF Children <12                       $390.55
                                -
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children <12                  $390.55
                                     -
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                $ 41.89
                  --------------------------------------------------------------
                  CHIP Phase I                            $ 71.71
                  --------------------------------------------------------------
                  Pregnant Women                          $164.78
                  --------------------------------------------------------------
                  Disabled/Blind                          $ 14.00
                  Administration
                  --------------------------------------------------------------

                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.

13.1.2.2          For an HMO Member who is classified in the Pregnant Women,
                  TANF Adults, TANF Children >12 months, Expansion Children >12
                  months, Federal Mandate Children, or CHIP risk group, HMO will
                  be paid the monthly capitation amount identified in Article
                  13.1.2 for each month of classification, plus the DSP amount
                  identified in Article 13.1.2.

13.1.2.3          HMO must submit a monthly DSP Report (report) that includes
                  the data elements specified by TDH. TDH will consult with
                  contracted HMOs prior to revising the report data elements and
                  requirements. The reports must be submitted to TDH in the
                  format and time specified by TDH. The report must include only
                  unduplicated deliveries. The report must include only
                  deliveries for which HMO has made a payment for the delivery,
                  to either a hospital or other provider. No DSP will be made
                  for deliveries which are not reported by HMO to TDH within 210
                  days after the date of delivery, or within 30 days from the
                  date of discharge from the hospital for the stay related to
                  the delivery, whichever is later.

                                                            Travis SDA
                                       2

<PAGE>
                  --------------------------------------------------------------
                  Risk Group                Monthly Capitation Amounts
                                            September 1, 1999 - August 31,
                                            2000
                  --------------------------------------------------------------
                  TANF Adults                             $107.58
                  --------------------------------------------------------------
                  TANF Children > 12                      $ 57.03
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                 $ 73.44
                  Months of Age
                  --------------------------------------------------------------
                  Newborns <12 Months of                  $390.55
                           -
                  Age
                  --------------------------------------------------------------
                  TANF Children <12                       $390.55
                                -
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children <12                  $390.55
                                     -
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                $ 41.89
                  --------------------------------------------------------------
                  CHIP Phase I                            $ 71.71
                  --------------------------------------------------------------
                  Pregnant Women                          $164.78
                  --------------------------------------------------------------
                  Disabled/Blind                          $ 14.00
                  Administration
                  --------------------------------------------------------------

                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.

13.1.2.2          For an HMO Member who is classified in the Pregnant Women,
                  TANF Adults, TANF Children >12 months, Expansion Children >12
                  months, Federal Mandate Children, or CHIP risk group, HMO will
                  be paid the monthly capitation amount identified in Article
                  13.1.2 for each month of classification, plus the DSP amount
                  identified in Article 13.1.2.

13.1.2.3          HMO must submit a monthly DSP Report (report) that includes
                  the data elements specified by TDH. TDH will consult with
                  contracted HMOs prior to revising the report data elements and
                  requirements. The reports must be submitted to TDH in the
                  format and time specified by TDH. The report must include only
                  unduplicated deliveries. The report must include only
                  deliveries for which HMO has made a payment for the delivery,
                  to either a hospital or other provider. No DSP will be made
                  for deliveries which are not reported by HMO to TDH within 210
                  days after the date of delivery, or within 30 days from the
                  date of discharge from the hospital for the stay related to
                  the delivery, whichever is later.

                                                            Travis SDA
                                       2

<PAGE>

2.                Article XIII is amended by deleting existing 13.2.5 and
                  replacing it with the new Article 13.2.5 as follows: (delete
                  the stricken language and add the bold and italicized)

                  13.2.5   There will be two settlements for payment(s) of the
                           state share of the experience rebate. The first
                           settlement shall equal 100 percent of the state share
                           of the experience rebate as derive from Line 7 of
                           Part 1 (Net Income Before Taxes) of the [Deletion]
                           Final Managed Care Financial Statistical (MCFS)
                           Report and shall be paid on the same day the first
                           [Deletion] Final MCFS Report is submitted to TDH. The
                           second settlement shall be an adjustment to the first
                           settlement and shall be paid to TDH on the same day
                           that the second [Deletion] Final MCFS Report is
                           submitted to TDH if the adjustment is a payment from
                           HMO to TDH. TDH or its agent may audit or review the
                           MCFS reports. If TDH determines that corrections to
                           the MCFS reports are required, based on a TDH
                           audit/review or other documentation acceptable to
                           TDH, to determine an adjustment to the amount of the
                           second settlement, then final adjustment shall be
                           made within two years from the date that HMO submits
                           the second [Deletion] Final MCFS report. HMO must pay
                           the first and second settlements on the due dates for
                           the first and second Final MCFS reports respectively
                           as identified in Article 12.1.5. TDH may adjust the
                           experience rebate if TDH determines HMO has paid
                           affiliates amounts for goods or services that are
                           higher than the fair market value of the goods and
                           services in the service area. Fair market value may
                           be based on the amount HMO pays a non-affiliate(s) or
                           the amount another HMO pays for the same or similar
                           service in the service area and will be determined on
                           a case-by-case basis. TDH has final authority in
                           auditing and determining the amount of the experience
                           rebate.

AGREED AND SIGNED by an authorized representative of the parties on December 9,
1999.

TEXAS DEPARTMENT OF HEALTH                  PCA Health Plans of Texas, Inc.

 By: /s/ William R. Archer, III, M.D.       By: /s/ Michael A. Seltzer
     --------------------------------           --------------------------------
         William R. Archer, III., M.D.      Michael A. Seltzer
         Commissioner of Health             V.P., Western Region

Approved as to Form:
---------------------------
Office of General Counsel

                                                                      Travis SDA
                                       3

<PAGE>

                                AMENDMENT NO. 2
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 2 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.

1.       Article II is amended by adding the bold and italicized language

DEFINITIONS

Call coverage means arrangements made by a facility or an attending physician
with an appropriate level of health care provider who agrees to be available on
an as-needed basis to provide medically appropriate services for routine/high
risk/or emergency medical conditions or emergency Behavioral Health condition
that present without being scheduled at the facility or when the attending
physician is unavailable.

[deletion] Enrollment report/enrollment file means the daily or monthly list of
Medicaid recipients who are enrolled with an HMO as Members on the day or for
the month the report is issued.

2.       Article VI is amended by adding the bold and italicized language and
         deleting the stricken language.

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

6.9.2             HMO [Deletion] must have a perinatal health care system in
                  place that, at a minimum, provides the following services:

6.9.3             HMO must have a process to expedite scheduling a prenatal
                  appointment for an obstetrical exam for a TP40 Member no later
                  than two weeks after receiving the daily enrollment file
                  verifying enrollment of the Member into the HMO.

6.9.4             HMO must have procedures in place to contact and assist a
                  pregnant/delivering Member in selecting a PCP for her baby
                  either before the birth or as soon as the

<PAGE>

                  baby is born.  [Deletion]

6.9.4.5           HMO must provide inpatient care and professional services
                  related to labor and delivery for its pregnant/delivering
                  Members and neonatal care for its newborn Members (see Article
                  14.3.1) at the time of delivery and for up to 48 hours
                  following an uncomplicated vaginal delivery and 96 hours
                  following an uncomplicated Caesarian delivery.
                  [Deletion]

6.9.5.1           HMO must reimburse in-network providers, out-of-network
                  providers, and specialty physicians who are providing call
                  coverage, routine, and/or specialty consultation services for
                  the period of time covered in Article 6.9.5.

6.9.5.1.1         HMO must adjudicate provider claims for services provided to a
                  newborn Member in accordance with TDH's claims processing
                  requirements using the proxy ID number or State-issued
                  Medicaid ID number (see Article 4.10). HMO cannot deny claims
                  based on provider non-use of State-issued Medicaid ID number
                  for a newborn: Member. HMO must accept provider claims for
                  newborn services based on mother's name and/or Medicaid ID
                  number with accommodations for multiple births, as specified
                  by the HMO.

6.9.5.2           HMO cannot require prior authorization or PCP assignment to
                  adjudicate newborn claims for the period of time covered by
                  6.9.5

[Deletion]

6.9.6             [deletion] HMO may require prior authorization requests for
                  hospital or professional services provided beyond the time
                  limits in Article 6.9.5 and may

<PAGE>

                  utilized the determination of medical necessity beyond routine
                  care. HMO must respond to these prior authorization within the
                  requirements of 28 TAC ss. 19.1710-19.1712 and Article 21.58a
                  of the Texas Insurance Code.

6.9.6.1           HMO must notify providers involved in the care of
                  pregnant/delivering women and newborns (including
                  out-of-network providers and hospitals) regarding the HMO's
                  prior authorization requirements.

6.9.6.2           HMO cannot require a prior authorization for services provided
                  to a pregnant/delivering Member or newborn Member for a
                  medical condition which requires emergency services,
                  regardless of when the emergency condition arises (see Article
                  6.5.6).

3.       Article VIII is amended by adding the bold and italicized language and
         deleting the stricken language.

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

4.       Article XII is amended by adding the bold and italicized language and
         deleting the stricken language.

12.2              STATISTICAL REPORTS
                  -------------------

12.2.4            HMO cannot submit newborn encounters to TDH until the
                  State-issued Medicaid ID number is received for a newborn. HMO
                  must match the proxy ID number issued by the HMO with the
                  State-issued Medicaid ID number prior to submission of
                  encounters to TDH and submit the encounter in accordance to
                  the HMO Encounter Data Submission Manual. The encounter must
                  include the State-issued Medicaid ID number. Exceptions to the
                  45-day deadline [Deletion] for submission of encounter data in
                  paragraph 12.2.1 will be granted in cases in which the
                  Medicaid ID number is not available for a newborn Member.

<PAGE>

12.2.5            HMO must require providers to submit claims and encounter data
                  to HMO no later than 95 days after the date services are
                  provided.

12.2.6            HMO must use the procedure codes, diagnosis codes and other
                  codes contained in the most recent edition of the Texas
                  Medicaid Provider Procedures Manual and as otherwise provided
                  by TDH. Exceptions or additional codes must be submitted for
                  approval before HMO uses the codes.

12.2.7            HMO must use its TDH-specified identification numbers on all
                  encounter data submissions. Please refer to the TDH Encounter
                  Data Submission Manual for further specifications.

12.2.8            HMO must validate all encounter data using the encounter data
                  validation methodology prescribed by TDH prior to submission
                  of encounter data to TDH.

12.2.9            All Claims Summary Report. HMO must submit the "All Claims
                  -------------------------
                  Summary Report" identified in the Texas Managed Care Claims
                  Manual as a contract year-to-date report. The report must be
                  submitted quarterly by the last day of the month following the
                  reporting period. The report; must be submitted to TDH in a
                  format specified by TDH.

12.2.10           Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
                  ------------------------------------------------------
                  must file preliminary and final Medicaid Disproportionate
                  Share Hospital (DSH) reports, required by TDH to identify and
                  reimburse hospitals that qualify for Medicaid DSH funds. The
                  preliminary and final DSH reports must include the data
                  elements and be submitted in the form and format specified by
                  TDH. The preliminary DSH reports are due on or before June 1
                  of the year following the state fiscal year for which data is
                  being reported. The final DSH reports are due on or before
                  August 15 of the year following the state fiscal year for
                  which data is being reported.

5.       Article XIII is amended by adding the bold and italicized language.

13.5              NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS
                  ---------------------------------------------

13.5.1            Newborns born to Medicaid eligible mothers who are enrolled in
                  HMO are enrolled into HMO for 90 days following the date of
                  birth.

13.5.1.1          The mother of the newborn Member may change her newborn to
                  another HMO during the first 90 days following the date of
                  birth, but may only do so through TDH Customer Services.

13.5.2            MAXIMUS will provide HMO with a daily enrollment file which
                  will list all newborns who have received State-issued Medicaid
                  ID numbers. This file will

<PAGE>

                  include the Medicaid eligible mother's Medicaid ID number to
                  allow the HMO to link the newborn State-issued Medicaid ID
                  numbers with the proxy ID number. TDH will guarantee
                  capitation payments to HMO for all newborns who appear on the
                  MAXIM US daily enrollment file as HMO Members for each month
                  the newborn is enrolled in the HMO.

13.5.3            All non-TP45 newborns who are born to mothers whose enrollment
                  in HMO is effective on or before the date of the birth of the
                  newborn will be retroactively enrolled into the HMO through a
                  manual process by DHS Data Control.

13.5.4            Newborns who do not appear on the MAXIMUS daily enrollment
                  file before the end of the sixth month following the date of
                  birth will not be retroactively enrolled into the HMO. TDH
                  will manually reconcile payment to the HMO for services
                  provided from the date of birth for TP45 and all other
                  eligibility categories of newborns. Payment will cover
                  services rendered from the effective date of the proxy ID
                  number when first issued by the HMO regardless of plan
                  assignment at the time the State-issued Medicaid ID member is
                  received.

13.5.5            MAXIMUS will provide HMO with a daily enrollment file which
                  will list all TP40 Members who have received State-issued
                  Medicaid ID members. TDH will guarantee capitation payments to
                  HMO for all TP40 Members who appear on the MAXIMUS daily
                  enrollment file as HMO Members for each mouth the TP40 Member
                  enrollment is effective.

6.       Article XIV is amended by adding the bold and italicized language.

14.3              NEWBORN ENROLLMENT
                  ------------------

                  The HMO is responsible for newborns who are born to mothers
                  whose enrollment in HMO is effective on or before the date of
                  birth as follows:

14.3.1            Newborns are presumed Medicaid eligible and enrolled in the
                  mother's HMO for at least 90 days from the date of birth.

14.3.1.1          A mother of a newborn Member may change plans for her newborn
                  during the first 90 days by contacting TDH Customer Services.
                  TDH will notify HMO of newborn plan changes made by a mother
                  when the change is made by TDH Customer Services.

14.3.2            HMO must establish and implement written policies and
                  procedures to require professional and facility providers to
                  notify HMOs of a birth of a newborn to a Member at the time of
                  delivery.

14.3.2.1          HMO must create a proxy ID member in the HMO's
                  Enrollment/Eligibility and

<PAGE>

                  date of birth of the newborn.

14.3.2.2          HMO must match the proxy ID number and the State-issued
                  Medicaid ID number once the State-issued Medicaid ID number is
                  received.

14.3.2.3          HMO must submit a Form 7484A to DHS Data Control requesting
                  DHS Data Control to research DHS's files for a Medicaid ID
                  number if HMO has not received a State-issued Medicaid ID
                  number for a newborn within 30 days from the date of birth. If
                  DHS finds that no Medicaid ID number has been issued to the
                  newborn, DHS Data Control will issue the Medicaid ID number
                  using the information provided on the Form 7484A.

14.3.3            Newborns certified Medicaid eligible after the end of the
                  sixth month following the date of birth will not be
                  retroactively enrolled to an HMO, but will be enrolled in
                  Medicaid fee-for-service. TDH will manually reconcile payment
                  to the HMO for services provided from the date of birth for
                  all Medicaid eligible newborns as described in Article 13.5.4.

14.4              DISENROLLMENT
                  -------------

14.4.1            HMO has a limited right to request a Member be disenrolled
                  from HMO without the Member's consent. TDH must approve any
                  HMO request for disenrollment of a Member for cause.
                  Disenrollment of a Member may be permitted under the following
                  circumstances:

14.4.1.1          Member misuses or loans Member's HMO membership card to
                  another person to obtain services.

14.4.1.2          Member is disruptive, unruly, threatening or uncooperative to
                  the extent that Member's membership seriously impairs HMO's or
                  provider's ability to provide services to Member or to obtain
                  new Members, and Member's behavior is not caused by a physical
                  or behavioral health condition.

14.4.1.3          Member steadfastly refuses to comply with managed care
                  restrictions (e.g., repeatedly using emergency room in
                  combination with refusing to allow HMO to treat the underlying
                  medical condition).

14.4.2.1          HMO must take reasonable measures to correct Member behavior
                  prior to requesting disenrollment. Reasonable measures may
                  include providing education and counseling regarding the
                  offensive acts or behaviors.

<PAGE>

14.4.3            HMO must notify the Member of HMO's decision to disenroll the
                  Member if all reasonable measures have failed to remedy the
                  problem.

14.4.4            If the Member disagrees with the decision to disenroll the
                  Member from HMO, HMO must notify the Member of the
                  availability of the complaint procedure and TDH's Fair Hearing
                  process.

14.4.5            HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
                  THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH
                  ARE MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.5              AUTOMATIC RE-ENROLLMENT
                  -----------------------

14.5.1            Members who are disenrolled because they are temporarily
                  ineligible for Medicaid will be automatically re-enrolled into
                  the same health plan. Temporary loss of eligibility is defined
                  as a period of 6 months or less.

14.5.2            HMO must inform its Members of the automatic re-enrollment
                  procedure. Automatic re-enrollment must be included in the
                  Member Handbook (see Article 8.2.1).

14.6              ENROLLMENT REPORTS
                  ------------------

14.6.1            TDH will provide HMO enrollment reports listing all STAR
                  members who have enrolled in or were assigned to HMO during
                  the initial enrollment period.

14.6.2            TDH will provide monthly HMO Enrollment Reports to HMO on or
                  before the first of the month.

14.6.3            TDH will provide Member verification to HMO and network
                  providers through telephone verification or TexMedNet.

<PAGE>

AGREED AND SIGNED by an authorized representative of the parties on April 10,
2001.

TEXAS DEPARTMENT OF HEALTH                  PCA Health Plan of Texas, Inc.

By:  /s/ C.E. Bell, M.D.                    By:  /s/ Michael A. Seltzer
   -----------------------------                --------------------------------
   Charles E. Bell, M.D.                        Michael Seltzer
   Executive Deputy Commissioner of Health      Vice President, West Region

Approved as to Form:

/s/ Mary Ann Slavin
-------------------
Office of General Counsel

                                                TDH DOC. NO. 4810323494* 01A-01D

<PAGE>

                                AMENDMENT NO. 3
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 3 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.

1.       Article III is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

3.7               HMO TELEPHONE ACCESS REQUIREMENTS
                  ---------------------------------

3.7.1             For all HMO telephone access (including Behavioral Health
                  Telephone services), HMO must ensure [Deletion]
                  adequately-staffed telephone lines. Telephone personnel must
                  receive customer service telephone training. HMO must ensure
                  that telephone staffing is adequate to fulfill the standards
                  of promptness and quality listed below:

                  1.       80% of all telephone calls must be answered within an
                           average of 30 seconds;
                  2.       The lost (abandonment) rate must not exceed 10%;
                  3.       HMO cannot impose maximum call duration limits but
                           must allow calls to be of sufficient length to ensure
                           adequate information is provided to the Member or
                           Provider.
                  4.       Telephone services must meet cultural competency
                           requirements (see Article 8.9) and provide
                           "linguistic access" to all members as defined in
                           Article II. This would include the provision of
                           interpretive services required for effective
                           communication for Members and providers.

3.7.2             Member Helpline: The HMO must furnish a toll-free phone line
                  which members may call 24 hours a day, 7 days a week. An
                  answering service or other similar mechanism, which allows
                  callers to obtain information from a live person, may be used
                  for after-hours and weekend coverage.

3.7.2.1           HMO must provide coverage for the following services at least
                  during HMO's regular business hours (a minimum of 9 hours a
                  day, between 8 a.m. and 6 p.m.), [Deletion] Monday through
                  Friday:

                  1.       Member ID information

<PAGE>

                  2.       To change PCP
                  3.       Benefit explanations
                  4.       PCP verification
                  5.       Access issues (including referrals to specialists)
                  6.       Problems Accessing PCP
                  7.       Member eligibility
                  8.       Complaints
                  9.       Service area issues (including when member is
                           temporarily out-of-service area)
                  10.      Other services covered by member services.

3.7.2.2           HMO must provide TDH with policies and procedures indicating
                  how the HMO will meet the needs of members who are unable to
                  contact HMO during regular business hours.

3.7.3             HMO must ensure that PCPs are available 24 hours a day, 7 days
                  a week (see Article 7.8).  This includes PCP telephone
                  coverage (see 28 TAC 11.2001 (a)1A).

3.7.4             Behavioral Health Hotline Services. HMO must have emergency
                  and crisis Behavioral Health hotline services available 24
                  hours a day, 7 days a week, toll-free throughout the service
                  area. Crisis hotline staff must include or have access to
                  qualified behavioral health professionals to assess behavioral
                  health emergencies. Emergency and crisis behavioral health
                  services may be arranged through mobile crisis teams. It is
                  not acceptable for all emergency intake line to be answered by
                  an answering machine. Hotline services must meet the
                  requirements described in Article 3.7.1

2.       Article V is amended by adding the new bold and italicized language and
         deleting the stricken language as follows:

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

5.9.3.            Notwithstanding 5.9.2. If HMO believes that the requested
                  information qualifies as a trade secret or as commercial or
                  financial information, HMO must notify TDH--within three (3)
                  working days after TDH gives notice that a request has been
                  made for public information [Deletion] -- and request TDH to
                  submit the request for public information to the Attorney
                  General for an Open Records Opinion. The HMO will be
                  responsible for presenting all exceptions to public disclosure
                  to the Attorney General if an opinion is requested. [Deletion]

<PAGE>

3.       Article VI is amended by adding the new bold and italicized language as
         follows:

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

6.4.5             HMO must provide assistance to providers requiring PCP
                  verification 24 hours a day, 7 days a week.

6.4.5.1           HMO must provide TDH with policies and procedures indicating
                  how the HMO will provide PCP verification as indicated in
                  article 6.4.5. HMOs providing PCP verification via a
                  telephone must meet the requirements of 3.7.1.

4.       Article VII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

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

7.6.3             HMO's complaint and appeal process cannot contain provisions
                  requiring a provider to submit a complaint or appeal to TDH
                  for resolution in lieu of the HMO's process.

7.18              DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND
                  -------------------------------------------------------
                  ANHCs)
                  -----

7.18.2.1          HMO is required to include subcontract provisions in its
                  delegated network contracts which require the UM protocol used
                  by a delegated network to produce substantially similar
                  outcomes, as approved by TDH, as the UM protocol employed by
                  the contracting HMO. The responsibilities of an HMO in
                  delegating UM functions to a delegated network will be
                  governed by Article [Deletion] 16.3.12 of this contract.

5.       Article VIII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

8.3               ADVANCE DIRECTIVES
                  ------------------

8.3.1             Federal and state law require HMOs and providers to maintain
                  written policies and procedures for informing and providing
                  written information to all adult Members 18 years of age and
                  older about their rights under state and federal law, in
                  advance of their receiving care (Social Security
                  Act ss. 1902(a)(57) andss.1903(m)(1)(A)). The written policies
                  and procedures must contain procedures for providing written
                  information regarding advance directives and the Member's
                  right to refuse, withhold or withdraw medical treatment and
                  mental health treatment. [Deletion] HMO's policies and
                  procedures must comply with provisions contained in 42 CFR
                  ss. 434.28 and 42 CFR ss. 489, SubPart I, relating to advance
                  directives for all hospitals,

<PAGE>

                  critical access hospitals, skilled nursing facilities, home
                  health agencies, providers of home health care, providers of
                  personal care services and hospices, as well as the following
                  state laws and rules:

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

8.3.1.3           the declaration for Mental Health Treatment, Chapter 137,
                  Texas Civil Practice and Remedies Code, which includes: a
                  Member's right to execute a declaration for mental health
                  treatment in a document making a declaration of preferences or
                  instructions regarding mental health treatment.

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

8.3.2.1.3         a description of the medical and mental health conditions or
                  procedures affected by the conscience objection.

[Deletion]

8.5               MEMBER COMPLAINT PROCESS
                  ------------------------

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

8.5.2             HMO must have written policies and procedures for receiving,
                  tracking, reviewing, and reporting and resolving of Member
                  complaints. The procedures must be reviewed and approved in
                  writing by TDH. Any changes or modifications to the procedures
                  must be submitted to TDH for approval thirty (30) days prior
                  to the effective date of the amendment.

8.5.3             HMO must designate an officer of HMO who has primary
                  responsibility for ensuring that complaints are resolved in
                  compliance with written policy and within the time required.
                  An "officer" of HMO means a president, vice president,
                  secretary,

<PAGE>

                  treasurer, or chairperson of the board for a corporation, the
                  sole proprietor, the managing general partner of a
                  partnership, or a person having similar executive authority in
                  the organization.

8.5.4             HMO must have a routine process to detect patterns of
                  complaints and disenrollments and involve management and
                  supervisory staff to develop policy and procedural
                  improvements to address the complaints. HMO must cooperate
                  with TDH and TDH's Enrollment Broker in Member complaints
                  relating to enrollment and disenrollment.

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

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

8.5.7             HMO's process must include a requirement that the Governing
                  Body of HMO reviews the written records (logs) for complaints
                  and appeals.

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

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

8.5.10            HMO must develop, implement and maintain an appeal of adverse
                  determination procedure that complies with the requirements of
                  Article 21.58A of the Texas Insurance Code, relating to the
                  utilization review, except where otherwise provided in this
                  contract and in applicable federal law. The appeal of an
                  adverse determination procedure must be the same for all
                  Members and must comply with Texas Insurance Code, Article 21
                  .58A or applicable federal law. Modifications and amendments
                  must be submitted to TDH no less than 30 days prior to the
                  implementation of the modification or amendment. When an
                  enrollee, a person acting on behalf of an enrollee, or an
                  enrollee's provider of record expresses orally or in writing
                  any dissatisfaction or disagreement with an adverse
                  determination, HMO or UR agent must regard the expression of
                  dissatisfaction as a request to appeal an adverse
                  determination.

<PAGE>

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

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

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

8.5.14            HMO will cooperate with the Enrollment Broker and TDH to
                  resolve all Member complaints. Such cooperation may include,
                  but is not limited to, participation by HMO or Enrollment
                  Broker and/or TDH internal complaint committees.

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

8.5.16            HMO must provide Member Advocates to assist Members in
                  understanding and using HMO's complaint system and appeal of
                  an adverse determination.

8.5.17            HMO's Member Advocates must assist Members in writing or
                  filing a complaint or appeal of an adverse determination and
                  monitoring the complaint or appeal through the Contractor's
                  complaint or appeal of an adverse determination process until
                  the issue is resolved.

8.6               MEMBER NOTICE, APPEALS AND FAIR HEARINGS
                  ----------------------------------------

8.6.1             HMO must send Members the notice required by 1 Texas
                  Administrative Code ss. 357.5, whenever HMO takes an action to
                  deny, delay, reduce or terminate covered

<PAGE>

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

8.6.2             The notice must contain the following information:

8.6.2.1           Member's right to immediately access TDH's Fair Hearing
                  process:

8.6.2.2           a statement of the action HMO will take;

8.6.2.3           the date the action will be taken;

8.6.2.4           an explanation of the reasons HMO will take the action;

8.6.2.5           a reference to the state and/or federal regulations which
                  support HMO's action;

8.6.2.6           an address where written requests may be sent and a toll-free
                  number Member can call to: request the assistance of a Member
                  representative, or file a complaint, or request a Fair
                  Hearing;

8.6.2.7           a procedure by which Member may appeal HMO's action through
                  either HMO's complaint process or TDH's Fair Hearings process;

8.6.2.8           an explanation that Members may represent themselves, or be
                  represented by HMO's representative, a friend, a relative,
                  legal counsel or another spokesperson;

8.6.2.9           an explanation of whether, and under what circumstances,
                  services may be continued if a complaint is filed or a Fair
                  Hearing requested;

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

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

8.6.2.12          a statement explaining that a final decision must be made by
                  TDH within 90 days from the date a Fair Hearing is requested.

8.7               MEMBER ADVOCATES
                  ----------------

8.7.1             HMO must provide Member Advocates to assist Members. Member
                  Advocates must

<PAGE>

                  be physically located within the service area. Member
                  Advocates must inform Members of their rights and
                  responsibilities, the complaint process. the health education
                  and the services available to them, including preventive
                  services.

8.7.2             Member Advocates must assist Members in writing complaints and
                  are responsible for monitoring the complaint through HMO's
                  complaint process until the Member's issues are resolved or a
                  TDH Fair Hearing requested (see Articles 8.6.15, 8.6.16. and
                  8.6.17).

8.7.3             Member Advocates are responsible for making recommendations to
                  management on any changes needed to improve either the care
                  provided or the way care is delivered. Member Advocates are
                  also responsible for helping or referring Members to community
                  resources available to meet Member needs that are not
                  available from HMO as Medicaid covered services.

8.7.4             Member Advocates must provide outreach to Members and
                  participate in TDH-sponsored enrollment activities.

8.8               MEMBER CULTURAL AND LINGUISTIC SERVICES
                  ---------------------------------------

8.8.1             Cultural Competency Plan. HMO must have a comprehensive
                  written Cultural Competency Plan describing how HMO will
                  ensure culturally competent services, and provide linguistic
                  and disability-related access. The Plan must describe how the
                  individuals and systems within HMO will effectively provide
                  services to people of all cultures, races, ethnic backgrounds,
                  and religions as well as those with disabilities in a manner
                  that recognizes, values, affirms, and respects the worth of
                  the individuals and protects and preserves the dignity of
                  each. HMO must submit a written plan to TDH prior to the
                  effective date of this contract unless previously submitted.
                  Modifications and amendments to the written plan must be
                  submitted to TDH no later than 30 days prior to implementation
                  of the modification or amendment. The Plan must also be made
                  available to HMO's network of providers.

8.8.2             The Cultural Competency Plan must include the following:

8.8.2.1           HMO's written policies and procedures for ensuring effective
                  communication through the provision of linguistic services
                  following Title VI of the Civil Rights Act guidelines and the
                  provision of auxiliary aids and services, in compliance with
                  the Americans with Disabilities Act, Title III, Department of
                  Justice Regulation 36.303. HMO must disseminate these policies
                  and procedures to ensure that both Staff and subcontractors
                  are aware of their responsibilities under this provision of
                  the contract.

8.8.2.2           A description of how HMO will educate and train its staff and
                  subcontractors on culturally competent service delivery, and
                  the provision of linguistic and/or disability-related access
                  as related to the characteristics of its Members;

<PAGE>

8.8.2.3           A description of how HMO will implement the plan in its
                  organization, identifying a person in the organization who
                  will serve as the contact with TDH on the Cultural Competency
                  Plan;

8.8.2.4           A description of how HMO will develop standards and
                  performance requirements for the delivery of culturally
                  competent care and linguistic access. and monitor adherence
                  with those standards and requirements;

8.8.2.5           A description of how HMO will provide outreach and health
                  education to Members, including racial and ethnic minorities,
                  non-English speakers or limited-English speakers, and those
                  with disabilities, and

8.8.2.6           A description of how HMO will help Members access culturally
                  and linguistically appropriate community health or social
                  service resources;

8.8.3             Linguistic, Interpreter Services, and Provision of Auxiliary
                  Aids and Services. HMO must provide experienced, professional
                  interpreters when technical, medical, or treatment information
                  is to be discussed. See Title VI of the Civil Rights Act of
                  1964, 42 U.S.C. ss. ss. 2000d, et. seq. HMO must ensure the
                  provision of auxiliary aids and services necessary for
                  effective communication, as per the Americans with
                  Disabilities Act. Title III, Department of Justice Regulations
                  36.303.

8.8.3.1           HMO must adhere to and provide to Members the Member Bill of
                  Rights and Responsibilities as adopted by the Texas Health and
                  Human Services Commission and contained at 1 Texas
                  Administrative Code (TAC) ss. ss. 353.202-353.203. The Member
                  Bill of Rights and Responsibilities assures Members the right
                  "to have interpreters, if needed, during appointments with
                  their providers and when talking to their health plan.
                  Interpreters include people who can speak in their native
                  language, assist with a disability, or help them understand
                  the information."

8.8.3.2           HMO must have in place policies and procedures that outline
                  how Members can access face-to-face interpreter services in a
                  provider's office if necessary to ensure the availability of
                  effective communication regarding treatment, medical history
                  or health education for a Member. HMOs must inform its
                  providers on how to obtain an updated list of participating,
                  qualified interpreters.

8.8.3.3           A competent interpreter is defined as someone who is:

8.8.3.4           proficient in both English and the other language;

8.8.3.5           has had orientation or training in the ethics of interpreting;
                  and

8.8.3.6           has the ability to interpret accurately and impartially.

8.8.3.7           HMO must provide 24-hour access to interpreter services for
                  Members to access

<PAGE>

                  emergency medical services within HMO's network.

8.8.3.8           Family Members, especially minor children, should not be used
                  as interpreters in assessments, therapy or other medical
                  situations in which impartiality and confidentiality are
                  critical, unless specifically requested by the Member.
                  However, a family member or friend may be used as an
                  interpreter if they can be relied upon to provide a complete
                  and accurate translation of the information being provided to
                  the Member; provided that the Member is advised that a free
                  interpreter is available; and the Member expresses a
                  preference to rely on the family member or friend.

8.8.4             All Member orientation presentations education classes and
                  materials must be presented in the languages of the major
                  population groups making up 10% or more of the Medicaid
                  population in the service area, as specified by TDH. HMO must
                  provide auxiliary aids and services, as needed, including
                  materials in alternative formats (i.e., large print, tape or
                  Braille), and interpreters or real-time captioning to
                  accommodate the needs of persons with disabilities that affect
                  communication.

8.8.5             HMO must provide or arrange access to TDD to Members who are
                  deaf or hearing impaired.

8.9               CERTIFICATION DATE
                  ------------------

8.9.1             On the date of the new Member's enrollment, TDH will provide
                  HMOs with the Member's Medicaid certification date.

6.       Article XII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

12.1              FINANCIAL REPORTS
                  -----------------

12.1.4            Final MCFS Reports. HMO must file two Final Managed Care
                  ------------------
                  Financial-Statistical Reports. The first final report must
                  reflect expenses incurred through the 90th day after the end
                  of the contract. The first final report must be filed on or
                  before the 120th day after the end of the contract. The second
                  final report must reflect data completed through the 334th day
                  after the end of the contract year and must be filed on or
                  before the 365th day following the end of the contract.

12.2.9            Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
                  ------------------------------------------------------
                  must file preliminary and final Medicaid Disproportionate
                  Share Hospital (DSH) reports, required by TDH to identify and
                  reimburse hospitals that qualify for Medicaid DSH funds. The
                  preliminary and final DSH reports must include the data
                  elements and be submitted in the form and format specified by
                  TDH. The preliminary DSH reports are due on or before June 1
                  of the year following the state fiscal year for which data is
                  being reported. The final DSH reports are due [Deletion] no
                  later

<PAGE>

                  than July 15 of the year following the state fiscal year for
                  which data is being reported.

12.8              UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
                  --------------------------------------------------

                  Behavioral health (BH) utilization management reports are
                  required on a semi-annual basis. [Deletion] Refer to Appendix
                  H for the standardized reporting format for each report and
                  detailed instructions for obtaining the specific data required
                  in the report. [Deletion]

12.8.1            In addition, files are due to the TDH External Quality Review
                  Organization five (5) working days following the end of each
                  State Quarter. See Appendix H for Submission instructions. The
                  BH utilization report and data file submission instructions
                  may periodically updated by TDH to facilitate clear
                  communication to the health plans.

12.9              UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
                  ------------------------------------------------

                  Physical health (PH) utilization management reports are
                  required on a semi-annual basis. [Deletion] Refer to Appendix
                  J for the standardized reporting format for each report and
                  detailed instructions for obtaining specific data required in
                  the report. [Deletion]

12.9.1            In addition, data files are due to the TDH External Quality
                  Review Organization five (5) working days following the end of
                  each State Quarter. See Appendix J for submission
                  instructions. The PH utilization report and data file
                  submission instruction may periodically be updated by TDH to
                  facilitate clear communication to the health plan.

7.       Article XIII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

13.1              CAPITATION AMOUNTS
                  ------------------

13.1.1            TDH will pay HMO monthly premiums calculated by multiplying
                  the number of Member months by Member risk group times the
                  monthly capitation amount by Member risk group. For additional
                  information regarding the actuarial basis and

<PAGE>

                  methodology used to compute the capitation rates, please
                  reference the waiver under the document titled "Actuarial
                  Methodology for Determination of Maximum Monthly Capitation
                  Amounts". HMO and network providers are prohibited from
                  billing or collecting any amount from a Member for health care
                  services covered by this contract, in which case the Member
                  must be informed of such costs prior to providing non-covered
                  services.

13.2              EXPERIENCE REBATE TO STATE
                  --------------------------

13.2.1            For the contract period, [Deletion] HMO must pay to TDH an
                  experience rebate calculated in accordance with the tiered
                  rebate method listed below based on the excess of allowable
                  HMO STAR revenues over allowable HMO STAR expenses as
                  measured by any positive amount on Line 7 of "Part 1:
                  Financial Summary, All Coverage Groups Combined" of the
                  annual Managed Care Financial-Statistical Report set forth in
                  Appendix I, as reviewed and confirmed by TDH. TDH reserves the
                  right to have an independent audit performed to verify the
                  information provided by HMO.

13.2.5            There will be two settlements for payment(s) [Deletion] of the
                  experience rebate allocated to the state in the table 13.2.1
                  under the column entitled "State Share of Experience Rebate".
                  The first settlement shall equal 100 percent [Deletion] of the
                  experience rebate as derived from Line 7 of Part 1 (Net Income
                  Before Taxes) of the first final [Deletion] Managed Care
                  Financial Statistical (MCFS) Report and shall be paid on the
                  same day the first final [Deletion] MCFS Report is submitted
                  to TDH. The second settlement shall be an adjustment to the
                  first settlement and shall be paid to TDH on the same day that
                  the second final [Deletion] MCFS Report is submitted to TDH if
                  the adjustment is a payment from HMO to TDH. TDH or its agent
                  may audit or review the MCFS reports. If TDH determines that
                  corrections to the MCFS reports are required, based on a TDH
                  audit/review or other documentation acceptable to TDH, to
                  determine an adjustment to the amount of the second
                  settlement, then final adjustment shall be made within two
                  years from the date that HMO submits the second final
                  [Deletion] MCFS report. HMO must pay the first and second
                  settlements on the due dates for the first and second final
                  MCFS reports respectively as identified in Article [Deletion]
                  12.1.4. TDH may adjust the experience rebate if TDH determines
                  MO has paid affiliates amounts for goods or services that are
                  higher than the fair market value of the goods and services in
                  the service area. Fair market value may be based on the amount
                  HMO pays a non-affiliate(s) or the amount another HMO pays for
                  the same or similar service in the service area. TDH has final
                  authority in auditing and determining the amount of the
                  experience rebate.

8.       The Appendices are amended by deleting Appendix H, "Utilization
         Management Report -Behavioral Health" and replacing it with new
         Appendix H, "Utilization Management Report -Behavioral Health", as
         attached.

9.       The Appendices are amended by deleting Appendix J, "Utilization
         Management Report -Physical Health" and replacing it with new Appendix
         J, "Utilization Management Report -

<PAGE>

         Physical Health", as attached.

10.      The Appendices are amended by deleting Appendix K, "Preventative Health
         Performance Objectives" and replacing it with new Appendix K,
         "Preventative Health Performance Objectives", as attached.

AGREED AND SIGNED by an authorized representative of the parties on February 5,
2001.

TEXAS DEPARTMENT OF HEALTH PCA Health Plan; of Texas, Inc.

By:  /s/ C.E. Bell, M.D.                    By  /s/ Michael A. Seltzer
   ----------------------------------          ---------------------------------
   Charles E. Bell, M.D.                       Michael Seltzer
   Executive Deputy Commissioner               Vice President, West Region

Approved as to Form:

/s/ Mary Ann Slavin
-------------------------
Office of General Counsel

TDH DOC# 4810323494* 2001A-O1C

<PAGE>

                                AMENDMENT NO. 4
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 4 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Travis Service Area, dated
September 1, 1999. The effective date of this Amendment is [Deletion] September
7, 2000. All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract to read as follows:

1.       Article XIII is amended by the bold and italicized language and
         deleting the stricken language.

13.1.2            Delivery Supplemental Payment (DSP). [Deletion] The monthly
                  capitation amounts and the DSP amount are listed below.
                  [Deletion]

<PAGE>

         -----------------------------------------------------------------------
         Risk Group                    Monthly Capitation Amounts [Deletion]
                                       September 1, 2000 - August 31, 2001
         -----------------------------------------------------------------------
         TANF Adults                                    $107.58
         -----------------------------------------------------------------------
         TANF Children (less than) 12        [Deletion]  $57.06
         Months of Age
         -----------------------------------------------------------------------
         Expansion Children (less than) 12   [Deletion]  $73.48
         Months of Age
         -----------------------------------------------------------------------
         Newborns 12 Months of               [Deletion] $390.73

         Age
         -----------------------------------------------------------------------
         TANF Children 12                    [Deletion] $390.73

         Months of Age
         -----------------------------------------------------------------------
         Expansion Children 12               [Deletion] $390.73

         Months of Age
         -----------------------------------------------------------------------
         Federal Mandate Children            [Deletion]  $41.93
         -----------------------------------------------------------------------
         CHIP Phase I                        [Deletion]  $71.75
         -----------------------------------------------------------------------
         Pregnant Women                                 $164.78
         -----------------------------------------------------------------------
         Disabled/Blind                                  $14.00
         Administration
         -----------------------------------------------------------------------

         Delivery Supplemental Payment: A one-time per pregnancy supplemental
         payment for each delivery shall be paid to HMO as provided below in the
         following amount: $2817.00.

<PAGE>

[Deletion]

[Deletion]

13.1.3            TDH will re-examine the capitation rates paid to HMO under
                  this contract during the first year of the contract period and
                  will provide HMO with capitation rates for the second year of
                  the contract period no later than 30 days before the date of
                  the one-year anniversary of the contract's effective date.
                  Capitation rates for state fiscal year 2001 will be
                  re-examined based on the most traditional Medicaid cost data
                  for the contracted risk groups in the service area, trended
                  forward and discounted.

13.1.3.1          Once HMO has received their capitation rates established by
                  TDH for the second year of this contract, HMO may terminate
                  this contract as provided in Article 18.1.6 of this contract.

13.1.4            The monthly premium payment to HMO is based on monthly
                  enrollments adjusted to reflect money damages set out in
                  Article 18.8 and adjustments to premiums in Article 13.5.

13.1.5            The monthly premium payments will be made to HMO no later than
                  the 10th working day of the month for which premiums are paid.
                  HMO must accept payment for premiums by direct deposit into an
                  HMO account.

<PAGE>

13.1.6            Payment of monthly capitation amounts is subject to
                  availability of appropriations. If appropriations are not
                  available to pay the full monthly capitation amounts, TDH will
                  equitably adjust capitation amounts for all participating
                  HMOs, and reduce scope of service requirements as appropriate.

13.1.7            HMO renewal rates reflect program increases appropriated by
                  the 76th legislature for physician (to include THSteps
                  providers) and outpatient facility services. HMO must report
                  to TDH any change in rates for participating physicians (to
                  include THSteps providers) and outpatient facilities resulting
                  from this increase. The report must be submitted to TDH at the
                  end of the first quarter of the FY2000 and FY2001 contract
                  years according to the deliverables matrix schedule set for
                  HMO.

AGREED AND SIGNED by an authorized representative of the parties on September 7,
2000.

TEXAS DEPARTMENT OF HEALTH                  PCA HEALTH PLANS OF TEXAS, INC.

By:  /s/ William R. Archer                  By:   /s/ Michael Seltzer
   ---------------------------------           ---------------------------------
   William R. Archer, III, M.D.                Michael Seltzer
   Commissioner of Health                      Vice President, West Region

Approved as to Form:

/s/ Illegible
------------------------
Office of General Counsel

<PAGE>
                                AMENDMENT NO. 5
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 5 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the 1999 Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area. The effective date of this Amendment is the date TDH signs this Amendment.
All other contract provisions remain in full force and effect.

1.       Article II & IV is amended by adding the new bold and italicized
         language and deleting the stricken language as follows:

         2.0      DEFINITION
                  ----------

                  Clean claim means a claim submitted by a physician or provider
                  for medical care or health care services rendered to an
                  enrollee, with documentation reasonably necessary for the HMO
                  or subcontracted claims processor to process the claim, as set
                  forth in 28 TAC ss. 21.2802(4) and to the extent that it is
                  not in conflict with the provisions of this contract.

                  [Deletion]

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

4.10.1            HMO and claims processing subcontractors must comply with 28
                  TAC ss.ss. 21.2801 through 21.2816 "Submission of Clean
                  Claims", to the extent they are not in conflict with
                  provisions of this contract.

4.10.2            HMO must use a TDH approved or identified claim format that
                  contains all data fields for final adjudication of the claim.
                  The required data fields must be complete and accurate. The
                  TDH required data fields are identified in TDH's "HMO
                  Encounter Data Claims Submission Manual."

                                  Page 1 of 3

<PAGE>

4.10.3            HMO and claims processing subcontractors must comply with
                  TDH's Texas Medicaid Managed Care Claims Manual (Claims
                  Manual), which contains TDH's claims processing requirements.
                  HMO must comply with any changes to the Claims Manual with
                  appropriate notice of changes from TDH.

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

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

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

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

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

                                  Page 2 of 3                           12/21/00

<PAGE>

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

4.10.7            HMO is subject to Article XVI, Default and Remedies, for
                  claims that are not processed on a timely basis as required by
                  this contract and the Claims Manual. Notwithstanding the
                  provisions of Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's
                  failure to adjudicate (paid, denied, or external pended) at
                  least ninety percent (90%) of all claims within thirty (30)
                  days of receipt and ninety-nine percent (99%) within ninety
                  (90) days of receipt for the contract year to date is a
                  default under Article XVI of this contract.

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

4.10.9            For claims requirements regarding retroactive PCP changes for
                  mandatory Members, see Article 7.8.12.2.

AGREED AND SIGNED by an authorized representative of the parties on April 10,
2001.

TEXAS DEPARTMENT OF HEALTH                  PCA Health Plans of Texas, Inc.

By:  /s/ C.E. BELL, M.D.                    By:  /s/ MICHAEL SELTZER
   ----------------------------------          ---------------------------------
   Charles B. Bell, M.D.                       Michael Seltzer
   Executive Deputy Commissioner of Health     Vice President, West Region

Approved as to Form:

/s/ MARY ANN SLAVIN
-------------------------
Office of General Counsel                                 TDH DOC. NO.
                                                            4810323494-1A-01E
                                                                        12/27/00

                                  Page 3 of 3

<PAGE>

                                 AMENDMENT NO.6
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

The 1999 Contract for Services entered into between the Texas Department of
Health and PCA Health Plans of Texas, Inc. (HMO) in the Travis Service Area is
hereby amended to reflect the merger of PCA Health Plans of Texas, Inc. into
Humana Health Plan of Texas, Inc. The Texas Department of Insurance has approved
the merger and all requisite documents have been filed. Copies of the Agreement
and Plan of Merger, Articles of Merger, and Official Order of the Commissioner
of Insurance are attached.

This Amendment No. 6 hereby substitutes Humana Health Plan of Texas, Inc. in the
place of PCA Health Plans of Texas, Inc. into the 1999 Contract for Services
referenced above. Humana Health Plan of Texas, Inc. agrees to abide by the
Application submitted in response to the Texas Department of Health's Request
for Application and all of the terms and conditions set forth in the 1999
Contract for Services and all of its duly executed Amendments.

AGREED TO:

TEXAS DEPARTMENT OF HEALTH                  HUMANA HEALTH PLAN OF TEXAS, INC.

By:  /s/ C.E. BELL, M.D.                    By: /s/ MICHAEL A. SELTZER
    -------------------------------            ---------------------------------
    Charles E. Bell, M.D.                      Michael A Seltzer
    Deputy Commissioner of Health              CEO, South Texas Market

Date:  05/16/01                             Date:
     ------------------------------              -------------------------------

Approved as to Form:

/s/ MARY ANN SLAVIN
-------------------------
Office of General Counsel

<PAGE>
No. 00-0377

                                 OFFICIAL ORDER
                                     of the
                           COMMISSIONER OF INSURANCE
                                     of the
                                 STATE OF TEXAS
                                 AUSTIN, TEXAS
                              Date: March 31, 2000

Subject Considered:

                                    MERGER OF
                        PCA HEALTH PLANS OF TEXAS, INC.
                                 Austin, Texas
                                TDI No. 28-05818
                                      AND
                             HUMANA HMO TEXAS, INC.
                               San Antonio, Texas
                                    28-94466
                                      INTO
                        HUMANA HEALTH PLAN OF TEXAS, INC.
                               San Antonio, Texas
                                TDI No. 28-93827

                                 CONSENT ORDER
                              DOCKET NO. C-00-0296

General remarks and official action taken:

On this day, came for consideration by the Commission of Insurance pursuant to
TEX, INS. CODE ANN. art. 20A and art. 21.25, the Plan and Agreement of Merger by
and between PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, hereinafter referred
to as "PCA HEALTH" and HUMANA HMO TEXAS, INC., San Antonio, Texas, hereinafter
referred to as "HUMANA HMO", and collectively hereinafter referred to as
"NON-SURVIVORS" whereby NON-SURVIVORS would be merged with and into A HEALTH
PLAN OF TEXAS, INC., San Antonio, Texas, hereinafter referred to as "HUMANA
HEALTH" with HUMANA HEALTH being the survivor.

Staff for the Texas Department of Insurance and the duly authorized
representative for NON-SURVIVORS and HUMANA HEALTH have consented to the entry
of this order and have requested the Commissioner of Insurance informally
dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN.ss. 36.104 (former article 1.33(e)), TEX. GOV'T CODE ANN.ss. 2001.056, and
28 TEX. ADMIN. CODE ss. 1.47.

                                     WAIVER
                                     ------

NON-SURVIVORS and HUMANA HEALTH acknowledge the existence of their rights
including but not limited to, the issuance and service of

<PAGE>
00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 2 OF 5

notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN.ss.ss. 36.201-36.205 (former article 1.04)
and TEX. GOV'T CODE ANN.ss.ss. 2001.051, 2001.052, 2001.145 and 2001.146, and
have expressly waived each and every such right.

                                FINDINGS OF FACT
                                ----------------

Based upon the information provided to the Texas Department of Insurance
pursuant to TEX. ADMIN. CODE, art. 11.301(4) (D) and art.ss. 11.1202, the
Commissioner of Insurance makes the following findings of fact:

1.       NON-SURVIVORS and HUMANA HEALTH have represented to the Commissioner of
         Insurance that they desire to waive all procedural requirements for the
         entry of an order, including but not limited to, notice of hearing, a
         public hearing, a proposal for decision, rehearing by the Commissioner
         of Insurance, and judicial review of the order as provided in TEX. INS.
         CODE ANN.ss.ss. 36.201-36.205 (former article 1.04), and TEX. GOV'T
         CODE ANN.ss.ss. 2001.051, 2001.052, 2001.145 and 2001.146.

2.       PCA HEALTH is a domestic Health Maintenance Organization duly licensed
         in the State of Texas pursuant to the: provisions of Chapter 20A of the
         Texas Insurance Code.

3.       HUMANA HMO is a domestic Health Maintenance Organization duly licensed
         in the State of Texas pursuant to the provisions of Chapter 20A of the
         Texas Insurance Code.

4.       HUMANA HEALTH is a domestic Health Maintenance Organization duly
         licensed in the State of Texas pursuant to the provisions of Chapter
         20A of the Texas Insurance Code.

5.       NON-SURVIVORS and HUMANA HEALTH are authorized to do a similar line of
         business, which is a prerequisite for merger approval under TEX. INS.
         CODE ANN. art. 20A.04 and 28 TEX. ADMIN. CODE ss. 11.301(4)(D).

6.       Documentation has been presented to the Texas Department of Insurance
         evidencing the fact that the Plan and Agreement of Merger has been
         approved by the Board of Directors and

<PAGE>

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 3 OF 5

         shareholders of both NON-SURVIVORS and HUMANA HEALTH in accordance with
         the requirements of TEX. INS. CODE ANN. art. 21.25.

7.       As a result of the mergers, all of the issued and outstanding shares of
         stock of NON-SURVIVORS shall be canceled.

8.       HUMANA HEALTH shall be the surviving corporation of the merger
         transactions.

9.       As a result of the mergers, HUMANA HEALTH will assume and carry out all
         the liability and responsibility and or insurance or reinsurance
         agreements now entered into by NON-SURVIVORS and any other obligations
         outstanding against such companies the time of merger on the same terms
         and under the same conditions as provided in such policies, contracts,
         insurance or reinsurance agreements.

10.      As December 31, 1999 on a pro forma basis, HEALTH would have had a
         consolidated net worth of $34,613,862.

11.      Pursuant to Article 1, of the Agreement and Plan of Merger, the
         effective date of the merger is the close of business on March 31,
         2000.

12.      No evidence has been presented that the Plan a d Agreement of Merger
         between NON-SURVIVORS and HUMANA HEALTH is contrary to law, is not in
         the best interest of the policyholders affected by the merger, or would
         substantially reduce the security of and service to be rendered to
         policyholders of NON-SURVIVORS in Texas or elsewhere.

13.      No evidence has been presented that immediately upon consummation of
         the transactions contemplated in the Plan d Agreement of Merger, HUMANA
         HEALTH would not be able to satisfy the requirements for the issuance
         of a license to write the line or lines of insurance for which
         NON-SURVIVORS are presently licensed.

14.      No evidence has been presented that the effect of such acquisition of
         control as a result of the mergers would be

<PAGE>
00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 4 OF 6

         substantially to lessen competition in insurance in this state or tend
         to create a monopoly therein

15.      No evidence was presented that the financial condition of HUMANA HEALTH
         is such as might jeopardize the financial stability or prejudice the
         interests of its policyholders.

16.      No evidence was presented that HUMANA HEALTH has any plans or proposals
         to liquidate the surviving corporation, cause it to declare dividends
         or make other distributions, sell any of its assets, consolidate or
         merge it with any person, make any material change in its business or
         corporate structure or management, or cause the health maintenance
         organization to enter into material agreements, arrangements, or
         transactions of any kind with any party that are unfair, prejudicial
         hazardous, or unreasonable to the policyholders of HUMANA HEALTH, the
         surviving corporation, and not in the public interest.

17.      No evidence was presented that the competence, integrity,
         trustworthiness, and experience of those persons who would control the
         operations of HUMANA HEALTH are such that it would not be in the
         interests of the policyholders of NON-SURVIVORS and HUMANA HEALTH and
         the public to permit the merger.

                               CONCLUSIONS OF LAW
                               ------------------

Based upon the foregoing findings of fact the Commissioner of Insurance makes
the following conclusions of law:

1.       The Commissioner of Insurance has jurisdiction over this matter
         pursuant to TEX. INS. CODE ANN. art. 20A and art. 21.25.

2.       The proposed mergers of NON-SURVIVORS and HUMANA HEALTH is properly
         supported by the required documents and meets all requirements of law
         for its approval.

3.       The Commissioner of Insurance has no substantial evidence upon which to
         predicate denial of the mergers.

IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the mergers
whereby PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, and

<PAGE>

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 5 OF 5

HUMANA HMO TEXAS, INC., San Antonio, Texas, are to be merged with and into
HUMANA HEALTH PLAN OF TEXAS, INC., San Antonio, Texas, with HUMANA HEALTH PLAN
OF TEXAS, INC. being the survivor, all as specified in the Plan and Agreement of
Merger, be, and the same is hereby, approved.

IT IS FURTHER ORDERED that Certificate of Authority No. 9152, dated February 26,
1990, issued to PCA HEALTH PLANS OF TEXAS, INC. and Certificate of Authority No.
11004, dated February 28, 1996, issued to HUMANA HMO TEXAS, INC., San Antonio,
Texas, be canceled, and that the mergers be effective as of the close of
business on March 31, 2000.

                                            JOSE MONTEMAYOR
                                            COMMISSIONER OF INSURANCE

                                      BY:   /s/ BETTY PATTERSON
                                           -------------------------------------
                                           Betty Patterson
                                           Senior Associate Commissioner
                                           Financial Program
                                           Order No. 94-0576

Recommended by:

/s/ LORETTA CALDERON
----------------------------
Loretta Calderon
Insurance Specialist
Company Licensing & Registration

Reviewed by:

/s/ STEVE HARPER
----------------------------
Steve Harper, Analyst
Financial Analysis & Examination

<PAGE>

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 6 OF 6

Accepted by:

PCA HEALTH PLANS OF TEXAS, INC.

/s/ KATHLEEN PELLEGRINO
--------------------------------------
Title:  Vice President
(Printed Name):  Kathleen Pellegrino

Accepted by:

HUMANA HMO TEXAS, INC.

/s/ KATHLEEN PELLEGRINO
--------------------------------------
Title:  Vice President
(Printed Name):  Kathleen Pellegrino

Accepted by:

HUMANA HEALTH PLAN OF TEXAS, INC.

/s/ WALTER E. NEELY
--------------------------------------
Title:  Vice President
(Printed Name):  Walter E. Neely

<PAGE>

                               ARTICLES OF MERGER
                                       OF

                             HUMANA HMO TEXAS, INC.
                    a TEXAS Health Maintenance Organization
                                       &
                        PCA HEALTH PLANS OF TEXAS, INC.
                    a TEXAS Health Maintenance Organization

                                      INTO

                       HUMANA HEALTH PLAN OF TEXAS, INC.
                    a TEXAS Health Maintenance Organization

         Pursuant to provisions of the Texas Business Corporation Act, Articles
5.01B, 5.03A. 5.04A, 507, and 5.16, and the Texas Insurance Code, Article 21.25,
the domestic corporations herein named do hereby adopt the following Articles of
Merger:

         1.       The Agreement and Plan of Merger ("Plan") as set forth in
Exhibit A, attached hereto, and made a part hereof, for merging HUMANA HMO
TEXAS, INC., a Texas health maintenance organization, and PCA HEALTH PLANS OF
TEXAS, INC., a Texas health maintenance organization (collectively the
"Non-Survivors"). into HUMANA HEALTH PLAN OF TEXAS. INC., a Texas health
maintenance organization (the "Survivor"), was approved by Unanimous Written
Consent of the Board of Directors of the Non-Survivors dated December 27, 1999
and approved by Unanimous Written Consent of the Board of Directors of the
Survivor dated December 27, 1999.

         2.       HUMANA HEALTH PLAN OF TEXAS, INC. shall be the surviving
corporation of said merger.

         3.       Survivor shall be responsible for the payment of all fees and
franchise taxes of the Non-Survivors as required by law, and Survivor will be
obligated to pay such fees and franchise taxes if not timely paid.

         4.       The Articles of Incorporation of the Survivor, as filed with
the Texas Secretary of State and incorporated herein by reference, shall be the
Articles of Incorporation of the surviving corporation. No changes or amendments
shall be made to the Articles of Incorporation because of the merger.

         5.       The Plan was approved by unanimous written consent of the of
each of the undersigned corporations, and:

                                  Page 1 of 3

<PAGE>

                  (i)      the designation, number of outstanding shares, and
                  number of votes entitled to be cast by each voting group
                  entitled to vote separately on the Plan as to each corporation
                  were:

                                           Number of           Number of Votes
Name of Corporation     Designation     Outstanding Shares   Entitled to be Cast
-------------------     -----------     ------------------   -------------------

PCA HEALTH PLANS          Common             100,000               100,000
OF TEXAS, INC.
                          Preferred      30,000 Series A       30,000 Series A
                                         30,000 Series B       30,000 Series B

HUMANA HMO                 Common              1,000                 1,000
TEXAS, INC.

HUMANA HEALTH              Common              1,000                 1,000
PLAN OF TEXAS, INC.

                  (ii)      the total number of undisputed votes represented by
                  the unanimous written consent of the sole shareholder, cast
                  for the Plan separately by each voting group was:

                                                           Total Number of
                                                        Undisputed Votes Cast
Name of Corporation              Voting Group               For the Plan
-------------------              ------------               ------------

PCA HEALTH PLANS OF                 Common                     100,000
TEXAS, INC.
                                   Preferred                 30,000 Series A
                                                             30,000 Series B

HUMANA HMO TEXAS                    Common                       1,000
INC.

HUMANA HEALTH PLAN
OF TEXAS, INC.                      Common                       1,000

and the action being unanimous, the number of votes cast for the Plan by each
voting group was sufficient for approval by that group.

                                  Page 2 of 3

<PAGE>

         6.       An executed copy of the Plan, subject to approval by the Texas
Department of Insurance and the Texas Secretary of State, shall be kept on file
at the principal executive office of the Survivor at 500 West Main Street,
Louisville, KY 40202, with a duplicate copy at the administrative address of the
Survivor at 8431 Fredericksburg Road, San Antonio, TX 78229.

         7.       The effective time and date of the merger in the State of
Texas be at the close of business on March 31,2000.

Dated as of this 30th day of December, 1999.

                                            HUMAN HMO TEXAS, INC.

                                            By: /s/ WALTER E. NEELY
                                                --------------------------------
                                                Walter E. Neely
                                                Vice President

                                            PCA HEALTH PLANS OF TEXAS, INC.

                                             By: /s/ WALTER E. NEELY
                                                --------------------------------
                                                Walter E. Neely
                                                Vice President

                                            HUMANA HEALTH PLAN OF TEXAS, INC.

                                            By: /s/ KATHLEEN PELLEGRINO
                                                --------------------------------
                                                Kathleen Pellegrino
                                                Vice President

                                  Page 3 of 3

<PAGE>

                                                                       Exhibit A

                          AGREEMENT AND PLAN OF MERGER

         THIS AGREEMENT AND PLAN OF MERGER (the "Plan of Merger"), dated as of
December 30, 1999. by and among HUMANA HMO TEXAS, INC., and PCA HEALTH PLANS OF
TEXAS, INC., (collectively the "Non-Survivors"), both Texas health maintenance
organizations, into HUMANA HEALTH PLAN OF TEXAS, INC., (the "Surviving
Corporation"), a Texas health maintenance organization and a wholly-owned
subsidiary of Humana Inc. ("HUMANA"), a Delaware corporation.

                                   WITNESSETH:

         The respective Board of Directors of the Surviving Corporation and the
Non-Survivors deem it advisable to merger the Non-Survivors into the Surviving
Corporation ("Merger") pursuant to this Plan of Merger to be executed by the
Surviving Corporation and the Non-Survivors.

         NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:

                                    ARTICLE 1
                                    ---------

                                GENERAL PROVISION

         1.1      Execution of Articles of Merger. Subject to the provisions of
this Plan of Merger, and subject to the approval by the Texas Department of
Insurance and the Secretary of State of Texas, Articles of Merger required to
effectuate the terms of this Plan of Merger (collectively the "Merger
Documents") shall be executed, acknowledged, and thereafter delivered to the
offices of the Texas Department of insurance and the Secretary of State of
Texas, the domestic state of the Non-Survivors and the Surviving Corporation,
for filing and recording in accordance with applicable law, with an effective
date and time of the close of business on March 31, 2000 (the "Effective Time of
Merger").

         The plan of merger is as follows:

                                  Page 1 of 3

<PAGE>

         (1)      Entities: The Non-Survivors shall merge into Humana Health
                  --------
Plan of Texas, Inc. (the "Surviving Corporation"), a Texas corporation (the
"Merger"), which is hereinafter designated as the surviving corporation of the
Merger (the "Surviving Corporation"); and

         (2)      Terms of the Merger: The Merger shall become effective at the
                  -------------------
close of business at the Effective Time of Merger. At the Effective Time of
Merger (i) the separate existence of the Non-Survivors shall cease and the
Non-Survivors shall be merged with and into Humana Health Plan of Texas, Inc.,
with Humana Health Plan of Texas, Inc. continuing in existence as the Surviving
Corporation, and (ii) Humana Health Plan of Texas, Inc. shall succeed to all
rights and privileges and assume all liabilities and obligations of the
Non-Survivors.

         (3)      Taking of Necessary Action: The Surviving Corporation and the
                  --------------------------
Non-Survivors, respectively, shall take all action as may be necessary or
appropriate in order to effectuate the transactions contemplated by these Merger
Documents. In case, at any time and from time to time after the Effective Time
of Merger, any further action is necessary or desirable to carry out the
purposes of these Merger Documents and to vest the Surviving Corporation
effective on and after the Effective Time of Merger, with full title to all
properties, assets, rights, approvals, immunities and franchises of the
Non-Survivors, the persons serving as officers and directors of the Surviving
Corporation at the Effective Time of Merger, at the expense of the Surviving
Corporation, shall be authorized to take any and all such actions on behalf of
the Non-Survivors deemed necessary or desirable by the Surviving Corporation.

         (4)      Effect on Capital Stock: a) On the Effective Time of the
                  -----------------------
Merger, each issued and outstanding share of capital stock of Humana Health Plan
of Texas, Inc. shall remain outstanding and shall represent one issued and
outstanding share of the Surviving Corporation and all of the issued and
outstanding shares of the capital stock of the Non-Survivors shall be cancelled
and no shares of the Surviving Corporation shall be issued in exchange therefor.

         (b)      There are no rights to acquire shares, obligations, or other
securities of the Surviving Corporation or any of the Non-Survivors, in whole or
in part, for cash or other property.

         (5)      No Amendment to Articles of Incorporation of Surviving
                  ------------------------------------------------------
Corporation: The Articles of Incorporation of Humana Health Plan of Texas. Inc.,
-----------
filed with the Secretary of State of

                                  Page 2 of 3

<PAGE>

Texas and attached as Exhibit 1 shall be the Articles of incorporation of the
Surviving Corporation. No change or amendments shall be made to the Articles of
Incorporation because of the Merger.

         (6)      General Provisions:
                  ------------------

         (a)      By-laws of Surviving Corporation. The By-laws of Humana Health
                  --------------------------------
Plan of Texas, Inc. shall be the By-laws of the Surviving Corporation. No
changes or amendments shall be made to the By-laws because of the Merger.

         (b)      Directors and Officers. The directors and officers of Humana
                  ----------------------
Health Plan of Texas, Inc. shall be the directors and officers of the Surviving
Corporation and shall serve until their successors are duly elected and
qualified.

         IN WITNESS WHEREOF, each of the parties hereto has caused this Plan of
Merger to be executed on its behalf and attested by its duly authorized
officers, all as of the day and year first written above.

                                            HUMANA HEALTH PLAN OF TEXAS, INC.
ATTEST:

By: /s/ JOAN O. LENAHAN                     By: /s/ KATHLEEN PELLEGRINO
   ------------------------------------         --------------------------------
   Joan O. Lenahan                              Kathleen Pellegrino
   Secretary                                    Vice President

                                            HUMANA HMO TEXAS, INC.

ATTEST:

By: /s/ JOAN O. LENAHAN                     By:  /s/ WALTER E. NEELY
   ------------------------------------         --------------------------------
   Joan O. Lenahan                              Walter E. Neely
   Secretary                                    Vice President

                                            PCA HEALTH PLANS OF TEXAS, INC.
ATTEST:

By: /s/ JOAN O. LENAHAN                     By:  /s/ WALTER E. NEELY
   ------------------------------------         --------------------------------
   Joan O. Lenahan                              Walter E. Neely
   Secretary                                    Vice President

                                  Page 3 of 3

<PAGE>
                                                                   029945 Orig #
                                           TDH Document No. 7427705425* 2001-01E

                                 AMENDMENT NO. 7
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 7 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO) in Travis Service Area, to amend the
1999 Contract for Services between the Texas Department of Health and HMO. The
effective date of this Amendment is the date TDH Signs this Amendment. All other
contract provisions remain in full force and effect. The Parties agree to amend
the Contract as follows:

Article XII is amended to read as follows:

12.8.1            In addition, data files are due to TDH or its designee no
                  later than the fifth working day following the end of each
                  month. See Utilization Data Transfer Encounter Submission
                  Manual for submission instructions. The RH utilization report
                  and data file submission instructions may periodically be
                  updated by TDH to facilitate clear communication to the health
                  plans.

12.9.1            In addition, data files are due to TDH or its designee no
                  later than the fifth working day following the end of each
                  month. See Utilization Data Transfer Encounter Submission
                  Manual for submission instructions. The PH utilization report
                  and data file submission instructions may periodically be
                  updated by TDH to facilitate clear communication to the health
                  plan.

AGREED AND SIGNED by an authorized representative of the parties on Aug. 2,
2001.

Texas Department of Health                  Superior Health Plan, Inc.

By: /s/ CHARLES E. BELL M.D.                By: /s/ MICHAEL D. MCKINNEY, M.D.
    ---------------------------------------     --------------------------------
    Charles E. Bell M.D.                        Michael D. McKinney, M.D.
    Executive Deputy Commissioner of Health     President

Approved as to Form:

/s/ MARY ANN SLAVIN
------------------------------
Office of General Counsel

<PAGE>

                                 AMENDMENT NO. 8
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

September 1, 1999 the Texas Department of Health (TDH) and Humana Health Plan of
Texas, Inc. entered into a Contract for Services for the provision of
comprehensive health care services to qualified and Medicaid eligible recipients
in the Travis Service Area through a managed care delivery system. This Contract
for Services was subsequently renewed in 1999 for a period of two years. Section
15.6 of the above referenced contract allows assignment of the contract with the
written consent of the Texas Department of Insurance (TDI) and TDH.

Human Health Plan of Texas, Inc. entered into a Management and Risk Transfer
Agreement and an Asset Sale and Purchase Agreement with Superior HealthPlan,
Inc. for the assignment and assumption of the Contract for Services. With the
written consent of both TDI and TDH, effective June 1, 2001, Humana Health Plan
of Texas, Inc. assigned and Superior HealthPlan, Inc. assumed the contract
referenced herein in its entirety.

The purpose of this Amendment No. 8 is to substitute Superior HealthPlan, Inc.
for Humana Health Plan of Texas, Inc. as the party to this contract as a result
of the assignment and assumption. For adequate consideration received Superior
HealthPlan, Inc. agrees to abide by the Application submitted by Humana Health
Plan of Texas, Inc. in response to the Texas Department of Health's Request for
Application and all of the terms and conditions set forth in the 1999 Contract
for Services, its subsequent renewal(s), and all of its duly executed
Amendments.

AGREED AND SIGNED by an authorized representative of the parties on 8/17/01.

TEXAS DEPARTMENT OF HEALTH                  SUPERIOR HEALTHPLAN, INC.

By: /s/  CHARLES E. BELL, M.D.              By:  /s/ MICHAEL D. MCKINNEY, M.D.
   ------------------------------               --------------------------------
   Charles B. Bell, M.D.                        Michael D. McKinney, M.D.
   Deputy Commissioner of Health                President

                                            MICHAEL D. MCKINNEY
                                            ------------------------------------
Approved as to Form:                        Printed Name

/s/ S.D. ALEXANDER   8/16/01                PRESIDENT
---------------------------------           ------------------------------------
Office of General Counsel                   Title of Signator

<PAGE>

                                 AMENDMENT NO. 9
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                  HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 9 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the
Travis Service Area. The effective date of this amendment is September 1, 2001.
The Parties agree to amend the Contract as follows:

1.                HHSC and HMO acknowledge the transfer of responsibility and
                  the assignment of the original Contract for Services from TDH
                  to HHSC on September 1, 2001. Where the original Contract for
                  Services and any Amendment to the original Contract for
                  Services assigns a right, duty, or responsibility to TDH, that
                  right, duty, or responsibility may be exercised by HHSC or its
                  designee.

2.                Articles II, III, VI, VII. VIII. IX, X, XII, XIII, XV, XVI,
                  XVIII and XIX are amended to read as follows:

2.0               DEFINITIONS:
                  -----------

                  Chemical Dependency Treatment Facility means a facility
                  licensed by the Texas Commission on Alcohol and Drug Abuse
                  (TCADA) under Sec. 464.002 of the Health and Safety Code to
                  provide chemical dependency treatment.

                  Chemical Dependency Treatment means treatment provided for a
                  chemical dependency condition by a Chemical Dependency
                  Treatment Facility, Chemical Dependency Counselor or Hospital.

                  Chemical Dependency Condition means a condition which meets at
                  least three of the diagnostic criteria for psychoactive
                  substance dependence in the American Psychiatric Association's
                  Diagnostic and Statistical Manual of Mental Disorders (DSM
                  IV).

                  Chemical Dependency Counselor means an individual licensed by
                  TCADA under Sec. 504 of the Occupations Code to provide
                  chemical dependency treatment or a master's level therapist
                  (LMSW-ACP, LMFT or LPC) or a master's level therapist
                  (LMSW-ACP, LMFT or LPC) with a minimum of two years of post
                  licensure experience in chemical dependency treatment.

                                                    Contract Extension Amendment
                                                                         7/18/01
                                       1

<PAGE>

                  Experience rebate means the portion of the HMO's net income
                  before taxes (financial Statistical Report, Part 1, Line 7)
                  that is returned to the state in accordance with Article
                  13.2.1.

                  Joint Interface Plan (JIP) means a document used to
                  communicate basic system interface information of the Texas
                  Medicaid Administrative System (TMAS) among and across State
                  TMAS Contractors and Partners so that all entities are aware
                  of the interfaces that affect their business. This information
                  includes: file structure, data elements, frequency, media,
                  type of file, receiver and sender of the file, and file I.D.
                  The JIP must include each of the HMO's interfaces required to
                  conduct State TMAS business. The JIP must address the
                  coordination with each of the Contractor's interface partners
                  to ensure the development and maintenance of the interface;
                  and the timely transfer of required data elements between
                  contractors and partners.

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

3.5.8             The use of Medicaid funds for abortion is prohibited unless
                  the pregnancy is the result of a rape, incest, or continuation
                  of the pregnancy endangers the life of the woman. A physician
                  must certify in writing that based on his/her professional
                  judgment, the life of the mother would be endangered if the
                  fetus were carried to term. HMO must maintain a copy of the
                  certification for at least three years.

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

6.6.13            Chemical dependency treatment must conform to the standards
                  set forth in the Texas Administrative Code, Title 28, Part 1,
                  Chapter 3, Subchapter HH.

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

6.8.3             Provider Education and Training. HMO must provide appropriate
                  training to all network providers and provider staff in the
                  providers' area of practice regarding the scope of benefits
                  available and the THSteps program. Training must include
                  THSteps benefits, the periodicity schedule for THSteps
                  checkups and immunizations, the required elements of a THSteps
                  medical screen, providing or arranging for all required lab
                  screening tests (including lead screening), and Comprehensive
                  Care Program (CCP) services available under the THSteps
                  program to Members under age 21 years. Providers must also be
                  educated and trained regarding the requirements imposed upon
                  the department and contracting HMOs under the Consent Decree
                  entered in Frew vs. McKinney, et al., Civil Action No.
                             -----------------
                  3:93CV65, in the United States District Court for the Eastern
                  District of Texas, Paris Division. Providers should be
                  educated and trained to treat each THSteps visit as an
                  opportunity for a comprehensive assessment of the Member.

                                                    Contract Extension Amendment
                                                                         7/18/01
                                       2

<PAGE>

                  HMO must report provider education and training regarding
                  THSteps in accordance with Article 7.4.4.

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

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

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

7.5               HMO must furnish each PCP with a current list of enrolled
                  Members enrolled or assigned to that Provider no later than 5
                  working days after HMO receives the Enrollment File from the
                  Enrollment Broker each month.

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

                  The providers in HMO network must meet the following
                  qualifications:

--------------------------------------------------------------------------------
FQHC              A Federal Qualified Health Center meets the standards
                  established by federal rules and procedures. The FQHC must
                  also be an eligible provider enrolled in the Medicaid.
--------------------------------------------------------------------------------
Physician         An individual who is licensed to practice medicine as an MD or
                  a DO in the State of Texas either as a primary care provider
                  or in the area of specialization under which they will provide
                  medical services under contract with HMO; who is a provider
                  enrolled in the Medicaid; who has a valid Drug Enforcement
                  Agency registration number, and a Texas Controlled Substance
                  Certificate, if either is required in their practice.
--------------------------------------------------------------------------------
Hospital          An institution licensed as a general or special hospital by
                  the State of Texas under Chapter 241 of the Health and Safety
                  Code which is enrolled as a provider in the Texas Medicaid
                  Program. HMO will require that all facilities in the network
                  used for acute impatient specialty care for people under age
                  21 with disabilities or chronic or complex conditions will
                  have a designated pediatric unit; 24 hour laboratory and blood
                  bank availability; pediatric radiological capability; meet
                  JCAHO standards; and have discharge planning and social
                  service units.
--------------------------------------------------------------------------------
                                                    Contract Extension Amendment
                                                                         7/18/01
                                       3

<PAGE>

--------------------------------------------------------------------------------
Non-Physician     An individual holding a license issued by the applicable
Practitioner      licensing agency of the State of Texas who is enrolled in the
Provider          Texas Medicaid Program.
--------------------------------------------------------------------------------
Clinical          An entity having a current certificate issued under the
Laboratory        Federal Clinical Laboratory Improvement Act (CLIA), and is
                  enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health      An institution which meets all of the criteria for designation
Clinic (RHC)      as a rural health clinic and is enrolled in the Texas Medicaid
                  Program.
--------------------------------------------------------------------------------
Local Health      A local health department established pursuant to Health and
Department        Safety Code, Title 2, Local Public Health Reorganization Act
                  ss. 121.031ff.
--------------------------------------------------------------------------------
Non-Hospital      A provider of health care services which is licensed and
Facility          credentialed to provide services and is enrolled in the Texas
Provider          Medicaid Program.
--------------------------------------------------------------------------------
School Based      Clinics located at school campuses that provide on site
Health Clinic     primary and  preventive care to children and adolescents.
(SBHC)
--------------------------------------------------------------------------------
Chemical          A facility licensed by the Texas Commission on Alcohol and
Dependency        Drug Abuse (TCADA) under Sec. 464.002 of the Health and Safety
Treatment         Code to provide chemical dependency treatment.
Facility
--------------------------------------------------------------------------------
Chemical          An individual licensed by TCADA under Sec. 504 of the
Dependency        Occupations Code to provide chemical dependency treatment or a
Counselor         master's level therapist (LMSW-ACP, LMFT or LPC) with a
                  minimum of two years of post-licensure experience in chemical
                  dependency treatment.
--------------------------------------------------------------------------------

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

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

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

7.11.1            HMO must include all medically necessary specialty services
                  through its network specialists, sub-specialists and specialty
                  care facilities (e.g., children's hospitals, licensed chemical
                  dependency treatment facilities and tertiary care hospitals).

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8.2               MEMBER HANDBOOK
                  ----------------

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

8.4               MEMBER ID CARDS
                  ---------------

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

9.2               MARKETING ORIENTATION AND TRAINING
                  ----------------------------------

9.2.1             HMO must require that all HMO staff having direct marketing
                  contact with Members as part of their job duties and their
                  supervisors satisfactorily complete HHSC's marketing
                  orientation and training program, conducted by HHSC or health
                  plan staff trained by HHSC, prior to engaging in marketing
                  activities on behalf of HMO. HHSC will notify HMO of scheduled
                  orientations.

9.2.2             Marketing Policies and Procedures. HMO must adhere to the
                  Marketing Policies and Procedures as set forth by the Health
                  and Human Services Commission.

10.1              MODEL MIS REQUIREMENTS
                  ----------------------

10.1.3            HMO must have a system that can be adapted to the change in
                  Business Practices/Policies within the timeframe negotiated
                  between HHSC and the HMO.

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10.1.3.1          HMO must notify and advise BIR of major systems changes and
                  implementations. HMO is required to provide an implementation
                  plan and schedule of proposed system change at the time of
                  this notification.

10.1.3.2          BIR conducts a Systems Readiness test to validate the
                  contractor's ability to meet the MMIS requirements. This is
                  done through systems demonstration and performance of specific
                  MMIS and subsystem functions. The System Readiness test may
                  include a desk review and/or an onsite review and is conducted
                  for the following events:
                  o  A new plan is brought into the program
                  o  An existing plan begins business in a new SDA
                  o  An existing plan changes location
                  o  An existing plan changes their processing system

10.1.3.3          Desk Review. HMO must complete and pass systems desk review
                  prior to onsite systems testing conducted by HHSC.

10.1.3.4          Onsite Review. HMO is required to provide a detailed and
                  comprehensive Disaster and Recovery Plan, and complete and
                  pass an onsite Systems Facility Review during the State's
                  onsite systems testing.

10.1.3.5          HMO is required to provide a Corrective Action Plan in
                  response to HHSC Systems Readiness Testing Deficiencies no
                  later than 10 working days notification of deficiencies by
                  HHSC.

10.1.3.6          HMO is required to provide representation to attend and
                  participate in the HHSC Systems Workgroup as a part of the
                  weekly Systems Scan Call.

10.1.9            HMO must submit a joint interface plan (JIP) in a format
                  specified by HHSC. The JIP will include required information
                  on all contractor interfaces that support the Medicaid
                  Information Systems. The submission of the JIP will be in
                  coordination with other TMAS contractors and is due no later
                  than 10 working days after the end of each state fiscal year
                  calendar.

10.3              ENROLLMENT ELIGIBILITY SUBSYSTEM
                  --------------------------------

(11)              Send PCP assignment updates to HHSC or its designee, in the
                  format specified by HHSC or its designee. Updates can be sent
                  as often as daily but must be sent at least weekly.

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12.1              FINANCIAL REPORTS
                  -----------------

12.1.1            MCFS Report. HMO must submit the Managed Care Financial
                  -----------
                  Statistical Report (MCFS) included in Appendix I. The report
                  must be submitted to HHSC no later than 30 days after the end
                  of each state fiscal year quarter (i.e., Dec. 30, March 30,
                  June 30, Sept. 30) and must include complete and updated
                  financial and statistical information for each month of the
                  state fiscal year-to-date reporting period. The MCFS Report
                  must be submitted for each claims processing subcontractor in
                  accordance with this Article. HMO must incorporate financial
                  and statistical data received by its delegated networks (IPAs,
                  ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.4            Final MCFS Reports. HMO must file two Final Managed Care
                  ------------------
                  Financial-Statistical Reports after the end of the second year
                  of the contract for the first two-year portion of the contract
                  and again after the third year of the contract for the third
                  year (second portion) of the contract. The first final report
                  must reflect expenses incurred through the 90th day after the
                  end of the first two-year portion of the contract and again
                  after the end of the third year of the contract for the third
                  year (second portion) of the contract. The first final report
                  must be filed on or before the 120th day after the end of each
                  portion of the contract. The second final report must reflect
                  data completed through the 334th day after the end of the
                  second year of the contract for the first two year portion of
                  the contract and again after the end of the third year of the
                  contract for the third year (second portion) of the contract
                  and must be filed on or before the 365th day following the end
                  of each portion of the contract year.

12.5              PROVIDER NETWORK REPORTS
                  ------------------------

12.5.3            PCP Error Report. HMO must submit to the Enrollment Broker an
                  ----------------
                  electronic file summarizing changes in PCP assignments. The
                  file must be submitted in a format specified by HHSC and can
                  be submitted as often as daily but must be submitted at least
                  weekly. When HMO receives a PCP assignment Error Report /File,
                  HMO must send corrections to HHSC or its designee within five
                  working days.

12.13             EXPEDITED PRENATAL OUTREACH REPORT
                  ----------------------------------

12.13             HMO must submit the Expedited Prenatal Outreach Report for
                  each monthly reporting period in accordance with a format
                  developed by HHSC in consultation with the HMOs. The report
                  must include elements that demonstrate the level of effort,
                  and the outcomes of the HMO in outreaching to pregnant women
                  for the purpose of scheduling and/or completing the initial
                  obstetrical examination prior to 14 days after the receipt of
                  the daily enrollment file by the HMO. Each monthly report is
                  due by the last day of the month following each monthly
                  reporting period.

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13.1              CAPITATION AMOUNTS
                  ------------------

13.1.2            Delivery Supplemental Payment (DSP). The monthly capatation
                  amounts and the DSP amount are listed below.

                  --------------------------------------------------------------
                  Risk Group                     Monthly Capatation Amounts
                  --------------------------------------------------------------
                  TANF Adults                              $164.33
                  --------------------------------------------------------------
                  TANF Children > 12                        $74.79
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                   $60.67
                  Months of Age
                  --------------------------------------------------------------
                  Newborns < 12 Months of Age              $356.29
                           -
                  --------------------------------------------------------------
                  TANF Children < 12                       $356.29
                                -
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children < 12                  $356.29
                                     -
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                  $59.01
                  --------------------------------------------------------------
                  CHIP Phase I                              $71.50
                  --------------------------------------------------------------
                  Pregnant Women                           $267.89
                  --------------------------------------------------------------
                  Disabled/Blind                            $14.00
                  Administration
                  --------------------------------------------------------------

                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.

13.1.3.1          Once HMO has received its capitation rates established by HHSC
                  for the second or third year of this contract, HMO may
                  terminate this contract as provided in Article 18.1.6.

13.1.7            HMO renewal rates reflect program increases appropriated by
                  the 76th and 77th legislature for physician (to include
                  THSteps providers) and outpatient facility services. HMO must
                  report to HHSC any change in rates for participating
                  physicians (to include THSteps providers) and outpatient
                  facilities resulting from this increase. The report must be
                  submitted to HHSC at the end of the first quarter of the
                  FY2000, FY2001 and FY2002 contract years according to the
                  deliverables matrix schedule set for HMO.

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13.2              EXPERIENCE REBATE TO THE STATE
                  ------------------------------

13.2.1            For the contract period, HMO must pay to TDH an experience
                  rebate calculated in accordance with the tiered rebate method
                  listed below based on the excess of allowable HMO STAR
                  revenues over allowable HMO STAR expenses as measured by any
                  positive amount on Line 7 of "Part 1: Financial Summary, All
                  Coverage Groups Combined" of the annual Managed Care
                  Financial-Statistical Report, set forth in Appendix I, as
                  reviewed and confirmed by TDH. TDH reserves the right to have
                  an independent audit performed to verify the information
                  provided by HMO.

                                 Graduated Rebate Method
         -----------------------------------------------------------------------
           Net income before              HMO Share            State Share
         taxes as a Percentage
              of Revenues
         -----------------------------------------------------------------------
                0% - 3%                     100%                     0%
         -----------------------------------------------------------------------
             Over 3% - 7%                    75%                    25%
         -----------------------------------------------------------------------
             Over 7% - 10%                   50%                    50%
         -----------------------------------------------------------------------
             Over 10% - 15%                  25%                    75%
         -----------------------------------------------------------------------
                Over 15%                      0%                   100%
         -----------------------------------------------------------------------

13.2.2.1          The experience rebate for the HMO shall be calculated by
                  applying the experience rebate formula in Article 13.2.1 to
                  the sum of the net income before taxes (Financial Statistical
                  Report, Part 1, Line 7) for all STAR Medicaid service areas
                  contracted between the State and HMO.

13.2.4            Population-Based Initiatives (PBIs) and Experience Rebates:
                  HMO may subtract from an experience rebate owed to the State,
                  expenses for population-based health initiatives that have
                  been approved by HHSC. A population-based initiative (PBI) is
                  a project or program designed to improve some aspect of
                  quality of care, quality of life, or health care knowledge for
                  the Medicaid population that may also benefit the community as
                  a whole. Value-added service does not constitute a PBI.
                  Contractually required services and activities do not
                  constitute a PBI.

13.2.5            There will be two settlements for payment(s) of the experience
                  rebate for FY 2000-2001 and two settlements for payment(s) for
                  the experience rebate for FY 2002. The first settlement for
                  the specified time period shall equal 100 percent

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                  of the experience rebate as derived from Line 7 of Part 1 (Net
                  Income Before Taxes) of the first final Managed Care Financial
                  Statistical (MCFS) Report and shall be paid on the same day
                  the first final MCFS Report is submitted to HHSC for the
                  specified time period. The second settlement shall be an
                  adjustment to the first settlement and shall be paid to HHSC
                  on the same day that the second final MCFS Report is submitted
                  to HHSC for that specified time period if the adjustment is
                  the payment from HMO to HHSC. If the adjustment is a payment
                  from HHSC to HMO, HHSC shall pay such adjustment to HMO within
                  thirty (30) days of receipt of the second final MCFS Report.
                  HHSC or its agent may audit or review the MCFS report. If HHSC
                  determines that corrections to the MCFS reports are required,
                  based on a HHSC audit/review of other documentation acceptable
                  to HHSC, to determine an adjustment to the amount of the
                  second settlement, then final adjustment shall be made within
                  two years from the date that HMO submits the second final MCFS
                  report. HMO must pay the first and second settlements on the
                  due dates for the first and second final MCFS reports
                  respectively as identified in Article 12.1.4. HHSC may adjust
                  the experience rebate if HHSC determines HMO has paid
                  affiliates amounts for goods or services that are higher than
                  the fair market value of the goods and services in the
                  services area. Fair market value may be based on the amount
                  HMO pays a non-affiliate(s) or the amount another HMO pays for
                  same or similar service in the service area. HHSC has final
                  authority in auditing and determining the amount of the
                  experience rebate.

13.3              PERFORMANCE OBJECTIVES/INCENTIVES
                  ---------------------------------

13.3.1            Preventive Health Performance Objectives. Preventive Health
                  ----------------------------------------
                  Performance Objectives are contained in this contract at
                  Appendix K. HMO must accomplish the performance objectives or
                  a designated percentage in order to be eligible for payment of
                  financial incentives. Performance objectives are subject to
                  change. HHSC will consult with HMO prior to revising
                  performance objectives.

13.3.2            HMO will receive credit for accomplishing a performance
                  objective upon receipt of accurate encounter data required
                  under Article 10.5 and 12.2 of this contract and/or a Detailed
                  Data Element Report from HMO with report format as determined
                  by HHSC and aggregate data report by HMO in accordance with a
                  report format as determined by HHSC (Performance Objective
                  Report). Accuracy and completeness of the Detailed Data
                  Element Report and the Aggregate Data Performance Objective
                  Report will be determined by HHSC through an HHSC audit of the
                  HMO claims processing system. If HHSC determines that the
                  Detailed Data Element Report and Performance Objectives Report
                  are sufficiently supported by the results of the HHSC audit,
                  the payment of financial incentives will be made to HMO.
                  Conversely, if the audit results do not support the reports as
                  determined by HHSC, HMO will not receive payment

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                  of the financial incentive. HHSC may conduct provider chart
                  reviews to validate the accuracy of the claims data related to
                  HMO accomplishment of performance objectives. If the results
                  of the chart review do not support the HMO claims system data
                  or the HMO Detailed Data Element Report and the Performance
                  Objectives Report, HHSC may recoup payment made to the HMO for
                  performance objectives incentives.

13.3.3            HMO will also receive credit for performance objectives
                  performed by other organizations if a network primary care
                  provider or the HMO retains documentation from the performing
                  organization which satisfies the requirements contained in
                  Appendix K of this contract.

13.3.4            HMO will receive performance objective bonuses for
                  accomplishing the following percentages of performance
                  objectives:

               -----------------------------------------------------------------
               Percent of Each Performance     Percent of Performance Objective
                  Objective Accomplished         Allocations Paid to HMO
               -----------------------------------------------------------------
                        60% to 65%                       20%
               -----------------------------------------------------------------
                        65% to 70%                       30%
               -----------------------------------------------------------------
                        70% to 75%                       40%
               -----------------------------------------------------------------
                        75% to 80%                       50%
               -----------------------------------------------------------------
                        80% to 85%                       60%
               -----------------------------------------------------------------
                        85% to 90%                       70%
               -----------------------------------------------------------------
                        90% to 95%                       80%
               -----------------------------------------------------------------
                        95% to 100%                      90%
               -----------------------------------------------------------------
                          100%                          100%
               -----------------------------------------------------------------

13.3.5            HMO must submit the Detailed Data Element Report and the
                  Performance Objectives Report regardless of whether or not the
                  HMO intends to claim payment of performance objective bonuses.

13.3.6            Payment of performance objective bonus is contingent upon
                  availability of appropriations. If appropriations are not
                  available to pay performance objective bonuses as set out
                  below, HHSC will equitably distribute all available funds to
                  each HMO that has accomplished performance objectives.

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13.3.7            In addition to the capitation amounts set forth in Article
                  13.1.2. a performance premium of two dollars ($2.00) per
                  Member month will be allocated by HHSC for the accomplishment
                  of performance objectives.

13.3.8            The HMO must submit the Performance Objectives Report and the
                  Detailed Data Element Report as referenced in Article 13.3.2,
                  within 150 days from the end of each State fiscal year.
                  Performance premiums will be paid to HMO within 120 days after
                  The State receives and validates the data contained in each
                  required Performance Objectives Report.

13.3.9            The performance objective allocation for HMO shall be assigned
                  to each performance objective, described in Appendix K, in
                  accordance with the following percentages:

                  --------------------------------------------------------------
                           EPSDT SCREENS        Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  1.       < 12 months                         12%
                  --------------------------------------------------------------
                  2.       12 to 24 months                     12%
                  --------------------------------------------------------------
                  3.       25 months - 20 years                20%
                  --------------------------------------------------------------

                           IMMUNIZATIONS        Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  4.       < 12 months                          7%
                  --------------------------------------------------------------
                  5.       12 to 24 months                      5%
                  --------------------------------------------------------------

                      ADULT ANNUAL VISITS       Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  6.       Adult Annual Visits                  3%
                  --------------------------------------------------------------
                           PREGNANCY VISITS     Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  7.       Initial prenatal exam               15%
                  --------------------------------------------------------------
                  8.       Visits by Gestational Age           14%
                  --------------------------------------------------------------
                  9.       Postpartum visit                    12%
                  --------------------------------------------------------------

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13.3.10           Compass 21 Encounter Data Conversion Performance Incentive. A
                  ----------------------------------------------------------
                  Compass 21 encounter data conversion performance incentive
                  payment will be paid by the State to each HMO that achieves
                  the identified conversion performance standard for at least
                  one month in the first quarter of SFY 2002 as demonstration of
                  successful conversion to the C21 system. The encounter
                  conversion performance standard is as follows:

                  --------------------------------------------------------------
                        Performance Objective          Encounter Data Conversion
                                                         Performance Incentive
                  --------------------------------------------------------------
                  Percentage of encounters submitted             65%
                  that are successfully accepted into
                  C21
                  --------------------------------------------------------------

13.3.10.1         The amount of the incentive will be based on the total amount
                  identified by the state for the encounter data conversion
                  performance incentive pool ("Pool"). The pool will be equally
                  distributed between all the HMOs that achieve the performance
                  objective within the first quarter of SFY 2002. HMOs with
                  multiple contracts with HHSC are eligible to receive only one
                  allocation from the Pool. Required HMO performance for the
                  identified objectives will be verified by HHSC for accuracy
                  and completeness. The incentive will be paid only after HHSC
                  has verified that HMO performance has met the required
                  performance standard. Payments will be made in the second
                  quarter of the fiscal year.

13.5.4            NEWBORN AND PREGNANT WOMAN PAYMENT PROVISIONS
                  ---------------------------------------------

13.5.4            Newborns who appear on the MAXIMUS daily enrollment file but
                  do not appear on the MAXIMUS monthly enrollment or adjustment
                  File before the end of the sixth month following the date of
                  birth will not be retroactively enrolled into the HMO. HHSC
                  will manually reconcile payment to the HMO for services
                  provided from the date of birth for TP45 and all other
                  eligibility categories of newborns. Payment will cover
                  services rendered from the effective date of the proxy ID
                  number when first issued by the HMO regardless of plan
                  assignment at the time the State-issued Medicaid ID number is
                  received.

15.6              ASSIGNMENT
                  ----------

15.6              This contract was awarded to HMO based on HMO's qualifications
                  to perform personal and professional services. HMO cannot
                  assign this contract without the written consent of HHSC. This
                  provision does not prevent HMO from

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                  subcontracting duties and responsibilities to qualified
                  subcontractors. If HHSC consents to an assignment of this
                  contract, a transition period of 90 days will run from the
                  date the assignment is approved by HHSC so that Members'
                  services are not interrupted and, if necessary, the notice
                  provided for in Article 15.7 can be sent to Members. The
                  assigning HMO must also submit a transition plan, as set out
                  in Article 18.2.1, subject to HHSC 's approval.

16.3              DEFAULT BY HMO
                  --------------

16.3.14.1         REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
                  -----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to HHSC by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit HHSC
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to meet any benchmark established by HHSC
                  under this contract, or for failure to meet improvement
                  targets, as identified by HHSC, HHSC may:

                  o        Remove all or part of the THSteps component from the
                           capitation paid to HMO
                  o        Terminate the contract if the applicable conditions
                           set out in Article 18.1.1 are met;
                  o        Suspend new enrollment as set out in Article 18.3;
                  o        Assess liquidated money damages as set out in Article
                           18.4; and/or
                  o        Require forfeiture of all or part of the TDI
                           performance bond as set out in Article 18.9.

16.3.15           FAILURE TO PERFORM A MATERIAL DUTY OR RESPONSIBILITY
                  ----------------------------------------------------

                  Failure of HMO to perform a material duty or responsibility as
                  set out in this Contract is a default under this contract and
                  HHSC may impose one or more of the remedies contained within
                  its provisions and all other remedies available to HHSC by law
                  or in equity.

16.3.15.1         REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
                  -----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to HHSC by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit HHSC
                  in exercising all or part of any remaining remedies.

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                  For HMO's failure to perform an administrative function under
                  this contract, HHSC may:

                  o        Terminate the contract if the applicable conditions
                           set out in Article 18. 1.1 are met;
                  o        Suspend new enrollment as set out in Article 18.3;
                  o        Assess liquidated money damages as set out in Article
                           18.4; and/or
                  o        Require forfeiture of all or part of the TDI
                           performance bond as set out in Article 18.9.

18.1.6            TERMINATION BY HMO
                  ------------------

18.1.6            HMO may terminate this contract if HHSC fails to pay HMO as
                  required under Article XIII of this contract or otherwise
                  materially defaults in its duties and responsibilities under
                  this contract, or by giving notice no later than 30 days after
                  receiving the capitation rates for the second or third
                  contract years. Retaining premium, recoupment, sanctions, or
                  penalties that are allowed under this contract or that result
                  from HMO's failure to perform or HMO's default under the terms
                  of this contract is not cause for termination.

18.2              DUTIES OF CONTRACTING PARTIES UPON TERMINATION
                  ----------------------------------------------

18.2.2            If the contract is terminated by HHSC for any reason other
                  than federal or state funds for the Medicaid program no longer
                  being available or if HMO terminates the contract based on
                  lower capitation rates for the second or third contract years
                  as set out in Article 13.1.3.1:

18.2.3            If the contract is terminated by HMO for any reason other than
                  based on lower capitation rates for the second or third
                  contract years as set out in Article 13.1.3.1:

Article XIX       TERM
                  ----

19.1              The effective date of this contract is August 30, 1999. This
                  contract will terminate on August 31, 2002, unless terminated
                  earlier as provided for elsewhere in the contract.

3.                The Appendices are amended by replacing page 10 of Appendix A
                  "Standards for Quality Improvement Programs" to incorporate a
                  change in Item F, number 1 on recredentialing.

4.                The Appendices are amended by deleting Appendix D, "'Required
                  Critical Elements," and replacing it with new Appendix D,
                  "Required Critical Elements", as attached.

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<PAGE>

AGREED AND SIGNED by an authorized representative of the parties on 2001.

Health and Human Services Commission        Superior Health Plan, Inc.

By:  /s/ DON A. GILBERT                     By: /s/ MICHAEL D. MCKINNEY, M.D.
    --------------------------------            --------------------------------
    Don A. Gilbert                              Michael D. McKinney, M.D.
                                                President & CEO

Approved as to Form:

-------------------------------
Office of General Counsel

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                                                                    EXHIBIT 10.6

                                            TDH Document No. 4810323494* 2001-01
                                                             -------------------
                                            Orig. # 23921

                                      1999

                              CONTRACT FOR SERVICES

                                     Between

                         THE TEXAS DEPARTMENT OF HEALTH

                                       And

                                       HMO

                                                           PCA Health
                                                           1999 Renewal Contract

                                                              Bexar Service Area
                                                                  August 9, 1999

<PAGE>
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

<S>         <C>                                                                     <C>
ARTICLE I   PARTIES AND AUTHORITY TO CONTRACT .......................................1
ARTICLE II  DEFINITIONS .............................................................2
ARTICLE III PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS ....................14

3.1     ORGANIZATION AND ADMINISTRATION.............................................14
3.2     NON-PROVIDER SUBCONTRACTS ..................................................15
3.3     MEDICAL DIRECTOR ...........................................................17
3.4     PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS ..........................18
3.5     RECORDS REQUIREMENTS AND RECORDS RETENTION .................................19
3.6     HMO REVIEW OF TDH MATERIALS ................................................20
3.7     HMO TELEPHONE ACCESS REQUIREMENTS ..........................................21

ARTICLE IV  FISCAL; FINANCIAL; CLAIMS AND INSURANCE REQUIREMENTS....................21

4.1     FISCAL SOLVENCY ........................................................... 21
4.2     MINIMUM NET WORTH ..........................................................22
4.3     PERFORMANCE BOND ...........................................................22
4.4     INSURANCE ..................................................................22
4.5     FRANCHISE TAX ..............................................................23
4.6     AUDIT.......................................................................23
4.7     PENDING OR THREATENED LITIGATION ...........................................23
4.8     MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO
        OPERATIONS .................................................................23
4.9     THIRD PARTY RECOVERY .......................................................24
4.10    CLAIMS PROCESSING REQUIREMENTS .............................................25
4.11    INDEMNIFICATION.............................................................27

ARTICLE V STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS..........................28

5.1     COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS .............................28
5.2     PROGRAM INTEGRITY ..........................................................28
5.3     FRAUD AND ABUSE COMPLIANCE PLAN ............................................28
5.4     SAFEGUARDING INFORMATION ...................................................31
5.5     NON-DISCRIMINATION .........................................................31
5.6     HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs) ...............................32
5.7     BUY TEXAS ..................................................................33
5.8     CHILD SUPPORT ..............................................................33
5.9     REQUEST FOR PUBLIC INFORMATION .............................................33
5.10    NOTICE AND APPEAL ..........................................................34

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ARTICLE VI SCOPE OF SERVICES........................................................34

6.1     SCOPE OF SERVICES ..........................................................34
6.2     PRE-EXISTING CONDITIONS ....................................................37
6.3     SPAN OF ELIGIBILITY ........................................................37
6.4     CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS ............................38
6.5     EMERGENCY SERVICES .........................................................39
6.6     BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS.....................40
6.7     FAMILY PLANNING - SPECIFIC REQUIREMENTS ....................................42
6.8     TEXAS HEALTH STEPS (EPSDT) .................................................43
6.9     PERINATAL SERVICES .........................................................46
6.10    EARLY CHILDHOOD INTERVENTION (ECI) .........................................47
6.11    SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN,
        INFANTS, AND CHILDREN (WIC) - SPECIFIC REQUIREMENTS ........................48
6.12    TUBERCULOSIS (TB) ..........................................................49
6.13    PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS...................50
6.14    HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS .........................52
6.15    SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN
        IMMUNODEFICIENCY VIRUS
        (HIV) ......................................................................53
6.16    BLIND AND DISABLED MEMBERS .................................................55

ARTICLE VII PROVIDER NETWORK REQUIREMENTS ..........................................56

7.1     PROVIDER ACCESSIBILITY .....................................................56
7.2     PROVIDER CONTRACTS .........................................................57
7.3     PHYSICIAN INCENTIVE PLANS ..................................................61
7.4     PROVIDER MANUAL AND PROVIDER TRAINING ......................................63
7.5     MEMBER PANEL REPORTS .......................................................64
7.6     PROVIDER COMPLAINT AND APPEAL PROCEDURE ....................................64
7.7     PROVIDER QUALIFICATIONS - GENERAL ..........................................64
7.8     PRIMARY CARE PROVIDERS .....................................................66
7.9     OB/GYN PROVIDERS ...........................................................70
7.10    SPECIALTY CARE PROVIDERS ...................................................70
7.11    SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES ............................71
7.12    BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)....................71
7.13    SIGNIFICANT TRADITIONAL PROVIDERS (STPs) ...................................73
7.14    RURAL HEALTH PROVIDERS .....................................................73
7.15    FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH
        CLINICS (RHC) ..............................................................74
7.16    COORDINATION WITH PUBLIC HEALTH ............................................75
7.17    COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
        SERVICES ...................................................................79

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7.18    DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)..............80

ARTICLE VIII MEMBER SERVICES REQUIREMENTS ..........................................82

8.1     MEMBER EDUCATION ...........................................................82
8.2     MEMBER HANDBOOK ............................................................82
8.3     ADVANCE DIRECTIVES .........................................................82
8.4     MEMBER ID CARDS ............................................................84
8.5     MEMBER HOTLINE .............................................................85
8.6     MEMBER COMPLAINT PROCESS ...................................................85
8.7     MEMBER NOTICE, APPEALS AND FAIR HEARINGS ...................................87
8.8     MEMBER ADVOCATES ...........................................................89
8.9     MEMBER CULTURAL AND LINGUISTIC SERVICES ....................................89

ARTICLE IX MARKETING AND PROHIBITED PRACTICES ......................................91

9.1     MARKETING MATERIAL MEDIA AND DISTRIBUTION ..................................91
9.2     MARKETING ORIENTATION AND TRAINING .........................................92
9.3     PROHIBITED MARKETING PRACTICES .............................................92
9.4     NETWORK PROVIDER DIRECTORY .................................................93

ARTICLE X MIS SYSTEM REQUIREMENTS ..................................................93

10.1    MODEL MIS REQUIREMENTS .....................................................93
10.2    SYSTEM-WIDE FUNCTIONS ......................................................95
10.3    ENROLLMENT/ELIGIBILITY SUBSYSTEM ...........................................96
10.4    PROVIDER SUBSYSTEM .........................................................97
10.5    ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM ......................................98
10.6    FINANCIAL SUBSYSTEM ........................................................99
10.7    UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM .................................100
10.8    REPORT SUBSYSTEM ..........................................................102
10.9    DATA INTERFACE SUBSYSTEM ..................................................103
10.10   TPR SUBSYSTEM .............................................................104
10.11   YEAR 2000 (Y2K) COMPLIANCE ................................................105

ARTICLE XI QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM.......................105
11.1    QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM ..................................105
11.2    WRITTEN QIP PLAN ..........................................................105
11.3    QIP SUBCONTRACTING ........................................................105
11.4    ACCREDITATION .............................................................106
11.5    BEHAVIORAL HEALTH INTEGRATION INTO QIP ....................................106
11.6    QIP REPORTING REQUIREMENTS ................................................106

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ARTICLE XII REPORTING REQUIREMENTS ................................................106

12.1    FINANCIAL REPORTS .........................................................106
12.2    STATISTICAL REPORTS .......................................................108
12.3    ARBITRATION/LITIGATION CLAIMS REPORT ......................................110
12.4    SUMMARY REPORT OF PROVIDER COMPLAINTS .....................................110
12.5    PROVIDER NETWORK REPORTS ..................................................110
12.6    MEMBER COMPLAINTS .........................................................110
12.7    FRAUDULENT PRACTICES ......................................................111
12.8    UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH ........................111
12.9    UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH ..........................111
12.10   QUALITY IMPROVEMENT REPORTS ...............................................111
12.11   HUB REPORTS ...............................................................113
12.12   THSTEPS REPORTS ...........................................................113

ARTICLE XIII PAYMENT PROVISIONS ...................................................113

13.1    CAPITATION AMOUNTS ........................................................113
13.2    EXPERIENCE REBATE TO STATE ................................................117
13.3    PERFORMANCE OBJECTIVES ....................................................118
13.4    ADJUSTMENTS TO PREMIUM.....................................................119

ARTICLE XIV ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT ............................119

14.1    ELIGIBILITY DETERMINATION .................................................119
14.2    ENROLLMENT ................................................................121
14.3    DISENROLLMENT .............................................................122
14.4    AUTOMATIC RE-ENROLLMENT ...................................................122
14.5    ENROLLMENT REPORTS ........................................................123

ARTICLE XV GENERAL PROVISIONS .....................................................123

15.1    INDEPENDENT CONTRACTOR ....................................................123
15.2    AMENDMENT .................................................................123
15.3    LAW, JURISDICTION AND VENUE ...............................................124
15.4    NON-WAIVER ................................................................124
15.5    SEVERABILITY ..............................................................124
15.6    ASSIGNMENT ................................................................124
15.7    MAJOR CHANGE IN CONTRACTING ...............................................125
15.8    NON-EXCLUSIVE .............................................................125
15.9    DISPUTE RESOLUTION ........................................................125
15.10   DOCUMENTS CONSTITUTING CONTRACT ...........................................125
15.11   FORCE MAJEURE .............................................................125
15.12   NOTICES ...................................................................126
15.13   SURVIVAL ..................................................................126

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ARTICLE XVI DEFAULT AND REMEDIES ..................................................126

16.1 DEFAULT BY TDH ...............................................................126
16.2 REMEDIES AVAILABLE TO HMO FOR TDH's DEFAULT ..................................126
16.3 DEFAULT BY HMO ...............................................................127

ARTICLE XVII NOTICE OF DEFAULT AND CURE OF DEFAULT.................................135
ARTICLE XVIII EXPLANATION OF REMEDIES..............................................136

18.1    TERMINATION ...............................................................136
18.2    DUTIES OF CONTRACTING PARTIES UPON TERMINATION ............................138
18.3    SUSPENSION OF NEW ENROLLMENT...............................................139
18.4    LIQUIDATED MONEY DAMAGES ..................................................139
18.5    APPOINTMENT OF TEMPORARY MANAGEMENT .......................................141
18.6    TDH-INITITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT
        CAUSE .....................................................................142
18.7    RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO ................142
18.8    CIVIL MONETARY PENALTIES ..................................................142
18.9    FORFEITURE OF ALL OR PART OF THE TDI PERFORMANCE BOND .....................143
18.10   REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED ................................143

ARTICLE XIX TERM ..................................................................143

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<PAGE>

                                   APPENDICES

APPENDIX A
               Standards For Quality Improvement Programs

APPENDIX B
               HUB Progress Assessment Reports

APPENDIX C
               Value-added Services

APPENDIX D
               Required Critical Elements

APPENDIX E
               Transplant Facilities

APPENDIX F
               Trauma Facilities

APPENDIX G
               Hemophilia Treatment Centers And Programs

APPENDIX H
               Utilization Management Report - Behavioral Health

APPENDIX I
               Managed Care Financial- Statistical Report

APPENDIX J
               Utilization Management Report - Physical Health

APPENDIX K
               Preventive Health Performance Objectives

APPENDIX L
               Cost Principles For Administrative Expenses

APPENDIX M
               Arbitration/Litigation Report

                                      1999

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<PAGE>

                              CONTRACT FOR SERVICES

                                     Between

                         THE TEXAS DEPARTMENT OF HEALTH

                                       And

                                       HMO

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

ARTICLE I      PARTIES AND AUTHORITY TO CONTRACT

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

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

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

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1.4            Renewal Review. TDH is required by Human Resources Code
               ss.32.034(a) and Government Code 533.007 to conduct renewal
               review of HMO's performance and compliance with this contract as
               a condition for retention and renewal.

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

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

1.4.3          TDH reserves the right to conduct on-site inspections of any or
               all of HMO's systems and processes as often as necessary to
               ensure compliance with contract requirements. TDH may conduct at
               least one complete on-site inspection of all systems and
               processes every three years. TDH will provide six weeks advance
               notice to HMO of the three year on-site inspection, unless TDH
               enters into an MOU with the Texas Department of Insurance to
               accept the TDI report in lieu of a TDH on-site inspection. TDH
               will notify HMO prior to conducting an onsite visit related to a
               regularly scheduled review specifically described in this
               contract. Even in the case of a regularly scheduled visit, TDH
               reserves the right to conduct an onsite review without advance
               notice if TDH believes there may be potentially serious or
               life-threatening deficiencies.

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

ARTICLE II     DEFINITIONS

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

Abuse means provider practices that are inconsistent with sound fiscal,
business, or medical practices and result in an unnecessary cost to the Medicaid
program, or in reimbursement for services that are

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<PAGE>

not medically necessary or that fail to meet professionally recognized standards
for health care. It also includes Member practices that result in unnecessary
cost to the Medicaid program.

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

Adjudicate means to deny or pay a clean claim.

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

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

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

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

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

Auxiliary aids and services includes qualified interpreters or other effective
methods of making aurally delivered materials understood by persons with hearing
impairments; and, taped texts, large print, Braille, or other effective methods
to ensure visually delivered materials are available to individuals with visual
impairments. Auxiliary aids and services also includes effective methods to
ensure that materials (delivered both aurally and visually) are available to
those with cognitive or other disabilities affecting communication.

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

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

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

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

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

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

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

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

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

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

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

Comprehensive Care Program: See definition for Texas Health Steps.

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

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

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

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

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

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

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

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

Day means calendar day unless specified otherwise.

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<PAGE>

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

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

Disability-related access means that facilities are readily accessible to and
usable by individuals with disabilities, and that auxiliary aids and services
are provided to ensure effective communication, in compliance with Title III of
the Americans with Disabilities Act.

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

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

Effective date means the date on which TDH signs the contract following
signature of the contract by HMO.

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

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

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

        (a) placing the patient's health in serious jeopardy;

        (b) serious impairment to bodily functions;

        (c) serious dysfunction of any bodily organ or part;

        (d) serious disfigurement; or

        (e) in the case of a pregnant woman, serious jeopardy to the health of
            the fetus.

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<PAGE>

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

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

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

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

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

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

Fair Hearing means the process adopted and implemented by the Texas Department
of Health, 25 TAC Chapter 1, in compliance with federal regulations and state
rules relating to Medicaid Fair Hearings found at 42 CFR Part 431, Subpart E,
and 1 TAC, Chapter 357.

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

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

HCFA means the federal Health Care Financing Administration.

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

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

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<PAGE>

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

JCAHO means Joint Commission on Accreditation of Health Care Organizations.

Linguistic access means translation and interpreter services, for written and
spoken language to ensure effective communication. Linguistic access includes
sign language interpretation, and the provision of other auxiliary aids and
services to persons with disabilities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MIS means management information system.

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

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

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

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

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

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

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

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

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

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

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

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RFA means Request For Application issued by TDH for the initial procurement in
the service area and all RFA addenda, corrections or modifications.

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

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

SED means severe emotional disturbance as determined by a local mental health
authority.

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

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

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY >95 and all other providers in
a county that, when listed by provider type in descending order by the number of
recipient encounters, provided the top 80 percent of recipient encounters for
each provider type in FY >95.

Special hospital means an establishment that:

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

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

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

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

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

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

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

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

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

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

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

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

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

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

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

Texas Medicaid Provider Procedures Manual means the policy and procedures manual
published by or on behalf of TDH which contains policies and procedures required
of all health care providers who

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participate in the Texas Medicaid program. The manual is published annually and
is updated bi-monthly by the Medicaid Bulletin.

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

THHSC means the Texas Health and Human Services Commission.

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

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

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

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

Urgent behavioral health situations means conditions which require attention and
assessment within 24 hours but which do not place the Member in immediate danger
to themselves or others and the Member is able to cooperate with treatment.

Urgent condition means a health condition, including an urgent behavioral health
situation, which is not an emergency but is severe or painful enough to cause a
prudent layperson, possessing the average knowledge of medicine, to believe that
his or her condition requires medical treatment evaluation or treatment within
24 hours by the Member's PCP or PCP designee to prevent serious deterioration of
the Member's condition or health.

Value-added services means a service that the state has approved to be included
in this contract for which HMO does not receive capitation.

ARTICLE III           PLAN ADMINISTRATIVE AND HUMAN RESOURCE
                      REQUIREMENTS

3.1            ORGANIZATION AND ADMINISTRATION
               -------------------------------

3.1.1          HMO must maintain the organizational and administrative capacity
               and capabilities to carry out all duties and responsibilities
               under this contract.

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3.1.2          HMO must maintain assigned staff with the capacity and capability
               to provide all services to all Members under this contract.

3.1.3          HMO must maintain an administrative office in the service area
               (local office). The local office must comply with the American
               with Disabilities Act (ADA) requirements for public buildings.
               Member Advocates for the service area must be located in this
               office (see Article 8.8).

3.1.4          HMO must provide training and development programs to all
               assigned staff to ensure they know and understand the service
               requirements under this contract including the reporting
               requirements, the policies and procedures, cultural and
               linguistic requirements and the scope of services to be provided.

3.1.5          HMO must notify TDH no later than 30 days after the effective
               date of this contract of any changes in its organizational chart
               as previously submitted to TDH.

3.1.5.1        HMO must notify TDH within fifteen (15) working days of any
               change in key managers or behavioral health subcontractors. This
               information must be updated whenever there is a significant
               change in organizational structure or personnel.

3.1.6          Participation in Regional Advisory Committee. HMO must
               participate on a Regional Advisory Committee established in the
               service area in compliance with the Texas Government
               Code,ss.ss.533.021-533.029. The Regional Advisory Committee in
               each managed care service area must include representatives from
               at least the following entities: hospitals; managed care
               organizations; primary care providers; state agencies; consumer
               advocates; Medicaid recipients; rural providers; long-term care
               providers; specialty care providers, including pediatric
               providers; and political subdivisions with a constitutional or
               statutory obligation to provide health care to indigent patients.
               THHSC and TDH will determine the composition of each Regional
               Advisory Committee.

3.1.6.1        The Regional Advisory Committee is required to meet at least
               quarterly for the first year after appointment of the committee
               and at least annually in subsequent years. The actual frequency
               may vary depending on the needs and requirements of the
               committee.

3.2            NON-PROVIDER SUBCONTRACTS
               -------------------------

3.2.1          HMO must enter into written contracts with all subcontractors and
               maintain copies of the subcontracts in HMO's administrative
               office. HMO must submit two copies of all non-provider
               subcontracts to TDH for approval no later than 60 days after the

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               effective date of this contract, unless the subcontract has
               already been submitted to and approved by TDH. Subcontracts
               entered into after the effective date of this contract must be
               submitted no later than 30 days prior to the date of execution of
               the subcontract. HMO must also make non-provider subcontracts
               available to TDH upon request, at the time and location requested
               by TDH.

3.2.1.1        TDH has 15 working days to review the subcontract and recommend
               any suggestions or required changes. If TDH has not responded to
               HMO by the fifteenth day, HMO may execute the subcontract. TDH
               reserves the right to request HMO to modify any subcontract that
               has been deemed approved.

3.2.1.2        HMO must notify TDH no later than 90 days prior to terminating
               any subcontract affecting a major performance function of this
               contract. All major subcontractor terminations or substitutions
               require TDH approval (see Article 15.7). TDH may require HMO to
               provide a transition plan describing how the subcontracted
               function will continue to be provided. All subcontracts are
               subject to the terms and conditions of this contract and must
               contain the provisions of Article V, Statutory and Regulatory
               Compliance, and the provisions contained in Article 3.2.4.

3.2.2          Subcontracts which are requested by any agency with authority to
               investigate and prosecute fraud and abuse must be produced at the
               time and in the manner requested by the requesting Agency.
               Subcontracts requested in response to a Public Information
               request must be produced within 3 working days from TDH's
               notification to HMO of the request. All requested records must be
               provided free-of-charge.

3.2.3          The form and substance of all subcontracts including subsequent
               amendments are subject to approval by TDH. TDH retains the
               authority to reject or require changes to any provisions of the
               subcontract that do not comply with the requirements or duties
               and responsibilities of this contract or create significant
               barriers for TDH in carrying out its duty to monitor compliance
               with the contract. HMO REMAINS RESPONSIBLE FOR PERFORMING ALL
               DUTIES, RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT
               REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS
               SUBCONTRACTED TO ANOTHER.

3.2.4          HMO and all intermediary entities must include the following
               standard language in each subcontract and ensure that this
               language is included in all subcontracts down to the actual
               provider of the services. The following standard language is not
               the only language that will be considered acceptable by TDH.

3.2.4.1        [Contractor] understands that services provided under this
               contract are funded by state and federal funds under the Texas
               Medical Assistance Program (Medicaid).

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               [Contractor] is subject to all state and federal laws, rules and
               regulations that apply to persons or entities receiving state and
               federal funds. [Contractor] understands that any violation by
               [Contractor] of a state or federal law relating to the delivery
               of services under this contract, or any violation of the TDH/HMO
               contract could result in liability for contract money damages,
               and/or civil and criminal penalties and sanctions under state and
               federal law.

3.2.4.2        [Contractor] understands and agrees that HMO has the sole
               responsibility for payment of services rendered by the
               [Contractor] under this contract. In the event of HMO insolvency
               or cessation of operations, [Contractor's] sole recourse is
               against HMO through the bankruptcy or receivership estate of HMO.

3.2.4.3        [Contractor] understands and agrees that TDH is not liable or
               responsible for payment for any services provided under this
               contract.

3.2.4.4        [Contractor] agrees that any modification, addition, or deletion
               of the provisions of this agreement will become effective no
               earlier than 30 days after HMO notifies TDH of the change. If TDH
               does not provide written approval within 30 days from receipt of
               notification from HMO, changes may be considered provisionally
               approved.

3.2.4.5        This contract is subject to state and federal fraud and abuse
               statutes. [Contractor] will be required to cooperate in the
               investigation and prosecution of any suspected fraud or abuse,
               and must provide any and all requested originals and copies of
               records and information, free-of-charge on request, to any state
               or federal agency with authority to investigate fraud and abuse
               in the Medicaid program.

3.2.5          The Texas Medicaid Fraud Control Unit must be allowed to conduct
               private interviews of HMO personnel, subcontractors and their
               personnel, witnesses, and patients. Requests for information are
               to be complied with, in the form and the language requested. HMO
               employees and Contractors and subcontractors and their employees
               and Contractors must cooperate fully in making themselves
               available in person for interviews, consultation, grand jury
               proceedings, pretrial conference, hearings, trial and in any
               other process, including investigations. Compliance with this
               Article is at HMO's and subcontractors' own expense.

3.3            MEDICAL DIRECTOR
               ----------------

3.3.1          HMO must have the equivalent of a full-time Medical Director
               licensed under the Texas State Board of Medical Examiners (M.D.
               or D.O.). HMO must have a written job description describing the
               Medical Director's authority, duties and responsibilities as
               follows:

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3.3.1.1        Ensure that medical necessity decisions, including prior
               authorization protocols, are rendered by qualified medical
               personnel and are based on TDH's definition of medical necessity,
               and is in compliance with the Utilization Review Act and 21.58a
               of the Texas Insurance Code.

3.3.1.2        Oversight responsibility of network providers to ensure that all
               care provided complies with the generally accepted health
               standards of the community.

3.3.1.3        Oversight of HMO's quality improvement process, including
               establishing and actively participating in HMO's quality
               improvement committee, monitoring Member health status, HMO
               utilization review policies and standards and patient outcome
               measures.

3.3.1.4        Identify problems and develop and implement corrective actions to
               quality improvement process.

3.3.1.5        Develop, implement and maintain responsibility for HMO's medical
               policy.

3.3.1.6        Oversight responsibility for medically related complaints.

3.3.1.7        Participate and provide witnesses and testimony on behalf of HMO
               in the TDH Fair Hearing process.

3.3.2          The Medical Director must exercise independent medical judgment
               in all medical necessity decisions. HMO must ensure that medical
               necessity decisions are not adversely influenced by fiscal
               management decisions. TDH may conduct reviews of medical
               necessity decisions by HMO Medical Director at any time.

3.4            PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS
               -------------------------------------------------

3.4.1          HMO must receive written approval from TDH for all updated
               written materials, produced or authorized by HMO, containing
               information about the STAR Program prior to distribution to
               Members, prospective Members, providers within HMO's network, or
               potential providers who HMO intends to recruit as network
               providers. This includes Member education materials.

3.4.2          Member materials must meet cultural and linguistic requirements
               as stated in Article VIII. Unless otherwise required, Member
               materials must be written at a 4th - 6th grade reading
               comprehension level; and translated into the language of any
               major population group, except when TDH requires HMO to use
               statutory language (i.e., advance directives, medical necessity,
               etc.).

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3.4.3          All materials regarding the STAR Program, including Member
               education materials, must be submitted to TDH for approval prior
               to distribution. TDH has 15 working days to review the materials
               and recommend any suggestions or required changes. If TDH has not
               responded to HMO by the fifteenth day, HMO may print and
               distribute these materials. TDH reserves the right to request HMO
               to modify plan materials that are deemed approved and have been
               printed or distributed. These modifications can be made at the
               next printing unless substantial non-compliance exists. An
               exception to the 15 working day timeframe may be requested in
               writing by HMO for written provider materials that require a
               quick turn-around time (e.g., letters). These materials will be
               reviewed by TDH within 5 working days.

3.4.4          HMO must forward approved English versions of their Member
               Handbook, Member Provider Directory, newsletters, individual
               Member letters, and any written information that applies to
               Medicaid-specific services to DHS for DHS to translate into
               Spanish. DHS must provide the written and approved translation
               into Spanish to HMO no later than 15 working days after receipt
               of the English version by DHS. HMO must incorporate the approved
               translation into these materials. If DHS has not responded to HMO
               by the fifteenth day, HMO may print and distribute these
               materials. TDH reserves the right to require revisions to
               materials if inaccuracies are discovered or if changes are
               required by changes in policy or law. These changes can be made
               at the next printing unless substantial non-compliance exists.
               HMO has the option of using the DHS translation unit or their own
               translators for health education materials that do not contain
               Medicaid-specific information and for other marketing materials
               such as billboards, radio spots, and television and newspaper
               advertisements.

3.4.5          HMO must reproduce all written instructional, educational, and
               procedural documents required under this contract and distribute
               them to its providers and Members. HMO must reproduce and
               distribute instructions and forms to all network providers who
               have reporting and audit requirements under this contract.

3.4.6          HMO must provide TDH with at least three paper copies and one
               electronic copy of their Member Handbook, Provider Manual and
               Member Provider Directory. If an electronic format is not
               available, five paper copies are required.

3.4.7          Changes to the Required Critical Elements for the Member
               Handbook, Provider Manual, and Provider Directory may be handled
               as inserts until the next printing of these documents.

3.5            RECORDS REQUIREMENTS AND RECORDS RETENTION
               ------------------------------------------

3.5.1          HMO must keep all records required to be created and retained
               under this contract. Records related to Members served in this
               service area must be made available in

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               HMO's local office when requested by TDH. All records must be
               retained for a period of five (5) years unless otherwise
               specified in this contract. Original records must be kept in the
               form they were created in the regular course of business for a
               minimum of two (2) years following the end of the contract
               period. Microfilm, digital or electronic records may be
               substituted for the original records after the first two (2)
               years, if the retention system is reliable and supported by a
               retrieval system which allows reasonable access to the records.
               All copies of original records must be made using guidelines and
               procedures approved by TDH, if the original documents will no
               longer be available or accessible.

3.5.2          Availability and Accessibility. All records, documents and data
               required to be created under this contract are subject to audit,
               inspection and production. If an audit, inspection or production
               is requested by TDH, TDH's designee or TDH acting on behalf of
               any agency with regulatory or statutory authority over Medicaid
               Managed Care, the requested records must be made available at the
               time and at the place the records are requested. Copies of
               requested records must be produced or provided free-of-charge to
               the requesting agency. Records requested after the second year
               following the end of contract term that have been stored or
               archived must be accessible and made available within 10 calendar
               days from the date of a request by TDH or the requesting agency
               or at a time and place specified by the requesting entity.

3.5.3          Accounting Records. HMO must create and keep accurate and
               complete accounting records in compliance with Generally Accepted
               Accounting Principles (GAAP). Records must be created and kept
               for all claims payments, refunds and adjustment payments to
               providers, premium or capitation payments, interest income and
               payments for administrative services or functions. Separate
               records must be maintained for medical and administrative fees,
               charges, and payments.

3.5.4          General Business Records. HMO must create and keep complete and
               accurate general business records to reflect the performance of
               duties and responsibilities, and compliance with the provisions
               of this contract.

3.5.5          Medical Records. HMO must require, through contractual provisions
               or provider manual, providers to create and keep medical records
               in compliance with the medical records standards contained in the
               Standards for Quality Improvement Programs in Appendix A. All
               medical records must be kept for at least five (5) years, except
               for records of rural health clinics, which must be kept for a
               period of six (6) years from the date of service.

3.5.6          Matters in Litigation. HMO must keep records related to matters
               in litigation for five (5) years following the termination or
               resolution of the litigation.

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3.5.7          On-line Retention of Claims History. HMO must keep automated
               claims payment histories for a minimum of 18 months from date of
               adjudication in an on-line inquiry system. HMO must also keep
               sufficient history on-line to ensure all claim/encounter service
               information is submitted to and accepted by TDH for processing.

3.6            HMO REVIEW OF TDH MATERIALS
               ---------------------------

               TDH will submit all studies or audits that relate or refer to HMO
               for review and comment to HMO 10 working days prior to releasing
               the report to the public or to Members.

3.7            HMO TELEPHONE ACCESS REQUIREMENTS
               ---------------------------------

               HMO must ensure that HMO has adequately-staffed telephone lines.
               Telephone personnel must receive customer service telephone
               training. HMO must ensure that telephone staffing is adequate to
               fulfill the standards of promptness and quality listed below:

               1.     80% of all telephone calls must be answered within an
                      average of 30 seconds;
               2.     The lost (abandonment) rate must not exceed 10%;
               3.     HMO cannot impose maximum call duration limits but must
                      allow calls to be of sufficient length to ensure adequate
                      information is provided to the Member or Provider.

ARTICLE IV FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

4.1            FISCAL SOLVENCY
               ---------------

4.1.1          HMO must be and remain in full compliance with all state and
               federal solvency requirements for HMOs, including but not limited
               to all reserve requirements, net worth standards, debt-to-equity
               ratios, or other debt limitations.

4.1.2          If HMO becomes aware of any impending changes to its financial or
               business structure which could adversely impact its compliance
               with these requirements or its ability to pay its debts as they
               come due, HMO must notify TDH immediately in writing. If HMO
               becomes aware of a take-over or assignment which would require
               the approval of TDI or TDH, HMO must notify TDH immediately in
               writing.

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4.1.3          HMO must not have been placed under state conservatorship or
               receivership or filed for protection under federal bankruptcy
               laws. None of HMO's property, plant or equipment must have been
               subject to foreclosure or repossession within the preceding
               10-year period. HMO must not have any debt declared in default
               and accelerated to maturity within the preceding 10-year period.
               HMO represents that these statements are true as of the contract
               effective date. HMO must inform TDH within 24 hours of a change
               in any of the preceding representations.

4.2            MINIMUM NET WORTH
               -----------------

4.2.1          HMO has minimum net worth to the greater of (a) $1,500,000; (b)
               an amount equal to the sum of twenty-five dollars ($25) times the
               number of all enrollees including Medicaid Members; or (c) an
               amount that complies with standards adopted by TDI. Minimum net
               worth means the excess total admitted assets over total
               liabilities, excluding liability for subordinated debt issued in
               compliance with Article 1.39 of the Insurance Code.

4.2.2          The minimum equity must be maintained during the entire contract
               period.

4.3            PERFORMANCE BOND
               ----------------

               HMO has furnished TDH with a performance bond in the form
               prescribed by TDH and approved by TDI, naming TDH as Obligee,
               securing HMO's faithful performance of the terms and conditions
               of this contract. The performance bond has been issued in the
               amount of $100,000 for a two year period (contract period). If
               the contract is renewed or extended under Article XVIII, a
               separate bond will be required for each additional term of the
               contract. The bond has been issued by a surety licensed by TDI,
               and specifies cash payment as the sole remedy. Performance Bond
               requirements under this Article must comply with Texas Insurance
               Code ss. 11.1805, relating to Performance and Fidelity Bonds.
               The bond must be delivered to TDH at the same time the signed HMO
               contract is delivered to TDH.

4.4            INSURANCE

               ---------

4.4.1          HMO must maintain, or cause to be maintained, general liability
               insurance in the amounts of at least $1,000,000 per occurrence
               and $5,000,000 in the aggregate.

4.4.2          HMO must maintain or require professional liability insurance on
               each of the providers in its network in the amount of $100,000
               per occurrence and $300,000 in the aggregate, or the limits
               required by the hospital at which the network provider has
               admitting privileges.

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4.4.3          HMO must maintain an umbrella professional liability insurance
               policy for the greater of $3,000,000 or an amount (rounded to the
               next $100,000) which represents the number of STAR Members
               enrolled in HMO in the first month of the contract year
               multiplied by $150, not to exceed $10,000,000.

4.4.4          Any exceptions to the requirements of this Article must be
               approved in writing by TDH prior to the effective date of this
               contract. HMOs and providers who qualify as either state or
               federal units of government are exempt from the insurance
               requirements of this Article and are not required to obtain
               exemptions from these provisions prior to the effective date of
               this contract. State and federal units of government are required
               to comply with and are subject to the provisions of the Texas or
               Federal Tort Claims Act.

4.5            FRANCHISE TAX
               -------------

               HMO certifies that its payment of franchise taxes is current or
               that it is not subject to the State of Texas franchise tax.

4.6            AUDIT
               -----

4.6.1          TDH, TDI, or their designee have the right from time to time to
               examine and audit books and records of HMO, or its
               subcontractors, relating to: (1) HMO's capacity to bear the risk
               of potential financial losses; (2) services performed or
               determination of amounts payable under this contract; (3)
               detection of fraud and abuse; and (4) other purposes TDH deems to
               be necessary to perform its regulatory function and/or to enforce
               the provisions of this contract.

4.6.2          TDH is required to conduct an audit of HMO at least once every
               three years. HMO is responsible for paying the costs of an audit
               conducted under this Article. The costs of the audit paid by HMO
               are allowable costs under this contract.

4.7            PENDING OR THREATENED LITIGATION
               --------------------------------

               HMO must require disclosure from subcontractors and network
               providers of all pending or potential litigation or
               administrative actions against the subcontractor or network
               provider and must disclose this information to TDH, in writing,
               prior to the execution of this contract. HMO must make reasonable
               investigation and inquiry that there is not pending or potential
               litigation or administrative action against the providers or
               subcontractors in HMO's provider network. HMO must notify TDH of
               any litigation which is initiated or threatened after the
               effective date of this contract within seven days of receiving
               service or becoming aware of the threatened litigation.

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4.8            MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO
               OPERATIONS

               ----------------------------------------------------------

4.8.1          HMO was awarded this contract based upon the responses and
               representations contained in HMO's application submitted in
               response to TDH's RFA. All responses and representations upon
               which scoring was based were considered material to the decision
               of whether to award the contract to HMO. RFA responses are
               incorporated into this contract by reference. The provisions of
               this contract control over any RFA response if there is a
               conflict between the RFA and this contract, or if changes in law
               or policy have changed the requirements of HMO contracting with
               TDH to provide Medicaid Managed Care.

4.8.2          This contract was awarded in part based upon HMO's representation
               of its current equity and financial ability to bear the risks
               under this contract. TDH will consider any misrepresentations of
               HMO's equity, HMO's ability to bear financial risks of this
               contract or inflating the equity of HMO, solely for the purpose
               of being awarded this contract, a material misrepresentation and
               fraud under this contract.

4.8.3          Discovery of any material misrepresentation or fraud on the part
               of HMO in HMO's application or in HMO's day-to-day activities and
               operations may cause this contract to terminate and may result in
               legal action being taken against HMO under this contract, and
               state and federal civil and criminal laws.

4.9            THIRD PARTY RECOVERY
               --------------------

4.9.1          Third Party Recovery. All Members are required to assign their
               rights to any benefits to the State and agree to cooperate with
               the State in identifying third parties who may be liable for all
               or part of the costs for providing services to the Member, as a
               condition for participation in the Medicaid program. HMO is
               authorized to act as the State's agent in enforcing the State's
               rights to third party recovery under this contract.

4.9.2          Identification. HMO must develop and implement systems and
               procedures to identify potential third parties who may be liable
               for payment of all or part of the costs for providing medical
               services to Members under this contract. Potential third parties
               must include any of the sources identified in 42 C.F.R. 433.138,
               relating to identifying third parties, except workers'
               compensation, uninsured and underinsured motorist insurance,
               first and third party liability insurance and tortfeasors. HMO
               must coordinate with TDH to obtain information from other state
               and federal agencies and HMO must cooperate with TDH in obtaining
               information from commercial third party resources. HMO must
               require all providers to comply with the provisions of 25
               TAC ss.28, relating to Third Party Recovery in the Medicaid
               program.

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4.9.3          Exchange of Identified Resources. HMO must forward identified
               resources of uninsured and underinsured motorist insurance, first
               and third party liability insurance and tortfeasors ("excepted
               resources") to TDH for TDH to pursue collection and recovery from
               these resources. TDH will forward information on all third party
               resources identified by TDH to HMO. HMO must coordinate with TDH
               to obtain information from other state and federal agencies,
               including HCFA for Medicare and the Child Support Enforcement
               Division of the Office of the Attorney General for medical
               support. HMO must cooperate with TDH in obtaining and exchanging
               information from commercial third party resources.

4.9.4          Recovery. HMO must actively pursue and collect from third party
               resources which have been identified, except when the cost of
               pursuing recovery reasonably exceeds the amount which may be
               recovered by HMO. HMO is not required to, but may pursue recovery
               and collection from the excepted resources listed in Article
               4.9.3. HMO must report the identity of these resources to TDH,
               even if HMO win pursue collection and recovery from the excepted
               resources.

4.9.4.1        HMO must provide third party resource information to network
               providers to whom individual Members have been assigned or who
               provide services to Members. HMO must require providers to seek
               recovery from potential third party resources prior to seeking
               payment from HMO. If network providers are paid capitation, HMO
               must either seek recovery from third party resources or account
               to TDH for all amounts received by network providers from third
               party resources.

4.9.4.2        HMO must prohibit network providers from interfering with or
               placing liens upon the State's right or HMO's right, acting as
               the State's agent, to recovery from third party resources. HMO
               must prohibit network providers from seeking recovery in excess
               of the Medicaid payable amount or otherwise violating state and
               federal laws.

4.9.5          Retention. HMO may retain as income a amounts recovered from
               third party sources as long as recoveries are obtained in
               compliance with the contract and state and federal laws.

4.9.6          Accountability. HMO must report all third party recovery efforts
               and amounts recovered as required in Article 12.1.12. If HMO
               fails to pursue and recover from third parties no later than 180
               days after the date of service, TDH may pursue third party
               recoveries and retain all amounts recovered without accounting to
               HMO for the amounts recovered. Amounts recovered by TDH will be
               added to expected third party recoveries to reduce future
               capitation rates, except recoveries from those excepted third
               party resources listed in Article 4.9.3.

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4.10           CLAIMS PROCESSING REQUIREMENTS
               ------------------------------

4.10.1         HMO and claims processing subcontractors must comply with TDH's
               Texas Managed Care Claims Manual (Claims Manual), which contains
               TDH's claims processing requirements. HMO must comply with any
               changes to the Claims Manual with appropriate notice of changes
               from TDH.

4.10.2         HMO must forward claims submitted to HMO in error to either: 1)
               the correct HMO if the correct HMO can be determined from the
               claim or is otherwise known to HMO; 2) the State's claims
               administrator; or 3) the provider who submitted the claim in
               error, along with an explanation of why the claim is being
               returned.

4.10.3         HMO must not pay any claim submitted by a provider who has been
               excluded or suspended from the Medicare or Medicaid programs for
               fraud and abuse when HMO has knowledge of the exclusion or
               suspension.

4.10.4         All provider clean claims must be adjudicated (finalized as paid
               or denied adjudicated) within 30 days from the date the claim is
               received by HMO. HMO must pay providers interest on a clean claim
               which is not adjudicated within 30 days from the date the claim
               is received by HMO or becomes clean at a rate of 1.5% per month
               (18% annual) for each month the clean claim remains
               unadjudicated. HMO will be held to a minimum performance level of
               90% of all clean claims paid or denied within 30 days of receipt
               and 99% of all clean claims paid or denied within 90 days of
               receipt. Failure to meet these performance levels is a default
               under this contract and could lead to damages or sanctions as
               outlined in Article XVII. The performance levels are subject to
               changes if required to comply with federal and state laws or
               regulations.

4.10.4.1       All claims and appeals submitted to HMO and claims processing
               subcontractors must be paid-adjudicated (clean claims),
               denied-adjudicated (clean claims), or denied for additional
               information (unclean claims) to providers within 30 days from the
               date the claim is received by HMO. Providers must be sent a
               written notice for each claim that is denied for additional
               information (unclean claims) identifying the claim, all reasons
               why the claim is being denied, the date the claim was received by
               HMO, all information required from the provider in order for HMO
               to adjudicate the claim, and the date by which the requested
               information must be received from the provider.

4.10.4.2       Claims that are suspended (pended internally) must be
               subsequently paid-adjudicated, denied-adjudicated, or denied for
               additional information (pended externally) within 30 days from
               date of receipt. No claim can be suspended for a period exceeding
               30 days from date of receipt of the claim.

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4.10.4.3       HMO must identify each data field of each claim form that is
               required from the provider in order for HMO to adjudicate the
               claim. HMO must inform all network providers about the required
               fields no later than 30 days prior to the effective date of the
               contract or as a provision within HMO/provider contract.
               Out-of-network providers must be informed of all required fields
               if the claim is denied for additional information. The required
               fields must include those required by HMO and TDH.

4.10.5         HMO is subject to Article XVI, Default and Remedies, for claims
               that are not processed on a timely basis as required by this
               contract and the Claims Manual. Notwithstanding the provisions of
               Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's failure to
               adjudicate (paid, denied, or external pended) at least ninety
               percent (90%) of all claims within thirty (30) days of receipt
               and ninety-nine percent (99%) within ninety (90) days of receipt
               for the contract year to date is a default under Article XVI of
               this contract.

4.10.6         HMO must comply with the standards adopted by the U.S. Department
               of Health and Human Services under the Health Insurance
               Portability and Accountability Act of 1996 submitting and
               receiving claims information through electronic data
               interchange(EDI) that allows for automated processing and
               adjudication of claims within two or three years, as applicable,
               from the date the rules promulgated under HIPAA are adopted.

4.10.7         For claims requirements regarding retroactive PCP changes for
               mandatory Members, see Article 7.8.12.2.

4.11           INDEMNIFICATION

               ---------------

4.11.1         HMO/TDH: HMO must agree to indemnify TDH and its agents for any
               and all claims, costs, damages and expenses, including court
               costs and reasonable attorney's fees, which are related to or
               arise out of:

4.11.1.1       Any failure, inability, or refusal of HMO or any of its network
               providers or other subcontractors to provide covered services;

4.11.1.2       Claims arising from HMO's, HMO's network provider's or other
               subcontractor's negligent or intentional conduct in not providing
               covered services; and

4.11.1.3       Failure, inability, or refusal of HMO to pay any of its network
               providers or subcontractors for covered services.

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4.11.2         HMO/Provider: HMO is prohibited from requiring providers to
               indemnify HMO for HMO's own acts or omissions which result in
               damages or sanctions being assessed against HMO either under this
               contract or under state or federal law.

ARTICLE V      STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

5.1            COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS
               ----------------------------------------------

5.1.1          HMO must know, understand and comply with all state and federal
               laws and regulations relating to the Texas Medicaid Program which
               have not been waived by HCFA. HMO must comply with all rules
               relating to the Medicaid managed care program adopted by TDH,
               TDI, THHSC, TDMHMR and any other state agency delegated authority
               to operate or administer Medicaid or Medicaid managed care
               programs. To the extent there is an inconsistency or conflict
               between or among state and federal laws relating to the Texas
               Medicaid Program, the Medicaid managed care program, or this
               contract, federal law shall apply.

5.1.2          HMO must require, through contract provisions, that all network
               providers or subcontractors comply with all state and federal
               laws and regulations relating to the Texas Medicaid Program and
               all rules relating to the Medicaid managed care program adopted
               by TDH, TDI, THHSC, TDMHMR and any other state agency delegated
               authority to operate Medicaid or Medicaid Managed Care programs.

5.1.3          HMO must comply with the provisions of the Clean Air Act and the
               Federal Water Pollution Control Act, as amended, found at 42
               C.F.R. 7401, et seq. and 33 U.S.C. 1251, et seq., respectively.

5.2            PROGRAM INTEGRITY
               -----------------

5.2.1          HMO has not been excluded, debarred, or suspended from
               participation in any program under Title XVIII or Title XIX under
               any of the provisions of Section 1128(a) or (b) of the Social
               Security Act (42 USCss.1320 a-7), or Executive Order 12549. HMO
               must notify TDH within 3 days of the time it receives notice that
               any action is being taken against HMO or any person defined under
               the provisions of Section 1128(a) or (b) or any subcontractor,
               which could result in exclusion, debarment, or suspension of HMO
               or a subcontractor from the Medicaid program, or any program
               listed in Executive Order 12549.

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5.2.2          HMO must comply with the provisions of, and file the
               certification of compliance required by the Byrd Anti-Lobbying
               Amendment, found at 31 U.S.C. 1352, relating to use of federal
               funds for lobbying for or obtaining federal contracts.

5.3            FRAUD AND ABUSE COMPLIANCE PLAN
               -------------------------------

5.3.1          This contract is subject to all state and federal laws and
               regulations relating to fraud and abuse in health care and the
               Medicaid program. HMO must cooperate and assist TDH and THHSC and
               any other state or federal agency charged with the duty of
               identifying, investigating, sanctioning or prosecuting suspected
               fraud and abuse, HMO must provide originals and/or copies of all
               records and information requested and allow access to premises
               and provide records to TDH or its authorized agent(s), THHSC,
               HCFA, the U.S. Department of Health and Human Services, FBI, TDI,
               and the Texas Attorney General's Medicaid Fraud Control Unit. All
               copies of records must be provided free of charge.

5.3.2          Compliance Plan. HMO must submit to TDH for approval a written
               fraud and abuse compliance plan which is based on the Model
               Compliance Plan issued by the U.S. Department of Health and Human
               Services, the Office of Inspector General (OIG), no later than 30
               days after the effective date of the contract. HMO must designate
               an officer or director in its organization who has the
               responsibility and authority for carrying out the provisions of
               its compliance plan. HMO must submit any updates or modifications
               in its compliance plan to TDH for approval at least 30 days prior
               to the modifications going into effect. HMO's fraud and abuse
               compliance plan must:

5.3.2.1        ensure that all officers, directors, managers and employees know
               and understand the provisions of HMO's fraud and abuse compliance
               plan.

5.3.2.2        contain procedures designed to prevent and detect potential or
               suspected abuse and fraud in the administration and delivery of
               services under this contract.

5.3.2.3        contain provisions for the confidential reporting of plan
               violations to the designated person in HMO.

5.3.2.4        contain provisions for the investigation and follow-up of any
               compliance plan reports.

5.3.2.5        ensure that the identity of individuals reporting violations of
               the plan is protected.

5.3.2.6        contain specific and detailed internal procedures for officers,
               directors, managers and employees for detecting, reporting, and
               investigating fraud and abuse compliance plan violations.

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5.3.2.7        require any confirmed or suspected fraud and abuse under state or
               federal law be reported to TDH, the Medicaid Program Integrity
               section of the Office of Investigations and Enforcement of the
               Texas Health and Human Services Commission, and/or the Medicaid
               Fraud Control Unit of the Texas Attorney General.

5.3.2.8        ensure that no individual who reports plan violations or
               suspected fraud and abuse is retaliated against.

5.3.3          Training. HMO must designate executive and essential personnel to
               attend mandatory training in fraud and abuse detection,
               prevention and reporting. The training will be conducted by the
               Office of Investigation and Enforcement, Health and Human
               Services Commission, and will be provided free of charge. HMO
               must schedule and complete training no later than 90 days after
               the effective date of any updates or modification of the written
               Model Compliance Plan.

5.3.3.1        If HMO's personnel have attended OIE training prior to the
               effective date of this contract, they are not required to attend
               additional OIE training unless new training is required due to
               changes in federal and/or state law or regulations. If additional
               OIE training is required, TDH will notify HMO to schedule this
               additional training.

5.3.3.2        If HMO updates or modifies its written fraud and abuse compliance
               plan, HMO must train its executive and essential personnel on
               these updates or modifications no later than 90 days after the
               effective date of the updates or modifications.

5.3.3.3        If HMO's executive and essential personnel change or if HMO
               employs additional executive and essential personnel, the new or
               additional personnel must attend OIE training within 90 days of
               employment by HMO.

5.3.4          HMO's failure to report potential or suspected fraud or abuse may
               result in sanctions, contract cancellation, or exclusion from
               participation in the Medicaid program.

5.3.5          HMO must allow the Texas Medicaid Fraud Control Unit and THHSC's
               Office of Investigations and Enforcement, to conduct private
               interviews of HMO's employees, subcontractors and their
               employees, witnesses, and patients. Requests for information must
               be complied with in the form and the language requested. HMO's
               employees and its subcontractors and their employees must
               cooperate fully and be available in person for interviews,
               consultation, grand jury proceedings, pre-trial conference,
               hearings, trial and in any other process.

5.3.6          Subcontractors. HMO must submit the documentation described in
               Articles 5.3.6.1 through 5.3.6.3, in compliance with Texas
               Government Code ss.533.012, regarding any subcontractor providing
               health care services under this contract except for those

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<PAGE>

               providers who have re-enrolled as a provider in the Medicaid
               program as required by Section 2.07, Chapter 1153, Acts of the
               75th Legislature, Regular Session, 1997, or who modified a
               contract in compliance with that section. HMO must submit
               information in a format as specified by TDH. Documentation must
               be submitted no later than 120 days after the effective date of
               this contract. Subcontracts entered into after the effective date
               of this contract must be submitted no later than 90 days after
               the effective date of the subcontract. The required documentation
               required under this provision is not subject to disclosure under
               Chapter 552, Government Code.

5.3.6.1        a description of any financial or other business relationship
               between HMO and its subcontractor;

5.3.6.2        a copy of each type of contract between HMO and its
               subcontractor;

5.3.6.3        a description of the fraud control program used by any
               subcontractor.

5.4            SAFEGUARDING INFORMATION
               ------------------------

5.4.1          All Member information, records and data collected or provided to
               HMO by TDH or another State agency is protected from disclosure
               by state and federal law and regulations. HMO may only receive
               and disclose information which is directly related to
               establishing eligibility, providing services and conducting or
               assisting in the investigation and prosecution of civil and
               criminal proceedings under state or federal law. HMO must include
               a confidentiality provision in all subcontracts with individuals.

5.4.2          HMO is responsible for informing Members and providers regarding
               the provisions of 42 C.F.R 431, Subpart F, relating to
               Safeguarding Information on Applicants and Recipients, and HMO
               must ensure that confidential information is protected from
               disclosure except for authorized purposes.

5.4.3          HMO must assist network PCPs in developing and implementing
               policies for protecting the confidentiality of AIDS and
               HIV-related medical information and an anti-discrimination policy
               for employees and Members with communicable diseases. Also see
               Health and Safety Code, Chapter 85, Subchapter E, relating to the
               Duties of State Agencies and State Contractors.

5.4.4          HMO must require that subcontractors have mechanisms in place to
               ensure Member's (including minor's) confidentiality for family
               planning services.

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5.5            NON-DISCRIMINATION
               ------------------

               HMO agrees to comply with and to include in all subcontracts a
               provision that the subcontractor will comply with each of the
               following requirements:

5.5.1          Title VI of the Civil Rights Act of 1964, Section 504 of the
               Rehabilitation Act of 1973, the Americans with Disabilities Act
               of 1990, and all requirements imposed by the regulations
               implementing these acts and all amendments to the laws and
               regulations. The regulations provide in part that no person in
               the United States shall on the grounds of race, color, national
               origin, sex, age, disability, political beliefs or religion be
               excluded from participation in, or denied, any aid, care, service
               or other benefits, or be subjected to any discrimination under
               any program or activity receiving federal funds.

5.5.2          Texas Health and Safety Code Section 85.113 (relating to
               workplace and confidentiality guidelines regarding AIDS and HIV).

5.5.3          The provisions of Executive Order 11246, as amended by 11375,
               relating to Equal Employment Opportunity.

5.5.4          HMO shall not discriminate with respect to participation,
               reimbursement, or indemnification as to any provider who is
               acting within the scope of the provider's license or
               certification under applicable State law, solely on the basis of
               such license or certification. This requirement shall not be
               construed to prohibit HMO from including providers only to the
               extent necessary to meet the needs of HMO's Members or from
               establishing any measure designed to maintain quality and control
               costs consistent with HMO's responsibilities.

5.6            HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)
               --------------------------------------------

5.6.1          TDH is committed to providing procurement and contracting
               opportunities to historically underutilized businesses (HUBs),
               under the provisions of Texas Government Code, Title 10, Subtitle
               D, Chapter 2161 and 1 TAC ss., 111.11(b) and 111.13 (c)(7).
               TDH requires its Contractors and subcontractors to make a good
               faith effort to assist HUBs in receiving a portion of the total
               contract value of this contract.

5.6.2          The HUB good faith effort goal for this contract is 18.1 % of
               total premiums paid. HMO agrees to make a good faith effort to
               meet or exceed this goal. HMO acknowledges it made certain good
               faith effort representations and commitments to TDH during the
               HUB good faith effort determination process. HMO agrees to use
               its best efforts to abide by these representations and
               commitments' during the contract period.

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5.6.3          HMO is required to submit HUB quarterly reports to TDH as
               required in Article 12.11.

5.6.4          TDH will assist HMO in meeting the contracting and reporting
               requirements of this Article.

5.7            BUY TEXAS
               ---------

               HMO agrees to "Buy Texas" products and materials when they are
               available at a comparable price and in a comparable period of
               time, as required by Section 48 of Article IX of the General
               Appropriations Act of 1995.

5.8            CHILD SUPPORT
               -------------

5.8.1          The Texas Family Code ss.231.006 requires TDH to withhold
               contract payments from any for-profit entity or individual who is
               at least 30 days delinquent in child support obligations. It is
               HMO's responsibility to determine and verify that no owner,
               partner, or shareholder who has at least at 25% ownership
               interest is delinquent in child support obligations. HMO must
               attach a list of the names and Social Security numbers of all
               shareholders, partners or owners who have at least a 25%
               ownership interest in HMO.

5.8.2          Under Section 231.006 of the Family Code, the contractor
               certifies that the contractor is not ineligible to receive the
               specified grant, loan, or payment and acknowledges that this
               contract may be terminated and payment may be withheld if this
               certification is inaccurate. A child support obligor who is more
               than 30 days delinquent in paying child support or a business
               entity in which the obligor is a sole proprietor, partner,
               shareholder, or owner with an ownership interest of at least 25%
               is not eligible to receive the specified grant, loan or payment.

5.8.3          If TDH is informed and verifies that a child support obligor who
               is more than 30 days delinquent is a partner, shareholder, or
               owner with at least a 25% ownership interest, it will withhold
               any payments due under this contract until it has received
               satisfactory evidence that the obligation has been satisfied or
               that the obligor has entered into a written repayment request.

5.9            REQUESTS FOR PUBLIC INFORMATION
               -------------------------------

5.9.1          This contract and all network provider and subcontractor
               contracts are subject to public disclosure under the Public
               Information Act (Texas Government Code, Chapter 552). TDH may
               receive Public Information requests related to this contract,

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<PAGE>

               information submitted as part of the compliance of the contract
               and HMO's application upon which this contract was awarded. TDH
               agrees that it will promptly deliver a copy of any request for
               Public Information to HMO.

5.9.2          TDH may, in its sole discretion, request a decision from the
               Office of the Attorney General (AG opinion) regarding whether the
               information requested is excepted from required public
               disclosure. TDH may rely on HMO's written representations in
               preparing any AG opinion request, in accordance with Texas
               Government Code ss.552.305. TDH is not liable for failing to
               request an AG opinion or for releasing information which is not
               deemed confidential by law, if HMO fails to provide TDH with
               specific reasons why the requested information is exempt from the
               required public disclosure. TDH or the Office of the Attorney
               General will notify all interested parties if an AG opinion is
               requested.

5.9.3          If HMO believes that the requested information qualifies as a
               trade secret or as commercial or financial information, HMO must
               notify TDH-within three (3) working days of HMO's receipt of the
               request-of the specific text, or portions of text, which HMO
               claims is excepted from required public disclosure. HMO is
               required to identify the specific provisions of the Public
               Information Act which HMO believes are applicable, and is
               required to include a detailed written explanation of how the
               exceptions apply to the specific information identified by HMO as
               confidential and excepted from required public disclosure.

5.10           NOTICE AND APPEAL
               -----------------

               HMO must comply with the notice requirements contained in 25 TAC
               ss.36.21, and the maintaining benefits and services contained in
               25 TAC ss.36.22, whenever HMO intends to take an action affecting
               the Member benefits and services under this contract. Also see
               the Member appeal requirements contained in Article 8.7 of this
               contract.

ARTICLE VI     SCOPE OF SERVICES

6.1            SCOPE OF SERVICES
               -----------------

               HMO is paid capitation for all services included in the State of
               Texas Title XIX State Plan and the 1915(b) waiver application for
               the SDA currently filed and approved by HCFA, except those
               services which are specifically excluded and listed in Article
               6.1.8 (non-capitated services).

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6.1.1          HMO must pay for or reimburse for all covered services provided
               to mandatory-enrolled Members for whom HMO is paid capitation.

6.1.2          TDH must pay for or reimburse for all covered services provided
               to SSI voluntary Members who enroll with HMO on a voluntary
               basis. It is at HMO's discretion whether to provide value-added
               services to voluntary Members.

6.1.3          HMO must provide covered services described in the 1999 Texas
               Medicaid Provider Procedures Manual (Provider Procedures Manual),
               subsequent editions of the Provider Procedures Manual also in
               effect during the contract period, and all Texas Medicaid
               Bulletins which update the 1999 Provider Procedures Manual and
               subsequent editions of the Provider Procedures Manual published
               during the contract period.

6.1.4          Covered services are subject to change due to changes in federal
               law, changes in Texas Medicaid policy, and/or responses to
               changes in Medicine, Clinical protocols, or technology.

6.1.5          The STAR Program has obtained a waiver to the State Plan to
               include three enhanced benefits to all voluntary and mandatory
               STAR Members. Two of these enhanced benefits removed restrictions
               which previously applied to Medicaid eligible individuals 21
               years and older: the three-prescriptions per month limit; and,
               the 30-day spell of illness limit. One of these expanded the
               covered benefits to add an annual adult well check.

6.1.6          Value-added Services. Value-added services that are approved by
               TDH during the contracting process are included in the Scope of
               Services under this contract. Value-added services are listed in
               Appendix C.

6.1.6.1        The approval request must include:

6.1.6.1.1      A detailed description of the service to be offered;

6.1.6.1.2      Identification of the category or group of Members eligible to
               receive the service if it is a type of service that is not
               appropriate for all Members. (HMO has the

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               discretion to determine if voluntary Members are eligible for
               the value-added services);

6.1.6.1.3      Any limits or restrictions which apply to the service; and

6.1.6.1.4      A description of how a Member may obtain or access the service.

6.1.6.2        Value-added services can only be added or removed by written
               amendment of this contract. HMO cannot include a value-added
               service in any material distributed to Members or prospective
               Members until this contract has been amended to include that
               value-added service or HMO has received written approval from TDH
               pending finalization of the contract amendment.

6.1.6.2.1      If a value-added service is deleted by amendment, HMO must notify
               each Member that the service is no longer available through HMO,
               and HMO must revise all materials distributed to prospective
               Members to reflect the change in covered services.

6.1.6.3        Value-added services must be offered to all mandatory HMO
               Members, as indicated in Article 6.1.6.1.2, unless the contract
               is amended or the contract terminates.

6.1.7          HMO may offer additional benefits that are outside the scope of
               services of this contract to individual Members on a case-by-case
               basis, based on medical necessity, cost-effectiveness, and
               satisfaction and improved health/behavioral health status of the
               Member/Member family.

6.1.8          Non-Capitated Services. The following Texas Medicaid program
               services have been excluded from the services included in the
               calculation of HMO capitation rate:

                      THSteps Dental (including Orthodontia)
                        Early Childhood Intervention Case

                      Management/Service/Coordination
                      MHMR Targeted Case Management
                      Mental Health Rehabilitation
                      Pregnant Women and Infants Case Management
                      THSteps Medical Case Management
                      Texas School Health and Related Services
                      Texas Commission for the Blind Case Management
                      Tuberculosis Services Provided by TDH-approved providers
                           (Directly Observed Therapy and Contact Investigation)
                      Vendor Drugs (out-of-office drugs)
                      Medical Transportation
                      TDHS Hospice Services

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               Refer to relevant chapters in the Provider Procedures Manual and
               the Texas Medicaid Bulletins for more information.

               Although HMO is not responsible for paying or reimbursing for
               these non-capitated services, HMO remains responsible for
               providing appropriate referrals for Members to obtain or access
               these services.

6.1.8.1        HMO is responsible for informing providers that all non-capitated
               services must be submitted to TDH for payment or reimbursement.

6.2            PRE-EXISTING CONDITIONS
               -----------------------

               HMO is responsible for providing all covered services to each
               eligible Member beginning on the effective date of the contract
               or the Member's date of enrollment under the contract regardless
               of pre-existing conditions, prior diagnosis and/or receipt of any
               prior health care services.

6.3            SPAN OF ELIGIBILITY
               -------------------

               The following outlines HMO's responsibilities for payment of
               hospital and freestanding psychiatric facility (facility)
               admissions:

6.3.1          Inpatient Admission Prior to Enrollment in HMO. HMO is
               responsible for payment of physician and non-hospital/facility
               charges for the period for which HMO is paid a capitation payment
               for that Member. HMO is not responsible for hospital/facility
               charges for Members admitted prior to the date of enrollment in
               HMO.

6.3.2          Inpatient Admission After Enrollment in HMO. HMO is responsible
               for all hospital/facility charges until the Member is discharged
               from the hospital/facility or until the Member loses Medicaid
               eligibility.

6.3.2.1        If a Member regains Medicaid eligibility and the Member was
               enrolled in HMO at the time the Member was admitted to the
               hospital, HMO is responsible for hospital/facility charges as
               follows:

6.3.2.1.1      Member Re-enrolls into HMO After Regaining Medicaid Eligibility.
               HMO is responsible for charges for the period for which HMO
               receives capitation payment for the Member or until the Member is
               discharged or loses Medicaid eligibility.

6.3.2.1.2      Member Re-enrolls in Another Health Plan After Regaining Medicaid
               Eligibility. HMO is responsible for hospital/facility charges
               until the Member is discharged or

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               loses Medicaid eligibility.

6.3.3          Plan Change. A Member cannot change from one health plan to
               another health plan during an inpatient hospital stay.

6.3.4          Hospital/Facility Transfer. Discharge from one acute care
               hospital/facility and readmission to another acute care
               hospital/facility within 24 hours for continued treatment is not
               a discharge under this contract.

6.3.5          HMO insolvency or receivership. HMO is responsible for payment of
               all services provided to a person who was a Member on the date of
               insolvency or receivership to the same extent they would
               otherwise be responsible under this Article 6.3.

6.4            CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
               -----------------------------------------------

6.4.1          HMO must ensure that the care of newly enrolled Members is not
               disrupted or interrupted. HMO must take special care to provide
               continuity in the care of newly enrolled Members whose health or
               behavioral health condition has been treated by specialty care
               providers or whose health could be placed in jeopardy if care is
               disrupted or interrupted.

6.4.2          Pregnant Members with 12 weeks or less remaining before the
               expected delivery date must be allowed to remain under the care
               of the Member's current OB/GYN through the Member's postpartum
               checkup, even if the provider is out-of-network. If Member wants
               to change her OB/GYN to one who is in the plan, she must be
               allowed to do so if the provider to whom she wishes to transfer
               agrees to accept her in the last trimester.

6.4.3          HMO must pay a Member's existing out-of-network providers for
               covered services until the Member's records, clinical information
               and care can be transferred to a network provider. Payment must
               be made within the time period required for network providers.
               HMO may pay any out-of-network provider a reasonable and
               customary amount determined by the HMO. This Article does not
               extend the obligation of HMO to reimburse the Member's existing
               out-of-network providers of on-going care for more than 90 days
               after Member enrolls in HMO or for more than nine months in the
               case of a Member who at the time of enrollment in HMO has been
               diagnosed with and receiving treatment for a terminal illness.
               The obligation of HMO to reimburse the Member's existing
               out-of-network provider for services provided to a pregnant
               Member with 12 weeks or less remaining before the expected
               delivery date extends through delivery of the child, immediate
               postpartum care, and the follow-up checkup within the first six
               weeks of delivery.

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6.4.4          HMO must provide or pay out-of-network providers who provide
               covered services to Members who move out of the service area
               through the end of the period for which capitation has been paid
               for the Member.

6.5            EMERGENCY SERVICES
               ------------------

6.5.1          HMO must pay for the professional, facility, and ancillary
               services that are medically necessary to perform the medical
               screening examination and stabilization of HMO Member presenting
               as an emergency medical condition or an emergency behavioral
               health condition to the hospital emergency department, 24 hours a
               day, 7 days a week, rendered by either HMO's in-network or
               out-of-network providers. HMO may elect to pay any emergency
               services provider an amount negotiated between the emergency
               provider and HMO, or a reasonable and customary amount determined
               by the HMO.

6.5.2          HMO must ensure that its network primary care providers (PCPs)
               have after-hours telephone availability 24 hours a day, 7 days a
               week throughout the service area.

6.5.3          HMO cannot require prior authorization as a condition for payment
               for an emergency medical condition, an emergency behavioral
               health condition, or labor and delivery.

6.5.4          Medical Screening Examination. A medical screening examination
               may range from a relatively simple history, physical examination,
               diagnosis, and treatment, to a complex examination, diagnosis,
               and treatment that requires substantial use of hospital emergency
               department and physician services. HMO must pay for the emergency
               medical screening examination required to determine whether an
               emergency condition exists, as required by 42 U.S.C. 1395dd. HMOs
               must reimburse for both the physician's services and the
               hospital's emergency services, including the emergency room and
               its ancillary services.

6.5.5          Stabilization Services. HMO must pay for emergency services
               performed to stabilize the Member as documented by the Emergency
               physician in the Member's medical record. HMOs must reimburse for
               physician's services and hospital's emergency services including
               the emergency room and its ancillary services. With respect to an
               emergency medical condition, to stabilize is to provide such
               medical care as to assure within reasonable medical probability
               that no deterioration of the condition is likely to result from,
               or occur during discharge, transfer, or admission of the Member
               from the emergency room.

6.5.6          Post-stabilization Services. Post-stabilization services are
               services subsequent to an emergency that a treating physician
               views as medically necessary after an emergency medical condition
               has been stabilized. They are not "emergency services" and are

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               subject to HMO's prior authorization process. HMO must be
               available to authorize or deny post-stabilization services within
               one hour after being contacted by the treating physician.

6.5.7          HMO must provide access to the TDH-designated Level I and Level
               II trauma centers within the State or hospitals meeting the
               equivalent level of trauma care. HMOs may make out-of-network
               reimbursement arrangements with the TDH-designated Level I and
               Level II trauma centers to satisfy this access requirement.

6.6            BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
               -------------------------------------------------------

6.6.1          HMO must provide or arrange to have provided to Members all
               behavioral health care services included as covered services.
               These services are described in detail in the Texas Medicaid
               Provider Procedures Manual (Provider Procedures Manual) and the
               Texas Medicaid Bulletins, which is the bi-monthly update to the
               Provider Procedures Manual. Clinical information regarding
               covered services are published by the Texas Medicaid program in
               the Texas Medicaid Service Delivery Guide.

6.6.2          HMO must maintain a behavioral health provider network that
               includes psychiatrists, psychologists and other behavioral health
               providers. HMO must provide or arrange to have provided
               behavioral health benefits described as covered services. These
               services are indicated in the Provider Procedures Manual and the
               Texas Medicaid Bulletins, which is the bi-monthly update to the
               Provider Procedures Manual. Clinical information regarding
               covered services are published by the Texas Medicaid Program in
               the Texas Medicaid Service Delivery Guide. The network must
               include providers with experience in serving children and
               adolescents to ensure accessibility and availability of qualified
               providers to all eligible children and adolescents in the service
               area. The list of providers including names, addresses and phone
               numbers must be available to TDH upon request.

6.6.3          HMO must maintain a Member education process to help Members know
               where and how to obtain behavioral health care services.

6.6.4          HMO must implement policies and procedures to ensure that Members
               who require routine or regular laboratory and ancillary medical
               tests or procedures to monitor behavioral health conditions are
               provided the services by the provider ordering the procedure or
               at a lab located at or near the provider's office.

6.6.5          When assessing Members for behavioral health care services, HMO
               and network behavioral health providers must use the DSM-IV
               multi-axial classification and report axes I, II, III, IV, and V
               to TDH. TDH may require use of other assessment

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               instrument/outcome measures in addition to the DSM-IV. Providers
               must document DSM-IV and assessment/outcome information in the
               Member's medical record.

6.6.6          HMO must permit Members to self refer to any in-network
               behavioral health care provider without a referral from the
               Member's PCP. HMO must permit Members to participate in the
               selection or assignment of the appropriate behavioral health
               individual practitioner(s) who will serve them. HMO previously
               submitted a written copy of its policies and procedures for
               self-referral to TDH. Changes or amendments to those policies and
               procedures must be submitted to TDH for approval at least 60 days
               prior to their effective date.

6.6.7          HMO must require, through contract provisions, that PCPs have
               screening and evaluation procedures for detection and treatment
               of, or referral for, any known or suspected behavioral health
               problems and disorders. PCPs may provide any clinically
               appropriate behavioral health care services within the scope of
               their practice. This requirement must be included in all Provider
               Manuals.

6.6.8          HMO must require that behavioral health providers refer Members
               with known or suspected physical health problems or disorders to
               their PCP for examination and treatment. Behavioral health
               providers may only provide physical health care services if they
               are licensed to do so. This requirement must be included in all
               Provider Manuals.

6.6.9          HMO must require that behavioral health providers send initial
               and quarterly (or more frequently if clinically indicated)
               summary reports of Members' behavioral health status to PCP. This
               requirement must be included in all Provider Manuals.

6.6.10         HMO must require, through contract provisions, that all Members
               receiving inpatient psychiatric services are scheduled for
               outpatient follow-up and/or continuing treatment prior to
               discharge. The outpatient treatment must occur within 7 days from
               the date of discharge. HMO must ensure that behavioral health
               providers contact Members who have missed appointments within 24
               hours to reschedule appointments.

6.6.11         HMO must provide inpatient psychiatric services to Members under
               the age of 21 who have been ordered to receive the services by a
               court of competent jurisdiction under the provisions of Chapters
               573 and 574 of the Texas Health and Safety Code, relating to
               court ordered commitments to psychiatric facilities.

6.6.11.1       HMO cannot deny, reduce or controvert the medical necessity of
               any court ordered inpatient psychiatric service for Members under
               age 21. Any modification or termination of services must be
               presented to the court with jurisdiction over the matter for
               determination.

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6.6.11.2       A Member who has been ordered to receive treatment under the
               provisions of Chapter 573 or 574 of the Texas Health and Safety
               Code cannot appeal the commitment through HMO's complaint or
               appeals process.

6.6.12         HMO must comply with 28 TAC ss.ss.3.8001 et seq., regarding
               utilization review of chemical dependency treatment.

6.7            FAMILY PLANNING - SPECIFIC REQUIREMENTS
               ---------------------------------------

6.7.1          Counseling and Education. HMO must require, through contract
               provisions, that Members requesting contraceptive services or
               family planning services are also provided counseling and
               education about family planning and family planning services
               available to Members. HMO must develop outreach programs to
               increase community support for family planning and encourage
               Members to use available family planning services. HMO is
               encouraged to include a representative cross-section of Members
               and family planning providers who practice in the community in
               developing, planning and implementing family planning outreach
               programs.

6.7.2          Freedom of Choice. HMO must ensure that Members have the right to
               choose any Medicaid participating family planning provider,
               whether the provider chosen by the Member is in or outside HMO
               provider network. HMO must provide Members access to information
               about the providers of family planning services available and the
               Member's right to choose any Medicaid family planning provider.
               HMO must provide access to confidential family planning services.

6.7.3          Provider Standards and Payment. HMO must require all
               subcontractors who are family planning agencies to deliver family
               planning services according to the TDH Family Planning Service
               Delivery Standards. HMO must provide, at minimum, the full scope
               of services available under the Texas Medicaid program for family
               planning services. HMO will reimburse family planning agencies
               and out-of-network family planning providers the Medicaid fee-for
               service amounts for family planning services, including medically
               necessary medications, contraceptives, and supplies.

6.7.4          HMO must provide medically-approved methods of contraception to
               Members. Contraceptive methods must be accompanied by verbal and
               written instructions on their correct use. HMO must establish
               mechanisms to ensure all medically approved methods of
               contraception are made available to the Member, either directly
               or by referral to a subcontractor. The following initial Member
               education content may vary according to the educator's assessment
               of the Member's current knowledge:

6.7.4.1        general benefits of family planning services and contraception;

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6.7.4.2        information on male and female basic reproductive anatomy and
               physiology;

6.7.4.3        information regarding particular benefits and potential side
               effects and complications of all available contraceptive methods;

6.7.4.4        information concerning all of the health care provider's
               available services, the purpose and sequence of health care
               provider procedures, and the routine schedule of return visits;

6.7.4.5        information regarding medical emergencies and where to obtain
               emergency care on a 24-hour basis;

6.7.4.6        breast self-examination rationales and instructions unless
               provided during physical exam (for females); and

6.7.4.7        information on HIV/STD infection and prevention and safer sex
               discussion.

6.7.5          HMO must require, through contractual provisions, that
               subcontractors have mechanisms in place to ensure Member's
               (including minor's) confidentiality for family planning services.

6.7.6          HMO must develop, implement, monitor, and maintain standards,
               policies and procedures for providing information regarding
               family planning to providers and Members, specifically regarding
               State and federal laws governing Member confidentiality
               (including minors). Providers and family planning agencies cannot
               require parental consent for minors to receive family planning
               services.

6.7.7          HMO must report encounter data on family planning services in
               accordance with Article 12.2.

6.8            TEXAS HEALTH STEPS (EPSDT)
               --------------------------

6.8.1          THSteps Services. HMO must develop effective methods to ensure
               that children under the age of 21 receive THSteps services when
               due and according to the recommendations established by the
               American Academy of Pediatrics and the THSteps periodicity
               schedule for children. HMO must arrange for THSteps services to
               be provided to all eligible Members except when a Member
               knowingly and voluntarily declines or refuses services after the
               Member has been provided information upon which to make an
               informed decision.

6.8.2          Member Education and Information. HMO must ensure that Members
               are provided information and educational materials about the
               services available through the THSteps program, and how and when
               they can obtain the services. The information should tell the
               Member how they can obtain dental benefits, transportation
               services
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               through the TDH Medical Transportation program, and advocacy
               assistance from HMO.

6.8.3          Provider Education and Training. HMO must provide appropriate
               training to all network providers and provider staff in the
               providers' area of practice regarding the scope of benefits
               available and the THSteps program. Training must include THSteps
               benefits, the periodicity schedule for THSteps checkups and
               immunizations, and Comprehensive Care Program (CCP) services
               available under the THSteps program to Members under age 21
               years. Providers must also be educated and trained regarding the
               requirements imposed upon the department and contracting HMOs
               under the Consent Decree entered in Frew v. McKinney, et. al.,
               Civil Action No. 3:93CV65, in the United States District Court
               for the Eastern District of Texas, Paris Division. Providers
               should be educated and trained to treat each THSteps visit as an
               opportunity for a comprehensive assessment of the Member.

6.8.4          Member Outreach. HMO must provide an outreach unit that works
               with Members to ensure they receive prompt services and are
               effectively informed about available THSteps services. Each month
               HMO must retrieve from the Enrollment Broker BBS a list of
               Members who are due and overdue THSteps services. Using these
               lists and their own internally generated lists, HMOs will contact
               Members and encourage Members who are periodically due or overdue
               a THSteps service to obtain the service as soon as possible. HMO
               outreach staff must coordinate with TDH THSteps outreach staff to
               ensure that Members have access to the Medical Transportation
               Program, and that any coordination with other agencies is
               maintained.

6.8.5          Initial Checkups Upon Enrollment. HMO must have mechanisms in
               place to ensure that all newly enrolled Members receive a THSteps
               checkup within 90 days from enrollment, if one is due according
               to the American Academy of Pediatrics periodicity schedule, or if
               there is uncertainty regarding whether one is due. HMO should
               make THSteps checkups a priority to all newly enrolled Members.

6.8.6          Accelerated Services to Migrant Populations. HMO must cooperate
               and coordinate with the department, outreach programs and THSteps
               regional program staff and agents to ensure prompt delivery of
               services to children of migrant farm workers and other migrant
               populations who may transition into and out of HMOs program more
               rapidly and/or unpredictably than the general population.

6.8.7          Newborn Checkups. HMO must have mechanisms in place to ensure
               that all newborn Members have an initial newborn checkup before
               discharge from the hospital and again within two weeks from the
               time of birth. HMO must require providers to send all THSteps
               newborn screens to the TDH Bureau of Laboratories or a TDH
               certified laboratory. Providers must include detailed identifying
               information for all screened

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               newborn Members and the Member's mother to allow TDH to link the
               screens performed at the hospital with screens performed at the
               two week follow-up.

6.8.7.1        Laboratory Tests: All laboratory specimens collected as a
               required component of a THSteps checkup (see Medicaid Provider
               Procedures Manual for age-specific requirements) must be
               submitted to the TDH Laboratory for analysis. HMO must educate
               providers about THSteps program requirements for submitting
               laboratory tests to the TDH Bureau of Laboratories.

6.8.8          Coordination and Cooperation. HMO must make an effort to
               coordinate and cooperate with existing community and school-based
               health and education programs that offer services to school-aged
               children in a location that is both familiar and convenient to
               the Members. HMO must make a good faith effort to comply with
               Head Start's requirement that Members participating in Head Start
               receive their THSteps check-up no later than 45 days after
               enrolling into either program.

6.8.9          Immunizations. HMO must educate providers on the Immunization
               Standard Requirements set forth in Chapter 161, Health and Safety
               Code; the standards in the ACIP Immunization Schedule; and the
               AAR Periodicity Schedule.

6.8.9.1        ImmTrac Compliance. HMO must educate providers about and require
               providers to comply with the requirements of Chapter 161, Health
               and Safety Code, relating to the Texas Immunization Registry
               (ImmTrac), to include parental consent on the Vaccine Information
               Statement.

6.8.10         Claim Forms. HMO must require all THSteps providers to submit
               claims for services paid (either on a capitated or fee-for
               service basis) on the HCFA 1500 claim form and use the unique
               procedure coding required by TDH.

6.8.11         Compliance with THSteps Performance Benchmark. TDH will establish
               performance benchmarks against which HMO's full compliance with
               the THSteps periodicity schedule will be measured. The
               performance benchmarks will establish minimum compliance measures
               which will increase over time. HMO must meet all performance
               benchmarks required for THSteps services.

6.8.12         Validation of Encounter Data. Encounter data will be validated by
               chart review of a random sample of THSteps eligible enrollees
               against monthly encounter data reported by HMO. Chart reviews
               will be conducted by TDH to validate that all screens are
               performed when due and as reported, and that reported data is
               accurate and timely. Substantial deviation between reported and
               charted encounter data could result in HMO and/or network
               providers being investigated for potential fraud and abuse
               without notice to HMO or the provider.

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6.9            PERINATAL SERVICES
               ------------------

6.9.1          HMO's perinatal health care services must ensure appropriate care
               is provided to women and infants who are Members of HMO, from the
               preconception period through the infant's first year of life.
               HMO's perinatal health care system must comply with the
               requirements of Health & Safety Code, Chapter 32 Maternal and
               Infant Health Improvement Act and 25 TAC ss.37.233 et seq.

6.9.2          HMO shall have a perinatal health care system in place that, at a
               minimum, provides the following services:

6.9.2.1        pregnancy planning and perinatal health promotion and education
               for reproductive-age women;

6.9.2.2        perinatal risk assessment of nonpregnant women, pregnant and
               postpartum women, and infants up to one year of age;

6.9.2.3        access to appropriate levels of care based on risk assessment,
               including emergency care;

6.9.2.4        transfer and care of pregnant women, newborns, and infants to
               tertiary care facilities when necessary;

6.9.2.5        availability and accessibility of obstetricians/gynecologists,
               anesthesiologists, and neonatologists capable of dealing with
               complicated perinatal problems;

6.9.2.6        availability and accessibility of appropriate outpatient and
               inpatient facilities capable of dealing with complicated
               perinatal problems; and

6.9.2.7        compiles, analyzes and reports process and outcome data of
               Members to TDH.

6.9.3          HMO must have procedures in place to assign a pediatrician to an
               unborn child prior to birth of the child.

6.9.4          HMO must provide inpatient care for its pregnant/delivering
               Members and newborn Members in a health care facility, if
               requested by the mother or is determined to be medically
               necessary by the Member's PCP, for a minimum of:

6.9.4.1        48 hours following an uncomplicated vaginal delivery; and

6.9.4.2        96 hours for an uncomplicated caesarean delivery.

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6.9.5          HMO must establish mechanisms to ensure that medically necessary
               inpatient care is provided to either the Member or the newborn
               Member for complications following the birth of the newborn using
               HMO's prior authorization procedures for a medically necessary
               hospitalization.

6.9.6          HMO is responsible for all covered services provided to newborn
               Members. The State will enroll newborn children of STAR Members
               in accordance with Section 533.0075 of the Texas Government Code
               when changes to the DHS eligibility system that are necessary to
               implement the law have been made. TDH will notify HMO of the
               implementation date of the changes under Section 533.0075 of the
               Government Code. Section 533.0075 states that newborn children of
               STAR Members will be enrolled in a STAR health plan on the date
               on which DHS has completed the newborn's Medicaid eligibility
               determination, including the assignment of a Medicaid eligibility
               number to the newborn, or 60 days after the date of birth,
               whichever is earlier.

6.10           EARLY CHILDHOOD INTERVENTION (ECI)
               ----------------------------------

6.10.1         ECI Services. HMO must provide all federally mandated services
               contained at 34 C.F.R. 303.1 et seq., and 25 TAC ss.621.21 et
               seq., relating to identification, referral and delivery of health
               care services contained in the Member's Individual Family Service
               Plan (IFSP). An IFSP is the written plan which identifies a
               Member's disability or chronic or complex condition(s) or
               developmental delay, and describes the course of action developed
               to meet those needs, and identifies the person or persons
               responsible for each action in the plan. The plan is a mutual
               agreement of the Member's Primary Care Physician (PCP), Case
               Manager, and the Member/family, and is part of the Member's
               medical record.

6.10.2         ECI Providers. HMO must contract with qualified providers to
               provide ECI services to Members under age 3 with developmental
               delays. HMO may contract with local ECI programs or non-ECI
               providers who meet qualifications for participation by the Texas
               Interagency Council on Early Childhood Intervention to provide
               ECI services.

6.10.3         Identification and Referral. HMO must ensure that network
               providers are educated regarding the identification of Members
               under age 3 who have or are at risk for having disabilities
               and/or developmental delays. HMO must use written education
               material developed or approved by the Texas Interagency Council
               on Early Childhood Intervention. HMO must ensure that all
               providers refer identified Members to ECI service providers
               within two working days from the day the Member is identified.
               Eligibility for ECI services is determined by the local ECI
               program using the criteria contained in 25 TAC ss.621.21 et seq.

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6.10.4         Coordination. HMO must coordinate and cooperate with local ECI
               programs which perform assessment in the development of the
               Individual Family Service Plan (IFSP), including on-going case
               management and other non-capitated services required by the
               Member's IFSP. Cooperation includes conducting medical diagnostic
               procedures and providing medical records required to perform
               developmental assessments and develop the IFSP within the time
               lines established at 34 C.F.R. 303.1 et seq. ECI case management
               is not an HMO capitated service.

6.10.5         Intervention. HMO must require, through contract provisions, that
               all medically necessary health and behavioral health care
               services contained in the Member's IFSP are provided to the
               Member in amount, duration and scope established by the IFSP.
               Medical necessity for health and behavioral health care services
               is determined by the interdisciplinary team as approved by the
               Member's PCP. HMO cannot modify the plan of care or alter the
               amount, duration and scope of services required by the Member's
               IFSP. HMO cannot create unnecessary barriers for the Member to
               obtain IFSP services, including requiring prior authorization for
               the ECI assessment and insufficient authorization periods for
               prior authorized services.

6.11           SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND
               CHILDREN (WIC) - SPECIFIC REQUIREMENTS
               --------------------------------------------------------------

6.11.1         HMO must coordinate with WIC to provide certain medical
               information which is necessary to determine WIC eligibility, such
               as height, weight, hematocrit or hemoglobin (see Article
               7.16.3.2).

6.11.2         HMO must direct all eligible Members to the WIC program (Medicaid
               recipients are automatically income-eligible for WIC).

6.11.3         HMO must coordinate with existing WIC providers to ensure Members
               have access to the Special Supplemental Nutrition Program for
               Women, Infants and Children; or HMO must provide these services.

6.11.4         HMO may use the nutrition education provided by WIC to satisfy
               health education requirements described in this contract.

6.12           TUBERCULOSIS (TB)
               -----------------

6.12.1         Education, Screening, Diagnosis and Treatment. HMO must provide
               Members and providers with education on the prevention, detection
               and effective treatment of tuberculosis (TB). HMO must establish
               mechanisms to ensure all procedures required to screen at-risk
               Members and to form the basis for a diagnosis and proper
               prophylaxis and management of TB are available to all Members,
               except services referenced in Article 6.1.8 as non-capitated
               services. HMO must develop policies and

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               procedures to ensure that Members who may be or are at risk for
               exposure to TB are screened for TB. An at-risk Member refers to a
               person who is susceptible to TB because of the association with
               certain risk factors, behaviors, drug resistance, or
               environmental conditions. HMO must consult with the local TB
               control program to ensure that all services and treatments
               provided by HMO are in compliance with the guidelines recommended
               by the American Thoracic Society (ATS), the Centers for Disease
               Control and Prevention (CDC), and TDH policies and standards.

6.12.2         Reporting and Referral. HMO must implement policies and
               procedures requiring providers to report all confirmed or
               suspected cases of TB to the local TB control program within one
               working day of identification of a suspected case, using the
               forms and procedures for reporting TB adopted by TDH (25
               TAC ss.97). HMO must require that in-state labs report
               mycobacteriology culture results positive for M. Tuberculosis and
               M. Tuberculosis antibiotic susceptibility to TDH as required for
               in-state labs by 25 TAC ss.97.5(a). Referral to state-operated
               hospitals specializing in the treatment of tuberculosis should
               only be made for TB-related treatment.

6.12.3         Medical Records. HMO must provide access to Member medical
               records to TDH and the local TB control program for all confirmed
               and suspected TB cases upon request.

6.12.4         Coordination and Cooperation with the Local TB Control Program.
               HMO must coordinate with the local TB control program to ensure
               that all Members with confirmed or suspected TB have a contact
               investigation and receive Directly Observed Therapy (DOT). HMO
               must require, through contract provisions, that providers report
               any Member who is non-compliant, drug resistant, or who is or may
               be posing a public health threat to TDH or the local TB control
               program. HMO must cooperate with the local TB control program in
               enforcing the control measures and quarantine procedures
               contained in Chapter 81 of the Texas Health and Safety Code.

6.12.4.1       HMO must have a mechanism for coordinating a post-discharge plan
               for follow-up DOT with the local TB program.

6.12.4.2       HMO must coordinate with the TDH South Texas Hospital and Texas
               Center for Infectious Disease for voluntary and court-ordered
               admission, discharge plans, treatment objectives and projected
               length of stay for Members with multi-drug resistant TB.

6.12.4.3       HMO may contract with the local TB control programs to perform
               any of the capitated services required in Article 6.12.

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6.13           PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS
               ---------------------------------------------------------

6.13.1         HMO shall provide the following services to persons with
               disabilities or chronic or complex conditions. These services are
               in addition to the covered services described in detail in the
               Texas Medicaid Provider Procedures Manual (Provider Procedures
               Manual) and the Texas Medicaid Bulletins which is the bi-monthly
               update to the Provider Procedures Manual. Clinical information
               regarding covered services are published by the Texas Medicaid
               program in the Texas Medicaid Service Delivery Guide.

6.13.2         HMO must develop and maintain a system and procedures for
               identifying Members who have disabilities or chronic or complex
               medical and behavioral health conditions. Once identified, HMO
               must have effective health delivery systems to provide the
               covered services to meet the special preventive, primary acute,
               and speciality health care needs appropriate for treatment of the
               individual's condition. The guidelines and standards established
               by the American Academy of Pediatrics, the American College of
               Obstetrics/Gynecologists, the U.S. Public Health Service, and
               other medical and professional health organizations and
               associations' practice guidelines whose standards are recognized
               by TDH must be used in determining the medically necessary
               services and plan of care for each individual.

6.13.3         HMO must require that the PCP for all persons with disabilities
               or chronic or complex conditions develops a plan of care to meet
               the needs of the Member. The plan of care must be based on health
               needs, specialist(s) recommendations, and periodic reassessment
               of the Member's developmental and functional status and service
               delivery needs. HMO must require providers to maintain record
               keeping systems to ensure that each Member who has been
               identified with a disability or chronic or complex condition has
               an initial plan of care in the primary care provider's medical
               records, Member agrees to that plan of care, and that the plan is
               updated as often as the Member's needs change, but at least
               annually.

6.13.4         HMO must provide primary care and specialty care provider network
               for persons with disabilities or chronic or complex conditions.
               Specialty and subspecialty providers serving all Members must be
               Board Certified/Board Eligible in their specialty. HMO may
               request exceptions from TDH for approval of traditional providers
               who are not board-certified or board-eligible but who otherwise
               meet HMO's credentialing requirements.

6.13.5         HMO must have in its network PCPs and specialty care providers
               that have documented experience in treating people with
               disabilities or chronic or complex conditions, including
               children. For services to children with disabilities or chronic
               or complex conditions, HMO must have in its network PCPs and
               specialty care providers

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               that have demonstrated experience with children with disabilities
               or chronic or complex conditions in pediatric specialty centers
               such as children's hospitals, medical schools, teaching hospitals
               and tertiary center levels.

6.13.6         HMO must provide information, education and training programs to
               Members, families, PCPs, specialty physicians, and community
               agencies about the care and treatment available in HMO's plan for
               Members with disabilities or chronic or complex conditions.

6.13.7         HMO must coordinate care and establish linkages, as appropriate
               for a particular Member, with existing community-based entities
               and services, including but not limited to: Maternal and Child
               Health, Chronically Ill and Disabled Children's Services (CIDC),
               the Medically Dependent Children Program (MDCP), Community
               Resource Coordination Groups (CRCGs), Interagency Council on
               Early Childhood Intervention (ECI), Home and Community-based
               Services (HCS), Community Living Assistance and Support Services
               (CLASS), Community Based Alternatives (CBA), In Home Family
               Support, Primary Home Care, Day Activity and Health Services
               (DAHS), Deaf/Blind Multiple Disabled waiver program and Medical
               Transportation Program (MTP).

6.13.8         HMO must include TDH approved pediatric transplant centers, TDH
               designated trauma centers, and TDH designated hemophilia centers
               in its provider network (see Appendices E, F, and G for a listing
               of these facilities).

6.13.9         HMO must ensure Members with disabilities or chronic or complex
               conditions have access to treatment by a multidisciplinary team
               when determined to be medically necessary for effective
               treatment, or to avoid separate and fragmented evaluations and
               service plans. The teams must include both physician and
               non-physician providers determined to be necessary by the
               Member's PCP for the comprehensive treatment of the Member. The
               team must:

6.13.9.1       Participate in hospital discharge planning;

6.13.9.2       Participate in pre-admission hospital planning for non-emergency
               hospitalizations;

6.13.9.3       Develop specialty care and support service recommendations to be
               incorporated into the primary care provider's plan of care;

6.13.9.4       Provide information to the Member and the Member's family
               concerning the specialty care recommendations; and

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6.13.9.5       Develop and implement training programs for primary care
               providers, community agencies, ancillary care providers, and
               families concerning the care and treatment of a Member with a
               disability or chronic or complex conditions.

6.13.10        HMO must identify coordinators of medical care to assist
               providers who serve Members with disabilities and chronic or
               complex conditions and the Members and their families in locating
               and accessing appropriate providers inside and outside HMO's
               network.

6.13.11        HMO must assist, through information and referral, eligible
               Members in accessing providers of non-capitated Medicaid services
               listed in Article 6.1.8, as applicable.

6.13.12        HMO must ensure that Members who require routine or regular
               laboratory and ancillary medical tests or procedures to monitor
               disabilities or chronic or complex conditions are allowed by HMO
               to receive the services from the provider in the provider's
               office or at a contracted lab located at or near the provider's
               office.

6.14           HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS
               --------------------------------------------------

6.14.1         Health Education Plan. HMO must develop and implement a Health
               Education plan. The health education plan must tell Members how
               HMO system operates, how to obtain services, including emergency
               care and out-of-plan services. The plan must emphasize the value
               of screening and preventive care and must contain
               disease-specific information and educational materials.

6.14.2         Wellness Promotion Program. HMO must conduct wellness promotion
               programs to improve the health status of its Members. HMO may
               cooperatively conduct Health Education classes for all enrolled
               STAR Members with one or more HMOs also contracting with TDH in
               the service area to provide services to Medicaid recipients in
               all counties of the service area. Providers and HMO staff must
               integrate health education, wellness and prevention training into
               the care of each Member. HMO must provide a range of health
               promotion and wellness information and activities for Members in
               formats that meet the needs of all Members. HMO must:

               (1)    develop, maintain and distribute health education services
                      standards, policies and procedures to providers;

               (2)    monitor provider performance to ensure the standards for
                      health education services are complied with;

               (3)    inform providers in writing about any non-compliance with
                      the plan standards, policies or procedures;

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               (4)    establish systems and procedures that ensure that
                      provider's medical instruction and education on preventive
                      services provided to the Member are documented in the
                      Member's medical record; and

               (5)    establish mechanisms for promoting preventive care
                      services to Members who do not access care, e.g.
                      newsletters, reminder cards, and mail-outs.

6.14.3         Health Education Activities Report. HMO must submit, upon
               request, a Health Education Activities Schedule to TDH or its
               designee listing the time and location of classes, health fairs
               or other events conducted during the time period of the request.

6.15           SEXUALLY TRANSMITTED DISEASES (STDS) AND HUMAN IMMUNODEFICIENCY
               VIRUS (HIV)
               ---------------------------------------------------------------

               HMO must provide STD services that include STD/HIV prevention,
               screening, counseling, diagnosis, and treatment. HMO is
               responsible for implementing procedures to ensure that Members
               have prompt access to appropriate services for STDs, including
               HIV.

6.15.1         HMO must allow Members access to STD services and HIV diagnosis
               services without prior authorization or referral by PCP. HMO must
               comply with Texas Family Code ss.32.003, relating to consent to
               treatment by a child.

6.15.2         HMO must provide all covered services required to form the basis
               for a diagnosis and treatment plan for STD/HIV by the provider.

6.15.3         HMO must consult with TDH regional public health authority to
               ensure that Members receiving clinical care of STDs, including
               HIV, are managed according to a protocol which has been approved
               by TDH (see Article 7.16.1 relating to cooperative agreements
               with public health authorities).

6.15.4         HMO must make education available to providers and Members on the
               prevention, detection and effective treatment of STDs, including
               HIV.

6.15.5         HMO must require providers to report all confirmed cases of STDs,
               including HIV, to the local or regional health authority
               according to 25 Texas Administrative Code, Sections 97.131 -
               97.134, using the required forms and procedures for reporting
               STDs.

6.15.6         HMO must coordinate with the TDH regional health authority to
               ensure that Members with confirmed cases of syphilis, chancroid,
               gonorrhea, chlamydia and HIV receive

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               risk reduction and partner elicitation/notification counseling.
               Coordination must be included in the subcontract required by
               Article 7.16.1. HMO may contract with local or regional health
               authorities to perform any of the covered services required in
               Article 6.15.

6.15.7         HMO's PCPs may enter into contracts or agreements with
               traditional HIV service providers in the service area to provide
               services such as case management, psychosocial support and other
               services. If the service provided is a covered service under this
               contract, the contract or agreement must include payment
               provisions.

6.15.8         The subcontract with the respective TDH regional offices and city
               and county health departments, as described in Article 7.16.1,
               must include, but not be limited to, the following topics:

6.15.8.1       Access for Case Investigation. Procedures must be established to
               make Member records available to public health agencies with
               authority to conduct disease investigation, receive confidential
               Member information, and follow up.

6.15.8.2       Medical Records and Confidentiality. HMO must require that
               providers have procedures in place to protect the confidentiality
               of Members provided STD/HIV services. These procedures must
               include, but are not limited to, the manner in which medical
               records are to be safeguarded; how employees are to protect
               medical information; and under what conditions information can be
               shared. HMO must inform and require its providers who provide
               STD/HIV services to comply with all state laws relating to
               communicable disease reporting requirements. HMO must implement
               policies and procedures to monitor provider compliance with
               confidentiality requirements.

6.15.8.3       Partner Referral and Treatment. Members who are named as contacts
               to an STD, including HIV, should be evaluated and treated
               according to HMO's protocol. All protocols must be approved by
               TDH. HMO's providers must coordinate referral of non-Member
               partners to local and regional health department STD staff.

6.15.8.4       Informed Consent and Counseling. HMO must have policies and
               procedures in place regarding obtaining informed consent and
               counseling Members. The subcontracts with providers who treat HIV
               patients must include provisions requiring the provider to refer
               Members with HIV infection to public health agencies for in-depth
               prevention counseling, on-going partner elicitation and
               notification services and other prevention support services. The
               subcontracts must also include provisions that require the
               provider to direct-counsel or refer an HIV-infected Member about
               the need to inform and refer all sex and/or needle-sharing
               partners that might have been exposed to the infection for
               prevention counseling and antibody testing.

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6.16           BLIND AND DISABLED MEMBERS
               --------------------------

6.16.1         HMO must arrange for all covered health and health-related
               services required under this contract for all voluntarily
               enrolled Blind and Disabled Members. HMO is not required to
               provide value-added services to Blind and Disabled Members.

6.16.2         HMO must perform the same administrative services and functions
               as are performed for mandatory Members under this contract. These
               administrative services and functions include, but are not
               limited to:

6.16.2.1       Prior authorization of services;

6.16.2.2       All customer services functions offered Members in mandatory
               participation categories, including the complaint process,
               enrollment services, and hotline services;

6.16.2.3       Linguistic services, including providing Member materials in
               alternative formats for the blind and disabled;

6.16.2.4       Health education;

6.16.2.5       Utilization management using TDH Claims Administrator encounter
               data to provide appropriate interventions for Members through
               administrative case management;

6.16.2.6       Quality assurance activities as needed and Focused Studies as
               required by TDH; and

6.16.2.7       Coordination to link Blind and Disabled Members with applicable
               community resources and targeted case management programs (see
               Non-Capitated Services in Article 6.1.8).

6.16.3         HMO must require network providers to submit claims for health
               and health-related services to TDH's Claims Administrator for
               claims adjudication and payment.

6.16.4         HMO must provide services to Blind and Disabled Members within
               HMO's network unless necessary services are unavailable within
               network. HMO must also allow referrals to out-of-network
               providers if necessary services are not available within HMO's
               network. Records must be forwarded to Member's PCP following a
               referral visit.

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ARTICLE VII           PROVIDER NETWORK REQUIREMENTS

7.1            PROVIDER ACCESSIBILITY
               ----------------------

7.1.1          HMO must enter into written contracts with properly credentialed
               health care service providers. The names of all providers must be
               submitted to TDH as part of HMO subcontracting process. HMO must
               have its own credentialing process to review, approve and
               periodically recertify the credentials of all participating
               providers in compliance with 28 TAC 11.1902, relating to
               credentialing of providers in HMOs.

7.1.2          HMO must require tax I.D. numbers from all providers. HMO is
               required to do backup withholding from all payments to providers
               who fail to give tax I.D. numbers or who give incorrect numbers.

7.1.3          Timeframes for Access Requirements. HMO must have sufficient
               network providers and establish procedures to ensure Members have
               access to routine, urgent, and emergency services; telephone
               appointments; advice and Member service lines. These services
               must be accessible to Members within the following timeframes:

7.1.3.1        Urgent Care within 24 hours of request;

7.1.3.2        Routine care within 2 weeks of request;

7.1.3.3        Physical/Wellness Exams for adults must be provided within 8 to
               10 weeks of the request;

7.1.3.4        HMO must establish policies and procedures to ensure that THSteps
               Checkups be provided within 90 days of new enrollment, except
               newborn Members should be seen within 2 weeks of enrollment, and
               in all cases for all Members be consistent with the American
               Academy of Pediatrics and THSteps periodicity schedule which is
               based on the American Academy of Pediatrics schedule and
               delineated in the Texas Medicaid Provider Procedures Manual and
               the Medicaid bi-monthly bulletins (see Article 6.1, Scope of
               Services). If the Member does not request a checkup, HMO must
               establish a procedure for contacting the Member to schedule the
               checkup.

7.1.4          HMO is prohibited from requiring a provider or provider group to
               enter into an exclusive contracting arrangement with HMO as a
               condition for participation in its provider network.

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7.2            PROVIDER CONTRACTS
               ------------------

7.2.1          All providers must have a written contract, either with an
               intermediary entity or an HMO, to participate in the Medicaid
               program (provider contract). HMO must make all contracts
               available to TDH upon request, at the time and location requested
               by TDH. All standard formats of provider contracts must be
               submitted to TDH for approval no later than 60 days after the
               effective date of this contract, unless previously filed with
               TDH. HMO must submit 1 paper copy and 1 electronic copy in a form
               specified by TDH. Any change to the standard format must be
               submitted to TDH for approval no later than 30 days prior to the
               implementation of the new standard format. All provider contracts
               are subject to the terms and conditions of this contract and must
               contain the provisions of Article V, Statutory and Regulatory
               Compliance, and the provisions contained in Article 3.2.4.

7.2.1.1        TDH has 15 working days to review the materials and recommend any
               suggestions or required changes. If TDH has not responded to HMO
               by the fifteenth day, HMO may execute the contract. TDH reserves
               the right to request HMO to modify any contract that has been
               deemed approved.

7.2.2          Primary Care Provider (PCP) contracts and specialty care
               contracts must contain provisions relating to the requirements of
               the provider types found in this contract. For example, PCP
               contracts must contain the requirements of Article 7.8 relating
               to Primary Care Providers.

7.2.3          Provider contracts that are requested by any agency with
               authority to investigate and prosecute fraud and abuse must be
               produced at the time and place required by TDH or the requesting
               agency. Provider contracts requested in response to a Public
               Information request must be produced within 48 hours of the
               request. Requested contracts and all related records must be
               provided free-of-charge to the requesting agency.

7.2.4          The form and substance of all provider contracts are subject to
               approval by TDH. TDH retains the authority to reject or require
               changes to any contract that do not comply with the requirements
               or duties and responsibilities of this contract. HMO REMAINS
               RESPONSIBLE FOR PERFORMING AND FOR ANY FAILURE TO PERFORM ALL
               DUTIES, RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT
               REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS
               CONTRACTED TO ANOTHER FOR ACTUAL PERFORMANCE.

7.2.5          TDH reserves the right and retains the authority to make
               reasonable inquiry and conduct investigations into patterns of
               provider and Member complaints against HMO or any intermediary
               entity with whom HMO contracts to deliver health care services

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               under this contract. TDH may impose appropriate sanctions and
               contract remedies to ensure HMO compliance with the provisions of
               this contract.

7.2.6          HMO must not restrict a provider's ability to provide opinions or
               counsel to a Member with respect to benefits, treatment options,
               and provider's change in network status.

7.2.7          To the extent feasible within HMO's existing claims processing
               systems, HMO should have a single or central address to which
               providers must submit claims. If a central processing center is
               not possible within HMO's existing claims processing system, HMO
               must provide each network provider a complete list of all
               entities to whom the providers must submit claims for processing
               and/or adjudication. The list must include the name of the
               entity, the address to which claims must be sent, explanation for
               determination of the correct claims payer based on services
               rendered, and a phone number the provider may call to make claims
               inquiries. HMO must notify providers in writing of any changes in
               the claims filing list at least 30 days prior to effective date
               of change. If HMO is unable to provide 30 days notice, providers
               must be given a 30-day extension on their claims filing deadline
               to ensure claims are routed to correct processing center.

7.2.8          HMO, all IPAs, and other intermediary entities must include
               contract language which substantially complies with the following
               standard contract provisions in each Medicaid provider contract.
               This language must be included in each contract with an actual
               provider of services, whether through a direct contract or
               through intermediary provider contracts:

7.2.8.1        [Provider] is being contracted to deliver Medicaid managed care
               under the TDH STAR program. HMO must provide copies of the
               TDH/HMO Contract to the [Provider] upon request. [Provider)
               understands that services provided under this contract are funded
               by State and federal funds under the Medicaid program. [Provider]
               is subject to all state and federal laws, rules and regulations
               that apply to all persons or entities receiving state and federal
               funds. [Provider] understands that any violation by a provider of
               a State or federal law relating to the delivery of services by
               the provider under this HMO/Provider contract or any violation of
               the TDR/HMO contract could result in liability for money damages,
               and/or civil or criminal penalties and sanctions under state
               and/or federal law.

7.2.8.2        [Provider] understands and agrees that HMO has the sole
               responsibility for payment of covered services rendered by the
               provider under HMO/Provider contract. In the event of HMO
               insolvency or cessation of operations, [Provider's] sole recourse
               is against HMO through the bankruptcy, conservatorship, or
               receivership estate of HMO.

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7.2.8.3        [Provider] understands and agrees TDH is not liable or
               responsible for payment for any Medicaid covered services
               provided to mandatory Members under HMO/Provider contract.
               Federal and State laws provide severe penalties for any provider
               who attempts to collect any payment from or bill a Medicaid
               recipient for a covered service.

7.2.8.4        [Provider] agrees that any modification, addition, or deletion of
               the provisions of this contract will become effective no earlier
               than 30 days after HMO notifies TDH of the change in writing. If
               TDH does not provide written approval within 30 days from receipt
               of notification from HMO, changes can be considered provisionally
               approved, and will become effective. Modifications, additions or
               deletions which are required by TDH or by changes in state or
               federal law are effective immediately.

7.2.8.5        This contract is subject to all state and federal laws and
               regulations relating to fraud and abuse in health care and the
               Medicaid program. [Provider] must cooperate and assist TDH and
               any state or federal agency that is charged with the duty of
               identifying, investigating, sanctioning or prosecuting suspected
               fraud and abuse. [Provider] must provide originals and/or copies
               of any and all information, allow access to premises and provide
               records to TDH or its authorized agent(s), THHSC, HCFA, the U.S.
               Department of Health and Human Services, FBI, TDI, and the Texas
               Attorney General's Medicaid Fraud Control Unit, upon request, and
               free-of-charge. [Provider] must report any suspected fraud or
               abuse including any suspected fraud and abuse committed by HMO or
               a Medicaid recipient to TDH for referral to THHSC.

7.2.8.6        [Provider] is required to submit proxy claims forms to HMO for
               services provided to all STAR Members that are capitated by HMO
               in accordance with the encounter data submissions requirements
               established by HMO and TDH.

7.2.8.7        HMO is prohibited from imposing restrictions upon the
               [Provider's] free communication with Members about a Member's
               medical conditions, treatment options, HMO referral policies, and
               other HMO policies, including financial incentives or
               arrangements and all STAR managed care plans with whom [Provider]
               contracts.

7.2.8.8        The Texas Medicaid Fraud Control Unit must be allowed to conduct
               private interviews of [Providers] and the [Provider's] employees,
               contractors, and patients. Requests for information must be
               complied with, in the form and language requested. [Providers]
               and their employees and contractors must cooperate fully in
               making themselves available in person for interviews,
               consultation, grand jury proceedings, pre-trial conference,
               hearings, trial and in any other process, including
               investigations. Compliance with this Article is at HMO's and
               [Provider's] own expense.

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7.2.8.9        HMO must include the method of payment and payment amounts in all
               provider contracts.

7.2.8.10       All provider clean claims must be adjudicated within 30 days. HMO
               must pay provider interest on all clean claims that are not paid
               within 30 days at a rate of 1.5% per month (18% annual) for each
               month the claim remains unadjudicated.

7.2.8.11       HMO must prohibit network providers from interfering with or
               placing liens upon the state's right or HMO's right, acting as
               the state's agent, to recovery from third party resources. HMO
               must prohibit network providers from seeking recovery in excess
               of the Medicaid payable amount or otherwise violating state and
               federal laws.

7.2.9          HMO must follow the procedures outlined in article 20A.18A of the
               Texas Insurance Code if terminating a contract with a provider,
               including an STP. At least 30 days before the effective date of
               the proposed termination of the provider's contract, HMO must
               provide a written explanation to the provider of the reasons for
               termination. HMO may immediately terminate a provider contract if
               the provider presents imminent harm to patient health, actions
               against a license or practice, or fraud.

7.2.9.1        Within 60 days of the termination notice date, a provider may
               request a review of HMO's proposed termination by an advisory
               review panel, except in a case in which there is imminent harm to
               patient health, an action against a private license, or fraud.
               The advisory review panel must be composed of physicians and
               providers, as those terms are defined in article 20A.02(r) and
               (t), including at least one representative in the provider's
               specialty or a similar specialty, if available, appointed to
               serve on the standing quality assurance committee or utilization
               review committee of HMO. The decision of the advisory review
               panel must be considered by HMO but is not binding on HMO. HMO
               must provide to the affected provider, on request, a copy of the
               recommendation of the advisory review panel and HMO's
               determination.

7.2.9.2        A provider who is terminated is entitled to an expedited review
               process by HMO on request by the provider. HMO must provide
               notification of the provider's termination to HMO's Members
               receiving care from the terminated provider at least 30 days
               before the effective date of the termination. If a provider is
               terminated for reasons related to imminent harm to patient
               health, HMO may notify its Members immediately.

7.2.10         HMO must notify TDH no later than 90 days prior to terminating
               any subcontract affecting a major performance function of this
               contract. If HMO seeks to terminate a provider's contract for
               imminent harm to patient health, actions against a license or
               practice, or fraud, contract termination may be immediate. TDH
               will require assurances that any contract termination will not
               result in an interruption of an essential service or major
               contract function.

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7.2.11         HMO must include a complaint and appeals process which complies
               with the requirements of Article 20A.12 of the Texas Insurance
               Code relating to Complaint Systems in all provider contracts.
               HMO's complaint and appeals process must be the same for all
               providers.

7.3            PHYSICIAN INCENTIVE PLANS
               -------------------------

7.3.1          HMO may operate a physician incentive plan only if: (1) no
               specific payment may be made directly or indirectly under a
               physician incentive plan to a physician or physician group as an
               inducement to reduce or limit medically necessary services
               furnished to a Member; and (2) the stop-loss protection, enrollee
               surveys and disclosure requirements of this Article are met.

7.3.2          HMO must disclose to TDH information required by federal
               regulations found at 42 C.F.R.ss.417.479. The information must be
               disclosed in sufficient detail to determine whether the incentive
               plan complies with the requirements at 42 C.F.R.ss.417.479. The
               disclosure must contain the following information:

7.3.2.1        Whether services not furnished by a physician or physician group
               (referral services) are covered by the incentive plan. If only
               services furnished by the physician or physician group are
               covered by the incentive plan, disclosure of other aspects of the
               incentive plan are not required to be disclosed.

7.3.2.2        The type of incentive arrangement (e.g. withhold, bonus,
               capitation).

7.3.2.3        The percent of the withhold or bonus, if the incentive plan
               involves a withhold bonus.

7.3.2.4        Whether the physician or physician group has evidence of a
               stop-loss protection, including the amount and type of stop-loss
               protection.

7.3.2.5        The panel size and the method used for pooling patients, if
               patients are pooled.

7.3.2.6        The results of Member and disenrollee surveys, if HMO is required
               under 42 C.F.R.ss.417.479 to conduct Member and disenrollee
               surveys.

7.3.3          HMO must submit the information required in Articles 7.3.2.1 -
               7.3.2.5 to TDH by the effective date of this contract and each
               anniversary date of the contract.

7.3.4          HMO must submit the information required in Article 7.3.2.6 one
               year after the effective date of initial contract or effective
               date of renewal contract, and annually each subsequent year under
               the contract. HMO's who put physicians or physician

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               groups at substantial financial risk must conduct a survey of all
               Members who have voluntarily disenrolled in the previous year. A
               list of voluntary disenrollees may be obtained from the
               Enrollment Broker.

7.3.5          HMO must provide Members with information regarding Physician
               Incentive Plans upon request. The information must include the
               following:

7.3.5.1        whether HMO uses a physician incentive plan that covers referral
               services;

7.3.5.2        the type of incentive arrangement (i.e., withhold, bonus,
               capitation);

7.3.5.3        whether stop-loss protection is provided; and

7.3.5.4        results of enrollee and disenrollee surveys, if required under 42
               C.F.R. ss.417.479.

7.3.5.5        HMO must ensure that IPAs and ANHCs with whom HMO contracts
               comply with the requirements above. HMO is required to meet the
               requirements above for all levels of subcontracting.

7.4            PROVIDER MANUAL AND PROVIDER TRAINING
               -------------------------------------

7.4.1          HMO must prepare and issue a Provider Manual(s), including any
               necessary specialty manuals (e.g. behavioral health) to the
               providers in the HMO network and to newly contracted providers in
               the HMO network within five (5) working days from inclusion of
               the provider into the network. The Provider Manual must contain
               sections relating to special requirements of the STAR Program as
               required under this contract. See Appendix D, Required Critical
               Elements, for specific details regarding content requirements.

               Provider Manual and any revisions must be approved by TDH prior
               to publication and distribution to providers (see Article 3.4.1
               regarding the process for plan materials review).

7.4.2          HMO must provide training to all network providers and their
               staff regarding the requirements of the TDH/HMO contract and
               special needs of STAR Members.

7.4.2.1        HMO training for all providers must be completed no later than 30
               days after placing a newly contracted provider on active status.
               HMO must provide on-going training to new and existing providers
               as required by HMO or TDH to comply with this contract.

7.4.2.2        HMO must include in all PCP training how to screen for and
               identify behavioral health disorders, HMO's referral process to
               behavioral health care services and clinical

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               coordination requirements for behavioral health. HMO must include
               in all training for behavioral health providers how to identify
               physical health disorders, HMO's referral process to primary care
               and clinical coordination requirements between physical medicine
               and behavioral health providers. HMO must include training on
               coordination and quality of care such as behavioral health
               screening techniques for PCPs and new models of behavioral health
               interventions.

7.4.3          HMO must provide primary care and behavioral health providers
               with screening tools and instruments approved by TDH.

7.4.4          HMO must maintain and make available upon request enrollment or
               attendance rosters dated and signed by each attendee or other
               written evidence of training of each network provider and their
               staff.

7.4.5          HMO must have its written policies and procedures for the
               screening, assessment and referral processes between behavioral
               health providers and physical medicine providers available for
               TDH review prior to the effective date of the contract.

7.5            MEMBER PANEL REPORTS
               --------------------

               HMO must furnish each PCP with a current list of enrolled Members
               enrolled or assigned to that Provider no later than 5 days after
               HMO receives the Enrollment File from the Enrollment Broker each
               month. If the 5th day falls on a weekend or state holiday, the
               file must be provided by the following working day.

7.6            PROVIDER COMPLAINT AND APPEAL PROCEDURES
               ----------------------------------------

7.6.1          HMO must develop implement and maintain a provider complaint
               system which must be in compliance with all applicable state and
               federal law or regulations. Modifications and amendments to the
               complaint system must be submitted to TDH no later than 30 days
               prior to the implementation of the modification or amendment.

7.6.2          HMO must include the provider complaint and appeal procedure in
               all network provider contracts or in the provider manual.

7.6.3          HMO's complaint and appeal process cannot contain provisions
               requiring a Member to submit a complaint or appeal to TDH for
               resolution in lieu of the HMO's process.

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7.6.4          HMO must establish mechanisms to ensure that network providers
               have access to a person who can assist providers in resolving
               issues relating to claims payment, plan administration, education
               and training, and complaint procedures.

7.7            PROVIDER QUALIFICATIONS - GENERAL
               ---------------------------------

               The providers in HMO network must meet the following
               qualifications:

--------------------------------------------------------------------------------
FQHC               A Federally Qualified Health Center meets the standards
                   established by federal rules and procedures. The FQHC must
                   also be an eligible provider enrolled in the Medicaid
                   program.

--------------------------------------------------------------------------------
Physician          An individual who is licensed to practice medicine as an M.D.
                   or a D.O. in the State of Texas either as a primary care
                   provider or in the area of specialization under which they
                   will provide medical services under contract with HMO; who is
                   a provider enrolled in the Medicaid program; and who has a
                   valid Drug Enforcement Agency registration number and a Texas
                   Controlled Substance Certificate, if either is required in
                   their practice.
--------------------------------------------------------------------------------
Hospital           An institution licensed as a general or special hospital by
                   the State of Texas under Chapter 241 of the Health and Safety
                   Code and Private Psychiatric Hospitals under Chapter 577 of
                   the Health and Safety Code (or is a provider which is a
                   component part of a State or local government entity which
                   does not require a license under the laws of the State of
                   Texas), which is enrolled as a provider in the Texas Medicaid
                   Program. HMO will require that all facilities in the network
                   used for acute inpatient specialty care for people under age
                   21 with disabilities or chronic or complex conditions will
                   have a designated pediatric unit; 24-hour laboratory and
                   blood bank availability; pediatric radiological capability;
                   meet JCAHO standards; and have discharge planning and social
                   service units.
--------------------------------------------------------------------------------

Non-Physician      An individual holding a license issued by the applicable
Practitioner       licensing agency of the State of Texas who is enrolled in the
Provider           Texas Medicaid Program or an individual properly trained to
                   provide behavioral health support services who practices
                   under the direct supervision of an appropriately licensed
                   professional.

--------------------------------------------------------------------------------
Clinical           An entity having a current certificate issued under the
Laboratory         Federal Clinical Laboratory Improvement Act (CLIA), and
                   enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------

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--------------------------------------------------------------------------------
Rural Health       An institution which meets all of the criteria for
Clinic (RHC)       designation as a rural health clinic, and enrolled in the
                   Texas Medicaid Program.
--------------------------------------------------------------------------------
Local Health       A local health department established pursuant to Health and
Department         Safety Code, Title 2, Local Public Health Reorganization Act
                   ss. 121.031 ff.
--------------------------------------------------------------------------------
Local Mental       Under Section 531.002(8) of the Health and Safety Code, the
Health Authority   local component of the TXMHMR system designated by TDMHMR to
(LMHA)             carry out the legislative mandate for planning, policy
                   development, coordination, and resource
                   development/allocation and for supervising and ensuring the
                   provision of mental health care services to persons with
                   mental illness in one or more local service areas.

--------------------------------------------------------------------------------
Non-Hospital       A provider of health care services which is licensed and
Facility Provider  credentialed to provide services, and enrolled in the Texas
                   Medicaid Program.
--------------------------------------------------------------------------------
School Based       Clinics located at school campuses that provide on-site
Health Clinic      primary and preventive care to children and adolescents.
(SBHC)
--------------------------------------------------------------------------------

7.8            PRIMARY CARE PROVIDERS
               ----------------------

7.8.1          HMO must have a system for monitoring Member enrollment into its
               plan to allow HMO to effectively plan for future needs and
               recruit network providers as necessary to ensure adequate access
               to primary care and specialty care. The Member enrollment
               monitoring system must include the length of time required for
               Members to access care within the network. The monitoring system
               must also include monitoring after-hours availability and
               accessibility of PCPs.

7.8.2          HMO must maintain a primary care provider network in sufficient
               numbers and geographic distribution to serve a minimum of
               forty-five percent (45%) of the mandatory STAR eligibles in each
               county of the service area. HMO is required to increase the
               capacity of the network as necessary to accommodate enrollment
               growth beyond the forty-fifth percentile (45%).

7.8.3          HMO must maintain a provider network that includes pediatricians
               and physicians with pediatric experience in sufficient numbers
               and geographic distribution to serve eligible children and
               adolescents in the service area and provide timely access to the
               full scope of benefits, especially THSteps checkups and
               immunizations.

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7.8.4          HMO must comply with the access requirements as established by
               the Texas Department of Insurance for all HMOs doing business in
               Texas, except as otherwise required by this contract.

7.8.5          HMO must have physicians with board eligibility/certification in
               pediatrics available for referral for Members under the age of
               21.

7.8.5.1        Individual PCPs may serve more than 2,000 Members. However, if
               TDH determines that a PCP's Member enrollment exceeds the PCP's
               ability to provide accessible, quality care, TDH may prohibit the
               PCP from receiving further enrollments. TDH may direct HMOs to
               assign or reassign Members to another PCP's panel.

7.8.6          HMO must have PCPs available throughout the service area to
               ensure that no Member must travel more than 30 miles to access
               the PCP, unless an exception to this distance requirement is made
               by TDH.

7.8.7          HMO's primary care provider network may include providers from
               any of the following practice areas: General Practitioners;
               Family Practitioners; Internists; Pediatricians;
               Obstetricians/Gynecologists (OB/GYN); Pediatric and Family
               Advanced Practice Nurses (APNs) and Certified Nurse Midwives
               Women Health (CNMs) practicing under the supervision of a
               physician; Physician Assistants (PAs) practicing under the
               supervision of a physician specializing in Family Practice,
               Internal Medicine, Pediatrics or Obstetrics/Gynecology who also
               qualifies as a PCP under this contract; or Federally Qualified
               Health Centers (FQHCs), Rural Health Clinics (RHCs) and similar
               community clinics; and specialists who are willing to provide
               medical homes to selected Members with special needs and
               conditions (see Article 7.9.4).

7.8.8          The PCP for a Member with disabilities or chronic or complex
               conditions may be a specialist who agrees to provide PCP services
               to the Member. The specialty provider must agree to perform all
               PCP duties required in the contract and PCP duties must be within
               the scope of the specialist's license. Any interested person may
               initiate the request for a specialist to serve as a PCP for a
               Member with disabilities or chronic or complex conditions.

7.8.9          PCPs must either have admitting privileges at a hospital, which
               is part of HMO network of providers, or make referral
               arrangements with an HMO provider who has admitting privileges to
               a network hospital.

7.8.10         HMO must require, through contract provisions, that PCPs are
               accessible to Members 24 hours a day, 7 days a week. The
               following are acceptable and unacceptable phone arrangements for
               contacting PCPs after normal business hours.

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               Acceptable:

               (1)    Office phone is answered after-hours by an answering
                      service which meets language requirements of the major
                      population groups and which can contact the PCP or another
                      designated medical practitioner. All calls answered by an
                      answering service must be returned within 30 minutes.

               (2)    Office phone is answered after normal business hours by a
                      recording in the language of each of the major population
                      groups served directing the patient to call another number
                      to reach the PCP or another provider designated by the
                      PCP. Someone must be available to answer the designated
                      provider's phone. Another recording is not acceptable.

               (3)    Office phone is transferred after office hours to another
                      location where someone will answer the phone and be able
                      to contact the PCP or another designated medical
                      practitioner, who can return the call within 30 minutes.

               Unacceptable:

               (1)    Office phone is only answered during office hours.

               (2)    Office phone is answered after-hours by a recording which
                      tells patients to leave a message.

               (3)    Office phone is answered after-hours by a recording which
                      directs patients to go to an Emergency Room for any
                      services needed.

               (4)    Returning after-hours calls outside of 30 minutes.

7.8.11         HMO must require PCPs, through contract provisions or provider
               manual, to provide primary care services and continuity of care
               to Members who are enrolled with or assigned to the PCP. Primary
               care services are all services required by a Member for the
               prevention, detection, treatment and cure of illness, trauma,
               disease or disorder, which are covered and/or required services
               under this contract. All services must be provided in compliance
               with generally accepted medical and behavioral health standards
               for the community in which services are rendered. HMO must
               require PCPs, through contract provisions or provider manual, to
               provide children under the age of 21 services in accordance with
               the American Academy of Pediatric recommendations and the THSteps
               periodicity schedule and provide adults services in accordance
               with the U.S. Preventive Services Task Force's publication "Put
               Prevention Into Practice".

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7.8.11.1       HMO must require PCPs, through contract provisions or provider
               manual, to assess the medical needs of Members for referral to
               specialty care providers and provide referrals as needed. PCP
               must coordinate care with specialty care providers after
               referral.

7.8.11.2       HMO must require PCPs, through contract provisions or provider
               manual, to make necessary arrangements with home and community
               support services to integrate the Member's needs. This
               integration may be delivered by coordinating the care of Members
               with other programs, public health agencies and community
               resources which provide medical, nutritional, behavioral,
               educational and outreach services available to Members.

7.8.11.3       HMO must require, through contract provisions or provider manual,
               that the Member's PCP or HMO provider through whom PCP has made
               arrangements, be the admitting or attending physician for
               inpatient hospital care, except for emergency medical or
               behavioral health conditions or when the admission is made by a
               specialist to whom the Member has been referred by the PCP. HMO
               must require, through contract provisions or provider manual,
               that PCP assess the advisability and availability of outpatient
               treatment alternatives to inpatient admissions. HMO must require,
               through contract provisions or provider manual, that PCP provide
               or arrange for pre-admission planning for non-emergency inpatient
               admissions, and discharge planning for Members. PCP must call the
               emergency room with relevant information about the Member. PCP
               must provide or arrange for follow-up care after emergency or
               inpatient care.

7.8.11.4       HMO must require PCPs for children under the age of 21 to provide
               or arrange to have provided all services required under Article
               6.8 relating to Texas Health Steps, Article 6.9 relating to
               Perinatal Services, Article 6.10 relating to Early Childhood
               Intervention, Article 6.11 relating to WIC, Article 6.13 relating
               to People With Disabilities or Chronic or Complex Conditions, and
               Article 6.14 relating to Health Education and Wellness and
               Prevention Plans. PCP must cooperate and coordinate with HMO to
               provide Member and the Member's family with knowledge of and
               access to available services.

7.8.12         PCP Selection and Changes. All Medicaid recipients who are
               eligible for participation in the STAR program have the right to
               select their PCP and HMO.- Medicaid recipients who are mandatory
               STAR participants who do not select a PCP and/or HMO during the
               time period allowed will be assigned to a PCP and/or HMO using
               the TDH default process. Members may change PCPs at any time, but
               these changes are limited to four (4) times per year.

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7.8.12.1       Voluntary SSI Members. PCP changes cannot be performed
               retroactively for voluntary SSI Members. If an SSI Member
               requests a PCP change on or before the 15th of the month, the
               change will be effective the first day of the next month. If an
               SSI Member requests a PCP change after the 15th of the month, the
               change will be effective the first day of the second month that
               follows. Exceptions to this policy will be allowed for reasons of
               medical necessity or other extenuating circumstances.

7.8.12.2       Mandatory Members. Retroactive changes to a Member's PCP should
               only be made if it is medically necessary or there are other
               circumstances which necessitate a retroactive change. HMO must
               pay claims for services provided by the original PCP. If the
               original PCP is paid on a capitated basis and services were
               provided during the period for which capitation was paid, HMO
               cannot recoup the capitation.

7.9            OB/GYN PROVIDERS
               ----------------

               HMO must allow a female Member to select an OB/GYN within its
               provider network or within a limited provider network in addition
               to a PCP, to provide health care services within the scope of the
               professional specialty practice of a properly credentialed
               OB/GYN. See Article 21.53D of the Texas Insurance Code and 28 TAC
               Sections 11.506, 11.1600 and 11.1608. A Member who selects an
               OB/GYN must be allowed direct access to the health care services
               of the OB/GYN without a referral by the woman's PCP or a prior
               authorization or precertification from HMO. HMO must allow
               Members to change OB/GYNs up to four times per year. Health care
               services must include, but not be limited to:

7.9.1          One well-woman examination per year;

7.9.2          Care related to pregnancy;

7.9.3          Care for all active gynecological conditions; and

7.9.4          Diagnosis, treatment, and referral for any disease or condition
               within the scope of the professional practice of a properly
               credentialed obstetrician or gynecologist.

7.9.5          HMOs which allow its Members to directly access any OB/GYN
               provider within its network, must ensure that the provisions of
               Articles 7.9.1 through 7.9.4 continue to be met.

7.9.6          OB/GYN providers must comply with HMO's procedures contained in
               HMO's provider manual or provider contract for OB/GYN providers,
               including but not limited to prior authorization procedures.

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7.10           SPECIALTY CARE PROVIDERS
               ------------------------

7.10.1         HMO must maintain specialty providers, including pediatric
               specialty providers, within the network in sufficient numbers and
               areas of practice to meet the needs of all Members requiring
               specialty care or services.

7.10.2         HMO must require, through contract provisions or provider manual,
               that specialty providers send a record of consultation and
               recommendations to a Member's PCP for inclusion in Member's
               medical record and report encounters to the PCP and/or HMO.

7.10.3         HMO must ensure availability and accessibility to appropriate
               specialists.

7.10.4         HMO must ensure that no Member is required to travel in excess of
               75 miles to secure initial contact with referral specialists;
               special hospitals, psychiatric hospitals; diagnostic and
               therapeutic services; and single service health care physicians,
               dentists or providers. Exceptions to this requirement may be
               allowed when an HMO has established, through utilization data
               provided to TDH, that a normal pattern for securing health care
               services within an area exists or HMO is providing care of a
               higher skill level or specialty than the level which is available
               within the service area such as, but not limited to, treatment of
               cancer, burns, and cardiac diseases.

7.11           SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
               -----------------------------------------------

7.11.1         HMO must include all medically necessary specialty services
               through its network specialists, subspecialists and specialty
               care facilities (e.g., children's hospitals, and tertiary care
               hospitals).

7.11.2         HMO must include requirements for pre-admission and discharge
               planning in its contracts with network hospitals. Discharge plans
               for a Member must be provided by HMO or the hospital to the
               Member/family, the PCP and specialty care physicians.

7.11.3         HMO must have appropriate multidisciplinary teams for people with
               disabilities or chronic or complex medical conditions. These
               teams must include the PCP and any individuals or providers
               involved in the day-to-day or on-going care of the Member.

7.11.4         HMO must include in its provider network a TDH-designated
               perinatal care facility, as established by ss.32.042, Texas
               Health and Safety Code, once the designated system is finalized
               and perinatal care facilities have been approved for the service
               area (see Article 6.9.1).

7.12           BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)
               --------------------------------------------------------

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7.12.1         Assessment to determine eligibility for rehabilitative and
               targeted MHMR case management services is a function of the LMHA.
               HMO must provide all covered services described in detail in the
               Texas Medicaid Provider Procedures Manual (Provider Procedures
               Manual) and the Texas Medicaid Bulletins which is the bi-monthly
               update to the Provider Procedures Manual. Clinical information
               regarding covered services are published by the Texas Medicaid
               program in the Texas Medicaid Service Delivery Guide. Covered
               services must be provided to Members with SPMI and SED, when
               medically necessary, whether or not they are also receiving
               targeted case management or rehabilitation services through the
               LMHA.

7.12.2         HMO will coordinate with the LMHA and state psychiatric facility
               regarding admission and discharge planning, treatment objectives
               and projected length of stay for Members committed by a court of
               law to the state psychiatric facility.

7.12.3         HMO must enter into written agreements with all LMHAs in the
               service area which describes the process(es) which HMO and LMHA
               will use to coordinate services for STAR Members with SPMI or
               SED. The agreement will contain the following provisions:

7.12.3.1       Describe the behavioral health covered services indicated in
               detail in the Provider Procedures Manual and the Texas Medicaid
               Bulletins which is the bi-monthly update to the Provider
               Procedures Manual. Clinical information regarding covered
               services are published by the Texas Medicaid program in the Texas
               Medicaid Service Delivery Guide. Also include the amount,
               duration, and scope of basic and value-added services, and HMO's
               responsibility to provide these services;

7.12.3.2       Describe criteria, protocols, procedures and instrumentation for
               referral of STAR Members from and to HMO and LMHA;

7.12.3.3       Describe processes and procedures for referring Members with SPMI
               or SED to LMHA for assessment and determination of eligibility
               for rehabilitation or targeted case management services;

7.12.3.4       Describe how the LMHA and HMO will coordinate providing
               behavioral health care services to Members with SPMI or SED;

7.12.3.5       Establish clinical consultation procedures between HMO and LMHA
               including consultation to effect referrals and on-going
               consultation regarding the Member's progress;

7.12.3.6       Establish procedures to authorize release and exchange of
               clinical treatment records;

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7.12.3.7       Establish procedures for coordination of assessment,
               intake/triage, utilization review/utilization management and care
               for persons with SPMI or SED;

7.12.3.8       Establish procedures for coordination of inpatient psychiatric
               services (including court ordered commitment of Members under 21)
               in state psychiatric facilities within the LMHA's catchment area;

7.12.3.9       Establish procedures for coordination of emergency and urgent
               services to Members; and

7.12.3.10      Establish procedures for coordination of care and transition of
               care for new HMO Members who are receiving treatment through the
               LMHA.

7.12.4         HMO must offer licensed practitioners of the healing arts, who
               are part of the Member's treatment team for rehabilitation
               services, the opportunity to participate in HMO's network. The
               practitioner must agree to accept the standard provider
               reimbursement rate, meet the credentialing requirements, comply
               with all the terms and conditions of the standard provider
               contract of HMO.

7.12.5         Members receiving rehabilitation services must be allowed to
               choose the licensed practitioners of the healing arts who are
               currently a part of the Member's treatment team for
               rehabilitation services. If the Member chooses to receive these
               services from licensed practitioners of the healing arts who are
               part of the Member's rehabilitation services treatment team, HMO
               must reimburse the LMHA at current Medicaid fee-for-service
               amounts.

7.13           SIGNIFICANT TRADITIONAL PROVIDERS (STPS)
               ----------------------------------------

               HMO must seek participation in its provider network from:

7.13.1         Each health care provider in the service area who has
               traditionally provided care to Medicaid recipients;

7.13.2         Each hospital in the service area that has been designated as a
               disproportionate share hospital under Medicaid; and

7.13.3         Each specialized pediatric laboratory in the service area,
               including those laboratories located in children's hospitals.

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7.14           RURAL HEALTH PROVIDERS
               ----------------------

7.14.1         In rural areas of the service area, HMO must seek the
               participation in its provider network of rural hospitals,
               physicians, home and community support service agencies, and
               other rural health care providers who:

7.14.1.1       are the only providers located in the service area; and

7.14.1.2       are Significant Traditional Providers.

7.14.2         In order to contract with HMO, rural health providers must:

7.14.2.1       agree to accept the prevailing provider contract rate of HMO
               based on provider type; and

7.14.2.2       have the credentials required by HMO, provided that lack of board
               certification or accreditation by JCAHO may not be the only
               grounds for exclusion from the provider network.

7.14.3         HMO must reimburse rural hospitals with 100 or fewer licensed
               beds in counties with fewer than 50,000 persons for acute care
               services at a rate calculated using the higher of the prospective
               payment system rate or the cost reimbursed methodology authorized
               under the Tax Equity and Fiscal Responsibility Act of 1982
               (TEFRA). Hospitals reimbursed under TEFRA cost principles shall
               be paid without the imposition of the TEFRA cap.

7.14.4         HMO must reimburse physicians who practice in rural counties with
               fewer than 50,000 persons at a rate using the current Medicaid
               fee schedule, including negotiated fee-for-service.

7.15           FEDERALLY QUALIFIED HEALTH CENTERS (FQHCS) AND RURAL HEALTH
               CLINICS (RHCS)
               -----------------------------------------------------------

7.15.1         HMO must make reasonable efforts to include FQHCs and RHCs
               (Freestanding and hospital-based) in its provider network.

7.15.2         FQHCs or RHCs will receive a cost settlement from TDH and must
               agree to accept initial payments from HMO in an amount that is
               equal to or greater than HMO's payment terms for other providers
               providing the same or similar services.

7.15.2.1       HMO must submit monthly FQHC and RHC encounter and payment
               reports to all contracted FQHCs and RHCs, and FQHCs and RHCs with
               whom there have been

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               encounters, not later than 21 days from the end of the month for
               which the report is submitted. The format will be developed by
               TDH. The FQHC and RHC must validate the encounter and payment
               information contained in the report(s). HMO and the FQHC/RHC must
               both sign the report(s) after each party agrees that it
               accurately reflects encounters and payments for the month
               reported. HMO must submit the signed FQHC and RHC encounter and
               payment reports to TDH not later than 45 days from the end of the
               month for which the report is submitted.

7.15.2.2       For FQHCs, TDH will determine the amount of the interim
               settlement based on the difference between: an amount equal to
               the number of Medicaid allowable encounters multiplied by the
               rate per encounter from the latest settled FQHC fiscal year cost
               report, and the amount paid by HMO to the FQHC for the quarter.
               For RHCs, TDH will determine the amount of the interim settlement
               based on the difference between a reasonable cost amount
               methodology provided by TDH and the amount paid by HMO to the RHC
               for the quarter. TDH will pay the FQHC or the RHC the amount of
               the interim settlement, if any, as determined by TDH or collect
               and retain the quarterly recoupment amount, if any.

7.15.2.3       TDH will cost settle with each FQHC and RHC annually, based on
               the FQHC or the RHC fiscal year cost report and the methodology
               described in Article 7.15.2.2. TDH will make additional payments
               or recoup payments from the FQHC or the RHC based on reasonable
               costs less prior interim payment settlements.

7.15.2.4       Cost settlements for RHCs, and HMO's obligation to provide RHC
               reporting described in Article 7.15, are retroactive to October
               1, 1997.

7.16           COORDINATION WITH PUBLIC HEALTH
               -------------------------------

7.16.1         Reimbursed Arrangements. HMO must make a good faith effort to
               enter into a subcontract for the covered health care services as
               specified below with TDH Public Health Regions, city and/or
               county health departments or districts in each county of the
               service area that will be providing these services to the Members
               (Public Health Entities), who will be paid for services by HMO,
               including any or all of the following services or any covered
               service which the public health department and HMO have agreed to
               provide:

7.16.1.1       Sexually Transmitted Diseases (STDs) Services (see Article 6.15);

7.16.1.2       Confidential HIV Testing (see Article 6.15);

7.16.1.3       Immunizations;

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7.16.1.4       Tuberculosis (TB) Care (see Article 6.12);

7.16.1.5       Family Planning Services (see Article 6.7);

7.16.1.6       THSteps checkups (see Article 6.8); and

7.16.1.7       Prenatal services (see Article 6.9).

7.16.2         HMO must make a good faith effort to enter into subcontracts with
               public health entities in the service area. The subcontracts must
               be available for review by TDH or its designated agent(s) on the
               same basis as all other subcontracts. If any changes are made to
               the contract, it must be resubmitted to TDH. If an HMO is unable
               to enter into a contract with public health entities, HMO must
               document current and past efforts to TDH. Documentation must be
               submitted no later than 120 days after the execution of this
               contract. Public health subcontracts must include the following
               areas:

7.16.2.1       The general relationship between HMO and the Public Health
               entity. The subcontracts must specify the scope and
               responsibilities of both parties, the methodology and agreements
               regarding billing and reimbursements, reporting responsibilities,
               Member and provider educational responsibilities, and the
               methodology and agreements regarding sharing of confidential
               medical record information between the public health entity and
               the PCP.

7.16.2.2       Public Health Entity responsibilities:

               (1)    Public health providers must inform Members that
                      confidential health care information will be provided to
                      the PCP.

               (2)    Public health providers must refer Members back to PCP for
                      any follow-up diagnostic, treatment, or referral services.

               (3)    Public health providers must educate Members about the
                      importance of having a PCP and accessing PCP services
                      during office hours rather than seeking care from
                      Emergency Departments, Public Health Clinics, or other
                      Primary Care Providers or Specialists.

               (4)    Public health entities must identify a staff person to act
                      as liaison to HMO to coordinate Member needs, Member
                      referral, Member and provider education, and the transfer
                      of confidential medical record information.

7.16.2.3       HMO Responsibilities:

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               (1)    HMO must identify care coordinators who will be available
                      to assist public health providers and PCPs in getting
                      efficient referrals of Members to the public health
                      providers, specialists, and health-related service
                      providers either within or outside HMO's network.

               (2)    HMO must inform Members that confidential healthcare
                      information will be provided to the PCP.

               (3)    HMO must educate Members on how to better utilize their
                      PCPs, public health providers, emergency departments,
                      specialists, and health-related service providers.

7.1.6.2.4      Existing contracts must include the provisions in Articles
               7.16.2.1 through 7.16.2.3.

7.16.3         Non-Reimbursed Arrangements with Public Health Entities.
               --------------------------------------------------------

7.16.3.1       Coordination with Public Health Entities. HMOs must make a good
               faith effort to enter into a Memorandum of Understanding (MOU)
               with Public Health Entities in the service area regarding the
               provision of services for essential public health care services.
               These MOUs must be entered into in each service area and are
               subject to TDH approval. If any changes are made to the MOU, it
               must be resubmitted to TDH. If an HMO is unable to enter into an
               MOU with a public health entity, HMO must document current and
               past efforts to TDH. Documentation must be submitted no later
               than 120 days after the execution of this contract. MOUs must
               contain the roles and responsibilities of HMO and the public
               health department for the following services:

               (1)    Public health reporting requirements regarding
                      communicable diseases and/or diseases which are
                      preventable by immunization as defined by state law;

               (2)    Notification of and referral to the local Public Health
                      Entity, as defined by state law, of communicable disease
                      outbreaks involving Members;

               (3)    Referral to the local Public Health Entity for TB contact
                      investigation and evaluation and preventive treatment of
                      persons whom the Member has come into contact;

               (4)    Referral to the local Public Health Entity for STD/HIV
                      contact investigation and evaluation and preventive
                      treatment of persons whom the Member has come into
                      contact; and,

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               (5)    Referral for WIC services and information sharing;

               (6)    Coordination and follow-up of suspected or confirmed cases
                      of childhood lead exposure.

7.16.3.2       Coordination with Other TDH Programs. HMOs must make a good faith
               effort to enter into a Memorandum of Understanding (MOU) with
               other TDH programs regarding the provision of services for
               essential public health care services. These MOUs must be entered
               into in each service area and are subject to TDH approval. If any
               changes are made to the MOU, it must be resubmitted to TDH. If an
               HMO is unable to enter into an MOU with other TDH programs, HMO
               must document current and past efforts to TDH. Documentation must
               be submitted no later than 120 days after the execution of this
               contract. MOUs must delineate the roles and responsibilities of
               HMO and the TDH programs for the following services:

               (1)    Use of the TDH laboratory for THSteps newborn screens;
                      lead testing; and hemoglobin/hematocrit tests;

               (2)    Availability of vaccines through the Vaccines for Children
                      Program;

               (3)    Reporting of immunizations provided to the statewide
                      ImmTrac Registry including parental consent to share data;

               (4)    Referral for WIC services and information sharing;

               (5)    Pregnant, Women and Infant (PWI) Targeted Case Management;

               (6)    THSteps outreach, informing and Medical Case Management;

               (7)    Participation in the community-based coalitions with the
                      Medicaid-funded case management programs in MHMR, ECI,
                      TCB, and TDH (PWI, CIDC and THSteps Medical Case
                      Management);

               (8)    Referral to the TDH Medical Transportation Program;

               (9)    Cooperation with activities required of public health
                      authorities to conduct the annual population and community
                      based needs assessment; and

               (10)   Coordination and follow-up of suspected or confirmed cases
                      of childhood lead exposure.

7.16.4         All public health contracts must contain provider network
               requirements in Article VII, as applicable.

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7.17           COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
               SERVICES

               ---------------------------------------------------------------

7.17.1         HMO must cooperate and coordinate with the Texas Department of
               Protective and Regulatory Services (TDPRS) for the care of a
               child who is receiving services from or has been placed in the
               conservatorship of TDPRS.

7.17.2         HMO must comply with all provisions of a Court Order or TDPRS
               Service Plan with respect to a child in the conservatorship of
               TDPRS (Order) entered by a Court of Continuing Jurisdiction
               placing a child under the protective custody of TDPRS or a
               Service Plan voluntarily entered into by the parents or person
               having legal custody of a minor and TDPRS, which relates to the
               health and behavioral health care services required to be
               provided to the Member.

7.17.3         HMO cannot deny, reduce, or controvert the medical necessity of
               any health or behavioral health care services included in an
               Order entered by a court. HMO may participate in the preparation
               of the medical and behavioral care plan prior to TDPRS submitting
               the health care plan to the Court. Any modification or
               termination of court ordered services must be presented and
               approved by the court with jurisdiction over the matter.

7.17.4         A Member or the parent or guardian whose rights are subject to an
               Order or Service Plan cannot appeal the necessity of the services
               ordered through HMO's complaint or appeal processes, or to TDH
               for a Fair Hearing.

7.17.5         HMO must include information in its provider training and manuals
               regarding:

7.17.5.1       providing medical records;

7.17.5.2       scheduling medical and behavioral health appointments within 14
               days unless requested earlier by TDPRS; and

7.17.5.3       recognition of abuse and neglect and appropriate referral to
               TDPRS.

7.17.6         HMO must continue to provide a covered services to a Member
               receiving services from or in the protective custody of TDPRS
               until the Member has been disenrolled from HMO as a result of
               loss of eligibility in Medicaid managed care or placement into
               foster care.

7.18           DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)

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7.18.1         All HMO contracts with any of the entities described in Texas
               Insurance Code Article 20A.02(ee) and a group of providers who
               are licensed to provide the same health care services or an
               entity that is wholly-owned or controlled by one or more
               hospitals and physicians including a physician-hospital
               organization (delegated network contracts) must:

7.18.1.1       contain the mandatory contract provisions for all subcontractors
               in Article 3.2 of this contract;

7.18.1.2       comply with the requirements, duties and responsibilities of this
               contract;

7.18.1.3       not create a barrier for full participation to significant
               traditional providers;

7 18.1.4       not interfere with TDH's oversight and audit responsibilities
               including collection and validation of encounter data; or

7.18.1.5       be consistent with the federal requirement for simplicity in the
               administration of the Medicaid program.

7.18.2         In addition to the mandatory provisions for all subcontracts
               under Articles 3.2. and 7.2 all HMO/delegated network contracts
               must include the following mandatory standard provisions:

7.18.2.1       HMO is required to include subcontract provisions in its
               delegated network contracts which require the UM protocol used by
               a delegated network to produce substantially similar outcomes, as
               approved by TDH, as the UM protocol employed by the contracting
               HMO. The responsibilities of an HMO in delegating UM functions to
               a delegated network will be governed by Article 16.3.11 of this
               contract.

7.18.2.2       Delegated networks that are delegated claims payment
               responsibilities by HMO must also have the responsibility to
               submit encounter, utilization, quality, and financial data to
               HMO. HMO remains responsible for integrating all delegated
               network data reports into HMO's reports required under this
               contract. If HMO is not able to collect and report a delegated
               network data for HMO reports required by this contract, HMO must
               not delegate claims processing to the delegated network.

7.18.2.3       The delegated network must comply with the same records retention
               and production requirements, including Open Records requirements,
               as the HMO under this contract.

7.18.2.4       The delegated network is subject to the same marketing
               restrictions and requirements as the HMO under this contract.

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7.18.2.5       HMO is responsible for ensuring that delegated network contracts
               comply with the requirements and provisions of the TDH/HMO
               contract. TDH will impose appropriate sanctions and remedies upon
               HMO for any default under the TDH/HMO contract which is caused
               directly or indirectly by the acts or omissions of the delegated
               network.

7.18.3         HMO cannot enter into contracts with delegated networks to
               provide services under this contract which require the delegated
               network to enter into exclusive contracts with HMO as a condition
               for participation with HMO.

7.18.3.1       Article 17.18.3 does not apply to providers who are employees or
               participants in limited provider networks.

7.18.4         All delegated networks that limit Member access to those
               providers contracted with the delegated network (closed or
               limited panel networks) with whom HMO contracts must either
               independently meet the access provisions of 28 Texas
               Administrative Code ss.11.1607, relating to access requirements
               for those Members enrolled or assigned to the delegated network,
               or HMO must provide for access through other network providers
               outside the closed panel delegated network.

7.18.5         HMO cannot delegate to a delegated network the enrollment,
               re-enrollment, assignment or reassignment of a Member.

7.18.6         In addition to the above provision HMO and approved Non-Profit
               Health Corporations must comply with all of the requirements
               contained in 28 TAC ss.11.1604, relating to Requirements of
               Certain Contracts between Primary HMOs and ANHCs and Primary HMOs
               and Provider HMOs.

7.18.7         HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
               RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS OF
               WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED OR
               DELEGATED TO ANOTHER HMO MUST PROVIDE A COPY OF THE CONTRACT
               PROVISIONS THAT SET OUT HMO'S DUTIES, RESPONSIBILITIES, AND
               SERVICES TO ANY PROVIDER NETWORK OR GROUP WITH WHOM HMO CONTRACTS
               TO PROVIDE HEALTH CARE SERVICES ON A RISK SHARING OR CAPITATED
               BASIS OR TO PROVIDE HEALTH CARE SERVICES.

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ARTICLE VIII          MEMBER SERVICES REQUIREMENTS

8.1            MEMBER EDUCATION
               ----------------

               HMO must provide the Member education requirements as contained
               in Article VI at 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13,
               and 6.14, and this Article of the contract.

8.2            MEMBER HANDBOOK
               ---------------

8.2.1          HMO must mail each newly enrolled Member a Member Handbook no
               later than five (5) days after HMO receives the Enrollment File.
               If the 5th day falls on a weekend or state holiday, the Member
               Handbook must be mailed by the following working day. The Member
               Handbook must be written at a 4th - 6th grade reading
               comprehension level. The Member Handbook must contain all
               critical elements specified by TDH. See Appendix D, Required
               Critical Elements, for specific details regarding content
               requirements. HMO must submit a Member Handbook to TDH for
               approval prior to the effective date of the contract unless
               previously approved (see Article 3.4.1 regarding the process for
               plan materials review).

8.2.2          Member Handbook Updates. HMO must provide updates to the Handbook
               to all Members as changes are made to the Required Critical
               Elements in Appendix D. HMO must make the Member Handbook
               available in the languages of the major population groups and the
               visually impaired served by HMO.

8.2.3          THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE APPROVED
               BY TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO MEMBERS (see
               Article 3.4.1 regarding the process for plan materials review).

8.3            ADVANCE DIRECTIVES
               ------------------

8.3.1          Federal and state law require HMOs and providers to maintain
               written policies and procedures for informing and providing
               written information to all adult Members 18 years of age and
               older about their rights under state and federal law, in advance
               of their receiving care (Social Security Act ss.1902(a)(57)
               and ss.1903 (m)(1)(A)). The written policies and procedures must
               contain procedures for providing written information regarding
               the Member's right to refuse, withhold or withdraw medical
               treatment advance directives. HMO's policies and procedures must
               comply with provisions contained in 42 CFR ss.434.28 and 42
               CFR ss.489, SubPart 1, relating to advance directives for all
               hospitals, critical access hospitals, skilled nursing facilities,

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               home health agencies, providers of home health care, providers of
               personal care services and hospices, as well as the following
               state laws and rules:

8.3. 1. 1      a Member's right to self-determination in making health care
               decisions; and

8.3.1.2        the Advance Directives Act, Chapter 166, Texas Health and Safety
               Code, which includes:

8.3.1.2.1      a Member's right to execute an advance written directive to
               physicians and family or surrogates, or to make a non-written
               directive to administer, withhold or withdraw life-sustaining
               treatment in the event of a terminal or irreversible condition;

8.3.1.2.2      a Member's right to make written and non-written Out-of-Hospital
               Do-Not-Resuscitate Orders; and

8.3.1.2.3      a Member's right to execute a Medical Power of Attorney to
               appoint an agent to make health care decisions on the Member's
               behalf if the Member becomes incompetent.

8.3.2          HMO must maintain written policies for implementing a Member's
               advance directive. Those policies must include a clear and
               precise statement of limitations if HMO or a participating
               provider cannot or will not implement a Member's advance
               directive.

8.3.2.1        A statement of limitation on implementing a Member's advance
               directive should include at least the following information:

8.3.2. 1.1     a clarification of any differences between HMO's conscience
               objections and those which may be raised by the Member's PCP or
               other providers;

8.3.2.1.2      identification of the state legal authority permitting HMO's
               conscience objections to carrying out an advance directive; and

8.3.2.1.3      a description of the range of medical conditions or procedures
               affected by the conscience objection.

8.3.3          HMO cannot require a Member to execute or issue an advance
               directive as a condition for receiving health care services.

8.3.4          HMO cannot discriminate against a Member based on whether or not
               the Member has executed or issued an advance directive.

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8.3.5          HMO's policies and procedures must require HMO and subcontractor
               to comply with the requirements of state and federal law relating
               to advance directives. HMO must provide education and training to
               employees, Members, and the community on issues concerning
               advance directives.

8.3.6          All materials provided to Members regarding advance directives
               must be written at a 7th - 8th grade reading comprehension level,
               except where a provision is required by state or federal law and
               the provision cannot be reduced or modified to a 7th- 8th grade
               reading level because it is a reference to the law or is required
               to be included "as written" in the state or federal law. HMO must
               submit to TDH any revisions to existing approved advance
               directive materials.

8.3.7          HMO must notify Members of any changes in state or federal laws
               relating to advance directives within 90 days from the effective
               date of the change, unless the law or regulation contains a
               specific time requirement for notification.

8.4            MEMBER ID CARDS
               ---------------

8.4.1          A Medicaid Identification Form (Form 3087) is issued monthly by
               the TDHS. The form includes the "STAR" Program logo and the name
               and toll free number of the Member's health plan. A Member may
               have a temporary Medicaid Identification (Form 1027-A) which will
               include a STAR indicator.

8.4.2          HMO must issue a Member Identification Card (ID) to the Member
               within five (5) days from receiving the Enrollment File from the
               Enrollment Broker. If the 5th day falls on a weekend or state
               holiday, the ID Card must be issued by the following working day.
               The ID Card must include, at a minimum, the following: Member's
               name; Member's Medicaid number; either the issue date of the card
               or effective date of the PCP assignment; PCP's name, address, and
               telephone number; name of HMO; name of IPA to which the Member's
               PCP belongs, if applicable; the 24-hour, seven (7) day a week
               toll-free telephone number operated by HMO; the toll-free number
               for behavioral health care services; and directions for what to
               do in an emergency. The ID Card must be reissued if the Member
               reports a lost card, there is a Member name change, if Member
               requests a new PCP, or for any other reason which results in a
               change to the information disclosed on the ID Card.

8.5            MEMBER HOTLINE
               --------------

               HMO must maintain a toll-free Member telephone hotline 24 hours a
               day, seven days a week for Members to obtain assistance in
               accessing services under this contract. Telephone availability
               must be demonstrated through an abandonment rate of less than
               10%.

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8.6            MEMBER COMPLAINT PROCESS
               ------------------------

8.6.1          HMO must develop, implement and maintain a Member complaint
               system that complies with the requirements of Article 20A.12 of
               the Texas Insurance Code, relating to the Complaint System,
               except where otherwise provided in this contract and in
               applicable federal law. The complaint and appeals procedure must
               be the same for all Members and must comply with Texas Insurance
               Code, Article 20A.12 or applicable federal law. Modifications
               and amendments must be submitted to TDH at least 30 days prior to
               the implementation of the modification or amendment.

8.6.2          HMO must have written policies and procedures for receiving,
               tracking, reviewing, and reporting and resolving of Member
               complaints. The procedures must be reviewed and approved in
               writing by TDH. Any changes or modifications to the procedures
               must be submitted to TDH for approval thirty (30) days prior to
               the effective date of the amendment.

8.6.3          HMO must designate an officer of HMO who has primary
               responsibility for ensuring that complaints are resolved in
               compliance with written policy and within the time required. An
               "officer" of HMO means a president, vice president, secretary,
               treasurer, or chairperson of the board for a corporation, the
               sole proprietor, the managing general partner of a partnership,
               or a person having similar executive authority in the
               organization.

8.6.4          HMO must have a routine process to detect patterns of complaints
               and disenrollments and involve management and supervisory staff
               to develop policy and procedural improvements to address the
               complaints. HMO must cooperate with TDH and TDH's Enrollment
               Broker in Member complaints relating to enrollment and
               disenrollment.

8.6.5          HMO's complaint procedures must be provided to Members in writing
               and in alternative communication formats. A written description
               of HMO's complaint procedures must be in appropriate languages
               and easy for Members to understand. HMO must include a written
               description in the Member Handbook. HMO must maintain at least
               one local and one toll-free telephone number for making
               complaints.

8.6.6          HMO's process must require that every complaint received in
               person, by telephone or in writing, is recorded in a written
               record and is logged with the following details: date;
               identification of the individual filing the complaint;
               identification of the individual recording the complaint; nature
               of the complaint; disposition of the complaint; corrective action
               required; and date resolved.

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8.6.7          HMO's process must include a requirement that the Governing Body
               of HMO reviews the written records (logs) for complaints and
               appeals.

8.6.8          HMO is prohibited from discriminating against a Member because
               that Member is making or has made a complaint.

8.6.9          HMO cannot process requests for disenrollments through HMO's
               complaint procedures. Requests for disenrollments must be
               referred to TDH within five (5) business days after the Member
               makes a disenrollment request.

8.6.10         HMO must develop, implement and maintain an appeal of adverse
               determination procedure that complies with the requirements of
               Article 21.58A of the Texas Insurance Code, relating to the
               utilization review, except where otherwise provided in this
               contract and in applicable federal law. The appeal of an adverse
               determination procedure must be the same for all Members and must
               comply with Texas Insurance Code, Article 21.58A or applicable
               federal law. Modifications and amendments must be submitted to
               TDH no less than 30 days prior to the implementation of the
               modification or amendment. When an enrollee, a person acting on
               behalf of an enrollee, or an enrollee's provider of record
               expresses orally or in writing any dissatisfaction or
               disagreement with an adverse determination, HMO or UR agent must
               regard the expression of dissatisfaction as a request to appeal
               an adverse determination.

8.6.11         If a complaint or appeal of an adverse determination relates to
               the denial, delay, reduction, termination or suspension of
               covered services by either HMO or a utilization review agent
               contracted to perform utilization review by HMO, HMO must inform
               Members they have the right to access the TDH Fair Hearing
               process at any time in lieu of the internal complaint system
               provided by HMO. HMO is required to comply with the requirements
               contained in 1 TAC Chapter 357, relating to notice and Fair
               Hearings in the Medicaid program, whenever an action is taken to
               deny, delay, reduce, terminate or suspend a covered service.

8.6.12         If Members utilize HMO's internal complaint or appeal of adverse
               determination system and the complaint relates to the denial,
               delay, reduction, termination or suspension of covered services
               by either HMO or a utilization review agent contracted to perform
               utilization review by HMO, HMO must inform the Member that they
               continue to have a right to appeal the decision through the TDH
               Fair Hearing process.

8.6.13         The provisions of Article 21.58A, Texas Insurance Code, relating
               to a Member's right to appeal an adverse determination made by
               HMO or a utilization review agent by an independent review
               organization, do not apply to a Medicaid recipient. Federal fair

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               hearing requirements (Social Security Act ss.1902a(33), codified
               at 42 C.F.R. 431.200 et. seq.) require the agency to make a final
               decision after a fair hearing, which conflicts with the State
               requirement that the IRO make a final decision. Therefore, the
               State requirement is pre-empted by the federal requirement.

8.6.14         HMO will cooperate with the Enrollment Broker and TDH to resolve
               all Member complaints. Such cooperation may include, but is not
               limited to, participation by HMO or Enrollment Broker and/or TDH
               internal complaint committees.

8.6.15         HMO must have policies and procedures in place outlining the role
               of HMO's Medical Director in the Member Complaint System and
               appeal of an adverse determination. The Medical Director must
               have a significant role in monitoring, investigating and hearing
               complaints.

8.6.16         HMO must provide Member Advocates to assist Members in
               understanding and using HMO's complaint system and appeal of an
               adverse determination.

8.6.17         HMO's Member Advocates must assist Members in writing or filing a
               complaint or appeal of an adverse determination and monitoring
               the complaint or appeal through the Contractor's complaint or
               appeal of an adverse determination process until the issue is
               resolved.

8.7            MEMBER NOTICE, APPEALS AND FAIR HEARINGS
               ----------------------------------------

8.7.1          HMO must send Members the notice required by 1 Texas
               Administrative Code ss.357.5, whenever HMO takes an action to
               deny, delay, reduce or terminate covered services to a Member.
               The notice must be mailed to the Member no less than 10 days
               before HMO intends to take an action. If an emergency exists, or
               if the time within which the service must be provided makes
               giving 10 days notice impractical or impossible, notice must be
               provided by the most expedient means reasonably calculated to
               provide actual notice to the Member, including by phone, direct
               contact with the Member, or through the provider's office.

8.7.2          The notice must contain the following information:

8.7.2.1        Member's right to immediately access TDH's Fair Hearing process;

8.7.2.2        a statement of the action HMO will take;

8.7.2.3        the date the action will be taken;

8.7.2.4        an explanation of the reasons HMO will take the action;

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8.7.2.5        a reference to the state and/or federal regulations which support
               HMO's action;

8.7.2.6        an address where written requests may be sent and a toll-free
               number Member can call to: request the assistance of a Member
               representative, or file a complaint, or request a Fair Hearing;

8.7.2.7        a procedure by which Member may appeal HMO's action through
               either HMO's complaint process or TDH's Fair Hearings process;

8.7.2.8        an explanation that Members may represent themselves, or be
               represented by HMO's representative, a friend, a relative, legal
               counsel or another spokesperson;

8.7.2.9        an explanation of whether, and under what circumstances, services
               may be continued if a complaint is filed or a Fair Hearing
               requested;

8.7.2.10       a statement that if the Member wants a TDH Fair Hearing on the
               action, Member must make the request for a Fair Hearing within 90
               days of the date on the notice or the right to request a hearing
               is waived;

8.7.2.11       a statement explaining that HMO must make its decision within 30
               days from the date the complaint is received by HMO; and

8.7.2.12       a statement explaining that a final decision must be made by TDH
               within 90 days from the date a Fair Hearing is requested.

8.8            MEMBER ADVOCATES
               ----------------

8.8.1          HMO must provide Member Advocates to assist Members. Member
               Advocates must be physically located within the service area.
               Member Advocates must inform Members of their rights and
               responsibilities, the complaint process, the health education and
               the services available to them, including preventive services.

8.8.2          Member Advocates must assist Members in writing complaints and
               are responsible for monitoring the complaint through HMO's
               complaint process until the Member's issues are resolved or a TDH
               Fair Hearing requested (see Articles 8.6.15, 8.6.16, and 8.6.17).

8.8.3          Member Advocates are responsible for making recommendations to
               management on any changes needed to improve either the care
               provided or the way care is delivered. Member Advocates are also
               responsible for helping or referring Members to

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               community resources available to meet Member needs that are not
               available from HMO as Medicaid covered services.

8.8.4          Member Advocates must provide outreach to Members and participate
               in TDH-sponsored enrollment activities.

8.9            MEMBER CULTURAL AND LINGUISTIC SERVICES
               ---------------------------------------

8.9.1          Cultural Competency Plan. HMO must have a comprehensive written
               Cultural Competency Plan describing how HMO will ensure
               culturally competent services, and provide linguistic and
               disability-related access. The Plan must describe how the
               individuals and systems within HMO will effectively provide
               services to people of all cultures, races, ethnic backgrounds,
               and religions as well as those with disabilities in a manner that
               recognizes, values, affirms, and respects the worth of the
               individuals and protects and preserves the dignity of each. HMO
               must submit a written plan to TDH prior to the effective date of
               this contract unless previously submitted. Modifications and
               amendments to the written plan must be submitted to TDH no later
               than 30 days prior to implementation of the modification or
               amendment. The Plan must also be made available to HMO's network
               of providers.

8.9.2          The Cultural Competency Plan must include the following:

8.9.2.1        HMO's written policies and procedures for ensuring effective
               communication through the provision of linguistic services
               following Title VI of the Civil Rights Act guidelines and the
               provision of auxiliary aids and services, in compliance with the
               Americans with Disabilities Act, Title III, Department of Justice
               Regulation 36.303. HMO must disseminate these policies and
               procedures to ensure that both Staff and subcontractors are aware
               of their responsibilities under this provision of the contract.

8.9.2.2        A description of how HMO will educate and train its staff and
               subcontractors on culturally competent service delivery, and the
               provision of linguistic and/or disability related access as
               related to the characteristics of its Members;

8.9.2.3        A description of how HMO will implement the plan in its
               organization, identifying a person in the organization who will
               serve as the contact with TDH on the Cultural Competency Plan;

8.9.2.4        A description of how HMO will develop standards and performance
               requirements for the delivery of culturally competent care and
               linguistic access, and monitor adherence with those standards and
               requirements;

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8.9.2.5        A description of how HMO will provide outreach and health
               education to Members, including racial and ethnic minorities,
               non-English speakers or limited-English speakers, and those with
               disabilities; and

8.9.2.6        A description of how HMO will help Members access culturally and
               linguistically appropriate community health or social service
               resources;

8.9.3          Linguistic, Interpreter Services, and Provision of Auxiliary Aids
               and Services. HMO must provide experienced, professional
               interpreters when technical, medical, or treatment information is
               to be discussed. See Title VI of the Civil Rights Act of 1964, 42
               U.S.C.ss.ss.2000d, et seq. HMO must ensure the provision of
               auxiliary aids and services necessary for effective
               communication, as per the Americans with Disabilities Act, Title
               III, Department of Justice Regulations 36.303.

8.9.3.1        HMO must adhere to and provide to Members the Member Bill of
               Rights and Responsibilities as adopted by the Texas Health and
               Human Services Commission and contained at 1 Texas Administrative
               Code (TAC) ss.ss.353.202-353.203. The Member Bill of Rights and
               Responsibilities assures Members the right "to have interpreters,
               if needed, during appointments with their providers and when
               talking to their health plan. Interpreters include people who can
               speak in their native language, assist with a disability, or help
               them understand the information."

8.9.3.2        HMO must have in place policies and procedures that outline how
               Members can access face-to-face interpreter services in a
               provider's office if necessary to ensure the availability of
               effective communication regarding treatment, medical history or
               health education for a Member. HMOs must inform its providers on
               how to obtain an updated list of participating, qualified
               interpreters.

8.9.3.3        A competent interpreter is defined as someone who is:

8.9.3.4        proficient in both English and the other language;

8.9.3.5        has had orientation or training in the ethics of interpreting;
               and

8.9.3.6        has the ability to interpret accurately and impartially.

8.9.3.7        HMO must provide 24-hour access to interpreter services for
               Members to access emergency medical services within HMO's
               network.

8.9.3.8        Family Members, especially minor children, should not be used as
               interpreters in assessments, therapy or other medical situations
               in which impartiality and confidentiality are critical, unless
               specifically requested by the Member. However, a

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               family member or friend may be used as an interpreter if they can
               be relied upon to provide a complete and accurate translation of
               the information being provided to the Member; provided that the
               Member is advised that a free interpreter is available; and the
               Member expresses a preference to rely on the family member or
               friend.

8.9.4          All Member orientation presentations education classes and
               materials must be presented in the languages of the major
               population groups making up 10% or more of the Medicaid
               population in the service area, as specified by TDH. HMO must
               provide auxiliary aids and services, as needed, including
               materials in alternative formats (i.e., large print, tape or
               Braille), and interpreters or real-time captioning to accommodate
               the needs of persons with disabilities that affect communication.

8.9.5          HMO must provide or arrange access to TDD to Members who are deaf
               or hearing impaired.

8.10           On the date of the new Member's enrollment, TDH will provide HMOs
               with the Member's Medicaid certification date.

ARTICLE IX            MARKETING AND PROHIBITED PRACTICES

9.1            MARKETING MATERIAL MEDIA AND DISTRIBUTION
               -----------------------------------------

               HMOs may present their marketing materials to eligible Medicaid
               recipients through any method or media determined to be
               acceptable by TDH. The media may include but are not limited to:
               written materials, such as brochures, posters, or fliers which
               can be mailed directly to the Member or left at Texas Department
               of Human Services eligibility offices; TDH-sponsored community
               enrollment events; and paid or public service announcements on
               radio. All marketing materials must be approved by TDH prior to
               distribution (see Article 3.4).

9.2            MARKETING ORIENTATION AND TRAINING
               ----------------------------------

               HMO must require that all HMO staff having direct contact with
               Members as part of their job duties and their supervisors
               satisfactorily complete TDH's marketing orientation and training
               program prior to engaging in marketing activities on behalf of
               HMO. TDH will notify HMO of scheduled orientations.

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9.3            PROHIBITED MARKETING PRACTICES
               ------------------------------

9.3.1          HMO and its agents, subcontractors and providers are prohibited
               from engaging in the following marketing practices:

9.3.1.1        conducting any direct-contact marketing to prospective Members
               except through TDH-sponsored enrollment events;

9.3.1.2        making any written or oral statement containing material
               misrepresentations of fact or law relating to HMO's plan or the
               STAR program;

9.3.1.3        making false, misleading or inaccurate statements relating to
               services or benefits of HMO or the STAR program;

9.3.1.4        offering prospective Members anything of material or financial
               value as an incentive to enroll with a particular PCP or HMO; and

9.3.1.5        discriminating against an eligible Member because of race, creed,
               age, color, sex, religion, national origin, ancestry, marital
               status, sexual orientation, physical or mental handicap, health
               status, or requirements for health care services.

9.3.2          HMO may offer nominal gifts with a retail value of no more than
               $10 and/or free health screens to potential Members, as long as
               these gifts and free health screenings are offered whether or not
               the potential Member enrolls in their HMO. Free health screenings
               cannot be used to discourage less healthy potential Members from
               joining HMO. All gifts must be approved by TDH prior to
               distribution to Members. The results of free screenings must be
               shared with the Member's PCP if the Member enrolls with HMO
               providing the screen.

9.3.3          Marketing representatives may not conduct or participate in
               marketing activities for more than one HMO.

9.4            NETWORK PROVIDER DIRECTORY
               --------------------------

9.4.1          The provider directory and any revisions must be approved by TDH
               prior to publication and distribution to prospective Members (see
               Article 3.4.1 regarding the process for plan materials review).
               The directory must contain all critical elements specified by
               TDH. See Appendix D, Required Critical Elements, for specific
               details regarding content requirements.

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9.4.2          If HMO contracts with limited provider networks, the provider
               directory must comply with the requirements of 28 TAC 11.
               1600(b)(11), relating to the disclosure and notice of limited
               provider networks.

9.4.3          Updates to the provider directory must be provided to the
               Enrollment Broker at the beginning of each State fiscal year
               quarter. This includes the months of September, December, March
               and June. HMO is responsible for submitting draft updates to TDH
               only if changes other than PCP information are incorporated. HMO
               is responsible for sending three final paper copies and one
               electronic copy of the updated provider directory to TDH each
               quarter. If an electronic format is not available, five paper
               copies must be sent. TDH will forward two updated provider
               directories, along with its approval notice, to the Enrollment
               Broker to facilitate the distribution of the directories.

ARTICLE X                    MIS SYSTEM REQUIREMENTS

10.1           MODEL MIS REQUIREMENTS
               ----------------------

10.1.1         HMO must maintain an MIS that will provide support for all
               functions of HMO's processes and procedures related to the flow
               and use of data within HMO. The MIS must enable HMO to meet the
               requirements of this contract. The MIS must have the capacity and
               capability of capturing and utilizing various data elements to
               develop information for HMO administration.

10.1.2         HMO must maintain a claim retrieval service processing system
               that can identify date of receipt, action taken on all provider
               claims or encounters (i.e., paid, denied, other), and when any
               action was taken in real time.

10.1.3         HMO must have a system that can be adapted to the change in
               Business Practices/Policies within a short period of time.

10.1.4         HMO is required to submit and receive data as specified in this
               contract and HMO Encounter Data Submissions Manual. HMO must
               provide complete encounter data of all capitated services within
               the scope of services of the contract between HMO and TDH.
               Encounter data must follow the format, data elements and method
               of transmission specified in the contract and HMO Encounter Data
               Submissions Manual. HMO must submit encounter data, including
               adjustments to encounter data. The Encounter transmission will
               include all encounter data and encounter data adjustments
               processed by HMO for the previous month. Data quality validation
               will incorporate assessment standards developed jointly by HMO
               and TDH. Original records will be

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               made available for inspection by TDH for validation purposes.
               Data which do not meet quality standards must be corrected and
               returned within a time period specified by TDH.

10.1.5         HMO must use the procedure codes, diagnosis codes, and other
               codes used for reporting encounters and fee-for-service claims in
               the most recent edition of the Medicaid Provider Procedures
               Manual or as otherwise directed by TDH. Any exceptions will be
               considered on a code-by-code basis after TDH receives written
               notice from HMO requesting an exception. HMO must also use the
               provider numbers as directed by TDH for both encounter and
               fee-for-service claims submissions.

10.1.6         HMO must have hardware, software, network and communications
               system with the capability and capacity to handle and operate all
               MIS subsystems.

10.1.7         HMO must notify TDH of any changes to HMO's MIS department
               dedicated to or supporting this contract by Phase I of Renewal
               Review. Any updates to the organizational chart and the
               description of responsibilities must be provided to TDH at least
               30 days prior to the effective date of the change. Official
               points of contact must be provided to TDH on an on-going basis.
               An Internet E-mail address must be provided for each point of
               contact.

10.1.8         HMO must operate and maintain a MIS that meets or exceeds the
               requirements outlined in the Model MIS Guidelines that follow:

10.1.8.1       The Contractor's system must be able to meet all eight MIS Model
               Guidelines as listed below. The eight subsystems are used in the
               Model MIS Requirements to identify specific functions or features
               required by HMO's MIS. These subsystems focus on the individual
               systems functions or capabilities to support the following
               operational and administrative areas:

               (1)    Enrollment/Eligibility Subsystem

               (2)    Provider Subsystem

               (3)    Encounter/Claims Processing Subsystem

               (4)    Financial Subsystem

               (5)    Utilization/Quality Improvement Subsystem

               (6)    Reporting Subsystem

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               (7)    Interface Subsystem

               (8)    TPR Subsystem

10.2           SYSTEM-WIDE FUNCTIONS
               ---------------------

               HMO MIS system must include functions and/or features which must
               apply across all subsystems as follows:

               (1)    Ability to update and edit data.

               (2)    Maintain a history of changes and adjustments and audit
                      trails for current and retroactive data. Audit trails will
                      capture date, time, and reasons for the change, as well as
                      who made the change.

               (3)    Allow input mechanisms through manual and electronic
                      transmissions.

               (4)    Have procedures and processes for accumulating, archiving,
                      and restoring data in the event of a system or subsystem
                      failure.

               (5)    Maintain automated or manual linkages between and among
                      all MIS subsystems and interfaces.

               (6)    Ability to relate Member and provider data with
                      utilization, service, accounting data, and reporting
                      functions.

               (7)    Ability to relate and extract data elements into summary
                      and reporting formats attached as Appendices to contract.

               (8)    Must have written process and procedures manuals which
                      document and describe all manual and automated system
                      procedures and processes for all the above functions and
                      features, and the various subsystem components.

               (9)    Maintain and cross-reference all Member-related
                      information with the most current Medicaid number.

10.3           ENROLLMENT/ELIGIBILITY SUBSYSTEM
               --------------------------------

               The Enrollment/Eligibility Subsystem is the central processing
               point for the entire MIS. It must be constructed and programmed
               to secure all functions which require Membership data. It must
               have functions and/or features which support requirements as
               follows:

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               (1)    Identify other health coverage available or third party
                      liability (TPL), including type of coverage and effective
                      dates.

               (2)    Maintain historical data (files) as required by TDH.

               (3)    Maintain data on enrollments/disenrollments and complaint
                      activities. The data must include reason or type of
                      disenrollment, complaint, and resolution--by incident.

               (4)    Receive, translate, edit and update files in accordance
                      with TDH requirements prior to inclusion in HMO's MIS.
                      Updates will be received from TDH's agent and processed
                      within two working days after receipt.

               (5)    Provide error reports and a reconciliation process between
                      new data and data existing in MIS.

               (6)    Identify enrollee changes in primary care provider and the
                      reason(s) for those changes and effective dates.

               (7)    Monitor PCP capacity and limitations prior to connecting
                      the enrollee to PCP in the system, and provide a kick-out
                      report when capacity and limitations are exceeded.

               (8)    Verify enrollee eligibility for medical services rendered
                      or for other enrollee inquiries.

               (9)    Generate and track referrals, e.g., Hospitals/Specialists.

               (10)   Search records by a variety of fields (e.g., name, unique
                      identification numbers, date of birth, SSN, etc.) for
                      eligibility verification.

               (11)   Send PCP assignment updates to TDH in the format as
                      specified by TDH.

10.4           PROVIDER SUBSYSTEM
               ------------------

               The provider subsystem must accept, process, store and retrieve
               current and historical data on providers, including services,
               payment methodology, license information, service capacity, and
               facility linkages.

               Functions and Features:

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               (1)    Identify specialty(s), admission privileges, enrollee
                      linkage, capacity, facility linkages, emergency
                      arrangements or contact, and other limitations,
                      affiliations, or restrictions.

               (2)    Maintain provider history files to include audit trails
                      and effective dates of information.

               (3)    Maintain provider fee schedules/remuneration agreements to
                      permit accurate payment for services based on the
                      financial agreement in effect on the date of service.

               (4)    Support HMO credentialing, recredentialing, and credential
                      tracking processes; incorporates or links information to
                      provider record.

               (5)    Support monitoring activity for physician to enrollee
                      ratios (actual to maximum) and total provider enrollment
                      to physician and HMO capacity.

               (6)    Flag and identify providers with restrictive conditions
                      (e.g., limits to capacity, type of patient, age
                      restrictions, and other services if approved
                      out-of-network).

               (7)    Support national provider number format (UPIN, NPIN, CLIA,
                      etc., as required by TDH).

               (8)    Provide provider network files 90 days prior to
                      implementation and updates monthly. Format will be
                      provided by TDH to contracted entities.

               (9)    Support the national CLIA certification numbers for
                      clinical laboratories.

               (10)   Exclude providers from participation that have been
                      identified by TDH as ineligible or excluded. Files must be
                      updated to reflect period and reason for exclusion.

10.5           ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
               -------------------------------------

               The encounter/claims processing subsystem must collect, process,
               and store data on all health care services delivered for which
               HMO is responsible. The functions of these subsystems are
               claims/encounter processing and capturing health service
               utilization data. The subsystem must capture all health care
               services, including medical supplies, using standard codes (e.g.
               CPT-4, HCPCS, ICD9-CM UB92 Revenue Codes), rendered by
               health-care providers to an eligible enrollee regardless of
               payment arrangement (e.g. capitation or fee-for-service). It
               approves, prepares for

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               payment, or may reject or deny claims submitted. This subsystem
               may integrate manual and automated systems to validate and
               adjudicate claims and encounters. HMO must use encounter data
               validation methodologies prescribed by TDH.

               Functions and Features:

               (1)    Accommodate multiple input methods: electronic submission,
                      tape, claim document, and media.

               (2)    Support entry and capture of a minimum of all required
                      data elements specified in the Encounter Data Submission
                      Manual.

               (3)    Edit and audit to ensure allowed services are provided by
                      eligible providers for Members.

               (4)    Interface with Member and provider subsystems.

               (5)    Capture and report TPL potential, reimbursement or denial.

               (6)    Edit for utilization and service criteria, medical policy,
                      fee schedules, multiple contracts, contract periods and
                      conditions.

               (7)    Submit data to TDH through electronic transmission using
                      specified formats.

               (8)    Support multiple fee schedule benefit packages and
                      capitation rates for all contract periods for individual
                      providers, groups, services, etc. A claim encounter must
                      be initially adjudicated and all adjustments must use the
                      fee applicable to the date of service.

               (9)    Provide timely, accurate, and complete data for monitoring
                      claims processing performance.

               (10)   Provide timely, accurate, and complete data for reporting
                      medical service utilization.

               (11)   Maintain and apply prepayment edits to verify accuracy and
                      validity of claims data for proper adjudication.

               (12)   Maintain and apply edits and audits to verify timely,
                      accurate, and complete encounter data reporting.

               (13)   Submit reimbursement to non-contracted providers for
                      emergency care rendered to enrollees in a timely and
                      accurate fashion.

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               (14)   Validate approval and denials of precertification and
                      prior authorization requests during adjudication of
                      claims/encounters.

               (15)   Track and report the exact date a service was performed.
                      Use of date ranges must have State approval.

               (16)   Receive and capture claim and encounter data from TDH.

               (17)   Receive and capture value-added services codes.

               (18)   Capability of identifying adjustments and linking them to
                      the original claims/encounters.

10.6           FINANCIAL SUBSYSTEM
               -------------------

               The financial subsystem must provide the necessary data for 100%
               of all accounting functions including cost accounting, inventory,
               fixed assets, payroll, general ledger, accounts receivable,
               accounts payable, financial statement presentation, and any
               additional data required by TDH. The financial subsystem must
               provide management with information that can demonstrate that the
               proposed or existing HMO is meeting, exceeding, or failing short
               of fiscal goals. The information must also provide management
               with the necessary data to spot the early signs of fiscal
               distress, far enough in advance to allow management to take
               corrective action where appropriate.

               Functions and Features:

               (1)    Provide information on HMO's economic resources, assets,
                      and liabilities and present accurate historical data and
                      projections based on historical performance and current
                      assets and liabilities.

               (2)    Produce financial statements in conformity with Generally
                      Accepted Accounting Principles (GAAP) and in the format
                      prescribed by TDH.

               (3)    Provide information on potential third party payers;
                      information specific to the Member; claims made against
                      third party payers; collection amounts and dates; denials,
                      and reasons for denials.

               (4)    Track and report savings by category as a result of cost
                      avoidance activities.

               (5)    Track payments per Member made to network providers
                      compared to utilization of the provider's services.

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               (6)    Generate Remittance and Status Reports.

               (7)    Make claim and capitation payments to providers or groups.

               (8)    Reduce/increase accounts payable/receivable based on
                      adjustments to claims or recoveries from third party
                      resources.

10.7           UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM
               -----------------------------------------

               The quality management/quality improvement/utilization review
               subsystem combines data from other subsystems, and/or external
               systems, to produce reports for analysis which focus on the
               review and assessment of quality of care given, detection of over
               and under utilization, and the development of user defined
               reporting criteria and standards. This system profiles
               utilization of providers and enrollees and compares them against
               experience and norms for comparable individuals. This system also
               supports the quality assessment function.

               The subsystem tracks utilization control function(s) and
               monitoring inpatient admissions, emergency room use, ancillary,
               and out-of-area services. It provides provider profiles,
               occurrence reporting, and monitoring and evaluation studies. The
               subsystem may integrate HMO's manual and automated processes or
               incorporate other software reporting and/or analysis programs.

               The subsystem incorporates and summarizes information from
               enrollee surveys, provider and enrollee complaints, and appeal
               processes.

               Functions and Features:

               (1)    Supports provider credentialing and recredentialing
                      activities.

               (2)    Supports HMO processes to monitor and identify deviations
                      in patterns of treatment from established standards or
                      norms. Provides feedback information for monitoring
                      progress toward goals, identifying optimal practices, and
                      promoting continuous improvement.

               (3)    Supports development of cost and utilization data by
                      provider and service.

               (4)    Provides aggregate performance and outcome measures using
                      standardized quality indicators similar to HEDIS or as
                      specified by TDH.

               (5)    Supports quality-of-care Focused Studies.

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               (6)    Supports the management of referral/utilization control
                      processes and procedures, including prior authorization
                      and precertifications and denials of services.

               (7)    Monitors primary care provider referral patterns.

               (8)    Supports functions of reviewing access, use and
                      coordination of services (i.e. actions of Peer Review and
                      alert/flag for review and/or follow-up; laboratory, x-ray
                      and other ancillary service utilization per visit).

               (9)    Stores and reports patient satisfaction data through use
                      of enrollee surveys.

               (10)   Provides fraud and abuse detection, monitoring and
                      reporting.

               (11)   Meets minimum report/data collection/analysis functions of
                      Article XI and Appendix A - Standards For Quality
                      Improvement Programs.

               (12)   Monitors and tracks provider and enrollee complaints and
                      appeals from receipt to disposition or resolution by
                      provider.

10.8           REPORT SUBSYSTEM
               ----------------

               The reporting subsystem supports reporting requirements of all
               HMO operations to HMO management and TDH. It allows HMO to
               develop various reports to enable HMO management and TDH to make
               decisions regarding HMO activity.

               Functions and Capabilities:

               (1)    Produces standard, TDH-required reports and ad hoc reports
                      from the data available in all MIS subsystems. All reports
                      will be submitted as a paper copy or electronically in a
                      format approved by TDH.

               (2)    Have system flexibility to permit the development of
                      reports at irregular periods as needed.

               (3)    Generate reports that provide unduplicated counts of
                      enrollees, providers, payments and units of service unless
                      otherwise specified.

               (4)    Generate an alphabetic Member listing.

               (5)    Generate a numeric Member listing.

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               (6)    Generate a Member eligibility listing by PCP (panel
                      report).

               (7)    Report on PCP change by reason code.

               (8)    Report on TPL (COB) information to TDH.

               (9)    Report on provider capacity and assignment from date of
                      service to date received.

               (10)   Generate or produce an aged outstanding liability report.

               (11)   Produce a Member ID Card.

               (12)   Produce Member/provider mailing labels.

10.9           DATA INTERFACE SUBSYSTEM
               ------------------------

10.9.1         The interface subsystem supports incoming and outgoing data from
               and to other organizations. It allows HMO to maintain enrollee,
               benefit package, eligibility, disenrollment/enrollment status,
               and medical services received outside of capitated services and
               associated cost. All interfaces must follow the specifications
               frequencies and formats listed in the Interface Manual.

10.9.2         HMO must obtain access to the TexMedNet BBS. Some file transfers
               and E-mail will be handled through this mechanism.

10.9.3         Provider Network File. The provider file shall supply Network
               Provider data between an HMO and TDH. This process shall
               accomplish the following:

               (1)    Provide identifying information for all managed care
                      providers (e.g. name, address, etc.).

               (2)    Maintain history on provider enrollment/disenrollment.

               (3)    Identify PCP capacity.

               (4)    Identify any restrictions (e.g., age, sex, etc.).

               (5)    Identify number and types of specialty providers available
                      to Members.

10.9.4         Eligibility/Enrollment Interface. The enrollment interface must
               provide eligibility data between TDH and HMOs.

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               (1)    Provides benefit package data to HMOs in accordance with
                      capitated services.

               (2)    Provides PCP assignments.

               (3)    Provides Member eligibility status data.

               (4)    Provides Member demographics data.

               (5)    Provides HMOs with cross-reference data to identify
                      duplicate Members.

10.9.5         Encounter/Claim Data Interface. The encounter/claim interface
               must transfer paid fee-for-service claims data to HMOs and
               capitated services/encounters from HMO, including adjustments.
               This file will include all service types, such as inpatient,
               outpatient, and medical services. TDH's agent will process claims
               for non-capitated services.

10.9.6         Capitation Interface. The capitation interface must transfer
               premium and Member information to HMO. This interface's basic
               purpose is to balance HMO's Members and premium amount.

10.9.7         TPR Interface. TDH will provide a data file that contains
               information on enrollees that have other insurance. Because
               Medicaid is the payer of last resort, all services and encounters
               should be billed to the other insurance companies for recovery.
               TDH will also provide an insurance company data file which
               contains the name and address of each insurance company.

10.9.8         TDH will provide a diagnosis file which will give the code and
               description of each diagnosis permitted by TDH.

10.9.9         TDH will provide a procedure file which contains the procedures
               which must be used on all claims and encounters. This file
               contains HCPCS, revenue, and ICD9-CM surgical procedure codes.

10.9.10        TDH will provide a provider file that contains the Medicaid
               provider numbers, and the provider's names and addresses. The
               provider number authorized by TDH must be submitted on all
               claims, encounters, and network provider submissions.

10.10          TPR SUBSYSTEM
               -------------

               HMO's third party recovery system must have the following
               capabilities and capacities:

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               (1)    Identify, store, and use other health coverage available
                      to eligible Members or third party liability (TPL)
                      including type of coverage and effective dates.

               (2)    Provide changes in information to TDH as specified by TDH.

               (3)    Receive TPL data from TDH to be used in claim and
                      encounter processing.

10.11          YEAR 2000 (Y2K) COMPLIANCE
               --------------------------

10.11.1        HMO must take all appropriate measures to make all software which
               will record, store, and process and present calendar dates
               failing on or after January 1, 2000, perform in the same manner
               and with the same functionality, data integrity and performance,
               as dates falling on or before December 31, 1999, at no added cost
               to TDH. HMO must take all appropriate measures to ensure that the
               software will not lose, alter or destroy records containing dates
               falling on or after January 1, 2000. HMO will ensure that all
               software will interface and operate with all TDH, or its agent's,
               data systems which exchange data, including but not limited to
               historical and archived data. In addition, HMO guarantees that
               the year 2000 leap year calculations will be accommodated and
               will not result in software, firmware or hardware failures.

10.11.2        TDH and all subcontracted entities are required by state and
               federal law to meet Y2K compliance standards. Failure of TDH or a
               TDH contractor other than an HMO to meet Y2K compliance standards
               which results in an HMO's failure to meet the Y2K requirements of
               this contract is a defense of an HMO against a declaration by TDH
               of default by an HMO under this contract.

ARTICLE XI            QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.1           QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM
               ----------------------------------------

               HMO must develop, maintain, and operate a Quality Improvement
               Program (QIP) system which complies with federal regulations
               relating to Quality Assurance systems, found at 42 C.F.R.
               ss.434.34. The system must meet the Standards for Quality
               Improvement Programs contained in Appendix A.

11.2           WRITTEN QIP PLAN
               ----------------

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               HM0 must have on file with TDH an approved plan describing its
               Quality Improvement Plan (QIP), including how HMO will accomplish
               the activities pertaining to each Standard (I-XVI) in Appendix A.
               Modifications and amendments must be submitted to TDH no later
               than 60 days prior to the implementation of the modification or
               amendment.

11.3           QIP SUBCONTRACTING
               ------------------

               If HMO subcontracts any of the essential functions or reporting
               requirements of QIP to another entity, HMO must maintain a file
               of the subcontractors. The file must be available for review by
               TDH or its designee upon request. HMO must notify TDH no later
               than 90 days prior to terminating any subcontract affecting a
               major performance function of this contract (see Article
               3.2.1.2).

11.4           ACCREDITATION

               -------------

               If HMO is accredited by an external accrediting agency,
               documentation of accreditation must be provided to TDH. HMO must
               provide TDH with their accreditation status upon request.

11.5           BEHAVIORAL HEALTH INTEGRATION INTO QIP
               --------------------------------------

               HMO must integrate behavioral health into its QIP system and
               include a systematic and on-going process for monitoring,
               evaluating, and improving the quality and appropriateness of
               behavioral health care services provided to Members. HMO's QIP
               must enable HMO to collect data, monitor and evaluate for
               improvements to physical health outcomes resulting from
               behavioral health integration into the overall care of the
               Member.

11.6           QIP REPORTING REQUIREMENTS
               --------------------------

               HMO must meet all of the QIP Reporting Requirements contained in
               Article XII.

ARTICLE XII           REPORTING REQUIREMENTS

12.1           FINANCIAL REPORTS
               -----------------

12.1.1         Monthly MCFS Report. HMO must submit the Managed Care
               Financial-Statistical Report (MCFS) included in Appendix I. The
               report must be submitted to TDH no later than 30 days after the
               end of each state fiscal year quarter (i.e., Dec. 30, March

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               30, June 30, Sept. 30) and must include complete financial and
               statistical information for each month. The MCFS Report must be
               submitted for each claims processing subcontractor in accordance
               with this Article. HMO must incorporate financial and statistical
               data received by its delegated networks (IPAs, ANHCs, Limited
               Provider Networks) in its MCFS Report.

12.1.2         For any given month in which an HMO has a net loss of $200,000 or
               more for the contract period to date, HMO must submit an MCFS
               Report for that month by the 30th day after the end of the
               reporting month. The MCFS Report must be completed in accordance
               with the Instructions for Completion of the Managed Care
               Financial-Statistical Report developed by TDH.

12.1.3         An HMO must submit monthly reports for each of the first 6 months
               following the Implementation Date. If the cumulative net loss for
               the contract period to date after the 6th month is less than
               $200,000, HMO may submit quarterly reports in accordance with the
               above provisions unless the condition in Article 12.1.2 exists,
               in which case monthly reports must be submitted.

12.1.4         Final MCFS Reports. HMO must file two Final Managed Care
               Financial- Statistical Reports. The first final report must
               reflect expenses incurred through the 90th day after the end of
               the contract year. The first final report must be filed on or
               before the 120th day after the end of the contract year. The
               second final report must reflect data completed through the 334th
               day after the end of the contract year and must be filed on or
               before the 365th day following the end of the contract year.

12.1.5         Administrative expenses reported in the monthly and Final MCFS
               Reports must be reported in accordance with Appendix L, Cost
               Principles for Administrative Expenses. Indirect administrative
               expenses must be based on an allocation methodology for Medicaid
               managed care activities and services that is developed or
               approved by TDH.

12.1.6         Affiliate Report. HMO must submit an Affiliate Report to TDH if
               this information has changed since the last report was submitted.
               The report must contain the following information:

12.1.6.1       A listing of all Affiliates; and

12.1.6.2       A schedule of all transactions with Affiliates which, under the
               provisions of this Contract, will be allowable as expenses in
               either Line 4 or Line 5 of Part 1 of the MCFS Report for services
               provided to HMO by the Affiliates for the prior approval of TDH.
               Include financial terms, a detailed description of the services
               to be provided,

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               and an estimated amount which will be incurred by HMO for such
               services during the Contract period.

12.1.7         Annual Audited Financial Report. On or before June 30th of each
               year, HMO must submit to TDH a copy of the annual audited
               financial report filed with TDI.

12.1.8         Form HCFA-1513. HMO must file an updated Form HCFA-1513 regarding
               control, ownership, or affiliation of HMO 30 days prior to the
               end of the contract year. An updated Form HCFA 1513 must also be
               filed no later than 30 days after any change in control,
               ownership, or affiliation of HMO. Forms may be obtained from TDH.

12.1.9         Section 1318 Financial Disclosure Report. HMO must file an
               updated HCFA Public Health Service (PHS) "Section 1318 Financial
               Disclosure Report" no later than 30 days after the end of the
               contract year and no later than 30 days after entering into,
               renewing, or terminating a relationship with an affiliated party.
               These forms may be obtained from TDH.

12.1.10        TDI Examination Repo Report. HMO must furnish a copy of any TDI
               Examination Report no later than 10 days after receipt of the
               final report from TDI.

12.1.11        IBNR Plan. HMO must furnish a written IBNR Plan to manage
               incurred-but-not-reported (IBNR) expenses, and a description of
               the method of insuring against insolvency, including information
               on all existing or proposed insurance policies. The Plan must
               include the methodology for estimating IBNR. The plan and
               description must be submitted to TDH no later than 60 days after
               the effective date of this contract, unless previously submitted
               to TDH. Changes to the IBNR plan and description must be
               submitted to TDH no later than 30 days before changes to the plan
               are implemented by HMO.

12.1.12        Third Party Recovery (TPR) Reports. HMO must file quarterly Third
               Party Recovery (TPR) Reports in accordance with the format
               developed by TDH. TPR reports must include total dollars
               recovered from third party payers for services to HMO's Members
               for each month and the total dollars recovered through
               coordination of benefits, subrogation, and worker's compensation.

12.1.13        Each report required under this Article must be mailed to: Bureau
               of Managed Care; Texas Dept. of Health; 1100 West 49th Street;
               Austin, TX 78756-3168 (Exception: The MCFS Report may be
               submitted to TDH via E-mail). HMO must also mail a copy of the
               reports, except for items in Article 12.1.7 and Article 12.1.10
               to Texas Department of Insurance, Mail Code 106-3A, HMO Division,
               Attention: HMO Division Director, P.O. Box 149104, Austin, TX
               78714-9104.

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12.2           STATISTICAL REPORTS
               -------------------

12.2.1         HMO must electronically file the following monthly reports: (1)
               encounter; (2) encounter detail; (3) institutional; (4)
               institutional detail; and (5) claims detail for cost-reimbursed
               services filed, if any, with HMO. Encounter data must include the
               data elements, follow the format, and use the transmission method
               specified by TDH in the Encounter Data Submission Manual.
               Encounters must be submitted by HMO to TDH no later than 45 days
               after the date of adjudication (finalization) of the claims.

12.2.2         Monthly reports must include current month encounter data and
               encounter data adjustments to the previous month's data.

12.2.3         Data quality standards will be developed jointly by HMO and TDH.
               Encounter data must meet or exceed data quality standards. Data
               that does not meet quality standards must be corrected and
               returned within the period specified by TDH. Original records
               must be made available to validate all encounter data.

12.2.4         HMO must require providers to submit claims and encounter data to
               HMO no later than 95 days after the date services are provided.

12.2.5         HMO must use the procedure codes, diagnosis codes and other codes
               contained in the most recent edition of the Texas Medicaid
               Provider Procedures Manual and as otherwise provided by TDH.
               Exceptions or additional codes must be submitted for approval
               before HMO uses the codes.

12.2.6         HMO must use its TDH-specified identification numbers on all
               encounter data submissions. Please refer to the TDH Encounter
               Data Submission Manual for further specifications.

12.2.7         HMO must validate all encounter data using the encounter data
               validation methodology prescribed by TDH prior to submission of
               encounter data to TDH.

12.2.8         All Claims Summary Report. HMO must submit the "All Claims
               Summary Report" identified in the Texas Managed Care Claims
               Manual as a contract year-to-date report. The report must be
               submitted quarterly by the last day of the month following the
               reporting period. The reports must be submitted to TDH in a
               format specified by TDH.

12.2.9         Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must
               file preliminary and final Medicaid Disproportionate Share
               Hospital (DSH) reports, required by TDH to identify and reimburse
               hospitals that qualify for Medicaid DSH funds. The preliminary
               and final DSH reports must include the data elements and be

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               submitted in the form and format specified by TDH. The
               preliminary DSH reports are due on or before June 1 of the year
               following the state fiscal year for which data is being reported.
               The final DSH reports are due on or before August 15 of the year
               following the state fiscal year for which data is being reported.

12.3           ARBITRATION/LITIGATION CLAIMS REPORT
               ------------------------------------

               HMO must submit an Arbitration/Litigation Claims Report in a
               format provided by TDH (see Appendix M) identifying all provider
               or HMO requests for arbitration or matters in litigation. The
               report must be submitted within 30 days from the date the matter
               is referred to arbitration or suit is filed, or whenever there is
               a change of status in a matter referred to arbitration or
               litigation.

12.4           SUMMARY REPORT OF PROVIDER COMPLAINTS
               -------------------------------------

               HMO must submit a Summary Report of Provider Complaints. HMO must
               also report complaints submitted to its subcontracted risk groups
               (e.g., IPAs). The complaint report must be submitted in two paper
               copies and one electronic copy on or before the 45 days following
               the end of the state fiscal quarter using a form specified by
               TDH.

12.5           PROVIDER NETWORK REPORTS
               ------------------------

12.5.1         Provider Network Report. HMO must submit to the Enrollment Broker
               an electronic file summarizing changes in HMO's provider network
               including PCPs, specialists, ancillary providers and hospitals.
               The file must indicate if the PCPs and specialists participate in
               a closed network and the name of the delegated network. The
               electronic file must be submitted in the format specified by TDH
               and can be submitted as often as daily but must be submitted at
               least weekly.

12.5.2         Provider Termination Report. HMO must submit a monthly report
               which identifies any providers who cease to participate in HMO's
               provider network, either voluntarily or involuntarily. The report
               must be submitted to TDH in the format specified by TDH. HMO will
               submit the report no later than thirty (30) days after the end of
               the reporting month. The information must include the provider's
               name, Medicaid number, the reason for the provider's termination,
               and whether the termination was voluntary or involuntary.

12.6           MEMBER COMPLAINTS
               -----------------

               HMO must submit a quarterly summary report of Member complaints.
               HMO must also report complaints submitted to its subcontracted
               risk groups (e.g., IPAs). The

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               complaint report format must be submitted to TDH as two paper
               copies and one electronic copy on or before 45 days following the
               end of the state fiscal quarter using a form specified by TDH.

12.7           FRAUDULENT PRACTICES
               --------------------

               HMO must report all fraud and abuse enforcement actions or
               investigations taken against HMO and/or any of its subcontractors
               or providers by any state or federal agency for fraud or abuse
               under Title XVIII or Title XIX of the Social Security Act or any
               State law or regulation and any basis upon which an action for
               fraud or abuse may be brought by a State or federal agency as
               soon as such information comes to the attention of HMO.

12.8           UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
               --------------------------------------------------

               Behavioral health (BH) utilization management reports are
               required on a semi-annual basis with submission of data files
               that are, at a minimum, due to TDH or its designee, on a
               quarterly basis no later than 150 days following the end of the
               period. Refer to Appendix H for the standardized reporting format
               for each report and detailed instructions for obtaining the
               specific data required in the report and for data file submission
               specifications. The BH utilization report and data file
               submission instructions may periodically be updated by TDH to
               facilitate clear communication to the health plan.

12.9           UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
               ------------------------------------------------

               Physical health (PH) utilization management reports are required
               on a semi-annual basis with submission of data files that are, at
               a minimum, due to TDH or its designee on a quarterly basis no
               later than 150 days following the end of the period. Refer to
               Appendix J for the standardized reporting format for each report
               and detailed instructions for obtaining specific data required in
               the report and for data file submission specifications. The PH
               Utilization Management Report and data file submission
               instructions may periodically be updated by TDH to facilitate
               clear communication to the health plan.

12.10          QUALITY IMPROVEMENT REPORTS
               ---------------------------

12.10.1        HMO must conduct health Focused Studies in well child and
               pregnancy, and a study chosen by HMO that may be performed in the
               areas of behavioral health care, asthma, or other chronic
               conditions. Well child and pregnancy studies shall be conducted
               and data collected using criteria and methods developed by TDH.
               The following format shall be utilized:

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               (1)    Executive Summary.

               (2)    Definition of the population and health areas of concern.

               (3)    Clinical guidelines/standards, quality indicators, and
                      audit tools.

               (4)    Sources of information and data collection methodology.

               (5)    Data analysis and information/results.

               (6)    Corrective actions if any, implementation, and follow-up
                      plans including monitoring, assessment of effectiveness,
                      and methods for provider feedback.

12.10.2        Annual Focused Studies. Focused Studies on well child, pregnancy,
               and a study chosen by the plan, must be submitted to TDH
               according to due dates established by TDH.

12.10.3        Annual QIP Summary Report. An annual QIP summary report must be
               conducted yearly based on the state fiscal year. The annual QIP
               summary report must be submitted by March 31 of each year. This
               report must provide summary information on HMO's QIP system and
               include the following:

               (1)    Executive summary of QIP - include results of all QI
                      reports and interventions.

               (2)    Activities pertaining to each standard (I through XVI) in
                      Appendix A. Report must list each standard.

               (3)    Methodologies for collecting, assessing data and measuring
                      outcomes.

               (4)    Tracking and monitoring quality of care.

               (5)    Role of health professionals in QIP review.

               (6)    Methodology for collection data and providing feedback to
                      provider and staff.

               (7)    Outcomes and/or action plan.

12.10.4        Provider Medical Record Audit and Report. HMO is required to
               conform to commonly accepted medical record standards such as
               those used by, NCQA, JCAHO, or those used for credentialing
               review such as the Texas Environment of Care Assessment Program
               (TECAP), and have documentation on file at HMO for review by TDH
               or its designee during an on-site review.

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<PAGE>

12.11          HUB REPORTS
               -----------

               HMO must submit quarterly reports documenting HMO's HUB program
               efforts and accomplishments. The report must include a narrative
               description of HMO's program efforts and a financial report
               reflecting payments made to HUB. HMO must use the format included
               in Appendix B for HUB quarterly reports. For HUB Certified
               Entities: HMO must include the General Service Commission (GSC)
               Vendor Number and the ethnicity/gender under which a contracting
               entity is registered with GSC. For HUB Qualified (but not
               certified) Entities: HMO must include the ethnicity/gender of the
               major owner(s) (51%) of the entity. Any entities for which HMO
               cannot provide this information, cannot be included in the HUB
               report. For both types of entities, an entity will not be
               included in the HUB report if HMO does not list ethnicity/gender
               information.

12.12          THSTEPS REPORTS
               ---------------

               Minimum reporting requirements. HMO must submit, at a minimum,
               80% of all THSteps checkups on HCFA 1500 claim forms as part of
               the encounter file submission to the TDH Claims Administrator no
               later than thirty (30) days after the date of final adjudication
               (finalization) of the claims. Failure to comply with these
               minimum reporting requirements will result in Article XVIII
               sanctions and money damages.

ARTICLE XIII          PAYMENT PROVISIONS

13.1           CAPITATION AMOUNTS
               ------------------

13.1.1         TDH will pay HMO monthly premiums calculated by multiplying the
               number of Member months by Member risk group times the monthly
               capitation amount by Member risk group. HMO and network providers
               are prohibited from billing or collecting any amount from a
               Member for health care services covered by this contract, in
               which case the Member must be informed of such costs prior to
               providing non-covered services.

13.1.2         Delivery Supplemental Payment (DSP). TDH has submitted the
               delivery supplemental payment methodology to HCFA for approval.
               The monthly capitation amounts established for each risk group in
               the Bexar Service Area using the DSP methodology will apply only
               if the methodology is approved by HCFA, and the methodology is
               implemented for all HMO's in all existing service areas by

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<PAGE>

               contract. The monthly capitation amounts for September 1, 1999,
               through August 31, 2000 and the DSP amount are listed below and
               will supersede the standard Methodology of Article 13.1.3 upon
               approval by HCFA.

               -----------------------------------------------------------------
               Risk Group                         Monthly Capitation Amounts
                                                  September 1, 1999 - August 31,
                                                  2000

               -----------------------------------------------------------------
               TANF Adults                                 $153.73
               -----------------------------------------------------------------
               TANF Children > 12 Months                   $ 49.87
               of Age
               -----------------------------------------------------------------
               Expansion Children > 12                     $ 59.18
               Months of Age
               -----------------------------------------------------------------
               Newborns (< 12 Months of                    $375.31
               Age)
               -----------------------------------------------------------------
               TANF Children < 12 Months                   $375.31
               of Age
               -----------------------------------------------------------------
               Expansion Children < 12                     $375.31
               Months of Age
               -----------------------------------------------------------------
               Federal Mandate Children                    $ 42.25
               -----------------------------------------------------------------
               CHIP Phase I                                $ 76.34
               -----------------------------------------------------------------
               Pregnant Women                              $241.86
               -----------------------------------------------------------------
               Disabled/Blind Administration               $ 14.00
               -----------------------------------------------------------------

               Delivery Supplemental Payment: A one-time per pregnancy
               supplemental payment for each delivery shall be paid to HMO as
               provided below in the following amount: $2,834.10.

13.1.2.1       HMO will receive a DSP for each live or still birth. The one-time
               payment is made regardless of whether there is a single or
               multiple births at time of delivery. A delivery is the birth of a
               liveborn infant, regardless of the duration of the pregnancy, or
               a stillborn (fetal death) infant of 20 weeks or more gestation. A
               delivery does not

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<PAGE>

               include a spontaneous or induced abortion, regardless of the
               duration pregnancy.

13.1.2.2       For an HMO Member who is classified in the Pregnant Women, TANF
               Adults, TANF Children >12 months, Expansion Children >12 months,
               Federal Mandate Children >12 months, or CHIP risk group, HMO will
               be paid the monthly capitation amount identified in Article
               13.1.2 for each month of classification, plus the DSP amount
               identified in Article 13.1.2.

13.1.2.3       HMO must submit a monthly DSP Report (report) that includes the
               data elements specified by TDH. TDH will consult with contracted
               HMOs prior to revising the report data elements and requirements.
               The reports must be submitted to TDH in the format and time
               specified by TDH. The report must include only unduplicated
               deliveries. The report must include only deliveries for which HMO
               has made a payment for the delivery, to either a hospital or
               other provider. No DSP will be made for deliveries which are not
               reported by HMO to TDH within 90 days from the receipt of claim,
               or within 30 days from the date of discharge from the hospital
               for the stay related to the delivery, whichever is later.

13.1.2.4       HMO must maintain complete claims and adjudication disposition
               documentation, including paid and denied amounts for each
               delivery. HMO must submit the documentation to TDH within five
               (5) days from the date of a TDH request for documents.

13.1.2.5       The DSP will be made by TDH to HMO within twenty (20) state
               working days after receiving an accurate report from HMO.

13.1.2.6       All infants of age equal to or less than twelve months (Newborns)
               in the TANF Children, Expansion Children, and Newborns risk
               groups will be capitated at the Newborns classification
               capitation amount in Article 13.1.2.

13.1.3         Standard Methodology. If the DSP methodology is not approved by
               HCFA, the monthly capitation amounts established for each risk
               group in the Bexar Service Area using the Methodology set forth
               in Article 13.1.1, without the DSP, are as follows:

               -----------------------------------------------------------------
               Risk Group                         Monthly Capitation Amounts
                                                  September 1, 1999 - August 31,
                                                  2000

               -----------------------------------------------------------------
               TANF Adults                                 $171.50
               -----------------------------------------------------------------
               TANF Children                               $ 60.71
               -----------------------------------------------------------------

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                                       113

<PAGE>

               -----------------------------------------------------------------
               Expansion Children                          $ 67.32
               -----------------------------------------------------------------
               Newborns                                    $415.11
               -----------------------------------------------------------------
               Federal Mandate Children                    $ 42.39
               -----------------------------------------------------------------
               CHIP Phase 1                                $ 77.81
               -----------------------------------------------------------------
               Pregnant Women                              $592.89
               -----------------------------------------------------------------
               Disabled/Blind Administration               $ 14.00
               -----------------------------------------------------------------

13.1.4         TDH will re-examine the capitation rates paid to HMO under this
               contract during the first year of the contract period and will
               provide HMO with capitation rates for the second year of the
               contract period no later than 30 days before the date of the
               one-year anniversary of the contract's effective date. Capitation
               rates for state fiscal year 2001 will be re-examined based on the
               most recent available traditional Medicaid cost data for the
               contracted risk groups in the service area, trended forward and
               discounted.

13.1.4.1       Once HMO has received their capitation rates established by TDH
               for the second year of this contract, HMO may terminate this
               contract as provided in Article 18.1.6 of this contract. HMO may
               also terminate this contract as provided in Article 18.1.6 if
               HCFA does not approve the Delivery Supplemental Payment
               Methodology described in Article 13.1.2.

13.1.5         The monthly premium payment to HMO is based on monthly
               enrollments adjusted to reflect money damages set out in Article
               18.8 and adjustments to premiums in Article 13.4

13.1.6         The monthly premium payments will be made to HMO no later than
               the 10th working day of the month for which premiums are paid.
               HMO must accept payment for premiums by direct deposit into an
               HMO account.

13.1.7         Payment of monthly capitation amounts is subject to availability
               of appropriations. If appropriations are not available to pay the
               full monthly capitation amounts, TDH will equitably adjust
               capitation amounts for all participating HMOs, and reduce scope
               of service requirements as appropriate.

13.1.8         HMO renewal rates reflect program increases appropriated by the
               76th legislature for physician (to include THSteps providers) and
               outpatient facility services. HMO must report to TDH any change
               in rates for participating physicians (to include THSteps
               providers) and outpatient facilities resulting from this
               increase. The report must be

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<PAGE>

               submitted to TDH at the end of the first quarter of the FY2000
               and FY2001 contract years according to the deliverables matrix
               schedule set for HMO.

13.2           EXPERIENCE REBATE TO STATE
               --------------------------

13.1.2         Delivery Supplemental Payment (DSP). TDH has submitted the
               delivery supplemental payment methodology to HCFA for approval.
               The monthly capitation amounts established for each risk group in
               the Travis Service Area using the DSP methodology will apply only
               if the methodology is approved by HCFA, and the methodology is
               implemented for all HMO's in all existing service areas by
               contract. The monthly capitation amounts for September 1, 1999,
               through August 31, 2000 and the DSP amount are listed below and
               will supersede the standard Methodology of Article 13.1.3 upon
               approval by HCFA.

13.2.1         For fiscal year 2000, HMO must pay to TDH the State's portion of
               an experience rebate calculated in accordance with the tiered
               rebate method listed below based on the excess of allowable HMO
               STAR revenues over allowable HMO STAR expenses as measured by any
               positive amount on Line 7 of "Part 1: Financial Summary, All
               Coverage Groups Combined" of the annual Managed Care
               Financial-Statistical Report set forth in Appendix I, as reviewed
               and confirmed by TDH. TDH reserves the right to have an
               independent audit performed to verify the information provided by
               HMO.
<TABLE>
<CAPTION>

               ---------------------------------------------------------------------
                                 Graduated Rebate Method

               ---------------------------------------------------------------------
               Excess as a Percentage  HMO Share of            State Share of
               of Revenues             Experience Rebate       Experience Rebate
               ---------------------------------------------------------------------
               <S>                     <C>                     <C>
               0%-3%                   100% of excess between  0% of excess between
                                       0% and 3%-of revenues   0% and 3% of revenues
               ---------------------------------------------------------------------
               Over 3% - 7%            75% of excess >3% and   25% of excess >3%
                                       <7% of revenues         and <7% of revenues
                                       -                           -
               ---------------------------------------------------------------------
               Over 7% - 10%           50% of excess > 7% and  50% of excess >7%
                                       <10% of revenues        and <10% of revenues
                                       -                           -
               ---------------------------------------------------------------------
               Over 10% - 15%          25% of excess >10%      75% of excess >10%
                                       and < 15% of revenues   and < 15% of revenues
                                           -                       -
               ---------------------------------------------------------------------
               Over 15%                0% of excess of 15% of  100% of excess over
                                       revenues                15% of revenues
               ---------------------------------------------------------------------
</TABLE>

13.2.2         Carry Forward of Prior Contract Period Losses: Losses incurred
               for one contract period can only be carried forward to the next
               contract period.

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<PAGE>

13.2.2.1       Carry Forward of Loss from one Service Delivery Area to Another:
               If HMO operates in multiple Service Delivery Areas (SDAs), losses
               in one SDA cannot be used to offset net income before taxes in
               another SDA.

13.2.3         Experience rebate will be based on a pre-tax basis.

13.2.4         Population-Based Initiatives (PBIs) and Experience Rebates: HMO
               may subtract from an experience rebate owed to the State,
               expenses for population-based health initiatives that have been
               approved by TDH. A population-based initiative (PBI) is a project
               or program designed to improve some aspect of quality of care,
               quality of life, or health care knowledge for the community as a
               whole. Value-added service does not constitute a PBI.
               Contractually required services and activities do not constitute
               a PBI.

13.2.5         There will be two settlements for payment(s) of the state share
               of the experience rebate. The first settlement shall equal 100
               percent of the state share of the experience rebate as derived
               from Line 7 of Part 1 (Net Income Before Taxes) of the annual
               Managed Care Financial Statistical (MCFS) Report and shall be
               paid on the same day the first annual MCFS Report is submitted to
               TDH. The second settlement shall be an adjustment to the first
               settlement and shall be paid to TDH on the same day that the
               second annual MCFS Report is submitted to TDH if the adjustment
               is a payment from HMO to TDH. TDH or its agent may audit or
               review the MCFS reports. If TDH determines that corrections to
               the MCFS reports are required, based on a TDH audit/review or
               other documentation acceptable to TDH, to determine an adjustment
               to the amount of the second settlement, then final adjustment
               shall be made within two years from the date that HMO submits the
               second annual MCFS report. HMO must pay the first and second
               settlements on the due dates for the first and second MCFS
               reports respectively as identified in Article 12.1.5. TDH may
               adjust the experience rebate if TDH determines HMO has paid
               affiliates amounts for goods or services that are higher than the
               fair market value of the goods and services in the service area.
               Fair market value may be based on the amount HMO pays a
               non-affiliate(s) or the amount another HMO pays for the same or
               similar service in the service area. TDH has final authority in
               auditing and determining the amount of the experience rebate.

13.3           PERFORMANCE OBJECTIVES
               ----------------------

13.3.1         Preventive Health Performance Objectives are contained in this
               contract at Appendix K. These reports are submitted annually and
               must be submitted no later than 150 days after the end of the
               State fiscal year.

13.4           ADJUSTMENTS TO PREMIUM
               ----------------------

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<PAGE>

13.4.1         TDH may recoup premiums paid to HMO in error. Error may be either
               human or machine error on the part of TDH or an agent or
               contractor of TDH. TDH may recoup premiums paid to HMO if a
               Member is enrolled into HMO in error, and HMO provided no covered
               services to Member for the period of time for which premium was
               paid. If services were provided to Member as a result of the
               error, recoupment will not be made.

13.4.2         TDH may recoup premium paid to HMO if a Member for whom premium
               is paid moves outside the United States, and HMO has not provided
               covered services to the Member for the period of time for which
               premium has been paid. TDH will not recoup premium if HMO has
               provided covered services to the Member during the period of time
               for which premium has been paid.

13.4.3         TDH may recoup premium paid to HMO if a Member for whom premium
               is paid dies before the first day of the month for which premium
               is paid.

13.4.4         TDH may recoup or adjust premium paid to HMO for a Member if the
               Member's eligibility status or program type is changed, corrected
               as a result of error, or is retroactively adjusted.

13.4.5         Recoupment or adjustment of premium under Articles 13.4.1 through
               13.4.4 may be appealed using the TDH dispute resolution process.

13.4.6         TDH may adjust premiums for all Members within an eligibility
               status or program type if adjustment is required by reductions in
               appropriations and/or if a benefit or category of benefits is
               excluded or included as a covered service. Adjustment must be
               made by amendment as required by Article 15.2. Adjustment to
               premium under this subsection may not be appealed using the TDH
               dispute resolution process.

ARTICLE XIV           ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1           ELIGIBILITY DETERMINATION
               -------------------------

14.1.1         TDH will identify Medicaid recipients who are eligible for
               participation in the STAR program using the eligibility status
               described below.

14.1.2         Individuals in the following categories who reside in any part of
               the Service Area must enroll in one of the health plans providing
               services in the Service Areas:

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<PAGE>

14.1.2.1       TANF ADULTS - Individuals age 21 and over who are eligible for
               the TANF program. This category may also include some pregnant
               women.

14.1.2.2       TANF CHILDREN - Individuals under age 21 who are eligible for the
               TANF program. This category may also include some pregnant women
               and some children less than one year of age.

14.1.2.3       PREGNANT WOMEN receiving Medical Assistance Only (MAO) - Pregnant
               women whose families' income is below 185% of the Federal Poverty
               Level (FPL).

14.1.2.4       NEWBORN (MAO) - Children under age one born to Medicaid-eligible
               mothers.

14.1.2.5       EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for
               TANF because of the applied income of their stepparents or
               grandparents.

14.1.2.6       EXPANSION CHILDREN (MAO) - Children under age 1 whose families'
               income is below 185% FPL.

14.1.2.7       EXPANSION CHILDREN MAO - Children age 1- 5 whose families' income
               is at or below 133% of FPL.

14.1.2.8       FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born
               before October 10, 1983, whose families' income is below the TANF
               income limit.

14.1.2.9       CHIP PHASE I - Children's Health Insurance Program Phase I
               (Federal Mandate Acceleration) Children under age nineteen (19)
               born before October 1, 1983, with family income below 100%
               Federal Poverty Income Level.

14.1.3         The following individuals are eligible for the STAR Program and
               are not required to enroll in a health plan but have the option
               to enroll in a plan. HMO will be required to accept enrollment of
               those Medicaid recipients from this group who elect to enroll in
               HMO.

14.1.3.1       DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients with
               Supplemental Security Income (SSI) benefits who are not eligible
               for Medicare may elect to participate in the STAR program on a
               voluntary basis.

14.1.3.2       Certain blind or disabled individuals who lose SSI eligibility
               because of Title II income and who are not eligible for Medicare.

14.1.4         During the period after which the Medicaid eligibility
               determination has been made but prior to enrollment in HMO,
               Members will be enrolled under the traditional

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<PAGE>

               Medicaid program. All Medicaid-eligible recipients will remain in
               the fee-for-service Medicaid program until enrolled in or
               assigned to an HMO.

14.2           ENROLLMENT

               ----------

14.2.1         TDH has the right and responsibility to enroll and disenroll
               eligible individuals into the STAR program. TDH will conduct
               continuous open enrollment for Medicaid recipients and HMO must
               accept all persons who chose to enroll as Members in HMO or who
               are assigned as Members in HMO by TDH, without regard to the
               Member's health status or any other factor.

14.2.2         All enrollments are subject to the accessibility and availability
               limitations and restrictions contained in the ss.1915(b) waiver
               obtained by TDH. TDH has the authority to limit enrollment into
               HMO if the number and distance limitations are exceeded.

14.2.3         TDH makes no guarantees or representations to HMO regarding the
               number of eligible Medicaid recipients who will ultimately be
               enrolled as STAR Members of HMO.

14.2.4         HMO must cooperate and participate in all TDH sponsored and
               announced enrollment activities. HMO must have a representative
               at all TDH enrollment activities unless an exception is given by
               TDH. The representative must comply with HMO's cultural and
               linguistic competency plan (see Cultural and Linguistic
               requirements in Article 8.9). HMO must provide marketing
               materials, HMO pamphlets, Member Handbooks, a list of network
               providers, HMO's linguistic and cultural capabilities and other
               information requested or required by TDH or its Enrollment Broker
               to assist potential Members in making informed choices.

14.2.5         TDH will provide HMO with at least 10 days written notice of all
               TDH planned activities. Failure to participate in, or send a
               representative to a TDH sponsored enrollment activity is a
               default of the terms of the contract. Default may be excused if
               HMO can show that TDH failed to provide the required notice, or
               if HMO's absence is excused by TDH.

14.3           DISENROLLMENT

               -------------

14.3.1         HMO has a limited right to request a Member be disenrolled from
               HMO without the Member's consent. TDH must approve any HMO
               request for disenrollment of a Member for cause. Disenrollment of
               a Member may be permitted under the following circumstances:

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<PAGE>

14.3.1.1       Member misuses or loans Member's HMO membership card to another
               person to obtain services.

14.3.1.2       Member is disruptive, unruly, threatening or uncooperative to the
               extent that Member's membership seriously impairs HMO's or
               provider's ability to provide services to Member or to obtain new
               Members, and Member's behavior is not caused by a physical or
               behavioral health condition.

14.3.1.3       Member steadfastly refuses to comply with managed care
               restrictions (e.g., repeatedly using emergency room in
               combination with refusing to allow HMO to treat the underlying
               medical condition).

14.3.2         HMO must take reasonable measures to correct Member behavior
               prior to requesting disenrollment. Reasonable measures may
               include providing education and counseling regarding the
               offensive acts or behaviors.

14.3.3         HMO must notify the Member of HMO's decision to disenroll the
               Member if all reasonable measures have failed to remedy the
               problem.

14.3.4         If the Member disagrees with the decision to disenroll the Member
               from HMO, HMO must notify the Member of the availability of the
               complaint procedure and TDH's Fair Hearing process.

14.3.5         HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
               MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE
               MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4           AUTOMATIC RE-ENROLLMENT
               -----------------------

14.4.1         Members who are disenrolled because they are temporarily
               ineligible for Medicaid will be automatically re-enrolled into
               the same health plan. Temporary loss of eligibility is defined as
               a period of 6 months or less.

14.4.2         HMO must inform its Members of the automatic re-enrollment
               procedure. Automatic re-enrollment must be included in the Member
               Handbook (see Article 8.2.1).

14.5           ENROLLMENT REPORTS
               ------------------

14.5.1         TDH will provide HMO enrollment reports listing all STAR Members
               who have enrolled in or were assigned to HMO during the initial
               enrollment period.

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<PAGE>

14.5.2         TDH will provide monthly HMO Enrollment Reports to HMO on or
               before the first of the month.

14.5.3         TDH will provide Member verification to HMO and network providers
               through telephone verification or TexMedNet.

ARTICLE XV            GENERAL PROVISIONS

15.1           INDEPENDENT CONTRACTOR
               ----------------------

               HMO, its agents, employees, network providers, and subcontractors
               are independent contractors and do not perform services under
               this contract as employees or agents of TDH. HMO is given
               express, limited authority to exercise the State's right of
               recovery as provided in Article 4.9.

15.2           AMENDMENT

               ---------

15.2.1         This contract must be amended by TDH if amendment is required to
               comply with changes in state or federal laws, rules, or
               regulations.

15.2.2         TDH and HMO may amend this contract if reductions in funding or
               appropriations make full performance by either party
               impracticable or impossible, and amendment could provide a
               reasonable alternative to termination. If HMO does not agree to
               the amendment, contract may be terminated under Article XVIII.

15.2.3         This contract must be amended if either party discovers a
               material omission of a negotiated or required term, which is
               essential to the successful performance or maintaining compliance
               with the terms of the contract. The party discovering the
               omission must notify the other party of the omission in writing
               as soon as possible after discovery. If there is a disagreement
               regarding whether the omission was intended to be a term of the
               contract, the parties must submit the dispute to dispute
               resolution under Article 15.9.

15.2.4         This contract may be amended by mutual agreement at any time.

15.2.5         All amendments to this contract must be in writing and signed by
               both parties.

15.2.6         No agreement shall be used to amend this contract unless it is
               made a part of this contract by specific reference, and is
               numbered sequentially by order of its adoption.

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<PAGE>

15.3           LAW, JURISDICTION AND VENUE
               ---------------------------

               Venue and jurisdiction shall be in the state and federal district
               courts of Travis County, Texas. The laws of the State of Texas
               shall be applied in all matters of state law.

15.4           NON-WAIVER
               ----------

               Failure to enforce any provision or breach shall not be taken by
               either party as a waiver of the right to enforce the provision or
               breach in the future.

15.5           SEVERABILITY

               ------------

               Any part of this contract which is found to be unenforceable,
               invalid, void, or illegal shall be severed from the contract. The
               remainder of the contract shall be effective.

15.6           ASSIGNMENT

               ----------

               This contract was awarded to HMO based on HMO's qualifications to
               perform personal and professional services. HMO cannot assign
               this contract without the written consent of TDI and TDH. This
               provision does not prevent HMO from subcontracting duties and
               responsibilities to qualified subcontractors. If TDI and TDH
               consent to an assignment of this contract, a transition period of
               90 days will run from the date the assignment is approved by TDI
               and TDH so that Members' services are not interrupted and, if
               necessary, the notice provided for in Article 15.7 can be sent to
               Members. The assigning HMO must also submit a transition plan, as
               set out in Article 18.2.1, subject to TDH's approval.

15.7           MAJOR CHANGE IN CONTRACTING
               ---------------------------

               TDH may send notice to Members when a major change affecting HMO
               occurs. A "major change" includes, but is not limited to, a
               substantial change of subcontractors and assignment of this
               contract. The notice letter to Members may permit the Members to
               re-select their plan and PCP. TDH will bear the cost of preparing
               and sending the notice letter in the event of an approved
               assignment of the contract. For any other major change in
               contracting, HMO will prepare the notice letter and submit it to
               TDH for review and approval. After TDH has approved the letter
               for distribution to Members, HMO will bear the cost of sending
               the notice letter.

15.8           NON-EXCLUSIVE
               -------------

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               This contract is a non-exclusive agreement. Either party may
               contract with other entities for similar services in the same
               service area.

15.9           DISPUTE RESOLUTION
               ------------------

               The dispute resolution process adopted by TDH in accordance with
               Chapter 2260, Texas Government Code, will be used to attempt to
               resolve all disputes arising under this contract. All disputes
               arising under this contract shall be resolved through TDH's
               dispute resolution procedures, except where a remedy is provided
               for through TDH's administrative rules or processes. All
               administrative remedies must be exhausted prior to other methods
               of dispute resolution. TDH will assist HMO in resolution of a
               conflict of law or interpretation of law between or among state
               agencies with authority to regulate and enforce this contract.

15.10          DOCUMENTS CONSTITUTING CONTRACT
               -------------------------------

               This contract includes this document and all amendments and
               appendices to this document, the Request for Application, the
               Application submitted in response to the Request for Application,
               the Texas Medicaid Provider Procedures Manual and Texas Medicaid
               Bulletins addressed to HMOs, contract interpretation memoranda
               issued by TDH for this contract, and the federal waiver granting
               TDH authority to contract with HMO. If any conflict in provisions
               between these documents occurs, the terms of this contract and
               any amendments shall prevail. The documents listed above
               constitute the entire contract between the parties.

15.11          FORCE MAJEURE
               -------------

               TDH and HMO are excused from performing the duties and
               obligations under this contract for any period that they are
               prevented from performing their services as a result of a
               catastrophic occurrence, or natural disaster, clearly beyond the
               control of either party, including but not limited to an act of
               war, but excluding labor disputes.

15.12          NOTICES

               -------

               Notice may be given by any means which provides for verification
               of receipt. All notices to TDH shall be addressed to Bureau
               Chief, Texas Department of Health, Bureau of Managed Care, 1100
               W. 49th Street, Austin, TX 78756-3168, with a copy to the
               Contract Administrator. Notices to HMO shall be addressed to
               President/CEO, Michael A. Seltzer, Vice President, West Region,
               8431 Fredericksburg Road, San Antonio, Texas, 78229; AND Medicaid
               Director, Cheryl Dietz, 8303 Mopac, Suite 450-C, Austin, Texas
               78759

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15.13          SURVIVAL

               --------

               The provisions of this contract which relate to the obligations
               of HMO to maintain records and reports shall survive the
               expiration or earlier termination of this contract for a period
               not to exceed six (6) years unless another period may be required
               by record retention policies of the State of Texas or HCFA.

ARTICLE XVI           DEFAULT AND REMEDIES

16.1           DEFAULT BY TDH
               --------------

16.1.1         FAILURE TO MAKE CAPITATION PAYMENTS
               -----------------------------------

               Failure by TDH to make capitation payments when due is a default
               under this contract.

16.1.2         FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES
               ----------------------------------------------

               Failure by TDH to perform a material duty or responsibility as
               set out in this contract is a default under this contract.

16.2           REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT
               -------------------------------------------

               HMO may terminate this contract as set out in Article 18.1.5 of
               this contract if TDH commits either of the events of default set
               out in Article 16.1.

16.3           DEFAULT BY HMO
               --------------

16.3.1         FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
               ---------------------------------------------

               Failure of HMO to perform an administrative function is a default
               under this contract. Administrative functions are any
               requirements under this contract that are not direct delivery of
               health care services, including claims payment; encounter data
               submission; filing any report when due; cooperating in good faith
               with TDH, an entity acting on behalf of TDH, or an agency
               authorized by statute or law to require the cooperation of HMO in
               carrying out an administrative, investigative, or prosecutorial
               function of the Medicaid program; providing or producing records
               upon request; or entering into contracts or implementing
               procedures necessary to carry out contract obligations.

16.3.1.1       REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

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               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's failure to perform an administrative function under
               this contract, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; Assess liquidated money damages as set out in
               Article 18.4; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.2         ADVERSE ACTION AGAINST HMO BY TDI
               ---------------------------------

               Termination or suspension of HMO's TDI Certificate of Authority
               or any adverse action taken by TDI that TDH determines will
               affect the ability of HMO to provide health care services to
               Members is a default under this contract.

16.3.2.1       REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For an adverse action against HMO by TDI, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.3         INSOLVENCY

               ----------

               Failure of HMO to comply with state and federal solvency
               standards or incapacity of HMO to meet its financial obligations
               as they come due is a default under this contract.

16.3.3.1       REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

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               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's insolvency, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.4         FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
               ---------------------------------------------------

               Failure of HMO to comply with the federal requirements for
               Medicaid, including, but not limited to, federal law regarding
               misrepresentation, fraud, or abuse; and, by incorporation,
               Medicare standards, requirements, or prohibitions, is a default
               under this contract.

               The following events are defaults under this contract pursuant to
               42 U.S.C. "1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1       HMO's substantial failure to provide medically necessary items
               and services that are required under this contract to be provided
               to Members;

16.3.4.2       HMO's imposition of premiums or charges on Members in excess of
               the premiums or charge permitted by federal law;

16.3.4.3       HMO's acting to discriminate among Members on the basis of their
               health status or requirements for health care services, including
               expulsion or refusal to enroll an individual, except as permitted
               by federal law, or engaging in any practice that would reasonably
               be expected to have the effect of denying or discouraging
               enrollment with HMO by eligible individuals whose medical
               condition or history indicates a need for substantial future
               medical services;

16.3.4.4       HMO's misrepresentation or falsification of information that is
               furnished to HCFA, TDH, a Member, a potential Member, or a health
               care provider;

16.3.4.5       HMO's failure to comply with the physician incentive requirements
               under 42 U.S.C. '1396b(m)(2)(A)(x); or

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16.3.4.6       HMO's distribution, either directly or through any agent or
               independent contractor, of marketing materials that contain false
               or misleading information, excluding materials prior approved by
               TDH.

16.3.5         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. If HMO repeatedly
               fails to meet the requirements of Articles 16.3.4.1 through and
               including 16.3.4.6, TDH must, regardless of what other sanctions
               are provided, appoint temporary management and permit Members to
               disenroll without cause. Exercise of any remedy in whole or in
               part does not limit TDH in exercising all or part of any
               remaining remedies.

               For HMO's failure to comply with federal laws and regulations,
               TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; Appoint temporary management as set out in Article
               18.5; Initiate disenrollment of a Member of Members without cause
               as set out in Article 18.6; Suspend or default all enrollment of
               individuals; Suspend payment to HMO; Recommend to HCFA that
               sanctions be taken against HMO as set out in Article 18.7; Assess
               civil monetary penalties as set out in Article 18.8; and/or
               Require forfeiture of all or part of the TDI performance bond as
               set out in Article 18.9.

16.3.6         FAILURE TO COMPLY WITH APPLICABLE STATE LAW
               -------------------------------------------

               HMO's failure to comply with Texas law applicable to Medicaid,
               including, but not limited to, Article 32.039 of the Texas Human
               Resources Code and state law regarding misrepresentation, fraud,
               or abuse, is a default under this contract.

16.3.6.1       REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               ALL of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's failure to comply with applicable state law, TDH may:

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               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; Assess administrative penalties as set out in
               Article 32.039, Government Code, with the opportunity for notice
               and appeal as required by Article 32.039; and/or Require
               forfeiture of all or part of the TDI performance bond as set out
               in Article 18.9.

16.3.7         MISREPRESENTATION OR FRAUD UNDER ARTICLE 4.8
               --------------------------------------------

               HMO's misrepresentation or fraud under Article 4.8 of this
               contract is a default under this contract.

16.3.7.1       REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's misrepresentation or fraud under Article 4.8, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.8         EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
               ----------------------------------------------------

16.3.8.1       Exclusion of HMO or any of the managing employees or persons with
               an ownership interest whose disclosure is required by `1124(a) of
               the Social Security Act (the Act) from the Medicaid or Medicare
               program under the provisions of '1128(a) and/or (b) of the Act is
               a default under this contract.

16.3.8.2       Exclusion of any provider or subcontractor or any of the managing
               employees or persons with an ownership interest of the provider
               or subcontractor whose disclosure is required by `1124(a) of the
               Social Security Act (the Act) from the Medicaid or Medicare
               program under the provisions of `1128(a) and/or (b) of the Act is
               a default under this contract if the exclusion will materially
               affect HMO's performance under this contract.

16.3.8.3       REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

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               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's exclusion from Medicare or Medicaid, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.9         FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS
               ----------------------------------------------------------------

               HMO's failure to make timely and appropriate payments to network
               providers and subcontractors is a default under this contract.
               Withholding or recouping capitation payments as allowed or
               required under other articles of this contract is not a default
               under this contract.

16.3.9.1       REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's failure to make timely and appropriate payments to
               network providers and subcontractors, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; Assess liquidated money damages as set out in
               Article 18.4; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.10        FAILURE TO TIMELY ADJUDICATE CLAIMS
               -----------------------------------

               Failure of HMO to adjudicate (paid, denied, or external pended)
               at least ninety (90%) of all claims within thirty (30) days of
               receipt and ninety-nine percent (99%) of all

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               claims within ninety days of receipt for the contract year is a
               default under this contract.

16.3.10.1      REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consequently, Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's failure to timely adjudicate claims, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.11        FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS
               ----------------------------------------------------------------

               Failure to pass any of the mandatory system or delivery functions
               of the Readiness Review required in Article I of this contract is
               a default under the contract.

16.3.11.1      REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole all or in part does not limit TDH in exercising
               or part of any remaining remedies.

               For HMO's failure to demonstrate the ability to perform contract
               functions, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.12        FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
               NETWORK PROVIDERS
               -----------------

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16.3.12.1      Failure of HMO to audit, monitor, supervise, or enforce functions
               delegated by contract to another entity that results in a default
               under this contract or constitutes a violation of state or
               federal laws, rules, or regulations is a default under this
               contract.

16.3.12.2      Failure of HMO to property credential its providers, conduct
               reasonable utilization review, or conduct quality monitoring is a
               default under this contract.

16.3.12.3      Failure of HMO to require providers and contractors to provide
               timely and accurate encounter, financial, statistical, and
               utilization data is a default under this contract.

16.3.12.4      REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's failure to monitor and/or supervise activities of
               contractors or network providers, TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or Require forfeiture of all or part of the TDI
               performance bond as set out in Article 18.9.

16.3.13        PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY
               ----------------------------------------------------

               HMO's placing the health and safety of the Members in jeopardy is
               a default under this contract.

16.3.13.1      REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's placing the health and safety of Members in jeopardy,
               TDH may:

               Terminate the contract if the applicable conditions set out in
               Article 18.1.1 are met; Suspend new enrollment as set out in
               Article 18.3; and/or

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               Require forfeiture of all or part of the TDI performance bond as
               set out in Article 18.9.

16.3.14        FAILURE TO MEET ESTABLISHED BENCHMARK
               -------------------------------------

               Failure of HMO to meet any benchmark established by TDH under
               this contract is a default under this contract.

16.3.14.1      REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
               ----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to TDH by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit TDH in exercising all
               or part of any remaining remedies.

               For HMO's failure to meet any benchmark established by TDH under
               this contract, TDH may:

               Remove the THSteps component from the capitation paid to HMO if
               the benchmark(s) missed is for THSteps; Terminate the contract if
               the applicable conditions set out in Article 18.1.1 are met;
               Suspend new enrollment as set out in Article 18.3; Assess
               liquidated money damages as set out in Article 18.4; and/or
               Require forfeiture of all or part of the TDI performance bond as
               set out in Article 18.9.

ARTICLE XVII          NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1           TDH will provide HMO with written notice of default (Notice of
               Default) under this contract. The Notice of Default may be given
               by any means that provides verification of receipt. The Notice of
               Default must contain the following information:

17.1.1         A clear and concise statement of the circumstances or conditions
               that constitute a default under this contract;

17.1.2         The contract provision(s) under which default is being declared;

17.1.3         A clear and concise statement of how and/or whether the default
               may be cured;

17.1.4         A clear and concise statement of the time period during which HMO
               may cure the default if HMO is allowed to cure;

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17.1.5         The remedy or remedies TDH is electing to pursue and when the
               remedy or remedies will take effect;

17.1.6         If TDH is electing to impose money damages and/or civil monetary
               penalties, the amount that TDH intends to withhold or impose and
               the factual basis on which TDH is imposing the chosen remedy or
               remedies;

17.1.7         Whether any part of money damages or civil monetary penalties, if
               TDH elects to pursue one or both of those remedies, may be passed
               through to an individual or entity who is or may be responsible
               for the act or omission for which default is declared;

17.1.8         Whether failure to cure the default within the given time period,
               if any, will result in TDH pursuing an additional remedy or
               remedies, including, but not limited to, additional damages or
               sanctions, referral for investigation or action by another
               agency, and/or termination of the contract.

ARTICLE XVIII         EXPLANATION OF REMEDIES

18.1           TERMINATION

               -----------

18.1.1         TERMINATION BY TDH
               ------------------

               TDH may terminate this contract if:

18.1.1.1       HMO substantially fails or refuses to provide medically necessary
               services and items that are required under this contract to be
               provided to Members after notice and opportunity to cure;

18.1.1.2       HMO substantially fails or refuses to perform administrative
               functions under this contract after notice and opportunity to
               cure;

18.1.1.3       HMO materially defaults under any of the provisions of Article
               XVI;

18.1.1.4       Federal or state funds for the Medicaid program are no longer
               available; or

18.1.1.5       TDH has a reasonable belief that HMO has placed the health or
               welfare of Members in jeopardy.

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18.1.2         TDH must give HMO 90 days written notice of intent to terminate
               this contract if termination is the result of HMO's substantial
               failure or refusal to perform administrative functions or a
               material default under any of the provisions of Article XVI. TDH
               must give HMO reasonable notice under the circumstances if
               termination is the result of federal or state funds for the
               Medicaid program no longer being available. TDH must give the
               notice required under TDH's formal hearing procedures set out in
               Section 1.2.1 in Title 25 of the Texas Administrative Code if
               termination is the result of HMO's substantial failure or refusal
               to provide medically necessary services and items that are
               required under the contract to be provided to Members or TDH's
               reasonable belief that HMO has placed the health or welfare of
               Members in jeopardy.

18.1.2.1       Notice may be given by any means that gives verification of
               receipt.

18.1.2.2       Unless termination is the result of HMO's substantial failure or
               refusal to provide medically necessary services and items that
               are required under this contract to be provided to Members or is
               the result of TDH's reasonable belief that HMO has placed the
               health or welfare of Members in jeopardy, the termination date is
               90 days following the date that HMO receives the notice of intent
               to terminate. For HMO's substantial failure or refusal to provide
               services and items, HMO is entitled to request a pre-termination
               hearing under TDH's formal hearing procedures set out in Section
               1.2.1 of Title 25, Texas Administrative Code.

18.1.3         TDH may, for termination for HMO's substantial failure or refusal
               to provide medically necessary services and items, notify HMO's
               Members of any hearing requested by HMO and permit Members to
               disenroll immediately without cause. Additionally, if TDH
               terminates for this reason, TDH may enroll HMO's Members with
               another HMO or permit HMO's Members to receive Medicaid-covered
               services other than from an HMO.

18.1.4         HMO must continue to perform services under the transition plan
               described in Article 18.2.1 until the last day of the month
               following 90 days from the date of receipt of notice if the
               termination is for any reason other than TDH's reasonable belief
               that HMO is placing the health and safety of the Members in
               jeopardy. If termination is due to this reason, TDH may prohibit
               HMO's further performance of services under the contract.

18.1.5         If TDH terminates this contract, HMO may appeal the termination
               under ss.32.034, Texas Human Resources Code.

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18.1.6         TERMINATION BY HMO
               ------------------

               HMO may terminate this contract if TDH fails to pay HMO as
               required under Article XIII of this contract or otherwise
               materially defaults in its duties and responsibilities under this
               contract, or by giving notice no later than 30 days after
               receiving the capitation rates for the second contract year.
               Retaining premium, recoupment, sanctions, or penalties that are
               allowed under this contract or that result from HMO's failure to
               perform or HMO's default under the terms of this contract is not
               cause for termination.

18.1.61        HMO may terminate this contract without cause, except HMO cannot
               terminate this contract without cause for the 90 days immediately
               following the effective date of the contract.

18.1.7         HMO must give TDH 90 days written notice of intent to terminate
               this contract, either for cause or without cause. Notice may be
               given by any means that gives verification of receipt. The
               termination date will be calculated as the last day of the month
               following 90 days from the date the notice of intent to terminate
               is received by TDH.

18.1.8         TDH must be given 30 days from the date TDH receives HMO's
               written notice of intent to terminate for failure to pay HMO to
               pay all amounts due. If TDH pays all amounts then due within this
               30-day period, HMO cannot terminate the contract under this
               article for that reason.

18.1.9         TERMINATION BY MUTUAL CONSENT
               -----------------------------

               This contract may be terminated at any time by mutual consent of
               both HMO and TDH.

18.2           DUTIES OF CONTRACTING PARTIES UPON TERMINATION
               ----------------------------------------------

               When termination of the contract occurs, TDH and HMO must meet
               the following obligations:

18.2.1         TDH and HMO must prepare a transition plan, which is acceptable
               to and approved by TDH, to ensure that Members are reassigned to
               other plans without interruption of services. That transition
               plan will be implemented during the 90-day period between receipt
               of notice and the termination date unless termination is the
               result of TDH's reasonable belief that HMO is placing the health
               or welfare of Members in jeopardy.

18.2.2         If the contract is terminated by TDH for any reason other than
               federal or state funds for the Medicaid program no longer being
               available or if HMO terminates the contract

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<PAGE>

               based on lower capitation rates for the second contract year as
               set out in Article 13.1.4.1:

18.2.2.1       TDH is responsible for notifying all Members of the date of
               termination and how Members can continue to receive contract
               services;

18.2.2.2       HMO is responsible for all expenses related to giving notice to
               Members; and

18.2.2.3       HMO is responsible for all expenses incurred by TDH in
               implementing the transition plan.

18.2.3         If the contract is terminated by HMO for any reason other than
               based on lower capitation rates for the second contract year as
               set out in Article 13.1.4.1:

18.2.3.1       TDH is responsible for notifying all Members of the date of
               termination and how Members can continue to receive contract
               services;

18.2.3.2       TDH is responsible for all expenses related to giving notice to
               Members; and

18.2.3.3       TDH is responsible for all expenses it incurs in implementing the
               transition plan.

18.2.4         If the contract is terminated by mutual consent:

18.2.4.1       TDH is responsible for notifying all Members of the date of
               termination and how Members can continue to receive contract
               services

18.2.4.2       HMO is responsible for all expenses related to giving notice to
               Members; and

18.2.4.3       TDH is responsible for all expenses it incurs in implementing the
               transition plan.

18.3           SUSPENSION OF NEW ENROLLMENT
               ----------------------------

18.3.1         TDH must give HMO 30 days notice of intent to suspend new
               enrollment in the Notice of Default other than for default for
               fraud and abuse or imminent danger to the health or safety of
               Members. The suspension date will be calculated as 30 days
               following the date that HMO receives the Notice of Default.

18.3.2         TDH may immediately suspend new enrollment into HMO for a default
               declared as a result of fraud and abuse or imminent danger to the
               health and safety of Members.

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                                       136

<PAGE>

18.3.3         The suspension of new enrollment may be for any duration, up to
               the termination date of the contract. TDH will base the duration
               of the suspension upon the type and severity of the default and
               HMO's ability, if any, to cure the default.

18.4           LIQUIDATED MONEY DAMAGES
               ------------------------

18.4.1         The measure of damages in the event that HMO fails to perform its
               obligations under this contract may be difficult or impossible to
               calculate or quantify. Therefore, should HMO fail to perform in
               accordance with the terms and conditions of this contract, TDH
               may require HMO to pay sums as specified below as liquidated
               damages. The liquidated damages set out in this Article are not
               intended to be in the nature of a penalty but are intended to be
               reasonable estimates of TDH's financial loss and damage resulting
               from HMO's non-performance.

18.4.2         If TDH imposes money damages, TDH may collect those damages by
               reducing the amount of any monthly premium payments otherwise due
               to HMO by the amount of the damages. Money damages that are
               withheld from monthly premium payments are forfeited and will not
               be subsequently paid to HMO upon compliance or cure of default
               unless a determination is made after appeal that the damages
               should not have been imposed.

18.4.3         Failure to file or filing incomplete or inaccurate annual,
               semi-annual or quarterly reports may result in money damages of
               not more than $11,000.00 for every month from the month the
               report is due until submitted in the form and format required by
               TDH. These money damages apply separately to each report.

18.4.4         Failure to produce or provide records and information requested
               by TDH, an entity acting on behalf of TDH, or an agency
               authorized by statute or law to require production of records at
               the time and place the records were required or requested may
               result in money damages of not more than $5,000.00 per day for
               each day the records are not produced as required by the
               requesting entity or agency if the requesting entity or agency is
               conducting an investigation or audit relating to fraud or abuse,
               and not more than $1,000.00 per day for each day records are not
               produced if the requesting entity or agency is conducting routine
               audits or monitoring activities.

18.4.5         Failure to file or filing incomplete or inaccurate encounter data
               may result in money damages of not more than $25,000 for each
               month HMO fails to submit encounter data in the form and format
               required by TDH. TDH will use the encounter data validation
               methodology established by TDH to determine the number of
               encounter data and the number of months for which damages will be
               assessed.

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                                       137

<PAGE>

18.4.6         Failing or refusing to cooperate with TDH, an entity acting on
               behalf of TDH, or an agency authorized by statute or law to
               require the cooperation of HMO in carrying out an administrative,
               investigative, or prosecutorial function of the Medicaid program
               may result in money damages of not more than $8,000.00 per day
               for each day HMO fails to cooperate.

18.4.7         Failure to enter into a required or mandatory contract or failure
               to contract for or arrange to have all services required under
               this contract provided may result in money damages of not more
               than $1,000.00 per day that HMO either fails to negotiate in good
               faith to enter into the required contract or fails to arrange to
               have required services delivered.

18.4.8         Failure to meet the benchmark for benchmarked services under this
               contract may result in money damages of not more than $25,000 for
               each month that HMO fails to meet the established benchmark.

18.4.9         TDH may also impose money damages for a default under Article
               16.3.9, Failure to Make Payments to Network Providers and
               subcontractors, of this contract. These money damages are in
               addition to the interest HMO is required to pay to providers
               under the provisions of Articles 4.10.4 and 7.2.7.10 of this
               contract.

18.4.9.1       If TDH determines that HMO has failed to pay a provider for a
               claim or claims for which the provider should have been paid, TDH
               may impose money damages of $2 per day for each day the claim is
               not paid from the date the claim should have been paid
               (calculated as 30 days from the date a clean claim was received
               by HMO) until the claim is paid by HMO.

18.4.9.2       If TDH determines that HMO has failed to pay a capitation amount
               to a provider who has contracted with HMO to provide services on
               a capitated basis, TDH may impose money damages of $10 per day,
               per Member for whom the capitation is not paid, from the date on
               which the payment was due until the capitation amount is paid.

18.5           APPOINTMENT OF TEMPORARY MANAGEMENT
               -----------------------------------

18.5.1         TDH may appoint temporary management to oversee the operation of
               HMO upon a finding that there is continued egregious behavior by
               HMO or there is a substantial risk to the health of the Members.

18.5.2         TDH may appoint temporary management to assure the health of
               HMO's Members if there is a need for temporary management while:

18.5.2.1       there is an orderly termination or reorganization of HMO; or

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                                       138

<PAGE>

18.5.2.2       are made to remedy violations found under Article 16.3.4.

18.5.3         Temporary management will not be terminated until TDH has
               determined that HMO has the capability to ensure that the
               violations that triggered appointment of temporary management
               will not recur.

18.5.4         TDH is not required to appoint temporary management before
               terminating this contract.

18.5.5         No pre-termination hearing is required before appointing
               temporary management.

18.5.6         As with any other remedy provided under this contract, TDH will
               provide notice of default as is set out in Article XVII to HMO.
               Additionally, as with any other remedy provided under this
               contract, under Article 18.1 of this contract, HMO may dispute
               the imposition of this remedy and seek review of the proposed
               remedy.

18.6           TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE
               ----------------------------------------------------------------

               TDH must give HMO 30 days notice of intent to initiate
               disenrollment of a Member of Members in the Notice of Default.
               The TDH-initiated disenrollment date will be calculated as 30
               days following the date that HMO receives the Notice of Default.

18.7           RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO
               ----------------------------------------------------------

18.7.1         If HCFA determines that HMO has violated federal law or
               regulations and that federal payments will be withheld, TDH will
               deny and withhold payments for new enrollees of HMO.

18.7.2         HMO must be given notice and opportunity to appeal a decision of
               TDH and HCFA pursuant to 42 CFR '434.67.

18.8           CIVIL MONETARY PENALTIES
               ------------------------

18.8.1         For a default under Article 16.3.4.1, TDH may assess not more
               than $25,000 for each default;

18.8.2         For a default under Article 16.3.4.2, TDH may assess double the
               excess amount charged in violation of the federal requirements
               for each default. The excess amount shall be deducted from the
               penalty and returned to the Member concerned.

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                                       139

<PAGE>

18.8.3         For a default under Article 16.3.4.3, TDH may assess not more
               than $100,000 for each default, including $15,000 for each
               individual not enrolled as a result of the practice described in
               Article 16.3.4.3.

18.8.4         For a default under Article 16.3.4.4, TDH may assess not more
               than $100,000 for each default if the material was provided to
               HCFA or TDH and not more than $25,000 for each default if the
               material was provided to a Member, a potential Member, or a
               health care provider.

18.8.5         For a default under Article 16.3.4.5, TDH may assess not more
               than $25,000 for each default.

18.8.6         For a default under Article 16.3.4.6, TDH may assess not more
               than $25,000 for each default.

18.8.7         HMO may be subject to civil money penalties under the provisions
               of 42 CFR 1003 in addition to or in place of withholding payments
               for a default under Article 16.3.4.

18.9           FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
               -------------------------------------------------------

               TDH may require forfeiture of all or a portion of the face amount
               of the TDI performance bond if TDH determines that an event of
               default has occurred. Partial payment of the face amount shall
               reduce the total bond amount available pro rata.

18.10          REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED
               ------------------------------------------

18.10.1        HMO may dispute the imposition of any sanction under this
               contract. HMO notifies TDH of its dispute by filing a written
               response to the Notice of Default, clearly stating the reason HMO
               disputes the proposed sanction. With the written response, HMO
               must submit to TDH any documentation that supports HMO's
               position. HMO must file the review within 15 days from HMO's
               receipt of the Notice of Default. Filing a dispute in a written
               response to the Notice of Default suspends imposition of the
               proposed sanction.

18.10.2        HMO and TDH must attempt to informally resolve the dispute. If
               HMO and TDH are unable to informally resolve the dispute, HMO
               must notify the Bureau Chief of Managed Care that HMO and TDH
               cannot agree. The Bureau Chief will refer the dispute to the
               Associate Commissioner for Health Care Financing who will appoint
               a committee to review the dispute under TDH's dispute resolution
               procedures. The decision of the dispute resolution committee will
               be TDH's final administrative decision.

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                                       140

<PAGE>

ARTICLE XIX           TERM

19.1           The effective date of this contract is September 1, 1999. This
               contract will terminate on August 31, 2001, unless terminated
               earlier as provided for elsewhere in this contract.

19.2           This contract may be renewed for an additional one-year period by
               written amendment to the contract executed by the parties prior
               to the termination date of the present contract. TDH will notify
               HMO no later than 90 days before the end of the contract period
               of its intent not to renew the contract.

19.3           If either party does not intend to renew the contract beyond its
               contract period, the party intending not to renew must submit a
               written notice of its intent not to renew to the other party no
               later than 90 days before the termination date set out in Article
               19.1.

19.4           If either party does not intend to renew the contract beyond its
               contract period and sends the notice required in Article 19.3, a
               transition period of 90 days will run from the date the notice of
               intent not to renew is received by the other party. By signing
               this contract, the parties agree that the terms of this contract
               shall automatically continue during any transition period.

19.5           The party that does not intend to renew the contract beyond its
               contract period and sends the notice required by Article 19.3 is
               responsible for sending notices to all Members on how the Member
               can continue to receive covered services. The expense of sending
               the notices will be paid by the non-renewing party. If TDH does
               not intend to renew and sends the required notice, TDH is
               responsible for any costs it incurs in ensuring that Members are
               reassigned to other plans without interruption of services. If
               HMO does not intend to renew and sends the required notice, HMO
               is responsible for any costs TDH incurs in ensuring that Members
               are reassigned to other plans without interruption of services.
               If both parties do not intend to renew the contract beyond its
               contract period, TDH will send the notices to Members and the
               parties will share equally in the cost of sending the notices and
               of implementing the transition plan.

19.6           Non-renewal of this contract is not a contract termination for
               purposes of appeal rights under the Human Resources
               Code ss.32.034.

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                                       141

<PAGE>

SIGNED 1st day of September, 1999.

TEXAS DEPARTMENT OF HEALTH             PCA Health Plans of Texas, Inc.

BY:  /s/ William R. Archer, III, M.D.  BY:  /s/ Michael A. Seltzer
     --------------------------------       ------------------------------------
         William R. Archer, III, M.D.  Printed Name:  Michael A. Seltzer
         Commissioner of Health        Title:  Vice President, West Region
                                               Humana Health Plan of Texas, Inc.

Approved as to Form:

/s/
------------------------------------
Office of General Counsel

                                                           1999 Renewal Contract

                                                              Bexar Service Area
                                                                  August 9, 1999

                                       142

Appendices
----------
Copies of the Appendices will be available upon request.

<PAGE>

                                                     TDH Doc. # 4810323494 *2001

                                AMENDMENT NO. 1
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 1 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Bexar Service Area, dated
September 1, 1999. The effective date of this Amendment is September 1,1999. All
other contract provisions remain in full force and effect.

The Parties agree to amend the Contract as follows:

1.      Article XIII is amended by deleting existing 13.1.2, 13.1.2.2, and
        13.1.2.3 and replacing them with the new Article 13.1.2, 13.1.2.2, and
        13.1.2.3 as follows:

       (delete the stricken language and add the bold and italicized)

        [Deletion]

        13.1.2         Delivery Supplemental Payment (DSP). TDH has submitted
                       the delivery supplemental payment methodology to HCFA for
                       approval. The monthly capitation amounts for September 1,
                       1999, through August 31, 2000, and the DSP amount are
                       listed below. These amounts are effective September 1,
                       1999. The monthly capitation amounts established for each
                       risk group in the Bexar Service Area using the Standard
                       methodology (listed in Article 13.1.3) will apply if the
                       DSP methodology is not approved by HCFA.

                                                                       Bexar SDA

                                        1

<PAGE>

               -----------------------------------------------------------------
               Risk Group                         Monthly Capitation Amounts
                                                  September 1, 1999 - August 31,
                                                  2000

               -----------------------------------------------------------------
               TANF Adults                                            $153.73
               -----------------------------------------------------------------
               TANF Children (less than) 12 Months of Age             $ 49.87
               -----------------------------------------------------------------
               Expansion Children (less than) 12 Months of Age        $ 59.18
               -----------------------------------------------------------------
               Newborns (greater than or equal to) 12 Months of Age   $375.31
               -----------------------------------------------------------------
               TANF Children (greater than or equal to)
               12 Months of Age                                       $375.31
               -----------------------------------------------------------------
               Expansion Children (greater than or equal to)
               12 Months of Age                                       $375.31
               -----------------------------------------------------------------
               Federal Mandate Children                               $ 42.25
               -----------------------------------------------------------------
               CHIP Phase I                                           $ 76.34
               -----------------------------------------------------------------
               Pregnant Women                                         $241.86
               -----------------------------------------------------------------
               Disabled/Blind                                         $ 14.00
               Administration
               -----------------------------------------------------------------

               Delivery Supplemental Payment: A one-time per pregnancy
               supplemental payment for each delivery shall be paid to HMO as
               provided below in the following amount: $2,834.10.

13.1.2.2       For an HMO Member who is classified in the Pregnant Women, TANF
               Adults, TANF Children (less than) 12 months, Expansion Children
               (less than) 12 months, Federal Mandate Children [Deletion], or
               CHIP risk group, HMO will be paid the monthly capitation amount
               identified in Article 13.1.2 for each month of classification,
               plus the DSP amount identified in Article 13.1.2.

13.1.2.3       HMO must submit a monthly DSP Report (report) that includes the
               data elements specified by TDH. TDH will consult with contracted
               HMOs prior to revising the report data elements and requirements.
               The reports must be submitted to TDH in the format and time
               specified by TDH. The report must include only unduplicated
               deliveries. The report must include only deliveries for which HMO
               has made a payment for the delivery, to either a hospital or
               other provider. No DSP will be made for deliveries which are not
               reported by HMO to TDH within [Deletion] 210 days after the date
               of delivery, or within 30 days from the date of discharge from
               the hospital for the stay related to the delivery, whichever is
               later.

2.      Article XIII is amended by deleting existing 13.2.5 and replacing it
        with the new Article 13.2.5 as follows: (delete the stricken language
        and add the bold and italicized)

                                                                       Bexar SDA

                                        2

<PAGE>

13.2.5         There will be two settlements for payment(s) of the state share
               of the experience rebate. The first settlement shall equal 100
               percent of the state share of the experience rebate as derived
               from Line 7 of Part 1 (Net Income Before Taxes) of the [deleted]
               Final Managed Care Financial Statistical (MCFS) Report and shall
               be paid on the same day the first [deleted] Final MCFS Report is
               submitted to TDH. The second settlement shall be an adjustment to
               the first settlement and shall be paid to TDH on the same day
               that the second [deleted] Final MCFS Report is submitted to TDH
               if the adjustment is a payment from HMO to TDH. TDH or its agent
               may audit or review the MCFS reports. If TDH determines that
               corrections to the MCFS reports are required, based on a TDH
               audit/review or other documentation acceptable to TDH, to
               determine an adjustment to the amount of the second settlement,
               then final adjustment shall be made within two years from the
               date that HMO submits the second [deleted] Final MCFS report. HMO
               must pay the first and second settlements on the due dates for
               the first and second Final MCFS reports respectively as
               identified in Article 12.1.5. TDH may adjust the experience
               rebate if TDH determines HMO has paid affiliates amounts for
               goods or services that are higher than the fair market value of
               the goods and services in the service area. Fair market value may
               be based on the amount HMO pays a non-affiliate(s) or the amount
               another HMO pays for the same or similar service in the service
               area and will be determined on a case-by-case basis. TDH has
               final authority in auditing and determining the amount of the
               experience rebate.

AGREED AND SIGNED by an authorized representative of the parties on December 9,
1999.

TEXAS DEPARTMENT OF HEALTH                       PCA Health Plans of Texas, Inc.

By:  /s/ William R. Archer, III., M.D.           By:  /s/ Michael A. Seltzer
     ---------------------------------                ------------------------
         William Archer, III., M.D.                       Michael A. Seltzer
         Commissioner of Health                           V.P., Western Region

Approved as to Form:

/s/
-------------------------
Office of General Counsel

                                                                       Bexar SDA

                                        3

<PAGE>

                                 AMENDMENT NO.2
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 2 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Bexar Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.

1. Article II is amended by adding the bold and italicized language

DEFINITIONS

Call coverage means arrangements made by a facility or an attending physician
with an appropriate level of health care provider who agrees to be available on
an as-needed basis to provide medically appropriate services for routine/high
risk/or emergency medical conditions or emergency Behavioral Health condition
that present without being scheduled at the facility or when the attending
physician is unavailable.

Enrollment report/enrollment file means the daily or monthly list of Medicaid
recipients who are enrolled with an HMO as Members on the day or for the month
the report is issued.

2. Article VI is amended by adding the bold and italicized language and deleting
the stricken language.

6.9      PERINATAL SERVICES
         ------------------
6.9.2    HMO must have a perinatal health care system in place that, at a
         minimum, provides the following services:

6.9.3    HMO must have a process to expedite scheduling a prenatal appointment
         for an obstetrical exam for a TP40 Member no later than two weeks after
         receiving the daily enrollment file verifying enrollment of the Member
         into the HMO.

6.9.4    HMO must have procedures in place to contact and assist a
         pregnant/delivering Member in selecting a PCP for her baby either
         before the birth or as soon as the

<PAGE>

               baby is born.

6.9.4.5        HMO must provide inpatient care and professional services related
               to labor and delivery for its pregnant/delivering Members and
               neonatal care for its newborn Members (see Article 14.3.1) at the
               time of delivey and for up to 48 hours following an uncomplicated
               vaginal delivery and 96 hours following an uncomplicated
               Caesarian delivery.

6.9.5.1        HMO must reimburse in-network providers, out-of-network
               providers, and specialty physicians who are providing call
               coverage, routine, and/or specialty consultation services for the
               period of time covered in Article 6.9.5

6.9.5.1.1      HMO must adjudicate provider claims for services provided to a
               newborn Member in accordance with TDH's claims processing
               requirements using the proxy ID number or State-issued Medicaid
               ID number (see Article 4.10). HMO cannot deny claims based on
               provider non-use of State-issued Medicaid ID number for a newborn
               Member. HMO must accept provider claims for newborn services
               based on mother's name and/or Medicaid ID number with
               accommodations for multiple births, as specified by the HMO.

6.9.5.2        HMO cannot require prior authorization or PCP assignment to
               adjudicate newborn claims for the period of time covered by 6.9.5

6.9.6          HMO may require prior authorization requests for hospital or
               professional services provided beyond the time limits in Article
               6.9.5 and may

<PAGE>

         utilized the determination of medical necessity beyond routine care.
         HMO must respond to these prior authorization within the requirements
         of 28 TAC(s)19.1710-19.1712 and Article 21.58a of the Texas Insurance
         Code.

6.9.6.1  HMO must notify providers involved in the care of pregnant/delivering
         women and newborns (including out-of-network providers and hospitals)
         regarding the HMO's prior authorization requirements.

6.9.6.2  HMO cannot require a prior authorization for services provided to a
         pregnant/delivering Member or newborn Member for a medical condition
         which requires emergency services, regardless of when the emergency
         condition arises (see Article 6.5.6).

3. Article VIII is amended by adding the bold and italicized language and
deleting the stricken language.

8.4.2    HMO must issue a Member Identification Card (ID) to the Member within
         five (5) days from the date the HMO receives the monthly Enrollment
         File from the Enrollment Broker. If the 5th day falls on a weekend or
         state holiday, the ID Card must be issued by the following working day.
         The ID Card must include, at a minimum, the following: Member's name;
         Member's Medicaid number; either the issue date of the card or
         effective date of the PCP assignment; PCP's name, address, and
         telephone number; name of HMO; name of IPA to which the Member's PCP
         belongs, if applicable; the 24-hour, seven (7) day a week toll-free
         telephone number operated by HMO; the toll-free number for behavioral
         health care services; and directions for what to do in an emergency.
         The ID Card must be reissued if the Member reports a lost card, there
         is a Member name change, if Member requests a new PCP, or for any other
         reason which results in a change to the information disclosed on the ID
         Card.

4. Article XII is amended by adding the bold and italicized language and
deleting the stricken language.

12.2     STATISTICAL REPORTS
         -------------------

12.2.4   HMO cannot submit newborn encounters to TDH until the State-issued
         Medicaid ID number is received for a newborn. HMO must match the proxy
         ID number issued by the HMO with the State-issued Medicaid ID number
         prior to submission of encounters to TDH and submit the encounter in
         accordance to the HMO Encounter Data Submission Manual. The encounter
         must include the State-issued Medicaid ID number. Exceptions to the
         45-day deadline for submission of encounter data in Paragraph 12.2.1
         will be granted it cases in which the Medicaid ID number is not
         available for a newborn Member.

<PAGE>

12.2.5    HMO must require providers to submit claims and encounter data to HMO
          no later than 95 days after the date services are provided.

12.2.6    HMO must use the procedure codes, diagnosis codes and other codes
          contained in the most recent edition of the Texas Medicaid Provider
          Procedures Manual and as otherwise provided by TDH. Exceptions or
          additional codes must be submitted for approval before HMO uses the
          codes.

12.2.7    HMO must use its TDH-specified identification-numbers on all encounter
          data submissions. Please refer to the TDH Encounter Data Submission
          Manual for further specifications

12.2.8    HMO must validate all encounter data using the encounter data
          validation methodology prescribed by TDH prior to submission of
          encounter data to TDH.

12.2.9    All Claims Summary Report. HMO must submit the "All Claims Summary
          -------------------------
          Report" identified in the Texas Managed Care Claims Manual as a
          contract year-to-date report. The report must be submitted quarterly
          by the last day of the month following the reporting period. The
          reports must be submitted to TDH in a format specified by TDH.

12.2.10   Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must file
          ------------------------------------------------------
          preliminary and final Medicaid Disproportionate Share Hospital (DSH)
          reports, required by TDH to identify and reimburse hospitals that
          qualify for Medicaid DSH funds. The preliminary and final DSH reports
          must include the data elements and be submitted in the form and format
          specified by TDH. The preliminary DSH reports are due on or before
          June 1 of the year following the state fiscal year for which data is
          being reported. The final DSH reports are due on or before August 15
          of the year following the state fiscal year for which data is being
          reported.

 5. Article XIII is amended by adding the bold and italicized language.

13.5      NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS
          ---------------------------------------------

13.5.1    Newborns born to Medicaid eligible mothers who are enrolled in HMO
          are enrolled into HMO for 90 days following the date of birth.

13.5.1.1  The mother of the newborn Member may change her newborn to another
          HMO during the first 90 days following the date of birth, but may
          only do so through TDH Customer Services.

13.5.2    MAXIMUS will provide HMO with a daily enrollment file which will
          list all newborns who have received State-issued Medicaid ID numbers.
          This file will

<PAGE>

          include the Medicaid eligible mothers Medicaid ID number to allow the
          HMO to link the newborn's State-issued Medicaid ID numbers with the
          proxy ID number. TDH will guarantee capitation payments to HMO for all
          newborns who appear on the MAXIMUS daily enrollment file as HMO
          Members for each month the newborn is enrolled in the HMO.

13.5.3    All non-TP45 newborns who are born to mothers whose enrollment in HMO
          is effective on or before the date of the birth of the newborn will
          be retroactively enrolled into the HMO through a manual process
          by DHS Data Control

13.5.4    Newborns who do not appear on the MAXIMUS daily enrollment file before
          the end of the sixth month following the date of birth will not be
          retroactively enrolled into the HMO. TDH will manually reconcile
          payment to the HMO for services provided from the date of birth
          for TP45 and all other eligibility categories of newborns. Payment
          will cover services rendered from the effective date of the proxy ID
          number when first issued by the HMO regardless of plan assignment
          at the time the State-issued Medicaid ID number is receive.

13.5.5    MW3iWUS will provide HMO with a daily enrollment file which will list
          all TP40 Members who have received State-issued Medicaid ID numbers.
          TDH will guarantee capitation payments to HMO for all TP40 Members
          who appear on the MAXIMUS daily enrollment file as HMO Members for
          each month the TP40 Member enrollment is effective

6.   Article XIV is amended by adding the bold and italicized language.

14.3      NEWBORN ENROLLMENT
          ------------------

          The HMO is responsible for newborns who are born to mothers whose
          enrollment in HMO is effective on or before the date of birth as
          follows:

14.3.1    Newborns are presumed Medicaid eligible and enrolled in the mother's
          HMO for at least 90 days from the date of birth.

14.3.l.1  A mother of a newborn Member may change plans for her newborn during
          the first 90 days by contacting TDH Customer Services. TDH will
          notify HMO of newborn plan changes made by a mother when the change
          is made by TDH Customer Services.

14.3.2    HMO must establish and implement written policies and procedures to
          require professional and facility providers to notify HMOs of a birth
          of a newborn to a Member at the time of delivery.

14.3.2.1  HMO must create a proxy ID number in the HMO's Enrollment/Eligibility
          and

<PAGE>

               date of birth of the newborn.

     14.3.2.2  HMO must match the proxy ID number and the State-issued Medicaid
               ID number once the State-issued Medicaid ID number is received.

     14.3.2.3  HMO must submit a Form 7484A to DHS Data Control requesting DHS
               Data Control to research DHS's files for a Medicaid ID number if
               HMO has not received a State-issued Medicaid ID number for a
               newborn within 30 days from the date of birth. If DHS finds that
               no Medicaid ID number has been issued to the newborn, DHS Data
               Control will issue the Medicaid ID number using the information
               provided on the Form 7484A.

     14.3.3    Newborns certified Medicaid eligible after the end of the sixth
               month following the date of birth will not be retroactively
               enrolled to an HMO, but will be enrolled in Medicaid
               fee-for-service. TDH will manually reconcile payment to the HMO
               for services provided from the date of birth for all Medicaid
               eligible newborns as described in Article 13.5.4.

     14.       DISENROLLMENT
               -------------

     14.4.1    HMO has a limited right to request a Member be disenrolled from
               HMO without the Member's consent. TDH must approve any HMO
               request for disenrollment of a Member for cause. Disenrollment of
               a Member may be permitted under the following circumstances:

     14.4.1.1  Member misuses or loans Member's HMO membership card to another
               person to obtain services.

     14.4.1.2  Member is disruptive, unruly, threatening or uncooperative to the
               extent that Member's membership seriously impairs HMO's or
               provider's ability to provide services to Member or to obtain
               new Members, and Member's behavior is not caused by a physical or
               behavioral health condition.

     14.4.1.3  Member steadfastly refuses to comply with managed care
               restrictions (e.g., repeatedly using emergency room in
               combination with refusing to allow HMO to treat the underlying
               medical condition).

     14.4.2.1  HMO must take reasonable measures to correct Member behavior
               prior to requesting disenrollment. Reasonable measures may
               include providing education and counseling regarding the
               offensive acts or behaviors.

<PAGE>

14.4.3    HMO must notify the Member of HMO's decision to disenroll the Member
          if all reasonable measures have failed to remedy the problem.

14.4.4    If the Member disagrees with the decision to disenroll the Member from
          HMO, HMO must notify the Member of the availability of the complaint
          procedure and TDH's Fair Hearing process.

14.4.5    HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
          MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE MEDICALLY
          NECESSARY FOR TREATMENT OF MEMBER'S CONDITION.

14.5      AUTOMATIC RE-ENROLLMENT
          -----------------------

14.5.1    Members who are disenrolled because they are temporarily ineligible
          for Medicaid will be automatically re-enrolled into the same health
          plan. Temporary loss of eligibility is defined as a period of 6 months
          or less.

14.5.2    HMO must inform its Members of the automatic re-enrollment procedure.
          Automatic re-enrollment must be included in the Member Handbook (see
          Article 8.2.1).

14.       ENROLLMENT REPORTS
          ------------------

14.6.1    TDH will provide HMO enrollment reports listing all STAR Members who
          have enrolled in or were assigned to HMO during the initial enrollment
          period.

14.6.2    TDH will provide monthly HMO Enrollment Reports to HMO on or before
          the first of the month.

14.6.3    TDH will provide Member verification to HMO and network providers
          through telephone verification or TexMedNet.

<PAGE>

AGREED AND SIGNED by an authorized representative of the parties on April 5,
2001

TEXAS DEPARTMENT OF HEALTH                PCA Health Plans of Texas, Inc.

By: /s/ C.E. Bell, M.D                   By: /s/ Michael A. Seltzer
    ----------------------------              --------------------------------
    Charles E. Bell, M.D.                     Michael Seltzer
    Executive Deputy Commissioner             Vice President, West Region
    of Health

Approved as to Form:

/s/ MaryAnn Slavin
--------------------------------
Office of General Counsel

<PAGE>
                                                  TDH Doc #4810323494* 2001A-01C

                                 AMENDMENT NO.3

                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 3 is entered into between the Texas Department of Heath (TDH)
and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Bexar Service Area, dated
September 1, 1999. The effective date of this Amendment is the date TDH Signs
this Amendment. All other contract provisions remain in full force and effect.

1.      Article III is amended by adding the new bold and italicized language
        and deleting the stricken language as follows:

3.7            HMO TELEPHONE ACCESS REQUIREMENTS

3.7.1          For all HMO telephone access (including Behavioral Health
               telephone services), HMO must ensure [deleted] adequately-staffed
               telephone lines. Telephone personnel must receive customer
               service telephone training. HMO must ensure that telephone
               staffing is adequate to fulfill the standards of promptness and
               quality listed below:

               1.  80% of all telephone calls must be answered within an average
                   of 30 seconds;
               2.  The lost (abandonment) rate must not exceed 10%;
               3.  HMO cannot impose maximum call duration limits but must allow
                   calls to be of sufficient length to ensure adequate
                   information is provided to the Member or Provider.
               4.  Telephone services must meet cultural competency requirements
                   (see Article 8.9) and provide "linguistic access" to all
                   members as defined in Article II. This would include the
                   provision of interpretive services required for effective
                   communication for Members and providers.

3.7.2          Member Helpline: The HMO must furnish a toll-free phone line
               which members may call 24 hours a day, 7 days a week. An
               answering service or other similar mechanism, which allows
               callers to obtain information from a live person, may be used for
               after-hours and weekend coverage.

3.7.2.1        HMO must provide coverage for the following services at least
               during HMO's regular business hours (a minimum of 9 hours a day,
               between 8 a.m. and 6.p.m.), [deleted] Monday through Friday:

               1.  Member ID information

<PAGE>

               2.      To change PCP
               3.      Benefit explanations
               4.      PCP verification
               5.      Access issues (including referrals to specialists)
               6.      Problems Accessing PCP
               7.      Member eligibility
               8.      Complaints
               9.      Service area issues (including when member is
                       temporarily out-of-service area)
               10.     Other services covered by member services.

3.7.2.2        HMO must provide TDH with policies and procedures indicating how
               the HMO will meet the needs of members who are unable to contact
               HMO during regular business hours.

3.7.3          HMO must ensure that PCPs are available 24 hours a day, 7 days a
               week (see Article 7.8). This includes PCP telephone coverage (see
               28 TAC 11.2001 (a)1A).

3.7.4          Behavioral Health Hotline Services. HMO must have emergency and
               crisis Behavioral Health hotline services available 24 hours a
               day, 7 days a week, toll-free throughout the service area. Crisis
               hotline staff must include or have access to qualified behavioral
               health professionals to assess behavioral health emergencies.
               Emergency and crisis behavioral health services may be arranged
               through mobile crisis teams. It is not acceptable for an
               emergency intake line to be answered by an answering machine.
               Hotline services must meet the requirements described in Article
               3.7.1

2.      Article V is amended by adding the new bold and italicized language and
        deleting the stricken language as follows:

5.9            REQUESTS FOR PUBLIC INFORMATION
               -------------------------------

5.9.3          Notwithstanding 5.9.2. If HMO believes that the requested
               information qualifies as a trade secret or as commercial or
               financial information, HMO must notify TDH-within three (3)
               working days after TDH gives notice that a request has been made
               for public information [deleted] -- and request TDH to submit the
               request for public information to the Attorney General for an
               Open Records Opinion. The HMO will be responsible for presenting
               all exceptions to public disclosure to the Attorney General if an
               opinion is requested. [deleted]

<PAGE>

3.      Article VI is amended by adding the new bold and italicized language as
        follows:

6.4            CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
               -----------------------------------------------

6.4.5          HMO must provide assistance to providers requiring PCP
               verification 24 hours a day, 7 days a week.

6.4.5.1        HMO must provide TDH with policies and procedures indicating how
               the HMO will provide PCP verification as indicated in article
               6.4.5. HMOs providing PCP verification via a telephone must meet
               the requirements of 3.7.1.

4.      Article VII is amended by adding the new bold and italicized language
        and deleting the stricken language as follows:

7.6            PROVIDER COMPLAINT AND APPEAL PROCEDURES
               ----------------------------------------

7.6.3          HMO's complaint and appeal process cannot contain provisions
               requiring a [deleted] provider to submit a complaint or appeal to
               TDH for resolution in lieu of the HMO's process.

7.18           DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)
               --------------------------------------------------------------

7.18.2.1       HMO is required to include subcontract provisions in its
               delegated network contracts which require the UM protocol used by
               a delegated network to produce substantially similar outcomes, as
               approved by TDH, as the UM protocol employed by the contracting
               HMO. The responsibilities of an HMO in delegating UM functions to
               a delegated network will be governed by Article [deleted] 16.3.12
               of this contract.

5.      Article VIII is amended by adding the new bold and italicized language
        and deleting the stricken language as follows:

8.3            ADVANCE DIRECTIVES
               ------------------

8.3.1          Federal and state law require HMOs and providers to maintain
               written policies and procedures for informing and providing
               written information to all adult Members 18 years of age and
               older about their rights under state and federal law, in advance
               of their receiving care (Social Security Act ss.1902(a)(57) and
               ss.1903(m)(1)(A)). The written policies and procedures must
               contain procedures for providing written information regarding
               advance directives and the Member's right to refuse, withhold or
               withdraw medical treatment and mental health treatment. [deleted]
               HMO's policies and procedures must comply with provisions
               contained in 42 CFR ss.434.28 and 42 CFR ss.489, SubPart I,
               relating to advance directives for all hospitals,

<PAGE>

               critical access hospitals, skilled nursing facilities, home
               health agencies, providers of home health care, providers of
               personal care services and hospices, as well as the following
               state laws and rules:

8.3.1.2.3      a Member's right to execute a Medical Power of Attorney to
               appoint an agent to make health care decisions on the Member's
               behalf if the Member becomes incompetent; and

8.3.1.3        the declaration for Mental Health Treatment, Chapter 137, Texas
               Civil Practice and Remedies code, which includes: a Member's
               right to execute a declaration for mental health treatment in a
               document making a declaration of preferences or instructions
               regarding mental health treatment.

8.3.2          HMO must maintain written policies for implementing a Member's
               advance directive. Those policies must include a clear and
               precise statement of limitation if HMO or a participating
               provider cannot or will not implement a Member's advance
               directive.

8.3.2.1.3      a description of the [deleted] medical and mental health
               conditions or procedures affected by the conscience objection.

[deleted]

8.5            MEMBER COMPLAINT PROCESS
               ------------------------

8.5.1          HMO must develop, implement and maintain a Member complaint
               system that complies with the requirements of Article 20A.12 of
               the Texas Insurance Code, relating to the Complaint System,
               except where otherwise provided in this contract and in
               applicable federal law. The complaint and appeals procedure must
               be the same for all Members and must comply with Texas Insurance
               Code, Article 20A.12 or applicable federal law. Modifications and
               amendments must be submitted to TDH at least 30 days prior to the
               implementation of the modification or amendment.

8.5.2          HMO must have written policies and procedures for receiving,
               tracking, reviewing, and reporting and resolving of Member
               complaints. The procedures must be reviewed and approved in
               writing by TDH. Any changes or modifications to the procedures
               must be submitted to TDH for approval thirty (30) days prior to
               the effective date of the amendment.

8.5.3          HMO must designate an officer of HMO who has primary
               responsibility for ensuring that complaints are resolved in
               compliance with written policy and within the time required. An
               "officer" of HMO means a president, vice president, secretary,

<PAGE>

               treasurer, or chairperson of the board for a corporation, the
               sole proprietor, the managing general partner of a partnership,
               or a person having similar executive authority in the
               organization.

8.5.4          HMO must have a routine process to detect patterns of complaints
               and disenrollments and involve management and supervisory staff
               to develop policy and procedural improvements to address the
               complaints. HMO must cooperate with TDH and TDH's Enrollment
               Broker in Member complaints relating to enrollment and
               disenrollment.

8.5.5          HMO's complaint procedures must be provided to Member in writing
               and in alternative communication formats. A written description
               of HMO's complaint procedures must be in appropriate languages
               and easy for Members to understand. HMO must include a written
               description in the Member Handbook. HMO must maintain at least
               one local and one toll-free telephone number for making
               complaints.

8.5.6          HMO's process must require that every complaint received in
               person, by telephone or in writing, is recorded in a written
               record and is logged with the following details: date;
               identification of the individual filing the complaint;
               identification of the individual recording the complaint; nature
               of the complaint; disposition of the complaint; corrective action
               required; and date resolved.

8.5.7          HMO's process must include a requirement that the Governing Body
               of HMO reviews the written records (logs) for complaints and
               appeals.

8.5.8          HMO is prohibited from discriminating against a Member because
               that Member is making or has made a complaint.

8.5.9          HMO cannot process requests for disenrollments through HMO's
               complaint procedures. Requests for disenrollments must be
               referred to TDH within five (5) business days after the Member
               makes a disenrollment request.

8.5.10         HMO must develop, implement and maintain an appeal of adverse
               determination procedure that complies with the requirements of
               Article 21.58A of the Texas Insurance Code, relating to the
               utilization review, except where otherwise provided in this
               contract and in applicable federal law. The appeal of an adverse
               determination procedure must be the same for all Members and must
               comply with Texas Insurance Code, Article 21.58A or applicable
               federal law. Modifications and amendments must be submitted to
               TDH no less than 30 days prior to the implementation of the
               modification or amendment. When an enrollee, a person acting on
               behalf of an enrollee, or an enrollee's provider of record
               expresses orally or in writing any dissatisfaction or
               disagreement with an adverse determination, HMO or UR agent must
               regard the expression of dissatisfaction as a request to appeal
               an adverse determination.

<PAGE>

8.5.11         If a complaint or appeal of an adverse determination relates to
               the denial, delay, reduction, termination or suspension of
               covered services by either HMO or a utilization review agent
               contracted to perform utilization review by HMO. HMO must inform
               Members they have the right to access the TDH Fair Hearing
               process at any time in lieu of the internal complaint system
               provided by HMO. HMO is required to comply with the requirements
               contained in 1 TAC Chapter 357, relating to notice and Fair
               Hearings in the Medicaid program, whenever an action is taken to
               deny, delay, reduce, terminate or suspend a covered service.

8.5.12         If Members utilize HMO's internal complaint or appeal of adverse
               determination system and the complaint relates to the denial,
               delay. reduction. termination or suspension of covered services
               by either HMO or a utilization review agent contracted to perform
               utilization review by HMO, HMO must inform the Member that they
               continue to have a right to appeal the decision through the TDH
               Fair Hearing process.

8.5.13         The provisions of Article 21.58A, Texas Insurance Code, relating
               to a Member's right to appeal an adverse determination made by
               HMO or a utilization review agent by an independent review
               organization, do not apply to a Medicaid recipient. Federal fair
               hearing requirements (Social Security Act ss.1902a(3). codified
               at 42 C.F.R. 431.200 et. seq.) require the agency to make a final
               decision after a fair hearing, which conflicts with the State
               requirement that the IRO make a final decision. Therefore, the
               State requirement is pre-empted by the federal requirement.

8.5.14         HMO will cooperate with the Enrollment Broker and TDH to resolve
               all Member complaints. Such cooperation may include, but is not
               limited to. participation by HMO or Enrollment Broker and/or TDH
               internal complaint committees.

8.5.15         HMO must have policies and procedures in place outlining the role
               of HMO's Medical Director in the Member Complaint System and
               appeal of an adverse determination. The Medical Director must
               have a significant role in monitoring, investigating and hearing
               complaints.

8.5.16         HMO must provide Member Advocates to assist Members in
               understanding and using HMO's complaint system and appeal of an
               adverse determination.

8.5.17         HMO's Member Advocates must assist Members in writing or filing a
               complaint or appeal of an adverse determination and monitoring
               the complaint or appeal through the Contractors complaint or
               appeal of an adverse determination process until the issue is
               resolved.

8.6            MEMBER NOTICE, APPEALS AND FAIR HEARINGS
               ----------------------------------------

8.6.1          HMO must send Members the notice required by 1 Texas
               Administrative Code ss.357.5, whenever HMO takes an action to
               deny, delay, reduce or terminate covered

<PAGE>

               services to a Member. The notice must be mailed to the Member no
               less than 10 days before HMO intends to take an action. If an
               emergency exists, or if the time within which the service must be
               provided makes giving 10 days notice impractical or impossible,
               notice must be provided by the most expedient means reasonably
               calculated to provide actual notice to the Member, including by
               phone, direct contact with the Member, or through the provider's
               office.

8.6.2          The notice must contain the following information:

8.6.2.1        Member's right to immediately access TDH's Fair Hearing process:

8.6.2.2        a statement of the action HMO will take;

8.6.2.3        the date the action will be taken;

8.6.2.4        an explanation of the reasons HMO will take the action:

8.6.2.5        a reference to the state and/or federal regulations which support
               HMO's action;

8.6.2.6        an address where written requests may be sent and a toll-free
               number Member can call to: request the assistance of a Member
               representative, or file a complaint, or request a Fair Hearing;

8.6.2.7        a procedure by which Member may appeal HMO's action though either
               HMO's complaint process or TDH's Fair Hearings process;

8.6.2.8        an explanation that Members may represent themselves, or be
               represented by HMO's representative, a friend, a relative, legal
               counsel or another spokesperson;

8.6.2.9        an explanation of whether, and under what circumstances, services
               may be continued if a complaint is filed or a Fair Hearing
               requested;

8.6.2.10       a statement that if the Member wants a TDH Fair Hearing on the
               action, Member must make the request for a Fair Hearing within 90
               days of the date on the notice or the right to request a hearing
               is waived;

8.6.2.11       a statement explaining that HMO must make its decision within 30
               days from the date the complaint is received by HMO; and

8.6.2.12       a statement explaining that a final decision must be made by TDH
               within 90 days from the date a Fair Hearing is requested.

8.7            MEMBER ADVOCATES
               ----------------

8.7.1          HMO must provide Member Advocates to assist Members. Member
               Advocates must be

<PAGE>

               physically located within the service area. Member Advocates must
               inform Members of their rights and responsibilities, the
               complaint process, the health education and the services
               available to them, including preventive services.

8.7.2          Member Advocates must assist Members in writing complaints and
               are responsible for monitoring the complaint through HMOs
               complaint process until the Member's issues are resolved or a TDH
               Fair Hearing requested (see Articles 8.6.15, 8.6.16, and 8.6.17).

8.7.3          Member Advocates are responsible for making recommendations to
               management on any changes needed to improve either the care
               provided or the way care is delivered. Member Advocates are also
               responsible for helping or referring Members to community
               resources available to meet Member needs that are not available
               from HMO as Medicaid covered services.

8.7.4          Member Advocates must provide outreach to Members and participate
               in TDH-sponsored enrollment activities.

8.8            MEMBER CULTURAL AND LINGUISTIC SERVICES
               ---------------------------------------

8.8.1          Cultural Competency Plan. HMO must have a comprehensive written
               Cultural Competency Plan describing how HMO will ensure
               culturally competent services, and provide linguistic and
               disability-related access. The Plan must describe how the
               individuals and systems within HMO will effectively provide
               services to people of all cultures, races, ethnic backgrounds,
               and religions as well as those with disabilities in a manner that
               recognizes, values, affirms, and respects the worth of the
               individuals and protects and preserves the dignity of each. HMO
               must submit a written plan to TDH prior to the effective date of
               this contract unless previously submitted. Modifications and
               amendments to the written plan must be submitted to TDH no later
               than 30 days prior to implementation of the modification or
               amendment. The Plan must also be made available to HMO's network
               of providers.

8.8.2          The Cultural Competency Plan must include the following:

8.8.2.1        HMO's written policies and procedures for ensuring effective
               communication through the provision of linguistic services
               following Title VI of the Civil Rights Act guidelines and the
               provision of auxiliary aids and services, in compliance with the
               Americans with Disabilities Act, Title III, Department of Justice
               Regulation 36.303. HMO must disseminate these policies and
               procedures to ensure that both Staff and subcontractors are aware
               of their responsibilities under this provision of the contract.

8.8.2.2        A description of how HMO will educate and train its staff and
               subcontractors on culturally competent service delivery, and the
               provision of linguistic and/or disability-related access as
               related to the characteristics of its Members;

<PAGE>

8.8.2.3        A description of how HMO will implement the plan in its
               organization, identifying a person in the organization who will
               serve as the contact with TDH on the Cultural Competency Plan;

8.8.2.4        A description of how HMO will develop standards and performance
               requirements for the delivery of culturally competent care and
               linguistic access, and monitor adherence with those standards and
               requirements;

8.8.2.5        A description of how HMO will provide outreach and health
               education to Members, including racial and ethnic minorities,
               non-English speakers or limited-English speakers, and those with
               disabilities; and

8.8.2.6        A description of how HMO will help Members access culturally and
               linguistically appropriate community health or social service
               resources;

8.8.3          Linguistic, Interpreter Services, and Provision of Auxiliary Aids
               and Services. HMO must provide experienced, professional
               interpreters when technical, medical, or treatment information is
               to be discussed. See Title VI of the Civil Rights Act of 1964, 42
               U.S.C. ss.ss. 2000d, et. seq. HMO must ensure the provision of
               auxiliary aids and services necessary for effective
               communication, as per the Americans with Disabilities Act, Title
               III, Department of Justice Regulations 36.303.

8.8.3.1        HMO must adhere to and provide to Members the Member Bill of
               Rights and Responsibilities as adopted by the Texas Health and
               Human Services Commission and contained at 1 Texas Administrative
               Code (TAC) ss.ss.353.202-353.203. The Member Bill of Rights and
               Responsibilities assures Members the right to have interpreters,
               if needed, during appointments with their providers and when
               talking to their health plan. Interpreters include people who can
               speak in their native language, assist with a disability, or help
               them understand the information."

8.8.3.2        HMO must have in place policies and procedures that outline how
               Members can access face-to-face interpreter services in a
               provider's office if necessary to ensure the availability of
               effective communication regarding treatment, medical history or
               health education for a Member. HMOs must inform its providers on
               how to obtain an updated list of participating, qualified
               interpreters.

8.8.3.3        A competent interpreter is defined as someone who is:

8.8.3.4        proficient in both English and the other language;

8.8.3.5        has had orientation or training in the ethics of interpreting;
               ant

8.8.3.6        has the ability to interpret accurately and impartially.

8.8.3.7        HMO must provide 24-hour access to interpreter services for
               Members to access

<PAGE>

               emergency medical services within HMO's network.

8.8.3.8        Family Members, especially minor children, should not be used as
               interpreters in assessments, therapy or other medical situations
               in which impartiality and confidentiality are critical, unless
               specifically requested by the Member. However, a family member or
               friend may be used as an interpreter if they can be relied upon
               to provide a complete and accurate translation of the information
               being provided to the Member; provided that the Member is advised
               that a free interpreter is available; and the Member expresses a
               preference to rely on the family member or friend.

8.8.4          All Member orientation presentations education classes and
               materials must be presented in the languages of the major
               population groups making up 10% or more of the Medicaid
               population in the service area, as specified by TDH. HMO must
               provide auxiliary aids and services, as needed, including
               materials in alternative formats (i.e., large print, tape or
               Braille), and interpreters or real-time captioning to accommodate
               the needs of persons with disabilities that affect communication.

8.8.5          HMO must provide or arrange access to TDD to Members who are deaf
               or hearing impaired.

8.9            CERTIFICATION DATE
               ------------------

8.9.1          On the date of the new Member's enrollment, TDH will provide HMOs
               with the Members Medicaid certification date.

6.      Article XII is amended by adding the new bold and italicized language
        and deleting the stricken language as follows:

12.1           FINANCIAL REPORTS
               -----------------

12.1.4         Final MCFS Reports. HMO must file two Final Managed Care
               Financial-Statistical Reports. The first final report must
               reflect expenses incurred through the 90th day after the end of
               the contract [deleted]. The first final report must be filed on
               or before the 120th day after the end of the contract [deleted].
               The second final report must reflect data completed through the
               334th day after the end of the contract and must be filed on
               or before the 365th day following the end of the contract
               [deleted].

12.2.9         Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must
               file preliminary and final Medicaid Disproportionate Share
               Hospital (DSH) reports, required by TDH to identify and reimburse
               hospitals that qualify for Medicaid DSH funds. The preliminary
               and final DSH reports must include the data elements and be
               submitted in the form and format specified by TDH. The
               preliminary DSH reports are due on or before June 1 of the year
               following the state fiscal year for which data is being reported.
               The final DSH reports are due [deleted] no later

<PAGE>

               than July 15 of the year following the state fiscal year for
               which data is being reported.

12.8           UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
               --------------------------------------------------

               Behavioral Health (BH) utilization management reports are
               required on a semi-annual basis [deleted]. Refer to Appendix H
               for the standardized reporting format for each report and
               detailed instructions for obtaining the specific data required in
               the report. [deleted]

12.8.1         In addition, files are due to the TDH External Quality Review
               Organization five (5) working days following the end of each
               State Quarter. See Appendix H for Submission instructions. The BH
               utilization report and data file submission instructions may
               periodically updated by TDH to facilitate clear communication to
               the health plans.

12.9           UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
               ------------------------------------------------

               Physical health (PH) utilization management reports are required
               on a semi-annual basis [deleted]. Refer to Appendix J for the
               standardized reporting format for each report and detailed
               instructions for obtaining specific data required in the report.

               [deleted]

12.9.1         In addition, data files are due to the TDH External Quality
               Review Organization five (5) working days following the end of
               each State Quarter. See Appendix J for submission instructions.
               The PH utilization report and data file submission instruction
               may periodically be updated by TDH to facilitate clear
               communication to the health plan.

7.      Article XIII is amended by adding the new bold and italicized language
        and deleting the stricken language as follows:

13.1           CAPITATION AMOUNTS
               ------------------

13.1.1         TDH will pay HMO monthly premiums calculated by multiplying the
               number of Member months by Member risk group times the monthly
               capitation amount by Member risk group. For additional
               information regarding the actuarial basis and

<PAGE>

               methodology used to compute the capitation rates, please
               reference the waiver under the document titled "Actuarial
               Methodology for Determination of Maximum Monthly Capitation
               Amounts". HMO and network providers are prohibited from billing
               or collecting any amount from a Member for health care services
               covered by this contract, in which case the Member must be
               informed of such costs prior to providing non-covered services.

13.2           EXPERIENCE REBATE TO STATE
               --------------------------

13.2.1         For the contract period [deleted], HMO must pay to TDH experience
               rebate calculated in accordance with the tiered rebate method
               listed below based on the excess of allowable HMO STAR revenues
               over allowable HMO STAR expenses as measured by any positive
               amount on Line 7 of "Part 1: Financial Summary, All Coverage
               Groups Combined" of the annual Managed Care Financial-Statistical
               Report set forth in Appendix I, as reviewed and confirmed by TDH.
               TDH reserves the right to have an independent audit performed to
               verify the information provided by HMO.

13.2.5         There will be two settlements for payment(s) [deleted] of the
               experience rebate allocated to the state in the table 13.2.1
               under the column entitled "State Share of Experience Rebate." The
               first settlement shall equal 100 percent [deleted] of the
               experience rebate as derived from Line 7 of Part 1 (Net Income
               Before Taxes) of the first final [deleted] Managed Care Financial
               Statistical (MCFS) Report and shall be paid on the same day the
               first final [deleted] MCFS Report is submitted to TDH. The second
               settlement shall be an adjustment to the first settlement and
               shall be paid to TDH on the same day that the second final
               [deleted] MCFS Report is submitted to TDH if the adjustment is a
               payment from HMO to TDH. TDH or its agent may audit or review the
               MCFS reports. If TDH determines that corrections to the MCFS
               reports are required, based on a TDH audit/review or other
               documentation acceptable to TDH, to determine an adjustment to
               the amount of the second settlement, then final adjustment shall
               be made within two years from the date that HMO submits the
               second final [deleted] MCFS report. HMO must pay the first and
               second settlements on the due dates for the first and second
               final MCFS reports respectively as identified in Article
               [deleted] 12.1.4. TDH may adjust the experience rebate if TDH
               determines HMO has paid affiliates amounts for goods or services
               that are higher than the fair market value of the goods and
               services in the service area. Fair market value may be based on
               the amount HMO pays a non-affiliate(s) or the amount another HMO
               pays for the same or similar service in the service area. TDH has
               final authority in auditing and determining the amount of the
               experience rebate.

8.      The Appendices are amended by deleting Appendix H, "Utilization
        Management Report -Behavioral Health" and replacing it with new Appendix
        H, "Utilization Management Report -Behavioral Health", as attached.

9.      The Appendices are amended by deleting Appendix J, "Utilization
        Management Report -Physical Health' and replacing it with new Appendix
        J, `Utilization Management Report -

<PAGE>

        Physical Health", as attached.

10.     The Appendices are amended by deleting Appendix K, "Preventative Health
        Performance Objectives" and replacing it with new Appendix K.
        "Preventative Health Performance Objectives", as attached.

AGREED AND SIGNED by an authorized representative of the parties on February 5,
2001.

TEXAS DEPARTMENT OF HEALTH                    PCA Health Plans of Texas, Inc.

By:  /s/ C. E. Bell, M.D                      By:  /s/ Michael A. Seltzer
     ---------------------------------             ------------------------
     Charles. E. Bell, M.D.                        Michael A. Seltzer
     Executive Deputy Commissioner                 Vice President Western Region

Approved as to Form:

/s/ Mary Ann Slavin

-------------------------
Office of General Counsel

    TDH DOC # 4810323494* 2001A - 01C
              -----------------------

<PAGE>

                                AMENDMENT NO. 4
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 4 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Bexar Service Area, dated
September 1, 1999. The effective date of this Amendment is [deleted] September
1, 2000. All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract to read as follows:

Article XIII is amended by adding the bold and italicized language and deleting
the stricken language.

13.1.2         Delivery Supplemental Payment (DSP).  [Deleted]

<PAGE>

               -----------------------------------------------------------------
               Risk Group                         Monthly Capitation Amounts
                                                  September 1, 2000 - August 31,
                                                  2001

               -----------------------------------------------------------------
               TANF Adults                                 $153.73
               -----------------------------------------------------------------
               TANF Children > 12 Months of Age            [deleted] $49.91
               -----------------------------------------------------------------
               Expansion Children > 12 Months of Age       [deleted] $59.22
               -----------------------------------------------------------------
               Newborns < 12 Months of Age                 [deleted] $375.50
                        -
               -----------------------------------------------------------------
               TANF Children < 12 Months of Age            [deleted] $375.50
                             -
               -----------------------------------------------------------------
               Expansion Children < 12 Months of Age       [deleted] $375.50
                                  -
               -----------------------------------------------------------------
               Federal Mandate Children                    [deleted] $42.29
               -----------------------------------------------------------------
               CHIP Phase I                                [deleted] $76.38
               -----------------------------------------------------------------
               Pregnant Women                              $241.86
               -----------------------------------------------------------------
               Disabled/Blind                              $ 14.00
               Administration
               -----------------------------------------------------------------

        Delivery Supplemental Payment: A one-time per pregnancy supplemental
        payment for each delivery shall be paid to HMO as provided below in the
        following amount: $2834.10.

<PAGE>

[deleted]

13.1.3         TDH will re-examine the capitation rates paid to HMO order this
               contract during the first year of the contract period and will
               provide HMO with capitation rates for the second year of the
               contract period no later than 30 days before the date of the
               one-year anniversary of the contract's effective date. Capitation
               rates for state fiscal year 2001 will be re-examined based on the
               most recent available traditional Medicaid cost data for the
               contracted risk groups in the service area, trended forward and
               discounted.

13.1.3.1       Once HMO has received their capitation rates established by TDH
               for the second year of this contract, HMO may terminate this
               contact as provided in Article 18.1.6 of this contract.

13.1.4         The monthly premium payment to HMO is based on monthly
               enrollments adjusted to reflect money damages set out in Article
               18.8 and adjustments to premiums in Article 13.5.

13.1.5         The monthly premium payments will be made to HMO no later than
               the 10th working day of the month for which premiums are paid.
               HMO must accept payment for premiums by direct deposit into an
               HMO account.

<PAGE>

13.1.6         Payment of monthly capitation amounts is subject to availability
               of appropriations. If appropriations are not available to pay the
               full monthly capitation amounts, TDH will equitably adjust
               capitation amounts for all participating HMOs, and reduce scope
               of service requirement as appropriate.

13.1.7         HMO renewal rates reflect program increases appropriated by the
               76th legislature for physician (to include THSteps providers) and
               outpatient facility services. HMO must report to TDH any change
               in rates for participating physicians (to include THSteps
               providers) and outpatient facilities resulting from this
               increase. The report must be submitted to TDH at the end of the
               first quarter of the FY2000 and FY2001 contract years according
               to the deliverables matrix schedule set for HMO.

AGREED AND SIGNED by an authorized representative of the parties on September 7,
2000.

TEXAS DEPARTMENT OF HEALTH                 PCA Health Plans of Texas, Inc.

By:    /s/ William R. Archer, III., M.D.   By: /s/ Michael A. Seltzer
       ---------------------------------       ---------------------------------
           William R. Archer, III., M.D.          Michael A. Seltzer
           Commissioner of Health                 Vice President, Western Region

Approved as to Form:

/s/ Illegible

-------------------------
Office of General Counsel

<PAGE>
                                                  TDH Doc. No. 4810323494*01-01D

                                AMENDMENT NO. 5.
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 5 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the 1999 Contract for
Services between the Texas Department of Health and HMO in the Bexar Service
Area. The effective date of this Amendment is the date TDH signs this Amendment.
All other contract provisions remain in full force and effect.

1.      Article II & IV is amended by adding the new bold and italicized
        language and deleting the stricken language as follows:

        2.0        DEFINITION

                   ----------

                   Clean claim means a claim submitted by a physician or
                   provider for medical care or health care services rendered to
                   an enrollee, with documentation reasonably necessary for the
                   HMO or subcontracted claims processor to process the claim,
                   as set forth in 28 TAC ss.21.2802(4) and to the extent that
                   it is not in conflict with the provisions of this contract.

                   [deleted]

        4.10       CLAIMS PROCESSING REQUIREMENTS
                   ------------------------------

        4.10.1     HMO and claims processing subcontractors must comply with 28
                   TAC ss.ss.21.2801 through 21.2816 "Submission of Clean
                   Claims", to the extent they are not in conflict with
                   provisions of this contract.

        4.10.2     HMO must use a TDH approved or identified claim format that
                   contains all data fields for final adjudication of the claim.
                   The required data fields must be complete and accurate. The
                   TDH required data fields are identified in TDH's "HMO
                   Encounter Data Claims Submission Manual."

                                                                        12/21/00

                                   Page 1 of 3

<PAGE>

        4.10.3     HMO and claims processing subcontractors must comply with
                   TDH's Texas Medicaid Managed Care Claims Manual (Claims
                   Manual), which contains TDH's claims processing requirements.
                   HMO must comply with any changes to the Claims Manual with
                   appropriate notice of changes from TDH.

        4.10.4     HMO must forward claims submitted to HMO in error to either:
                   1) the correct HMO, if the correct HMO can be determined from
                   the claim or is otherwise known to HMO; 2) the State's claims
                   administrator; or 3) the provider who submitted the claim in
                   error, along with an explanation of why the claim is being
                   returned.

        4.10.5     HMO must not pay any claim submitted by a provider who has
                   been excluded or suspended from the Medicare or Medicaid
                   programs for fraud and abuse when HMO has knowledge of the
                   exclusion or suspension.

        4.10.6     All provider clean claims must be adjudicated (finalized as
                   paid or denied adjudicated) within 30 days from the date the
                   claim is received by HMO. HMO must pay providers interest on
                   a clean claim which is not adjudicated within 30 days from
                   the date the claim is received by HMO or becomes clean at a
                   rate of 1.5% per month (18% annual) for each month the clean
                   claim remains unadjudicated. HMO will be held to a minimum
                   performance level of 90% of all clean claims paid or denied
                   within 30 days of receipt and 99% of all clean claims paid or
                   denied within 90 days of receipt. Failure to meet these
                   performance levels is a default under this contract and could
                   lead to damages or sanctions as outlined in Article XVII. The
                   performance levels are subject to changes if required to
                   comply with federal and state laws or regulations.

        4.10.6.1   All claims and appeals submitted to HMO and claims processing
                   subcontractors must be paid-adjudicated (clean claims),
                   denied-adjudicated (clean claims), or denied for additional
                   information (unclean claims) to providers within 30 days from
                   the date the claim is received by HMO. Providers must be sent
                   a written notice for each claim that is denied for additional
                   information (unclean claims) identifying the claim, all
                   reasons why the claim is being denied, the date the claim was
                   received by HMO, all information required from the provider
                   in order for HMO to adjudicate the claim, and the date by
                   which the requested information must be received from the
                   provider.

        4.10.6.2   Claims that are suspended (pended internally) must be
                   subsequently paid-adjudicated, denied-adjudicated, or denied
                   for additional information (pended externally) within 30 days
                   from date of receipt. No claim can be suspended for a period
                   exceeding 30 days from date of receipt of the claim.

                                                                        12/21/00

                                   Page 2 of 3

<PAGE>

        4.10.6.3   HMO must identify each data field of each claim form that is
                   required from the provider in order for HMO to adjudicate the
                   claim. HMO must inform all network providers about the
                   required fields no later than 30 days prior to the effective
                   date of the contract or as a provision within HMO/provider
                   contract. Out-of-network providers must be informed of all
                   required fields if the claim is denied for additional
                   information. The required fields must include those required
                   by HMO and TDH.

        4.10.7     HMO is subject to Article XVI, Default and Remedies, for
                   claims that are not processed on a timely basis as required
                   by this contract and the Claims Manual. Notwithstanding the
                   provisions of Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's
                   failure to adjudicate (paid, denied, or external pended) at
                   least ninety percent (90%) of all claims within thirty (30)
                   days of receipt and ninety-nine percent (99%) within ninety
                   (90) days of receipt for the contract year to date is a
                   default under Article XVI of this contract.

        4.10.8     HMO must comply with the standards adopted by the U.S.
                   Department of Health and Human Services under the Health
                   Insurance Portability and Accountability Act of 1996
                   submitting and receiving claims information through
                   electronic data interchange (EDI) that allows for automated
                   processing and adjudication of claims within two or three
                   years, as applicable, from the date the rules promulgated
                   under HIPAA are adopted.

        4.10.9     For claims requirements regarding retroactive PCP changes for
                   mandatory Members, see Article 7.8.12.2.

AGREED AND SIGNED by an authorized representative of the parties on April 2,
2001.

TEXAS DEPARTMENT OF HEALTH                PCA Health Plans of Texas, Inc.

By:  /s/ Charles E. Bell, M.D.            By:  /s/ Michael A. Seltzer
     --------------------------                -------------------------------
         Charles E. Bell, M.D.                     Michael A. Seltzer
         Executive Deputy                          Vice President, West Region
         Commissioner of Health

Approved as to Form:

/s/ Mary Ann Slavin

-------------------------
Office of General Counsel

                                                 TDH DOC. NO. 4810323494* 01-01D

                                                                        12/21/00

                                   Page 3 of 3

<PAGE>

                                                 TDH DOC 0. 4810323494* 2001-01E
                                                            --------------------

                                 AMENDMENT NO. 6
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

The 1999 Contract for Services entered into between the Texas Department of
Health and PCA Health Plans of Texas, Inc. (HMO) in the Bexar Service Area is
hereby amended to reflect the merger of PCA Health Plans of Texas, Inc. into
Humana Health Plan of Texas, Inc. The Texas Department of Insurance has approved
the merger and all requisite documents have been filed. Copies of the Agreement
and Plan of Merger, Articles of Merger, and Official Order of the Commissioner
of Insurance are attached.

This Amendment No. 6 hereby substitutes Humana Health Plan of Texas, Inc. in the
place of PCA Health Plans of Texas, Inc. into the 1999 Contract for Services
referenced above. Humana Health Plan of Texas, Inc. agrees to abide by the
Application submitted in response to the Texas Department of Health's Request
for Application and all of the terms and conditions set forth in the 1999
Contract for Services and all of its duly executed Amendments.

AGREED TO:

TEXAS DEPARTMENT OF HEALTH                     HUMANA HEALTH PLAN OF TEXAS, INC.

By: /s/ Charles E. Bell, M.D                   By: /s/ Michael A. Seltzer
   -------------------------------------          ------------------------------
        Charles E. Bell, M.D.                          Michael A. Seltzer
        Deputy Commissioner of Health                  CEO, South Texas Market

Date: 05/16/01                                 Date: ____________________

Approved as to Form:

/s/ Mary Ann Slavin

----------------------------------------
Office of General Counsel

<PAGE>
No. 00-0377
    -------

                                 OFFICIAL ORDER

                        of the COMMISSIONER OF INSURANCE

                                     of the

                                 STATE OF TEXAS

                                  AUSTIN, TEXAS

                               Date: Mar 31, 2000

Subject Considered:                MERGER OF
                        PCA HEALTH PLANS OF TEXAS, INC.
                                  Austin, Texas

                                TDI No. 28-05818

                                       AND

                             HUMANA HMO TEXAS, INC.
                               San Antonio, Texas

                                TDI No. 28-94466

                                      INTO

                       HUMANA HEALTH PLAN OF TEXAS, INC.
                               San Antonio, Texas

                                TDI No. 28-93827

                                  CONSENT ORDER

                              DOCKET NO. C-00-0296

General remarks and official action taken:

On this day, came for consideration by the Commissioner of Insurance pursuant to
TEX. INS. CODE ANN. art. 20A and art. 21.25 the Plan and Agreement of Merger by
and between PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, hereinafter referred
to as "PCA HEALTH" and HUMANA HMO TEXAS, INC., San Antonio, Texas, hereinafter
referred to as "HUMANA HMO", and collectively hereinafter referred to as
"NON-SURVIVORS", whereby NON-SURVIVORS would be merged with and into HUMANA
HEALTH PLAN OF TEXAS, INC., San Antonio, Texas, hereinafter referred to as
"HUMANA HEALTH" with HUMANA HEALTH being the survivor.

Staff for the Texas Department of Insurance and the duly authorized
representative for NON-SURVIVORS and HUMANA HEALTH have consented to the entry
of this order and have requested the Commissioner of Insurance informally
dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN.ss.36.104 (former article 1.33 (e)), TEX. GOV'T CODE ANN.ss.2001.056, and 28
TEX. ADMIN. CODE ss.1.47.

                                     WAIVER

NON-SURVIVORS and HUMANA HEALTH acknowledge the existence of their rights
including but not limited to, the issuance and service of

<PAGE>
00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 2 OF 5

notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN.ss.ss.36.201-36.205 (former article 1.04)(D)
and TEX. GOV'T CODE ANN.ss.ss.2001.051, 2001.052, 2001.145 and 2001.146, and
have expressly waived each and every such right.

                                FINDINGS OF FACT

                                ----------------

Based upon the information provided to the Texas Department of Insurance
pursuant to TEX. ADMIN. CODE, art. 11.301(4)(D) and art.ss.11.1202, the
Commissioner of Insurance makes the following findings of fact:

1.      NON-SURVIVORS and HUMANA HEALTH have represented to the Commissioner of
        Insurance that they desire to waive all procedural requirements for the
        entry of an order, including but not limited to, notice of hearing, a
        public hearing, a proposal for decision, rehearing by the Commissioner
        of Insurance, and judicial review of the order as provided in TEX. INS.
        CODE ANN.ss.ss.36.201-36.205 (former article 1.04), and TEX. GOV'T CODE
        ANN. ss.ss.2001.051, 2001.052, 2001.145 and 2001.146.

2.      PCA HEALTH is a domestic Health Maintenance Organization duly licensed
        in the State of Texas pursuant to the provisions of Chapter 20A of the
        Texas Insurance Code.

3.      HUMANA HMO is a domestic Health Maintenance Organization duly licensed
        in the State of Texas pursuant to the provisions of Chapter 20A of the
        Texas Insurance Code.

4.      HUMANA HEALTH is a domestic Health Maintenance Organization duly
        licensed in the State of Texas pursuant to the provisions of Chapter 20A
        of the Texas Insurance Code.

5.      NON-SURVIVORS and HUMANA HEALTH are authorized to do a similar line of
        business, which is a prerequisite for merger approval under TEX. INS.
        CODE ANN. art. 20A.04 and 28 TEX. ADMIN. CODE ss.11.301(4)(D).

6.      Documentation has been presented to the Texas Department of Insurance
        evidencing the fact that the Plan and Agreement of Merger has been
        approved by the Board of Directors and

<PAGE>
00-0377

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA TEXAS, INC.
PAGE 3 OF 6

        shareholders of both NON-SURVIVORS and HUMANA HEALTH in accordance with
        the requirements of TEX. INS. CODE ANN. art. 21.25.

7.      As a result of the mergers, all of the issued and outstanding shares of
        stock of NON-SURVIVORS shall be canceled.

8.      HUMANA HEALTH shall be the surviving corporation of the merger
        transactions.

9.      As a result of the mergers, HUMANA HEALTH will assume and carry out all
        the liability and responsibility under insurance or reinsurance
        agreements now entered into by NON-SURVIVORS and any other obligations
        outstanding against such companies the time of merger on the same terms
        and under the same conditions as provided in such policies, contracts,
        insurance or reinsurance agreements.

10.     As December 31, 1999 on a proforma basis, HUMANA HEALTH would have had a
        consolidated net worth of $34,613,362.

11.     Pursuant to Article 1, of the Agreement and Plan of Merger, the
        effective date of the merger is the close of business on March 31, 2000.

12.     No evidence has been presented that the Plan and Agreement of Merger
        between NON-SURVIVORS and HUMANA HEALTH is contrary to law, is not in
        the best interest of the policyholders affected by the merger, or would
        substantially reduce the security of and service to be rendered to
        policyholders of NON-SURVIVORS in Texas or elsewhere.

13.     No evidence has been presented that immediately upon consummation of the
        transactions contemplated in the Plan and Agreement of Merger, HUMANA
        HEALTH would not be able to satisfy the requirements for the issuance of
        a license to write the line or lines of insurance for which
        NON-SURVIVORS are presently licensed.

14.     No evidence has been presented that the effect of such acquisition of
        control as a result of the mergers would be

<PAGE>

00-0377

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 4 OF 6

        substantially to lessen competition in insurance in this state or tend
        to create a monopoly therein.

15.     No evidence was presented that the financial condition of HUMANA HEALTH
        is such as might jeopardize the financial stability or prejudice the
        interests of its policyholders.

16.     No evidence was presented that HUMANA HEALTH has any plans or proposals
        to liquidate the surviving corporation, cause it to declare dividends or
        make other distributions, sell any of its assets, consolidate or merge
        it with any person, make any material change in its business or
        corporate structure or management, or cause the health maintenance
        organization to enter into material agreements, arrangements, or
        transactions of any kind with any party that are unfair, prejudicial,
        hazardous, or unreasonable to the policyholders of HUMANA HEALTH, the
        surviving corporation, and not in the public interest.

17.     No evidence was presented that the competence, integrity,
        trustworthiness, and experience of those persons who would control the
        operations of HUMANA HEALTH are such that it would not be in the
        interests of the policyholders of NON-SURVIVORS and HUMANA HEALTH and
        the public to permit the merger.

                               CONCLUSIONS OF LAW

                               ------------------

Based upon the foregoing findings of fact the Commissioner of Insurance makes
the following conclusions of law:

1.      The Commissioner of Insurance has jurisdiction over this matter pursuant
        to TEX. INS. CODE ANN. art. 20A and art. 21.25.

2.      The proposed mergers of NON-SURVIVORS and HUMANA HEALTH is properly
        supported by the required documents and meets all requirements of law
        for its approval.

3.      The Commissioner of Insurance has no substantial evidence upon which to
        predicate denial of the mergers.

IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the mergers
whereby PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, and

<PAGE>

00-0377

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 5 OF 6

HUMANA HMO TEXAS, INC., San Antonio, Texas, are to be merged with and into
HUMANA HEALTH PLAN OF TEXAS, INC., San Antonio, Texas, with HUMANA HEALTH PLAN
OF TEXAS, INC. being the survivor, all as specified in the Plan and Agreement of
Merger, be, and the same is hereby, approved.

IT IS FURTHER ORDERED that Certificate of Authority No. 9152, dated February 26,
1990, issued to PCA HEALTH PLANS OF TEXAS, INC. and Certificate of Authority No.
11004, dated February 28, 1996, issued to HUMANA HMO TEXAS, INC., San Antonio,
Texas, be canceled, and that the mergers be effective as of the close of
business on March 31, 2000.

                                        JOSE MONTEMAYOR
                                        COMMISSIONER OF INSURANCE

                                        By: /s/ Betty Patterson

                                           -------------------------------------
                                           Betty Patterson
                                           Senior Associate Commissioner
                                           Financial Program
                                           Order No. 94-0576

Recommended by:

/s/ Loretta Calderon

-----------------------------
Loretta Calderon
Insurance Specialist

Company Licensing & Registration

Reviewed by:

/s/ Steve Harper

-----------------------------
Steve Harper,
Financial Analysis & Examination

<PAGE>

00-0377

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 6 OF 6

Accepted by:

PCA HEALTH PLANS OF TEXAS, INC.

/s/ Kathleen Pellegrino

-------------------------------------
Title:  Vice President

-------------------------------------
(Printed Name):  Kathleen Pellegrino

-------------------------------------

Accepted by:

HUMANA HMO TEXAS, INC.

/s/ Kathleen Pellegrino

-------------------------------------
Title:  Vice President

-------------------------------------
(Printed Name):  Kathleen Pellegrino

-------------------------------------

Accepted by:

HUMANA HEALTH PLAN OF TEXAS, INC.

/s/ Walter E. Neely

-------------------------------------
Title:  Vice President

-------------------------------------
(Printed Name):  Walter E. Neely
-------------------------------------

<PAGE>

                               ARTICLES OF MERGER

                                       OF

                             HUMANA HMO TEXAS, INC.
                    a TEXAS Health Maintenance Organization
                                       &
                        PCA HEALTH PLANS OF TEXAS, INC.
                     a TEXAS Health Maintenance Organization

                                      INTO

                       HUMANA HEALTH PLAN OF TEXAS, INC.
                     a TEXAS Health Maintenance Organization

        Pursuant to provisions of the Texas Business Corporation Act, Articles
5.01B, 5.03A, 5.04A, 5.07, and 5.16, and the Texas Insurance Code, Article
21.25, the domestic corporations herein named do hereby adopt the following
Articles of Merger:

        1. The Agreement and Plan of Merger ("Plan") as set forth in Exhibit A,
attached hereto, and made a part hereof, for merging HUMANA HMO TEXAS, INC., a
Texas health maintenance organization, and PCA HEALTH PLANS OF TEXAS, INC., a
Texas health maintenance organization (collectively the "Non-Survivors"), into
HUMANA HEALTH PLAN OF TEXAS, INC., a Texas health maintenance organization (the
"Survivor"), was approved by Unanimous Written Consent of the Board of Directors
of the Non-Survivors dated December 27, 1999 and approved by Unanimous Written
Consent of the Board of Directors of the Survivor dated December 27, 1999.

        2. HUMANA HEALTH PLAN OF TEXAS, INC. shall be the surviving corporation
of said merger.

        3. Survivor shall be responsible for the payment of all fees and
franchise taxes of the Non-Survivors as required by law, and Survivor will be
obligated to pay such fees and franchise taxes if not timely paid.

        4. The Articles of Incorporation of the Survivor, as filed with the
Texas Secretary of State and incorporated herein by reference, shall be the
Articles of Incorporation of the surviving corporation. No changes or amendments
shall be made to the Articles of Incorporation because of the merger.

        5. The Plan was approved by unanimous written consent of the
shareholders of each of the undersigned corporations, and:

                                   Page 1 of 3

<PAGE>

        (i) the designation, number of outstanding shares, and number of votes
        entitled to be cast by each voting group entitled to vote separately on
        the Plan as to each corporation were:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
                                                   Number of              Number of Votes
Name of Corporation          Designation           Outstanding Shares     Entitled to be Cast
-------------------          -----------           ------------------     -------------------

<S>                          <C>                   <C>                   <C>
PCA HEALTH PLANS             Common                   100,000               100 000

OF TEXAS, INC.               Preferred             30,000 Series A        30,000 Series A
                                                   30,000 Series B        30,000 Series B

HUMANA HMO                   Common                1,000                  1,000
TEXAS, INC.

HUMANA HEALTH                Common                1,000                  1,000
PLAN OF TEXAS, INC.
---------------------------------------------------------------------------------------------
</TABLE>

        (ii) the total number of undisputed votes represented by the unanimous
        written consent of the sole shareholder, cast for the Plan separately by
        each voting group was:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
                                                                    Total Number of
                                                                Undisputed Votes Cast

Name of Corporation                      Voting Group                 For the Plan
-------------------                      ------------                 ------------

<S>                                         <C>                         <C>
PCA HEALTH PLANS OF                         Common                      100,000
TEXAS, INC.

                                           Preferred               30,000 Series A
                                                                   30,000 Series B

HUMANA HMO TEXAS,                           Common                      1,000
INC.

HUMANA HEALTH PLAN
OF TEXAS INC.                               Common                      1,000
---------------------------------------------------------------------------------------------
</TABLE>

and the action being unanimous, the number of votes cast for the Plan by each
voting group was sufficient for approval by that group.

                                   Page 2 of 3

<PAGE>

        6. An executed copy of the Plan, subject to approval by the Texas
Department of Insurance and the Texas Secretary of State, shall be kept on file
at the principal executive office of the Survivor at 500 West Main Street,
Louisville, KY 40202, with a duplicate copy at the administrative address of the
Survivor at 8431 Fredericksburg Road, San Antonio, TX 78229.

        7. The effective time and date of the merger in the State of Texas shall
be at the close of business on March 31, 2000.

Dated as of this 30th day of December, 1999.

                                        HUMANA HMO TEXAS, INC.

                                        By: /s/ Walter E. Neely
                                           -------------------------------------
                                           Walter E. Neely
                                           Vice President

                                        PCA HEALTH PLANS OF TEXAS, INC

                                        By: /s/ Walter E. Neely
                                           -------------------------------------
                                           Walter E. Neely
                                           Vice President

                                        HUMANA HEALTH PLAN OF TEXAS, INC.

                                        By:  /s/ Kathleen Pellegrino

                                           -------------------------------------
                                           Kathleen Pellegrino
                                           Vice President

                                   Page 3 of 3

<PAGE>

                                                                       ---------
                                                                       Exhibit A

                                                                       ---------

                          AGREEMENT AND PLAN OF MERGER

         THIS AGREEMENT AND PLAN OF MERGER (the "Plan of Merger"), dated as of
December 30. 1999, by and among HUMANA HMO TEXAS, INC., and PCA HEALTH PLANS OF
TEXAS, INC., (collectively the "Non-Survivors"), both Texas health maintenance
organizations, into HUMANA HEALTH PLAN OF TEXAS, INC., (the "Surviving
Corporation"), a Texas health maintenance organization and a wholly-owned
subsidiary of Humana Inc. ("HUMANA"), a Delaware corporation.

                                   WITNESSETH:

         The respective Board of Directors of the Surviving Corporation and the
Non-Survivors deem it advisable to merger the Non-Survivors into the Surviving
Corporation ("Merger") pursuant to this Plan of Merger to be executed by the
Surviving Corporation and the Non-Survivors.

         NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:

                                    ARTICLE 1

                                   ---------

                                GENERAL PROVISION

         1.1 Execution of Articles of Merger. Subject to the provisions of this
Plan of Merger, and subject to the approval by the Texas Department of Insurance
and the Secretary of State of Texas, Articles of Merger required to effectuate
the terms of this Plan of Merger (collectively the "Merger Documents") shall be
executed, acknowledged, and thereafter delivered to the offices of the Texas
Department of Insurance and the Secretary of State of Texas, the domestic state
of the Non-Survivors and the Surviving Corporation, for filing and recording in
accordance with applicable law, with an effective date and time of the close of
business on March 31, 2000 (the "Effective Time of Merger").

         The plan of merger is as follows

                                   Page 1 of 3

<PAGE>

         (1) Entities: The Non-Survivors shall merge into Humana Health Plan
Texas, Inc. (the "Surviving Corporation"), a Texas corporation (the "Merger"),
which is hereinafter designated as the surviving corporation of the Merger (the
"Surviving Corporation"); and

         (2) Terms of the Merger: The Merger shall become effective at the close
of business at the Effective Time of Merger. At the Effective Time of Merger (i)
the separate existence of the Non-Survivors shall cease and the Non-Survivors
shall be merged with and into Humana Health Plan of Texas, Inc., with Humana
Health Plan of Texas, Inc. continuing in existence as the Surviving Corporation,
and (ii) Humana Health Plan of Texas. Inc. shall succeed to all rights and
privileges and assume all liabilities and obligations of the Non-Survivors.

         (3) Taking of Necessary Action: The Surviving Corporation and the
Non-Survivors, respectively, shall take all action as may be necessary or
appropriate in order to effectuate the transactions contemplated by these Merger
Documents. In case, at any time and from time to time after the Effective Time
of Merger, any further action is necessary or desirable to carry out the
purposes of these Merger Documents and to vest the Surviving Corporation
effective on and after the Effective Time of Merger, with full title to all
properties, assets, rights, approvals, immunities and franchises of the
Non-Survivors, the persons serving as officer and directors of the Surviving
Corporation at the Effective Time of Merger, at the expense of the Surviving
Corporation, shall be authorized to take any and all such actions on behalf of
the Non-Survivors deemed necessary or desirable by the Surviving Corporation.

         (4) Effect on Capital Stock: a) On the Effective Time of the Merger,
each issued and outstanding share of capital stock of Humana Health Plan of
Texas, Inc. shall remain outstanding and shall represent one issued and
outstanding share of the Surviving Corporation and all of the issued and
outstanding shares of the capital stock of the Non-Survivors shall be cancelled
and no shares of the Surviving Corporation shall be issued in exchange therefor.

         (b) There are no rights to acquire shares, obligations, or other
securities of the Surviving Corporation or any of the Non-Survivors in whole or
in part, for cash or other property.

         (5) No Amendment to Articles of Incorporation of Surviving Corporation:
The Articles of Incorporation of Humana Health Plan of Texas, Inc., filed with
the Secretary of State of

                                   Page 2 of 3

<PAGE>

Texas and attached as Exhibit 1 shall be the Articles of Incorporation of the
Surviving Corporation. No change or amendments shall be made to the Articles of
Incorporation because of the Merger.

         (6) General Provisions:
         -----------------------

         (a) By-laws of Surviving Corporation. The By-laws of Humana Health Plan
of Texas, Inc. shall be the By-laws of the Surviving Corporation. No changes or
amendments shall be made to the By-laws because of the Merger.

         (b) Directors and Officers. The directors and officers of Humana Health
Plan of Texas, Inc. shall be the directors and officers of the Surviving
Corporation and shall serve until their successors are duly elected and
qualified.

         IN WITNESS WHEREOF, each of the parties hereto has caused this Plan of
Merger to be executed on its behalf and attested by its duly authorized
officers, all as of the day and year first written above.

                                            HUMANA HEALTH PLAN OF TEXAS, INC.

ATTEST

By: /s/ Joan O. Lenahan                     By: /s/ Kathleen Pellegrino
   ---------------------------                 ---------------------------------
   Joan O. Lenahan                             Kathleen Pellegrino
   Secretary                                   Vice President

                                            HUMANA HMO TEXAS, INC.

ATTEST

By: /s/ Joan O. Lenahan                     By: /s/ Walter E. Neely
   ---------------------------                  --------------------------------
   Joan O. Lenahan                              Walter E. Neely
   Secretary                                    Vice President

                                            PCA HEALTH PLANS OF TEXAS, INC.

ATTEST

By: /s/ Joan O. Lenahan                     By: /s/ Walter E. Neely
   ---------------------------                  --------------------------------
   Joan O. Lenahan                              Walter E. Neely
   Secretary                                    Vice President

                                   Page 3 of 3

<PAGE>

                                                 TDH Doc. # 7427705425* 2001-01D
                                AMENDMENT NO. 7
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 7 entered into between the Texas Department of Health (TDH)
and Superior Health Plan, Inc. (HMO) in Bexar Service Area, to amend the 1999
Contract for Services between the Texas Department of Health and HMO. The
effective date of this Amendment is the date TDH Signs this Amendment. All other
contract provisions remain in full force and effect. The Parties agree to amend
the Contract as follows:

Article XII is amended to read as follows:

12.8.1   In addition, data files are due to TDH or its designee no later than
         the fifth working day following the end of each month. See Utilization
         Data Transfer Encounter Submission Manual for submission instructions.
         The BH utilization report and data file submission instructions may
         periodically be updated by TDH to facilitate clear communication to the
         health plans.

12.9.1   In addition, data files are due to TDH or its designee no later than
         the fifth working day following the end of each month. See Utilization
         Data Transfer Encounter Submission Manual for submission instructions.
         The PH utilization report and data file submission instructions may
         periodically be updated by TDH to facilitate clear communication to the
         health plan.

AGREED AND SIGNED by an authorized representative of the parties on Aug 2, 2001.

                                                                    ------------

Texas Department of Health                   Superior Health Plan, Inc.

By: /s/ Charles E. Bell, M.D.                By: /s/ Michael D. McKinney, M.D.,
    ---------------------------------------     -------------------------------
    Charles E. Bell, M.D.                       Michael D. McKinney, M.D.
    Executive Deputy Commissioner of Health     President

Approved as to Form:

/s/ Mary Ann Slavin

----------------------------
Office General Counsel

<PAGE>

                                                                   02(992 Orig #

                                AMENDMENT NO. 8
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN

                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

September 1, 1999 the Texas Department of Health (TDH) and Humana Health Plan of
Texas, Inc. entered into a Contract for Services for the provision of
comprehensive health care services to qualified and Medicaid eligible recipients
in the Bexar Service Area through a managed care delivery system. This Contract
for Services was subsequently renewed in 1999 for a period of two years. Section
15.6 of the above referenced contract allows assignment or the contract with the
written consent of the Texas Department of Insurance (TDI) and TDH.

Humana Health Plan of Texas, Inc. entered into a Management and Risk Transfer
Agreement and an Asset Sale and Purchase Agreement with Superior HealthPlan,
Inc. for the assignment and assumption of the Contract for Services. With the
written consent of both TDI and TDH, effective June 1, 2001, Humana Health Plan
of Texas, Inc. assigned and Superior HealthPlan, Inc. assumed the contract
referenced herein in its entirety.

The purpose of this Amendment No. 8 is to substitute Superior HealthPlan, Inc.
for Humana Health Plan of Texas, Inc. as the party to this contract as a result
of the assignment and assumption. For adequate consideration received Superior
HealthPlan, Inc. agrees to abide by the Application submitted by Humana Health
Plan of Texas, Inc. in response to the Texas Department of Health's Request for
Application and all of the terms and conditions set forth in the 1999 Contract
for Services, its subsequent renewal(s), and all of its duly executed
Amendments.

AGREED AND SIGNED by an authorized representative of the parties on 8/17/01
2001.

TEXAS DEPARTMENT OF HEALTH              SUPERIOR HEALTHPLAN, INC.

By: /s/ Charles E. Bell, M.D.           /s/ Michael D. McKinney M.D.
   ----------------------------------   ---------------------------------
   Charles E. Bell, M.D.                Michael D. McKinney, M.D.
   Deputy Commissioner of Health        President

Approved as to Form:                    /s/ Michael D. McKenney
                                        ---------------------------------
                                        Printed Name

/s/ [Illegible] Alexander 8/16/01       /s/ President

---------------------------------       ---------------------------------
Office of General Counsel               Title of Signator

<PAGE>

                                 AMENDMENT NO. 9
                                     TO THE

                           1999 CONTRACT FOR SERVICES

                                     BETWEEN
                  HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 9 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the
Bexar Service Area. The effective date of this amendment is September 1, 2001.
The Parties agree to amend the Contract as follows:

1.      HHSC and HMO acknowledge the transfer of responsibility and the
        assignment of the original Contract for Services from TDH to HHSC on
        September 1, 2001. Where the original Contract for Services and any
        Amendment to the original Contract for Services assigns a right, duty,
        or responsibility to TDH, that right, duty, or responsibility may be
        exercised by HHSC or its designee.

2.      Articles II, III, VI, VII, VIII, IX, X, XII, XIII, XV, XVI, XVIII and
        XIX are amended to read as follows:

2.0     DEFINITIONS

        -----------

        Chemical Dependency Treatment Facility means a facility licensed by the
        Texas Commission on Alcohol and Drug Abuse (TCADA) under See. 464.002 of
        the Health and Safety Code to provide chemical dependency treatment.

        Chemical Dependency Treatment means treatment provided for a chemical
        dependency condition by a Chemical Dependency Treatment Facility,
        Chemical Dependency Counselor or Hospital.

        Chemical Dependency Condition means a condition which meets at least
        three of the diagnostic criteria for psychoactive substance dependence
        in the American Psychiatric Association's Diagnostic and Statistical
        Manual of Mental Disorders (DSM IV).

        Chemical Dependency Counselor means an individual licensed by TCADA
        under Sec. 504 of the Occupations Code to provide chemical dependency
        treatment or a master's level therapist (LMSW-ACP, LMFT or LPC) or a
        master's level therapist (LMSW-ACP, LMFT or LPC) with a minimum of two
        years of post licensure experience in chemical dependency treatment.

                                                    Contract Extension Amendment

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                                        1

<PAGE>

               Experience rebate means the portion of the HMO's net income
               before taxes (financial Statistical Report, Part 1, Line 7) that
               is returned to the state in accordance with Article 13.2.1.

               Joint Interface Plan (JIP) means a document used to communicate
               basic system interface information of the Texas Medicaid
               Administrative System (TMAS) among and across State TMAS
               Contractors and Partners so that all entities are aware of the
               interfaces that affect their business. This information includes:
               file structure, data elements, frequency, media, type of file,
               receiver and sender of the file, and file I.D. The JIP must
               include each of the HMO's interfaces required to conduct State
               TMAS business. The JIP must address the coordination with each of
               the Contractor's interface partners to ensure the development and
               maintenance of the interface; and the timely transfer of required
               data elements between contractors and partners.

3.5            RECORDS REQUIREMENTS AND RECORDS RETENTION
               ------------------------------------------

3.5.8          The use of Medicaid funds for abortion is prohibited unless the
               pregnancy is the result of a rape, incest, or continuation of the
               pregnancy endangers the life of the woman. A physician must
               certify in writing that based on his/her professional judgment,
               the life of the mother would be endangered if the fetus were
               carried to term. HMO must maintain a copy of the certification
               for at least three years.

6.6            BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
               -------------------------------------------------------

6.6.13         Chemical dependency treatment must conform to the standards set
               forth in the Texas Administrative Code, Title 28, Part 1, Chapter
               3, Subchapter HH.

6.8            TEXAS HEALTH STEPS (EPSDT)
               --------------------------

6.8.3          Provider Education and Training. HMO must provide appropriate
               training to all network providers and provider staff in the
               providers' area of practice regarding the scope of benefits
               available and the THSteps program. Training must include THSteps
               benefits, the periodicity schedule for THSteps checkups and
               immunizations, the required elements of a THSteps medical screen,
               providing or arranging for all required lab screening tests
               (including lead screening), and Comprehensive Care Program (CCP)
               services available under the THSteps program to Members under age
               21 years. Providers must also be educated and trained regarding
               the requirements imposed upon the department and contracting HMOs
               under the Consent Decree entered in Frew vs. McKinney, et al.,
               Civil Action No. 3:93CV65, in the United States District Court
               for the Eastern District of Texas, Paris Division. Providers
               should be educated and trained to treat each THSteps visit as an
               opportunity for a comprehensive assessment of the Member.

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                                        2

<PAGE>

               HMO must report provider education and training regarding THSteps
               in accordance with Article 7.4.4.

7.2            PROVIDER CONTRACTS
               ------------------

7.2.5          HHSC reserves the right and retains the authority to make
               reasonable inquiry and conduct investigations into provider and
               Member complaints against HMO or any intermediary entity with
               whom HMO contracts to deliver health care services under this
               contract. HHSC may impose appropriate sanctions and contract
               remedies to ensure HMO compliance with the provisions of this
               contract.

7.5            MEMBER PANEL REPORTS
               --------------------

7.5            HMO must furnish each PCP with a current list of enrolled Members
               enrolled or assigned to that Provider no later than 5 working
               days after HMO receives the Enrollment File from the Enrollment
               Broker each month.

7.7            PROVIDER QUALIFICATIONS - GENERAL
               ---------------------------------
               The providers in HMO network must meet the following
               qualifications:

--------------------------------------------------------------------------------
FQHC           A Federally Qualified Health Center meets the standards
               established by federal rules and procedures. The FQHC must also
               be an eligible provider enrolled in the Medicaid.

--------------------------------------------------------------------------------
Physician      An individual who is licensed to practice medicine as an MD or a
               DO in the State of Texas either as a primary care provider or in
               the area of specialization under which they will provide medical
               services under contract with HMO; who is a provider enrolled in
               the Medicaid; who has a valid Drug Enforcement Agency
               registration number, and a Texas Controlled Substance
               Certificate, if either is required in their practice.

--------------------------------------------------------------------------------
Hospital       An institution licensed as a general or special hospital by the
               State of Texas under Chapter 241 of the Health and Safety Code
               which is enrolled as a provider in the Texas Medicaid Program.
               HMO will require that all facilities in the network used for
               acute inpatient specialty care for people under age 21 with
               disabilities or chronic or complex conditions will have a
               designated pediatric unit; 24 hour laboratory and blood bank
               availability; pediatric radiological capability; meet JCAHO
               standards; and have discharge planning and social service units.
--------------------------------------------------------------------------------

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                                        3

<PAGE>

<TABLE>
----------------------------------------------------------------------------------------------
<S>            <C>

Non-Physician                An individual holding a license issued by the applicable
Practitioner                 licensing agency of the State of Texas who is enrolled in the
Provider                     Texas Medicaid Program.

----------------------------------------------------------------------------------------------
Clinical                     An entity having a current certificate issued under the Federal
Laboratory                   Laboratory Improvement Act (CLIA), and is enrolled in the Texas
                             Medicaid Program.
----------------------------------------------------------------------------------------------
Rural Health                 An institution which meets all of the criteria for designation as
Clinic (RHC)                 a rural health clinic and is enrolled in the Texas Medicaid
                             Program.

----------------------------------------------------------------------------------------------
Local Health                 A local health department established pursuant to Health and
Department                   Safety Code, Title 2, Local Public Health Reorganization Act
                             ss.121.031ff.

----------------------------------------------------------------------------------------------
Non-Hospital                 A provider of health care services which is licensed and
Facility Provider            credentialed to provide services and is enrolled in the Texas
                             Medicaid Program.
----------------------------------------------------------------------------------------------
School Based                 Clinics located at school campuses that provide on site primary
Health Clinic                and preventive care to children and adolescents.
(SBHC)
----------------------------------------------------------------------------------------------
Chemical                     A facility licensed by the Texas Commission on Alcohol and Drug
Dependency                   Abuse (TCADA) under Sec. 464,002 of the Health and Safety Code to
Treatment                    provide chemical dependency treatment.
Facility

----------------------------------------------------------------------------------------------
Chemical                     An individual licensed by TCADA under Sec. 504 of the Occupations
Dependency                   Code to provide chemical dependency treatment or a master's level
Counselor                    therapist (LMSW-ACP, LMFT or LPC) with a minimum of two years of
                             post-licensure experience in chemical dependency treatment.
----------------------------------------------------------------------------------------------
</TABLE>

7.10           SPECIALTY CARE PROVIDERS
               ------------------------

7.10.1         HMO must maintain specialty providers, actively serving within
               that specialty, including pediatric specialty providers and
               chemical dependency specialty providers, within the network in
               sufficient numbers and areas of practice to meet the needs of all
               Members requiring specialty care services.

7.11           SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
               -----------------------------------------------

7.11.1         HMO must include all medically necessary specialty services
               through its network specialists, sub-specialists and specialty
               care facilities (e.g., children's hospitals, licensed chemical
               dependency treatment facilities and tertiary care hospitals).

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                                        4

<PAGE>

8.2            MEMBER HANDBOOK
               ---------------

8.2.1          HMO must mail each newly enrolled Member a Member Handbook no
               later than 5 working days after HMO receives the Enrollment File.
               The Member Handbook must be written at a 4th - 6th grade reading
               comprehension level. The Member Handbook must contain all
               critical elements specified by TDH. See Appendix D, Required
               Critical Elements, for specific details regarding content
               requirements. HMO must submit a Member Handbook to TDH for
               approval prior to the effective date of the contract unless
               previously approved (see Article 3.4.1 regarding the process for
               plan materials review).

8.4            MEMBER ID CARDS
               ---------------

8.4.2          HMO must issue a Member Identification Card (ID) to the Member
               within 5 working days from the date the HMO receives the monthly
               Enrollment File from the Enrollment Broker. The ID Card must
               include, at a minimum, the following: Member's name; Member's
               Medicaid number; either the issue date of the card or effective
               date of the PCP assignment; PCP's name, address, and telephone
               number; name of HMO; name of IPA to which the Member's PCP
               belongs, if applicable; the 24-hour, seven (7) day a week
               toll-free telephone number operated by HMO; the toll-free number
               for behavioral health care services; and directions for what to
               do in an emergency. The ID Card must be reissued if the Member
               reports a lost card, there is a Member name change, if Member
               requests a new PCP, or for any other reason which results in a
               change to the information disclosed on the ID Card.

9.2            MARKETING ORIENTATION AND TRAINING
               ----------------------------------

9.2.1          HMO must require that all HMO staff having direct marketing
               contact with Members as part of their job duties and their
               supervisors satisfactorily complete HHSC's marketing orientation
               and training program, conducted by HHSC or health plan staff
               trained by HHSC, prior to engaging in marketing activities on
               behalf of HMO. HHSC will notify HMO of scheduled orientations.

9.2.2          Marketing Policies and Procedures. HMO must adhere to the
               Marketing Policies and Procedures as set forth by the Health and
               Human Services Commission.

10.1           MODEL MIS REQUIREMENTS
               ----------------------

10.1.3         HMO must have a system that can be adapted to the change in
               Business Practices/Policies within the timeframe negotiated
               between HHSC and the HMO.

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                                        5

<PAGE>

10.1.3.1       HMO must notify and advise BIR of major systems changes and
               implementations. HMO is required to provide an implementation
               plan and schedule of proposed system change at the time of this
               notification.

10.1.3.2       BIR conducts a Systems Readiness test to validate the
               contractor's ability to meet the MMIS requirements. This is done
               through systems demonstration and performance of specific MMIS
               and subsystem functions. The System Readiness test may include a
               desk review and/or. an onsite review and is conducted for the
               following events:

               o A new plan is brought into the program
               o An existing plan begins business in a new SDA
               o An existing plan changes location
               o An existing plan changes their processing system

10.1.3.3       Desk Review. HMO must complete and pass systems desk review prior
               to onsite systems testing conducted by HHSC.

10.1.3.4       Onsite Review. HMO is required to provide a detailed and
               comprehensive Disaster and Recovery Plan, and complete and pass
               an onsite Systems Facility Review during the State's onsite
               systems testing.

10.1.3.5       HMO is required to provide a Corrective Action Plan in response
               to HHSC Systems Readiness Testing Deficiencies no later than 10
               working days after notification of deficiencies by HHSC.

10.1.3.6       HMO is required to provide representation to attend and
               participate in the HHSC Systems Workgroup as a part of the weekly
               Systems Scan Call.

10.1.9         HMO must submit a joint interface plan (JIP) in a format
               specified by HHSC. The JIP will include required information on
               all contractor interfaces that support the Medicaid Information
               Systems. The submission of the JIP will be in coordination with
               other TMAS contractors and is due no later than 10 working days
               after the end of each state fiscal year calendar.

10.3.          ENROLLMENT ELIGIBILITY SUBSYSTEM
               --------------------------------

(11)           Send PCP assignment updates to HHSC or its designee, in the
               format specified by HHSC or its designee. Updates can be sent as
               often as daily but must be sent at least weekly.

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                                        6

<PAGE>

12.1           FINANCIAL REPORTS
               -----------------

12.1.1         MCFS Report. HMO must submit the Managed Care Financial
               Statistical Report (MCFS) included in Appendix I. The report must
               be submitted to HHSC no later than 30 days after the end of each
               state fiscal year quarter (i.e., Dec. 30, March 30, June 30,
               Sept. 30) and must include complete and updated financial and
               statistical information for each month of the state fiscal
               year-to-date reporting period. The MCFS Report must be submitted
               for each claims processing subcontractor in accordance with this
               Article. HMO must incorporate financial and statistical data
               received by its delegated networks (IPAs, ANHCs, Limited Provider
               Networks) in its MCFS Report.

12.1.4         Final MCFS Reports. HMO must file two Final Managed Care
               Financial-statistical Reports after the end of the second year of
               the contract for the first two- year portion of the contract and
               again after the third year of the contract for the third year
               (second portion) of the contract. The first final report must
               reflect expenses incurred through the 90th day after the end of
               the first two-year portion of the contract and again after the
               end of the third year of the contract for the third year (second
               portion) of the contract. The first final report must be filed on
               or before the 120th day after the end of each portion of the
               contract. The second final report must reflect data completed
               through the 334th day after the end of the second year of the
               contract for the first two year portion of the contract and again
               after the end of the third year of the contract for the third
               year (second portion) of the contract and must be filed on or
               before the 365th day following the end of each portion of the
               contract year.

12.5           PROVIDER NETWORK REPORTS
               ------------------------

12.5.3         PCP Error Report. HMO must submit to the Enrollment Broker an
               electronic file summarizing changes in PCP assignments. The file
               must be submitted in a format specified by HHSC and can be
               submitted as often as daily but must be submitted at least
               weekly. When HMO receives a PCP assignment Error Report /File,
               HMO must send corrections to HHSC or its designee within five
               working days.

12.13          EXPEDITED PRENATAL OUTREACH REPORT
               ----------------------------------

12.13          HMO must submit the Expedited Prenatal Outreach Report for each
               monthly reporting period in accordance with a format developed by
               HHSC in consultation with the HMOs. The report must include
               elements that demonstrate the level of effort and the outcomes of
               the HMO in outreaching to pregnant women for the purpose of
               scheduling and/or completing the initial obstetrical examination
               prior to 14 days after the receipt of the daily enrollment file
               by the HMO. Each monthly report is due by the last day of the
               month following each monthly reporting period.

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13.1           CAPITATION AMOUNTS
               ------------------

13.1.2         Delivery Supplemental Payment (DSP). The monthly capitation
               amounts and the DSP amount are listed below.

               -------------------------------------------------------------
               Risk Group                         Monthly Capitation Amounts

               -------------------------------------------------------------
               TANF Adults                                $180.43
               -------------------------------------------------------------
               TANF Children (less than 12
                             or equal to)
               Months of Age                              $65.49
               -------------------------------------------------------------
               Expansion Children (less than 12
                                  or equal to)
               Months of Age                              $60.94
               -------------------------------------------------------------
               Newborns (greater than) 12 Months of
                         or equal to)
               Age                                        $378.59
               -------------------------------------------------------------
               TANF Children (greater than 12
                              or equal to)
               Months of Age                              $378.59
               -------------------------------------------------------------
               Expansion Children (greater than 12
                                   or equal to)
               Months of Age                              $378.59
               -------------------------------------------------------------
               Federal Mandate Children                   $54.61
               -------------------------------------------------------------
               CHIP Phase I                               $72.19
               -------------------------------------------------------------
               Pregnant Women                             $255.17
               -------------------------------------------------------------
               Disabled/Blind

               Administration                             $14.00
               -------------------------------------------------------------

               Delivery Supplemental Payment: A one-time per pregnancy
               supplemental payment for each delivery shall be paid to HMO as
               provided below in the following amount: $2,834.10.

13.1.3.1       Once HMO has received its capitation rates established by HHSC
               for the second or third year of this contract, HMO may terminate
               this contract as provided in Article 18.1.6.

13.1.7         HMO renewal rates reflect program increases appropriated by the
               76th and 77th legislature for physician (to include THSteps
               providers) and outpatient facility services. HMO must report to
               HHSC any change in rates for participating physicians (to include
               THSteps providers) and outpatient facilities resulting from this
               increase. The report must be submitted to HHSC at the end of the
               first quarter of the FY2000, FY2001 and FY2002 contract years
               according to the deliverables matrix schedule set for HMO.

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13.2           EXPERIENCE REBATE TO THE STATE
               ------------------------------

13.2.1         For the contract period, HMO must pay to TDH an experience rebate
               calculated in accordance with the tiered rebate method listed
               below based on the excess of allowable HMO STAR revenues over
               allowable HMO STAR expenses as measured by any positive amount on
               Line 7 of "Part 1: Financial Summary, All Coverage Groups
               Combined" of the annual Managed Care Financial-Statistical Report
               set forth in Appendix I, as reviewed and confirmed by TDH. TDH
               reserves the right to have an independent audit performed to
               verify the information provided by HMO.

               -----------------------------------------------------------------
                                  Graduated Rebate Method

               -----------------------------------------------------------------
                   Net income before      HMO Share              State Share
               taxes as a Percentage
                     of Revenues

               -----------------------------------------------------------------
               0% -3%                       100%                        0%
               -----------------------------------------------------------------
               Over 3% - 7 %                75%                         25%
               -----------------------------------------------------------------
               Over 7% - 10%                50%                         50%
               -----------------------------------------------------------------
               Over 10% - 15%               25%                         75%
               -----------------------------------------------------------------
               Over 15%                     0%                          100%
               -----------------------------------------------------------------

13.2.2.1       The experience rebate for the HMO shall be calculated by applying
               the experience rebate formula in Article 13.2.1 to the sum of the
               net income before taxes (Financial Statistical Report, Part 1,
               Line 7) for all STAR Medicaid service areas contracted between
               the State and HMO.

13.2.4         Population-Based Initiatives (PBIs) and Experience Rebates: HMO
               may subtract from an experience rebate owed to the State,
               expenses for population-based health initiatives that have been
               approved by HHSC. A population-based initiative (PBI) is a
               project or program designed to improve some aspect of quality of
               care, quality of life, or health care knowledge for the Medicaid
               population that may also benefit the community as a whole.
               Value-added service does not constitute a PBI. Contractually
               required services and activities do not constitute a PBI.

13.2.5         There will be two settlements for payment(s) of the experience
               rebate for FY 2000-2001 and two settlements for payment(s) for
               the experience rebate for FY 2002. The first settlement for the
               specified time period shall equal 100 percent

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               of the experience rebate as derived from Line 7 of Part I (Net
               Income Before Taxes) of the first final Managed Care Financial
               Statistical (MCFS) Report and shall be paid on the same day the
               first final MCFS Report is submitted to HHSC for the specified
               time period. The second settlement shall be an adjustment to the
               first settlement and shall be paid to HHSC on the same day that
               the second final MCFS Report is submitted to HHSC for that
               specified time period if the adjustment is a payment from HMO to
               HHSC. If the adjustment is a payment from HHSC to HMO, HHSC shall
               pay such adjustment to HMO within thirty (30) days of receipt of
               the second final MCFS Report. HHSC or its agent may audit or
               review the MCFS report. If HHSC determines that corrections to
               the MCFS reports are required, based on a HHSC audit/review of
               other documentation acceptable to HHSC, to determine an
               adjustment to the amount of the second settlement, then final
               adjustment shall be made within two years from the date, that HMO
               submits the second final MCFS report. HMO must pay the first and
               second settlements on the due dates for the first and second
               final MCFS reports, respectively as identified in Article 12.1.4.
               HHSC may adjust the experience rebate if HHSC determines HMO has
               paid affiliates amounts for goods or services that are higher
               than the fair market value of the goods and services in the
               service area. Fair market value may be based on the amount HMO
               pays a non-affiliate(s) or the amount another HMO pays for the
               same or similar service in the service area. HHSC has final
               authority in auditing and determining the amount of the
               experience rebate.

13.3           PERFORMANCE OBJECTIVES INCENTIVES
               ---------------------------------

13.3.1         Preventive Health Performance Objectives. Preventive Health
               Performance Objectives are contained in this contract at Appendix
               K. HMO must accomplish the performance objectives or a designated
               percentage in order to be eligible for payment of financial
               incentives. Performance objectives are subject to change. HHSC
               will consult with HMO prior to revising performance objectives.

13.3.2         HMO will receive credit for accomplishing a performance objective
               upon receipt of accurate encounter data required under Article
               10.5 and 12.2 of this contract and/or a Detailed Data Element
               Report from HMO with report formal as determined by HHSC and
               aggregate data report by HMO in accordance with a report format
               as determined by HHSC (Performance Objective Report). Accuracy
               and completeness of the Detailed Data Element Report and the
               Aggregate Data Performance Objective Report will be determined by
               HHSC through an HHSC audit of the HMO claims processing system.
               If HHSC determines that the Detailed Data Element Report and
               Performance Objectives Report are sufficiently supported by the
               results of the HHSC audit, the payment of financial incentives
               will be made to HMO. Conversely, if the audit results do not
               support the reports as determined by HHSC, HMO will not receive
               payment

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               of the financial incentive. HHSC may conduct provider chart
               reviews to validate the accuracy of the claims data related to
               HMO accomplishment of performance objectives. If the results of
               the chart review do not support the HMO claims system data or the
               HMO Detailed Data Element Report and the Performance Objectives
               Report, HHSC may recoup payment made to the HMO for performance
               objectives incentives.

13.3.3         HMO will also receive credit for performance objectives performed
               by other organizations if a network primary pare provider or the
               HMO retains documentation from the performing organization which
               satisfies the requirements contained in Appendix K of this
               contract.

13.3.4         HMO will receive performance objective bonuses for accomplishing
               the following percentages of performance objectives:

               -----------------------------------------------------------------
                   Percent of Each Performance  Percent of Performance Objective
                     Objective Accomplished         Allocations Paid to HMO
               -----------------------------------------------------------------
                             60% to 65 %                    20%
               -----------------------------------------------------------------
                             65% to 70%                     30%
               -----------------------------------------------------------------
                             70% to 75 %                    40%
               -----------------------------------------------------------------
                             75% to 80%                     50%
               -----------------------------------------------------------------
                             80% to 85%                     60%
               -----------------------------------------------------------------
                             85% to 90%                     70%
               -----------------------------------------------------------------
                             90% to 95%                     80%
               -----------------------------------------------------------------
                             95% to 100%                    90%
               -----------------------------------------------------------------
                                100%                        100%
               -----------------------------------------------------------------

13.3.5         HMO must submit the Detailed Data Element Report and the
               Performance Objectives Report regardless of whether or not the
               HMO intends to claim payment of performance objective bonuses.

13.3.6         Payment of performance objective bonus is contingent upon
               availability of appropriations. If appropriations are not
               available to pay performance objective bonuses as set out below,
               HHSC will equitably distribute all available funds to each HMO
               that has accomplished performance objectives.

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13.3.7         In addition to the capitation amounts set forth in Article
               13.1.2, a performance premium of two dollars ($2.00) per Member
               month will be allocated by HHSC for the accomplishment of
               performance objectives.

13.3.8         The HMO must submit the Performance Objectives Report and the
               Detailed Data Element Report as referenced in Article 13.3.2,
               within 150 days from the end of each State fiscal year.
               Performance premiums will be paid to HMO within 120 days after
               the State receives and validates the data contained in each
               required Performance Objectives Report.

13.3.9         The performance objective allocation for HMO shall be assigned to
               each performance objective, described in Appendix K, in
               accordance with the following percentages:

               -----------------------------------------------------------------
               EPSDT SCREENS                   Percent of Performance Objective
                                                        Incentive Fund
               -----------------------------------------------------------------
               1.  < 12 months                                   12%
               -----------------------------------------------------------------
               2.  12 to 24 months                               12%
               -----------------------------------------------------------------
               3.  25 months - 20 years                          20%
               -----------------------------------------------------------------

               -----------------------------------------------------------------
               IMMUNIZATIONS                   Percent of Performance Objective
                                                        Incentive Fund
               -----------------------------------------------------------------
               4. < 12 months                                     7%
               -----------------------------------------------------------------
               5. 12 to 24 months                                 5%
               -----------------------------------------------------------------

               -----------------------------------------------------------------
               ADULT ANNUAL VISITS             Percent of Performance Objective
                                                        Incentive Fund
               -----------------------------------------------------------------
               6. Adult Annual Visits                             3%
               -----------------------------------------------------------------

               -----------------------------------------------------------------
               PREGNANCY VISITS               Percent of Performance Objective -
                                                        Incentive Fund
               -----------------------------------------------------------------
               7. Initial prenatal exam                          15%
               -----------------------------------------------------------------
               8. Visits by Gestational Age                      14%
               -----------------------------------------------------------------
               9. Postpartum visit                               12%
               -----------------------------------------------------------------

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13.3.10       Compass 21 Encounter Data Conversion Performance Incentive. A
              Compass 21 encounter data conversion performance incentive payment
              will be paid by the State to each HM0 that achieves the identified
              conversion performance standard for at least one month in the
              first quarter of SFY 2002 as demonstration of successful
              conversion to the C21 system. The encounter data conversion
              performance standard is as follows:

              ------------------------------------------------------------------
              Performance Objective                Encounter Data Conversion
                                                     Performance Incentive
              ------------------------------------------------------------------
              Percentage of encounters                        65%
              submitted that are successfully
              accepted into
              C21

              ------------------------------------------------------------------

13.3.10.1     The amount of the incentive will be based on the total amount
              identified by the state for the encounter data conversion
              performance incentive pool ("Pool"). The pool will be equally
              distributed between all the HMOs that achieve the performance
              objective within the first quarter of SFY 2002. HMOs with multiple
              contracts with HHSC are eligible to receive only one allocation
              from the Pool. Required HMO performance for the identified
              objectives will be verified by HHSC for accuracy and completeness.
              The incentive will be paid only after HHSC has verified that HMO
              performance has met the required performance standard. Payments
              will be made in the second quarter of the fiscal year.

13.5.4        NEWBORN AND PREGNANT WOMAN PAYMENT PROVISIONS
              ---------------------------------------------

13.5.4        Newborns who appear on the MAXIMUS daily enrollment file but do
              not appear on the MAXIMUS monthly enrollment or adjustment file
              before the end of the sixth month following the date of birth will
              not be retroactively enrolled into the HMO. HHSC will manually
              reconcile payment to the HMO for services provided from the date
              of birth for TP45 and all other eligibility categories of
              newborns. Payment will cover services rendered from the effective
              date of the proxy ID number when first issued by the HMO
              regardless of plan assignment at the time the State-issued
              Medicaid ID number is received.

15.6          ASSIGNMENT

              ----------

15.6          This contract was awarded to HMO based on HMO's qualifications to
              perform personal and professional services. HMO cannot assign this
              contract without the written consent of HHSC. This provision does
              not prevent HMO from

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              subcontracting duties and responsibilities to qualified
              subcontractors. If HHSC consents to an assignment of this
              contract, a transition period of 90 days will run from the date
              the assignment is approved by HHSC so that Members' services are
              not interrupted and, if necessary, the notice provided for in
              Article 15.7 can be sent to Members. The assigning HMO must also
              submit a transition plan, as set out in Article 18.2,1, subject to
              HHSC 's approval.

16.3          DEFAULT BY HMO
              --------------

16.3.14.1     REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
              -----------------------------------------------

              All of the listed remedies are in addition to all other remedies
              available to HHSC by law or in equity, are joint and several, and
              may be exercised concurrently or consecutively. Exercise of any
              remedy in whole or in part does not limit HHSC in exercising all
              or part of any remaining remedies.

              For HMO's failure to meet any benchmark established by HHSC under
              this contract, or for failure to meet improvement targets, as
              identified by HHSC, HHSC may:

              o   Remove all or part of the THSteps component from the
                  capitation paid to HMO
              o   Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met;
              o   Suspend new enrollment as set out in Article 18.3;
              o   Assess liquidated money damages as set out in Article 18.4;
                  and/or
              o   Require forfeiture of all or part of the TDI performance bond
                  as set out in Article 18.9.

16.3.15        FAILURE TO PERFORM A MATERIAL DUTY OR RESPONSIBILITY
               ----------------------------------------------------

               Failure of HMO to perform a material duty or responsibility as
               set out in this Contract is a default under this contract and
               HHSC may impose one or more of the remedies contained within its
               provisions and all other remedies available to HHSC by law or in
               equity.

16.3.15.1      REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
               -----------------------------------------------

               All of the listed remedies are in addition to all other remedies
               available to HHSC by law or in equity, are joint and several, and
               may be exercised concurrently or consecutively. Exercise of any
               remedy in whole or in part does not limit HHSC in exercising all
               or part of any remaining remedies.

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               For HMO's failure to perform an administrative function under
               this contract, HHSC may:

               o  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met;
               o  Suspend new enrollment as set out in Article 18.3;
               o  Assess liquidated money damages as set out in Article 18.4;
                  and/or
               o  Require forfeiture of all or part of the TDI performance bond
                  as set out in Article 18.9.

18. 1.6        TERMINATION BY HMO

18.1.6         HMO may terminate this contract if HHSC fails to pay HMO as
               required under Article XIII of this contract or otherwise
               materially defaults in its duties and responsibilities under this
               contract, or by giving notice no later than 30 days after
               receiving the capitation rates for the second or third contract
               years. Retaining premium, recoupment, sanctions, or penalties
               that are allowed under this contract or that result from HMO's
               failure to perform or HMO's default under the terms of this
               contract is not cause for termination.

18.2           DUTIES OF CONTRACTING PARTIES UPON TERMINATION

18.2.2         If the contract is terminated by HHSC for any reason other than
               federal or state funds for the Medicaid program no longer being
               available or if HMO terminates the contract based on lower
               capitation rates for the second or third contract years as set
               out in Article 13.1.3.1:

18.2.3         If the contract is terminated by HMO for any reason other than
               based on lower capitation rates for the second or third contract
               years as set out in Article 13.1.3.1:

Article XIX    TERM

               ----

19.1           The effective date of this contract is August 30, 1999. This
               contract will terminate on August 31, 2002, unless terminated
               earlier as provided for elsewhere in the contract.

3.      The Appendices are amended by replacing page 10 of Appendix A "Standards
        for Quality Improvement Programs" to incorporate a change in item F,
        number 1 on recredentialing.

4.      The Appendices are amended by deleting Appendix D, "Required Critical
        Elements," and replacing it with new Appendix D, "Required Critical
        Elements", as attached.

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<PAGE>

AGREED AND SIGNED by an authorized representative of the parties on
____________________________ 2001.

Health and Human Services Commission          Superior Health Plan, Inc.

By: /s/ Don A. Gilbert                        By: /s/ Michael D. McKinney, M.D.
   ---------------------------------             -------------------------------
   Don A. Gilbert                                Michael D. McKinney, M.D.
                                                 President & CEO

Approved as to Form:

/s/ ILLEGIBLE
---------------------------------
Office of General Counsel

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